BYD Puts The Final Nail In The Internal Combustion Only Car's Coffin

BYD only sells electric vehicles, about half of which are battery electric (BEV) and half of which are plug in hybrid (PHEV) models. This has been a very much a winning strategy for BYD as it can sell to both those that want fully electric and those that may still want the psychological comfort and functionality of an internal combustion engine (ICE) while still using an electric battery for the majority of the time. Currently in China, EV (both BEV and PHEV) sales represent 44% of light vehicle sales. To turn the remaining 56% of ICE-only sales into EV sales, BYD has both reduced the price of EV only models, and driven hard to optimize its cost-effective hybrid technology. BYD has now released two new models that utilize the fifth generation of its DM-i (dual mode) technology, and the producers of predominantly ICE and PHEV mid-sized sedans, such as Toyota, Honda and VW, should be in shock.

The major focus of this DM technology has been to increase the thermal efficiency of the internal combustion engine to increase fuel efficiency, and with DM 5 BYD has achieved a thermal efficiency of 46.06 percent, the highest in the world. With a full tank of gas and a fully charged battery, the new models have a maximum range of 2,100 km, three times that of a conventional ICE-only car; so much for range anxiety! The two new models, the BYD Seal 06 DM-i and the Qin L DM-i are both mid-sized sedans, pointed directly at the heart of ICE-only model territory. Their prices also set a new, lower, benchmark for PHEVs. The Qin L DM-i comes in five variations, priced from RMB 99,800 to RMB 139,800, and the Seal 06 DM-i also comes in five models with the same range of pricing. At current exchange rates that’s approximately US$14,000 to US$20,000.

The GAC-Toyota joint venture had already been forced to lower Camry prices in March as BYD kicked off a new EV price war with significantly lower prices. With the Camry 2.0 L hybrid starting at RMB 171,800 (US$ 24,000). The two new BYD models, that compete directly with the Camry, will drive a round of much deeper price cutting. In 2023, Camry sales fell 10% year over year, while the share of foreign brands overall fell to 44%. In January 2024, that share fell further to 39.6%. In 2023 the VW share of the Chinese market fell from 14.8% to 14.2%, Toyota from 8.6% to 7.9%; BYD rose from 8.8% to 12.5%; with Honda and Nissan faring much worse than Toyota. The BYD new models will accelerate further the annihilation of the European, Japanese and US brands in China. Those brands will be left fighting over a rapidly declining level of sales, with a rapidly disappearing profitability as cost per unit increases due to lower sales and selling prices fall. The impact upon the European and Japanese manufacturers that realize earn shares of their profits from Chinese sales will be significant. At the same time, European manufacturers are sourcing more of their own sales in Europe from their Chinese plants.

In 2024, over two thirds of EV sales may be in a Chinese market that is growing at 30% per year while Europe and the US stagnate. In April 2024, BEV sales in the US were down 1% while EV sales in Europe were down 8%, compared to the same month in 2023. These new DM-i vehicles will also help drive foreign sales where the charging infrastructure may not be as dense as that in China and/or range anxiety is greater. No wonder the US government placed 100% tariffs on Chinese EVs; such vehicles would destroy the US auto makers. BYD has even entered the pickup market (“ute” in Australia), not just in China but also in Asia and Latin America. Built on a truly EV chassis, with the ICE added; front wheels are driven by ICE+electric motor and the rear wheels by electric motor only. Very different to US ICE chassis designs with the battery and electric engine added.

The US is creating an EV equivalent of the East German car market, where the Trabant lagged far behind Western manufacturers but was the only option available.

With high relative EV prices, and all car prices having escalated significantly in the past few years, the US market may very well stagnate and the protected US manufacturers fall further and further behind their Chinese and other rivals. The Chinese will come to dominate the world outside of the US and perhaps a protectionist Europe (and a self-harming protectionist India). With some competition from the Chinese manufacturers allowed in Europe, the European manufacturers may be driven to innovate well beyond the capabilities of the US manufacturers. The Japanese, German and South Korean manufacturers may be the biggest winners from the US anti-China tariffs, as they manage to maintain or grow US sales in the absence of Chinese competition. One possible surprise may be a Chinese Geely-Volvo that has a manufacturing site within the US and is bringing out new, well priced, BEVs and PHEVs. How will the US government react if Geely-Volvo starts taking significant share in the US EV market? The 2025 EX30 compact BEV SUV is very well priced, and will be joined by the mid-size bigger EX60 that will compete directly with the Tesla Model Y, as well as the full-size EX90 SUV. Geely also owns Polestar.

The global EV express train has left the station long ago and is accelerating away, the US has decided to get off and take the much slower local US train. China is at the front of the express train, with the vast majority of the seats.