BYD made a major announcement that has taken the market by surprise. It will stop producing pure ICE vehicles, and focus on BEVs and Hybrids. This is in contrast with the other major automakers who want to continue producing pure ICE vehicles together with EVs until such time that the EVs become mainstream and ICE vehicles are phased out.
Which strategy is better? The earlier argument is that both ICE and EVs must make up the product range, as the ICEs are mostly profitable for the legacy automakers and the cash cows can fund the growth of EVs which is reckoned to take some time before turning over a profit. Hybrids serve as the transition to fully electric. So what has made BYD change its strategy?
In reality, when we look closely at the pure ICE BYDs, the sales figures have dropped over the years, even though total BYD sales has soared. The engine that is in fact driving BYD's growth is the electric one (including HEVs and PHEVs). BYD reckons that the PHEV and EV sales would have been higher if not for cannibalization by it's own ICE vehicles.
BYD also argues that the ICE is the cash cow that can fund EV's growth. Their financial analysis shows that the cost of maintaining 2 production lines in fact added costs that almost wiped out their ICE profits, therefore maintaining just one line for EV has significant savings that add to the bottomline.
Of course, there is also the added reason that BYD's other main business is the supply and development of batteries. This makes it different from the other car makers.
The Japanese automakers, on the other hand, and banking on a slower transition to electric. Honda, for instance, identified markets least likely to go electric soon, and put their resources. These markets fit the non-electric offers from Honda.
With raw materials for battery getting scarce and costs escalating also due to supply chain issues, the Japanese auto manufacturers are putting their hopes on a slower route to electrification.
Leave a Reply.