Tesla Hits China Speed Bump, BYD Turns Around

A couple of interesting news bits are coming from the new energy vehicle sector, including a potential roadblock into the China market for up-and-coming U.S. player Tesla and new results from struggling domestic electric car maker BYD that look encouraging but not too exciting. The main common theme in this latest news is that new energy vehicle makers continue to hold out hopes for the China market, banking on strong government policies to boost the market, even though progress has been slow so far.

(Image via Shutterstock)
(Image via Shutterstock)
(Image via Shutterstock)

A couple of interesting news bits are coming from the new energy vehicle sector, including a potential roadblock into the China market for up-and-coming U.S. player Tesla and new results from struggling domestic electric car maker BYD that look encouraging but not too exciting. The main common theme in this latest news is that new energy vehicle makers continue to hold out hopes for the China market, banking on strong government policies to boost the market, even though progress has been slow so far.

Let’s start with a look at Tesla, which began taking orders in China last week for its high-end car, the Model S, costing about $70,000. The company had made most of the necessary preparations to start delivering its first vehicles this year, including preparation of a showroom in Beijing. But now media are reporting Tesla has hit an unexpected setback due to the registration of its name by a Chinese trademark squatter.

This case looks reminiscent of a much higher profile one last year between Apple and a bankrupt technology company that owned the rights to the iPad name. Apple went to court to get back rights to the iPad name, and reportedly ended up settling the case for $60 million.

I suspect the government got involved in that case due to its high profile and helped to broker the settlement. This Tesla case is far lower profile, meaning it will probably have to go through the usual legal channels if Tesla wants to resolve the matter in courts. Rather than face such delays to its China plans, I expect the company will probably negotiate with the squatter to get back the rights to its name, though it will probably pay far less than the $60 million Apple paid for the iPad trademark.

Now let’s look at BYD, which started its life as a cellphone battery maker, then expanded into cars and most recently has placed big bets on the new energy vehicle sector. That big bet helped to attract billionaire investor Warren Buffett, who purchased 10 percent of BYD in 2009. His investment sparked a massive rally in BYD shares, though they later gave back most of the gains as the company’s traditional car business sputtered.

BYD shares have more than doubled from their lows last year, largely on hopes for a turnaround at its traditional gas-powered car business that accounts for half of its revenue. In that regard, investors should be relieved to see that BYD’s revenue grew 13 percent in the first half of 2013 to 24.2 billion yuan ($3.9 billion), reversing 2 years of declines. Car sales grew a healthy 25 percent, or about twice the rate of the broader Chinese car sector. Those solid gains helped to fuel a 26-fold rise in its profit to 427 million yuan.

But despite those upbeat figures, it’s interesting to note that BYD didn’t include any individual mention of its electric vehicle (EV) business in the highlights section of its report, which reflects the tough road that business has faced. Despite earlier strong hopes for the business, BYD has yet to make much major inroads with consumer buyers. Instead, it has had to rely on fleet buyers of taxis and electric buses for most of its sales.

The number of those fleet buyers has been growing steadily, though most programs are currently in the trial phase and it’s unclear if any will ultimately result in the bigger orders the company needs to make some profits from its big EV investment. It’s probably still a bit too early to call the BYD’s current line of EVs a failure. But time will start to become a major enemy soon as BYD’s current technology starts to become obsolete. Accordingly, I suspect that the company will have to make some major write-downs on its EV campaign in the next 2 years.

Doug Young lives in Shanghai and writes opinion pieces about tech investment in China for Techonomy and at www.youngchinabiz.com. He is the author of a new book about the media in China, “The Party Line: How the Media Dictates Public Opinion in Modern China.

This article was first published in the online edition of the South China Morning Post at www.scmp.com.

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