Does BYD scare BMW, Mercedes and Porsche in China?

Beijing/Frankfurt (Reuters) – China’s leading carmaker BYD – the acronym stands for “Build Your Dreams” – could be a nightmare for the German premium car maker.

After BYD displaces Volkswagen, the leading brand for decades, from number one in China at the end of 2022, the manufacturer from Shenzhen is working from the mass market to the high-end and luxury segment. German automakers BMW, Mercedes-Benz, Audi and Porsche have so far had a firm grip on this market, which is still dominated by flashy cars. But here too, the top dogs may come under pressure from Chinese competition and switch to electric cars.

As a highlight, BYD presented the first sedan from its flagship Denza brand, the Z9GT, at the Beijing auto show on Thursday. The electric car brand has been a 50-50 joint venture between BYD and Mercedes predecessor Daimler since 2010. But the Denza hardly got off the ground, and the Swabians cut their share to ten percent by the end of 2021. Mercedes-Benz is fully committed to its electric vehicles. EQ brand electronics – in Beijing, the electric version of the angular G-Class off-road car colossus is featured. But the impact is getting closer: In the first quarter, Mercedes’ sales in China fell by twelve percent, and those of Stuttgart’s neighbor Porsche even fell by 24 percent.

TECHNOLOGY INSTEAD OF LOGOS

High-end models at BYD accounted for only six percent of sales of nearly three million vehicles in the first quarter. But the range is expanding, including the luxury brand BYD Yangwang. “Traditional luxury products used to be defined by their logo. Today, luxury is defined by technology,” said Denza sales chief Zhao Changjiang earlier this month. The success of Denza is the basis of BYD’s goal to become a global leader that can compete with Toyota or Volkswagen with a variety of brands in all price ranges.

However, luxury expectations continue to face a saturated and highly competitive domestic market. Plans for international expansion are being questioned by politicians in the US and Europe who want to protect their markets from an additional wave of cheap cars from China. Since price wars eat away at profits, entering the high-priced market is also important to increase profits. Denza’s D9 is the group’s most profitable model, with annual sales of 119,000 units and a quarter margin, Denza executives said.

For a long time, Chinese automakers could not compete with icons such as Porsche and Ferrari because they lacked the experience and technology in combustion engines. Success came with the electric car and the digital internet. American electric car pioneer Tesla was the first to shake up the industry, and now Chinese automakers and tech giants are becoming a major force. Be it battery, chassis or autonomous driving – BYD does everything itself.

NAPPA LEATHER AND CRYSTAL

In addition to technology, design plays a major role: BYD premium cars have seats made of nappa leather and crystal-encrusted levers. They also feature designs led by Wolfgang Josef Egger, who has worked for European luxury brands such as Alfa Romeo, Audi and Lamborghini. Denza can offer such services at one-fifth the price of a Mercedes, Porsche or BMW, said Zhao.

“As cars become electronic devices, you no longer need to be afraid to build an electric car without origin or history, but pack all kinds of modern technologies into the car,” says Yale Zhang, managing director of a Shanghai-based consulting firm. Car View. BYD’s cost control is also a strength, as it leaves more room for innovation than established automakers that are still fighting for the profitability of their electric vehicles.

BYD can afford to cut prices and accept losses. Zhao described this as a strategic move for Denza to achieve a 40 percent increase in sales this year, after nearly 128,000 sales in 2023. It’s not about creating classics like the Porsche 911. “We have to do whatever it takes to increase sales.”

(Editing by Sabine Wollrab. If you have any questions, please contact the editorial team at frankfurt.newsroom@thomsonreuters.com)

– by Zoey Zhang and Brenda Goh and Ilona Wissenbach