On the A2 highway outside of Berlin, I found myself on a deserted stretch of road and slowed my vehicle to a comfortable cruising pace of 100 kilometres an hour.
Soon enough, a panel van whipped by me and let out a lengthy honk, despite the open roads. The message seemed clear: Speed up, you’re in Germany now.
Why had I slowed down? Because I had rented an electric vehicle. While it was my first time driving an EV, I knew that high speeds would drain its battery more quickly, something at odds with Germany’s autobahn highway system, most of which does not have a speed limit. (Around two-thirds of the network has an advisory limit of 130 km an hour – a mere suggestion for the BMW and Porsche drivers who barrelled past me at 200 km/h.)
Still, the honking driver may have been commenting on another matter: my choice of vehicle. I had rented an Atto 3 from BYD Auto Co. Ltd., which has emerged from hundreds of EV startups as maybe China’s best hope of creating a global auto giant. BYD (short for Build Your Dreams) surpassed Volkswagen AG as the top-selling vehicle brand in China last year, a title the German company held for at least 15 years, and it’s recently overtaken Tesla Inc. in sales of fully electric vehicles.
The rise of BYD mirrors that of China as a production powerhouse. According to some industry reports, China has dethroned Japan as the world’s top exporter of passenger vehicles, thanks not only to its homegrown brands, but American and European automakers with large assembly plants in the country.
It amounts to a dramatic upheaval of the automotive pecking order – albeit, quite removed from North America. BYD does not sell passenger vehicles in Canada or the United States, and because of restrictive trade policies, it will be tough for Chinese manufacturers to crack the U.S. market especially.
In Germany, where BYD vehicles went on sale last year, business is slow to pick up. Roughly 700 of the company’s cars were registered in December, lagging way behind Tesla and top domestic brands.
Journalist Matt Lundy drives the BYD Atto 3 in Wolfsburg, Germany, in September 2023.
“Right now, they are not seen much on the streets,” said Helena Wisbert, a professor of automotive economics at Ostfalia University of Applied Sciences in Germany. “But they’re really coming.”
BYD has a strong track record of entering new markets – such as Israel, Singapore and Thailand – and gaining traction with buyers, in large part because it undercuts the competition on price. The Chinese company was the No. 2 seller of EVs in Australia in 2023, its first full year in the country. Now it’s pushing into parts of Europe, and it’s planning to open factories in Brazil, Hungary and Thailand.
I wanted to see what all the fuss was about. My goal was to rent one of its vehicles and drive about 500 kilometres, round trip, over a day – enough that an EV newbie like myself would need to charge the car at least once. When I looked at Google Maps for a route, there was an obvious place to visit: Wolfsburg.
Wolfsburg is a company town, and that company isn’t hard to identify. Just about every car in this sleepy city of 125,000 – and there are many – is a Volkswagen or one of the parent company’s brands: Skoda, Audi and Porsche, to name a few. A VW power plant – which supplies energy to the largest vehicle factory in Europe – serves as the iconic visual of Wolfsburg, with four chimneys that punctuate the skyline.
The nearby Autostadt is basically Disneyland for those fond of German engineering. Its grounds include an auto museum, restaurants and pavilions showcasing the latest models from VW Group brands. Inside, employees wipe down already gleaming cars. Everything is just so: precise, clean, restrained. Put another way, it feels German.
From this polished exterior, you wouldn’t know the country’s auto industry – and Volkswagen, in particular – is waging a high-stakes battle for its future. If German auto brands were synonymous with excellence in the combustion-engine era, things are less certain now.
Inside of the car towers of Volkswagen's Autostadt in Wolfsburg, which are occupied by cars awaiting delivery.
Auto analysts have generally reserved their concern for Volkswagen because it’s a “volume brand” – meaning, it sells a lot of vehicles and thus competes, in part, on price. But when it comes to electric vehicles, it’s tough to compete with the pricing of Chinese brands.
In an August report, analysts at Swiss bank UBS Group AG said BYD enjoys a 25-per-cent cost advantage over legacy manufacturers such as Volkswagen for comparable cars, even assuming local assembly in Europe.
On costs, “the role model for us, and the benchmark, should be China,” Thomas Schmall, the chief executive officer of Volkswagen Group Technology, told me in November.
When I rented the Atto 3 last fall, it had a starting price of €44,625 in Germany, or around $65,600 – a competitive price for a crossover SUV. That’s since been slashed to €37,990 ($55,800) as manufacturers wage a price war. Even if that’s a tad expensive for some buyers, BYD has shown that it can sell EVs at truly bargain levels. The starting price for its Seagull hatchback, which went on sale in China last year, was set at 73,800 yuan or $14,200.
Edward Chun of Sydney, Australia, has owned his Atto 3 for just over a year. Price was a major factor in his decision. “In terms of the technology and the value for money, at least here in Australia, it’s one of the cheapest electric cars you can get,” he said.
I sought Mr. Chun’s advice because he documented a lengthy road trip in his BYD on YouTube. His tips were less about the car than about trip planning – basically, making sure I knew where to plug in. With an advertised range of 420 km on a full charge, my EV would likely have no issue reaching Wolfsburg, around 230 km from Berlin.
Still, I wanted to try a test-charge before reaching my destination, which is what brought me to an Ikea parking lot in Magdeburg, which has free charging stations. I was happy for the pitstop: Over one hour and 45 minutes of driving, I used nearly half of my charge, no thanks to the autobahn. Could I have reached Wolfsburg – another 80 km away – on a single charge? Almost certainly. Was I willing to risk it? Absolutely not.
My main gripe: the navigation aide. There were frequent vocal warnings – You’re above the speed limit! There’s an accident zone ahead! – that weren’t always true. The car sounded like an overbearing parent. Otherwise, it was a smooth driving experience, and it was easy to forget I was driving an electric vehicle.
“Up until five, seven years ago, [BYD’s] products were complete trash,” said Tu Le, managing director of Sino Auto Insights, a consulting firm. But, he added, “they’ve grown before my eyes.”
First and foremost, BYD Co. Ltd. is a battery company.
Founded by CEO Wang Chuanfu in 1995, BYD became a major producer of cellphone batteries. Over time, it branched out into other areas, such as electric buses. (BYD has a bus assembly plant in Newmarket, north of Toronto, to fulfill municipal transit orders.) BYD Auto, which accounts for most of the parent company’s revenue, started making plug-in hybrid vehicles in 2008. That same year, a subsidiary of Warren Buffett’s Berkshire Hathaway Inc. made a large investment in BYD – one that’s proven quite profitable for the American investor.
The rise of BYD has coincided with China’s all-out push to dominate clean-tech industries. Over the past two decades, the state has invested reams of money in the EV space, from mining through charging stations. Today, China accounts for 75 per cent of global battery production capacity for EVs, according to the European Automobile Manufacturers’ Association.
In a crowded field for domestic automakers, BYD has risen above the fray. Analysts give credit to Mr. Wang, a battery chemist by trade, but also a ruthless manager of costs focused on vertical integration. Not only does BYD operate mines and refine materials, it makes computer chips and batteries. (It also sells some of those batteries to competitors such as Tesla.)
BYD is coming off a banner year. The company reported just over three million vehicle sales in 2023, an increase of 62 per cent from the previous year. Because of its scale and top-down approach, the automaker is able to drive down costs and avoid some of the supply chain chaos that’s roiled the industry in recent years.
Wang Chuanfu, founder and CEO of BYD, speaks to a crowd during the Auto Shanghai show in April 2019.Ng Han Guan/The Associated Press
With Mr. Wang, “maybe it’s a Western bias that doesn’t really lift him up as global CEO of the decade,” Mr. Le said.
Other countries – and companies – are playing catch-up. The Inflation Reduction Act has led to a wave of green energy investments in the U.S., while Canadian governments have earmarked tens of billions of dollars to land a handful of EV-related factories. One of the subsidy deals is for a Volkswagen battery plant in St. Thomas, about 200 kilometres southwest of Toronto, slated to start production in 2027.
“The amount of raw material we see in Canada, and the potential of mining within Canada, it’s dramatically high,” Mr. Schmall of VW said.
Like many legacy auto brands, Volkswagen is being forced to pivot away from decades of know-how in building internal combustion engine cars to something new – and frankly, something that resembles BYD.
“We are normally car guys, not mining guys,” Mr. Schmall said.
Range anxiety is real. In the early stages of my drive back to Berlin, I glanced at one of the display screens every couple minutes to see how the battery was holding up.
After a while, it became clear that a pitstop wouldn’t be necessary; the battery wasn’t draining like it had in the morning. The highway speeds were a bit more restrained (read: Canadian) at night, which helped. When I pulled into the rental agency after nearly three hours of continuous driving, the battery had ebbed to 43 per cent, or 179 kilometres remaining.
I felt like an EV convert. On an unusually long day of driving, by my standards, the vehicle was charged twice, but likely needed just one. The biggest headache? Getting it charged at the Autostadt. Initially, I plugged into an outlet that, unbeknownst to me, was broken. It was somewhat embarrassing to rely on a parking attendant – effectively, an employee of Volkswagen – to charge the vehicle of the competition.
There will be more converts, willing and forced, in the years ahead. All new passenger cars sold in Canada and the European Union will be zero-emission vehicles (ZEVs) from 2035. ZEVs are becoming more popular, but still account for roughly one in eight new vehicle registrations in Canada, a figure that includes plug-in hybrids. (Uptake is much higher in British Columbia and Quebec, which have more generous subsidies for buyers.)
On the industry side, it’s a rough transition. Many companies are cutting production of some EV models, because demand isn’t as strong as projected. For buyers, prices are still a big hurdle. In Europe, battery electric vehicles on average sell at a 30-per-cent premium to the gas-powered alternative, according a recent report from Bloomberg Intelligence.
A Volkwagen power station, set on the Mittelland Canal in Wolfsburg. VW is among the companies cutting production of some EV models, because demand isn’t as strong as projected.
Herein lies the potential for Chinese manufacturers. They may not have the brand cachet of decades-old auto companies, but if the price is right, consumers may not care.
“Volume brands are much more price elastic and people are more attracted to price tags,” said Matthias Schmidt, an auto analyst in Berlin. “If it’s a car that undercuts a different model by €3,000 [$4,400] or €4,000 [$5,900], especially under the current macro conditions, it’s very likely that brand loyalty wouldn’t play such a big role.”
Of course, China won’t be allowed to take over the auto sector so easily. The EU is investigating whether to impose punitive tariffs on imports of Chinese EVs on claims that generous state subsidies have given those manufacturers an unfair pricing advantage. The U.S. taxes Chinese auto imports at 27.5 per cent, a legacy of the tariff war that broke out during the Trump presidency.
Still, BYD is expanding its reach. The company is planning to open an assembly plant in Mexico, Reuters reported this week, and it sells an EV there for less than $30,000. A slew of Chinese auto-parts makers have already set up shop in Mexico and export their goods to the U.S.
Mr. Schmall doesn’t sugarcoat the challenge ahead, but he insists this is a familiar position for his company. “Volkswagen was never one of the biggest or fastest front-runners. We’ve always been a fast follower in a lot of technologies,” he said.
To gear up for this next phase of competition, Volkswagen is slashing billions of dollars in costs over the coming years, much of which will come from employee attrition. And rather than turn away from China, where it remains the No. 2 car seller, VW is making big investments in local EV production, while also bolstering its supply chain in other locations. Mr. Schmall said VW has another advantage: it’s a large company and can use its scale to decrease costs over time.
“We need this transformation story,” he said. “If you look to our other competitors – BYD, Tesla – they are free of that. They can start with new technology and they go and go and go.”
The rise of BYD has coincided with China’s aim to dominate clean-tech industries. Over the past two decades, the state has invested in every stage of the EV supply chain – from mining to charging stations.
Matt Lundy