BYD’s global expansion drive faces stiff test in Japan by Reuters

By Daniel Leussink

YOKOHAMA, Japan (Reuters) – BYD ( SZ: ) is launching electric vehicle charging stations and stepping up marketing and customer incentives in Japan, aiming to boost sales in a market that has become a stumbling block in the maker’s global expansion Chinese automobile.

Warren Buffett-backed BYD has become China’s largest electric vehicle maker after years of meteoric growth at home. It is now expanding overseas, including Japan, one of the world’s largest automotive markets.

But Japan remains difficult for foreign automakers to break into. Demand for electric vehicles has long been sluggish, and this year the government changed how subsidies for electric vehicles are calculated, reducing them for BYD and some of its rivals and raising concerns about protectionism.

To win over Japanese drivers, BYD has offered discounts to the first 1,000 cars sold with its newest model and is running TV ads featuring a Japanese actress.

The strategy meant higher than expected marketing costs. BYD’s push overseas is being closely watched, not least because the automaker is nearly as valuable as GM and Ford (NYSE: ) combined.

However, some Japanese are afraid to buy high-priced Chinese products because of quality problems. Asia’s two largest economies also have a complicated history of war and years of political tension.

“The cars are great, but I don’t think they will sell in Japan,” said Yukihiro Obata, 58, who was visiting a BYD showroom in Yokohama, near Tokyo, with his son in July.

“The Japanese believe that manufactured goods in Japan are superior to those made in China and South Korea. We simply cannot believe that Chinese products could be of higher quality,” he said.

Obata said he is not opposed to buying a foreign automobile and is also considering electric vehicles from Mercedes-Benz ( OTC: ), Audi and Hyundai ( OTC: ).

Shenzhen-based BYD opened its first showroom in Japan last February and has sold more than 2,500 cars so far.

By contrast, Toyota Motor (NYSE: ) sold just over 4,200 battery electric vehicles in Japan during the same period, while nearly 17,000 Teslas were registered in the country at the end of March 2023, according to the latest available industry data.

BYD offers three models and now has over 30 showrooms.

“There are people in Japan who absolutely hate Chinese products, so it’s not a good idea to try to force ourselves on them,” said Atsuki Tofukuji, president of BYD Auto Japan.

Instead, he wanted to win people over with BYD’s affordability and performance, he said.

GOVERNMENT GRANTS

Electric vehicles accounted for just over 1 percent of the 1.47 million cars sold in Japan in the first seven months of this year, according to industry data. This does not include low-powered ‘kei’ mini-cars manufactured for the domestic market.

Sales of electric vehicles have been slow in Japan as Toyota and other domestic automakers have focused more on hybrid technology.

In April, the government renewed its subsidy scheme for electric vehicles, saying it would promote the spread of chargers and other infrastructure.

The subsidies, which were previously determined by car performance, now take into account criteria such as the number of fast chargers installed by a manufacturer and after-sales service.

The subsidy for BYD’s Atto 3 SUV, which retails for ¥4.5 million ($30,996.00), has been nearly halved to ¥350,000 from ¥650,000.

Subsidy cuts have hurt sales, Tofukuji said at a company event in July.

BYD responded by offering 0% loans from April to June and cashback on home chargers in July and August. It also plans to put a fast charger in 100 locations by the end of next year, Tofukuji told Reuters, a previously unreported plan that could help it qualify for bigger subsidies.

To increase its brand awareness, it began airing television commercials with Masami Nagasawa, a Japanese actress and model.

That has helped attract more customers, although the automaker has now spent more than it originally budgeted for marketing in Japan, Tofukuji said, declining to give the size of the marketing spend.

BYD’s Japanese lineup includes the Seal sedan, which retails at ¥5.28 million for the rear-wheel drive version and qualifies for a ¥450,000 subsidy. It also sells the Dolphin, priced from ¥3.63 million and qualifying for a ¥350,000 subsidy.

“THE JAPANESE WAY”

The subsidy change could reflect a government push to protect the domestic industry, said Zhou Jincheng, China research manager at Nagoya-based auto research firm Fourin.

“They had to take some kind of measures to protect their auto industry,” Zhou said.

An industry ministry official said the aim of the change is to create an environment where electric vehicles are used sustainably and promoted “in the Japanese way”.

Other automakers that saw subsidies cut included Mercedes, Volkswagen ( ETR: ), Peugeot ( OTC: ), Volvo ( OTC: ), Hyundai and Japanese automaker Subaru ( OTC: ).

Nissan ( OTC: ) and Toyota SUVs still qualified for the maximum ¥850,000, and Tesla ( NASDAQ: ) also saw equal or higher subsidies for the models it sells in Japan.

While overall electric vehicle sales are down, foreign car brands accounted for nearly 70 percent of sales in the first seven months of the year.

The smaller subsidy didn’t stop Kyosuke Yamazaki, a first-time car buyer in his early 30s, from buying a BYD Atto 3, even though he missed out on about $2,000 in savings because he bought the car after April.

He said he liked the cars’ longer cruising range compared to Japanese rivals – and didn’t mind buying from the Chinese manufacturer.

“I used to work in Shanghai,” he said. — I know BYD well.

(1 USD = 145.1800 yen)