Rude Awakening: BYD Gives Up Dreams Of Becoming World's Largest Automaker

A year ago, BYD issued the startling announcement that “it’s our company’s long-term target, to be China’s No. 1 automaker by 2015 and to be the world’s leading car maker by 2025.” Meaning that they would have to unseat either Volkswagen or Toyota. When they said that, polite analysts in China opined that BYD’s dream was “realistic” because China and other Asian markets show more promise for growth than the relatively mature US and European markets. In private, people were wondering what drinks they were serving at BYD’s cafeteria.

Now BYD spokesman Lin Mi told Beijing’s Global Times that they may have been a bit overconfident.

In the past five years, BYD could do no wrong. Their annual unit sales almost doubled every year. Now comes the awakening: Over the first seven months of this year, the company only met less than one third of its internal sales target in 2010. The company cites all kinds of reasons, like seasonal factors, floods and mudslides. Which did not seem to impact other manufacturers. But BYD has a reason for that also:

“Unlike other automakers that outsource parts manufacturing, BYD produces all auto parts used on vehicles itself. If we expand our vehicle production capacity to 1 million or 800,000, we will have to equip our auto parts plants with proportional staff and production facilities. If we were able to do that, quality couldn’t be guaranteed,” said Lin.

To make matters worse, BYD ran into trouble with the government. The Ministry of Land and Resources said that BYD illegally built seven factories on 112 acres of farmland. A government decision on whether to punish BYD for the illegal factory construction will be made by September 30. Illegal sales and purchases of farmland are a hot tomato in China.

To make matters even more worse, BYD is suffering from dealer desertion. BYD admits that there have been dealer pullouts in cities such as Beijing, Southwest China’s Sichuan Province and East China’s Zhejiang Province (which can be blamed for slowing BYD sales, mudslides only go so far), but the company says not to worry.

Dealers think otherwise. BYD’s flagship dealer in Chengdu pulled out of BYD’s sales network this year, because high inventory and BYD’s robust management practices dried up their cash flows.

Finally, Global Times asked whether the grand plans of becoming the world’s largest automaker have been readjusted. They received no answer. Instead, spokesman Lin said that BYD would focus more on branding and quality and less on quantity.

Everybody in China takes that as a resounding “Yes. Forgetaboutit.”

BYD’s electric dreams have turned into a nightmare. Even with generous government support, BYD has sold no more than 500 F3DM plug-in hybrids this year in China. Which doesn’t stop BYD from slipping into a fitful dream again.

“BYD might sell the E6 electric car in the US first,” said Lin. “Consumers there are more likely to accept electric vehicles than people in China.”

Sure they will. Dream on.