BYD’s Electric Vehicle Strategy Highlights The Steps Legacy Automakers Must Take To Catch Up

This level of growth means the UK is now BYD’s largest market outside of China. In an industry once dominated by long established brands, the company has become the biggest manufacturer of electric vehicles in the world. So how have they done it?

Generous subsidies from the Chinese government have certainly played a role, but BYD also appears to be a smoothly run operation which could end up revolutionising the automotive industry.

For example, it has secured the supply of the critical materials such as lithium and tungsten used to build electric vehicles and produces its own batteries, reducing reliance on external suppliers.

It has built large-scale gigafactories and industrial parks, and investments in research and development, especially in relation to batteries, have been very effective.

Another key factor is the company’s aggressive pricing strategy. A BYD Dolphin Surf for example, costs £18,650 in the UK – less than half the price of the entry level Tesla, the Model 3, which begins at around £39,000.

Older and more established car manufacturers will be painfully aware of BYD’s swift ascent towards the top of the electric vehicle market. And research I worked on with colleagues into how major companies react to new rivals suggests why some of them are being left behind.

Many make the mistake of ignoring customers’ needs and rely on past success to the extent that they become over confident. Others just seem to lack foresight.

In the car industry specifically, I have seen a variety of market forecasts and technology roadmaps – generated by both companies and industry associations – and been struck by some common themes.

To begin with, they are often linear – inevitably predicting that the speed, features and performance of cars will all gradually improve over time. But technological innovations often appear in leaps and bounds, and depend on a vast network of suppliers to implement, which makes development complex.

They also frequently show a surprising neglect for customers’ desires and fears – and budgets. The price of new cars has increased dramatically over the past two decades, outpacing growth in salaries. Yet many companies, such as Jaguar and Tesla, appear to be focused only on “premium vehicles” for wealthy customers, and will eventually end up competing for a small market.

Car companies also suffer in a similar way to big firms in other sectors (think Blackberry or Nokia), where there is often a clear lack of humility and awareness from many senior executives. As studies have shown, bosses who see their organisations as innovative and flexible are often at odds with more junior employees who view them as stale and slow.

For the high jump?

The need for industry-wide change reminds me of how athletes competing in the high jump evolved over the years. Many techniques were tried and tested, including the “scissors”, the “straddle” and the Fosbury flop, which was eventually deemed the most effective.

Some established car companies are desperately trying to hang onto their equivalent of the straddle jump (petrol and diesel cars), and avoiding a commitment to learning the Fosbury flop (developing electric vehicles).

Because of this, the days of established car companies leading the way seem to be over. Hoping to make decent profits from old models and creating electric vehicles only for the wealthy is a delusional strategy.

So what could established carmakers do?

One option is to change the way they work with suppliers. The usual approach here is transactional and price based, with a carmaker buying components (seats or mirrors, for example) from a supplier but switching if it finds a cheaper deal. The problem is that innovation (and indeed supply chain resilience, as the microchip shortage shows) requires supplier and buyer to jointly invest in future developments. The transactional approach does not allow for this.

Second, they should develop new capabilities, not only in relation to batteries but also to other technologies. It is indicative that BYD wants to be predominantly known as a “technology company” whose ultra-fast charging system promises to be well ahead of its competitors.

Could VW, Toyota and BMW become technology companies? Probably not, but they could be part of a network of firms, including technology and AI ones, that would allow them to benefit from the latest developments in those fields.

Third, carmakers need to focus more on addressing customer needs. Besides understanding and improving their experiences as drivers and passengers, they could work more closely with local authorities and infrastructure providers as most users’ issues – and hesitation – about electric vehicles are related to the ability to charge them up.

These changes are substantial, but achievable, as long as carmakers are prepared to take a more open and collaborative approach to the road ahead.

This article is republished from The Conversation under a Creative Commons license. Read the original article.