HONG KONG, Oct 3 (Askume Breakingviews) – Hybrid cars are rising to the top of the BYD (002594.SZ) , (1211.HK) list. The $122 billion auto and battery maker expects to sell more models this year that use both batteries and older motors than pure electric vehicles. Exports are likely to accelerate the trend, but competition, climate targets and protectionism complicate efforts to fuel a global hybrid boom.
From January to September a year ago, BYD sold 1.6 million hybrid vehicles and 1.2 million pure electric vehicles , more than half of its sales of the latter. China is leading this shift, but the next growth will come from overseas. CLSA estimates that although BYD exported a negligible amount of such products last year, they accounted for nearly 40% of shipments in the first half.
It’s part of something bigger. According to the International Trade Center, exports of Chinese-made hybrid vehicles have roughly doubled each year since 2020, rising to more than 200,000 units last year. In 2023, China’s total export volume of all-electric powertrains will be about 1.5 million vehicles.
It’s entirely possible for BYD to turn a profit. Its strong sales in China make it the world’s largest seller of plug-in hybrid vehicles with unparalleled economies of scale and pricing advantages. As the second-largest battery maker, it also has access to the most valuable parts at low prices.
However, the upward trend of Chinese automobiles has sparked widespread backlash. Policymakers are concerned about its dominance of pure electric powertrains: the United States has raised import duties on pure electric powertrains fourfold to more than 100%, and the European Union will vote on additional tariffs on Friday.
Some already feel the same way about Chinese-made hybrids: Turkey banned imports earlier this month . Brazil, the biggest importer, will raise tariffs to 35% in 2023.
The focus on hybrids also brings other risks. The use of internal combustion engines has raised questions about their role in the green transition, with the category facing regulatory changes as economies look to cut emissions.
Moreover, in the emerging field of electric vehicles, there are mature competitors that are even more fierce than BYD. Mercedes (MBGn.DE) and BMW (BMWG.DE) are among the leading companies in Europe. Toyota Motor Corp. (7203.T) created the world’s first mass-produced hybrid car, the Prius, to dominate emerging markets . These are strong incumbents with local production and well-known brands.
For now, BYD’s new best-selling products are keeping it afloat, even as demand for electric vehicles is falling. Its Hong Kong-listed shares have outperformed their benchmark this year, trading at a forward price-to-earnings ratio of 19 times compared with 12 times for the region, according to LSEG. But trouble could lie ahead.
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The Turkish Trade Ministry has imposed strict conditions on imports of plug-in hybrid vehicles from certain countries, including China, according to a notice published in the Turkish Official Gazette on Sept. 20. The notice states that importers must meet certain conditions to import hybrid vehicles produced in the European Union or countries that have free trade agreements with Turkey, including having 20 authorized repair shops in seven different regions of Turkey. Analysts said no importer met these criteria.
According to the International Trade Center’s Trade Map data, China exported 299,242 hybrid vehicles to the world in the first seven months of this year. This is more than the 217,320 hybrid models exported last year. Since 2020, China’s hybrid vehicle exports have increased by more than 95% each year.
Hybrid vehicles combine batteries with a conventional gas engine and can include plug-in models and mild hybrids that don’t require charging.
