Why BYD is rolling out a $233,000 'supercar' while Tesla and Rivian try selling cheaper EVs

By Claudia Assis

BYD's U9 comes with gull wings and goes 0-60 in less than three seconds, but the 'supercar' is more than a Ferrari rival

Chinese EV giant BYD Co. Ltd. made a big splash over the weekend showing the world its new electric "supercar," a stylish, $233,000 EV capable of going 0-60 miles per hour in a little over two seconds.

The U9, sold under BYD's (BYDDY) luxury brand Yangwang, may be more than a Ferrari rival or yet another luxury EV with gull-wing doors, however.

Amid concerns about EV demand in the U.S., global price cuts to boost the market, and a race of sorts by Tesla Inc. (TSLA), Rivian Automotive Inc. (RIVN), Ford Motor Co. (F) and others to offer cheaper EVs and more hybrids as a bridge, BYD is going the other way because it has learned a few marketing lessons of the past.

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Entering the U.S. market on the low end is an uphill battle waged by Volkswagen (XE:VOW) in the 1950s, Honda (HMC) and Toyota (TM) in the 1960s and 1970s, and more recently Kia and Hyundai (KR:005380) in the 1980s and 1990s.

"If you enter the U.S. market on the low end, it's going to take you a long time to get to the middle," said Sam Fiorani, vice president of global vehicle forecasting at AutoForecast Solutions LLC.

"It stains your image, and until you can brush it off it can take decades," like it did for VW and the Japanese and Korean makers that came after it, Fiorani said.

It's no secret that BYD, the Chinese EV juggernaut that overtook Tesla last year and in which Warren Buffett's Berkshire Hathaway (BRK.B) (BRK.A) has about an 8% stake, wants to enter the U.S. market and make bigger forays into Europe.

For that, it needs a car that people can aspire to, even if buyers end up being able to afford a much cheaper EV.

"The point of creating a high-end model is simply as a halo product to draw more attention to the brand," Fiorani said. A car such as the U9, with more interesting body work and head-spinning speeds, "attracts fans to your brand."

BYD has, of course, several EVs that sell for under $30,000 in China and elsewhere, including the compact Seagull, which sells for around $10,000. Just a few days ago it unveiled cheaper versions of its Dolphin EV hatchback for about $14,000 and its plug-in hybrid Seal for around $11,000.

Indeed, "halo" cars are vanity plays, but they also send an important message to consumers and investors, said Karl Brauer, an analyst with iSeeCars.com.

Very rarely high-priced, low-production vehicles have any value for a company's profit, he said.

Rather, they are meant to be "a sign of financial confidence and security," Brauer said. Companies spend money and resources on an image-builder, higher-end car to be able to send a "subtle message" that they are doing so well that they can afford it.

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Many EV companies, Tesla being the best-known example, went for higher-end first, and it's not uncommon for the newer brands to go for premium EVs.

But "BYD is arguably going the right way," Brauer said. "I'd make an argument that they did it in the proper order. They established the brand and are building on their success and broadening their appeal by building a high-end supercar."

It's easy to make headlines showing a head-turning car, but it's "much harder to A, produce that vehicle and make it profitable, and B, have a company that is backing that vehicle and is already financially successful," he said.

BYD sold 3 million cars in 2023, a 62% growth over the previous year. By way of comparison, Tesla sold 1.8 million cars last year, a 38% growth.

Globally, the EV market "is moving from early adopters to early mass majority in Europe and China, while the U.S. remains a nascent market," analysts at JP Morgan said in a note Monday.

In China, BYD's home turf, car sales hit an all-time high of 26 million in 2023 and "thanks to ample policy support and government-directed fleet purchases," share of EVs rose to 38% in 2023, more than double the 18% in 2021, the JP Morgan analysts said.

U.S. sales of electric vehicles may have come in "short of what some manufacturers were hoping for," but they hit a record 18.2% of total U.S. auto sales in January, including EVs and hybrids, they said.

BYD has announced plans to build plants in Hungary and Mexico.

Tom Narayan at RBC Securities said in a recent note that BYD and other Chinese OEMs will eventually penetrate the Europe and U.S. auto markets, as widely expected, but the bigger question is about who would lose market share: domestic makers or other foreign players.

"The U.S. is better positioned given stiffer tariffs in place and less dependency on the domestic China market for sales or battery" raw materials, the analyst said. "Ultimately, share will likely come from foreign OEMs not domestic national champions. As such, we think local players will be fine."

In Europe, national champions reign supreme, he said: Brands such as Fiat in Italy, VW in Germany, Peugeot in France. Moreover, premium brands such as Mercedes, BMW, and Audi "have little to fear," Narayan said.

"And similarly, in the US, we don't see Chinese OEMs making a dent in pickup truck demand - which is owned by the [Detroit 3]," the analyst said.

"Further, EV penetration is going to take a much longer time to develop in the U.S. versus Europe and China for that matter. Internal combustion-engine vehicles and plug-in and other hybrids "are likely going to dominate for several years to come and the Chinese OEM threat is primarily [battery electric vehicles.]"

True to that sentiment, shares of U.S. carmakers, including exclusively EV makers Tesla and Rivian, rose on Monday, a welcome respite from losses that have piled on this year.

Tesla is holding on to a 1.5% gain in the past 12 months, whereas Rivian is down 38% in the same period. That compares with an advance of about 28% for the S&P 500 index SPX.

-Claudia Assis

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02-26-24 1355ET

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