Structural problem
So, one of the things that’s going on here is *structural* costs of the legacy automakers.
If you take an old ICE vehicle from forty years ago, most of the cost was chassis + engine. That was made in-house by the car marque, and even that which wasn’t, was made by machine shops that were essentially client vassals of the marque. There was plenty of profit to be made by the marque on *the part they actually made*. Spin time forward, a modern ICE is mostly *made* by the component subcontractors; apart from the engine, the marque *adds* very little value at all. The seats, the exhaust, the brakes, door assemblies, none of it is made by them.
And now Electric Vehicles. They don’t make the biggest cost element of the EV powertrain, which is the battery, they mostly buy it in. You know how much of total vehicle value comes from what *Volkswagen* does on an EV? 15%. Literally, that’s it. The rest is all bought-in. How can you *possibly* run a business that you don’t actually make any of your product?
So they’re *trying* to run a business where they just throw in a hundred “added value” widgets, mark them up, and pretend it’s a business. Then you get these ridiculous over-specified Hulk Smash trucks with Home Cinema systems that nobody wants or can afford. It’s a cope, and a failed one. Their whole supplier structure, isn’t a business in the new world, and never will be again. Nobody can live on the profit margin on only 15% of the vehicle, when you have to give the component manufacturers money to live on.
Whereas, BYD are vertically integrated. They make *70%* of the car in-house. They make the battery, which is the story the EU press want to tell….but they also make the seats. And the brakes. And they injection mould the trim. And they design and make their own electronics. In short, *they make the whole car*. And that’s what allows them to make a working profit at a much lower overall vehicle price. *Not* the self-seeking claim of the EU press about labour costs. There’s at least two investment banks (UBS and HSBC) who paid engineering firms to do complete tear downs and economic analyses. Both of them came to the same conclusion: BYD are building, build-quality-wise, *better cars* than VW at a 25% lower cost price, and that the 25% cost price reduction is sustainable long-term because it comes from the vertical integration.
BYD aren’t dumping, they’ve just decided to “manufacture cars in return for money”, a business model which VW, GM etc abandoned twenty years ago.