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Electric cars in China

BYD turns to Asian markets as Beijing cuts EV subsidies

Chinese automaker bets on commercial vehicles to pave the way overseas

Shinsaku Hanada, executive vice president of BYD Japan, introduced small electric buses designed for Japan's aging society at a news conference in Tokyo on March 25. (Photo by Keiichiro Sato)

TOKYO -- China's biggest electric vehicle maker BYD is using its commercial vehicles to find a way into foreign markets as Beijing plans to end subsidies for electric vehicles by 2020.

BYD delivered a new fleet of electric buses to India earlier this month, and will launch small electric buses in Japan next year to help solve mobility problems for the country's graying population.

"Many people in small communities feel inconvenienced when it comes to mobility in their daily lives," said Shinsaku Hanada, executive vice president of BYD Japan, during a news conference in Tokyo on Monday. "We hope our new products will solve this problem."

BYD announced that it will deliver the 7-meter-long electric buses in spring 2020. The non-step vehicles are easy for the elderly to enter and exit, and are roomy enough to accommodate wheelchairs.

As Japan rapidly ages and its population declines, some bus operators are stopping unprofitable bus routes, especially in rural areas. This has stranded many senior citizens, leaving them unable to go shopping or perform other activities.

BYD is selling its electric buses to local bus operators and businesses such as nursing homes. Each costs about 19.5 million yen ($177,000), far less than the competition's 60 million yen to 100 million yen. The company leverages its economy of scale to curb costs for expensive materials like aluminum -- vital to the EV industry due to its light weight.

Small nonelectric buses cost between 7 million yen and 20 million yen in Japan. But Hanada said the electrics have advantages as they "prevent noise and air pollution in residential areas."

The automaker hopes to sell 1,000 of its small buses in five years from 2020, even though it has sold only about 20 of its midsize and large buses in Japan since 2015.

The new buses will be built in China, but Hanada said BYD will consider building them in Japan if that is what customers prefer.

BYD has sold electric buses to a bus operator in Morioka, Iwate Prefecture, in northern Japan.

BYD is cultivating other Asian markets beyond Japan. On March 5, it delivered 40 electric buses to the city of Hyderabad in India, bringing the number of buses exported to the country to 108. The new buses will be used on a route connecting the international airport with the city.

Liu Xueliang, head of the company's Asia-Pacific sales, said, "We will continue cooperating with local partners and customers to promote global electrification." BYD also announced this month that it received a new order for over 100 buses from PMPML, an Indian public transportation operator.

Currently, BYD is selling its electric buses in over 10 Asian countries.

BYD is facing headwinds in China as the government has been cutting subsidies for electric vehicles since 2017, with all subsidies to be eliminated by 2020. The generous grants -- which came to about $10,000 for each EV produced and sold -- helped drive profits for domestic automakers like BYD as the government steered the country toward new-energy vehicles.

The impact of subsidies on BYD's bottom line is easy to see. When the government increased them in 2015, net profit soared 550% from the previous year. In 2016, profit rose roughly 80%. But as Beijing began to put the brakes on subsidies in 2017, profit shrank 20%. For its 2018 results announced on Wednesday, net profit was 2.7 billion yuan, down 31% from 2017.

Other EV makers are also being hit by the cut. Shanghai-based NIO -- dubbed China's Tesla -- announced early this month a net loss in 2018 of 9.6 billion yuan ($1.4 billion), twice that of the previous year. Another electric vehicle startup, Shanghai-based Singulato Motors, reportedly could not pay employee salaries for three months due to the lack of government assistance.

According to Tang Jin, senior research officer at Mizuho Bank and an expert on the Chinese auto industry: "The [Chinese] government will announce a 30-50% reduction in subsidies for 2019 from 2018 levels. Hence, BYD must focus on expanding sales in foreign markets."

Earlier this month, the reduced subsideis forced BYD to temporarily halt operations at its EV bus factory in Guangzhou, Guangdong Province.

Under these circumstances, BYD has little choice but to carve out a niche in foreign markets, using commercial vehicles to open the door. "We don't plan to sell passenger cars in Japan," Hanada said, damping near-term possibility of expanding its business area in Japan. He explained that "passenger cars need high-quality service, which means higher costs. Considering the market volume, it doesn't pay."

Another problem is that charging infrastructure for passenger EVs has not been built out in Asian countries. However this does not affect electric buses, since unlike private vehicles, routes are fixed.

BYD sold about 250,000 new-energy vehicles globally in 2018, including 13,000 electric buses. And there is still room to grow in the commercial vehicle market. As for electric buses, BYD has over 10% share in the world.

Chinese makers and others such as Swedish Volvo are competing in the fierce market.

"We expect Chinese electric cars to make inroads into foreign markets, but it will occur gradually over the next 10 years," said Mizuho's Tang.

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