![BYD forecasts by 2020 there will be 5 million electric vehicles on Chinese roads, up from 1 million today.](/content/dam/images/g/w/7/q/z/u/image.related.afrArticleLead.620x350.gw6wa1.png/1495186605560.jpg)
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In the foyer of BYD's global headquarters an overheard conversation captures the mood.
In a tone betraying surprise and scepticism, a middle-aged European man asks, in puzzlement; "So you're bigger than Tesla?"
The question in his voice is probably because nothing in the appearance of China's BYD, the world's largest battery and electric vehicle maker, suggests it warrants a comparison with Elon Musk's slick car and renewable-energy company.
But it's Tesla that should be flattered by the comparison to BYD.
![Stanford University economist Tony Seba: "We are on the cusp of one of the fastest, deepest, most consequential ...](/content/dam/images/g/w/8/7/y/2/image.imgtype.afrArticleInline.620x0.png/1495098727138.jpg)
While Musk and much of the American media breathlessly noted the opening of Tesla's "Gigafactory" in January, that same milestone (1 gigawatt of annual battery production) was reached by BYD at least three years ago.
These days BYD has a single battery factory near the southern city of Shenzhen that is more than eight times larger than Musk's in the Nevada desert.
Yet the Hong Kong and Shenzhen-listed BYD, which counts Warren Buffett as an 8.25 per cent shareholder, can't escape the shadow of Tesla.
"Tesla has done a great job in branding and image ... we really appreciate that," says Liu Xue-liang, the Asia-Pacific general manager of BYD's auto sales division.
That is the most backhanded of compliment – the inference being BYD is focused on the performance of its batteries, while Tesla is more concerned about branding and design.
![An employee installs brake pads on a BYD S6 sport-utility vehicle (SUV) at the company's assembly plant in Shenzhen.](/content/dam/images/g/w/8/6/p/j/image.imgtype.afrArticleInline.620x0.png/1495106359188.jpg)
BYD brand communication manager Richard Li makes the point in a different way when talking about the company's founder, Wang Chuanfu.
"He [Wang] is a very humble guy, you won't see him make speeches or do public events ... he's more focused on real things," Li says over lunch.
This idea of so called "real things" sums up BYD, which, despite producing more electric vehicles and batteries than anyone else in the world, is barely known outside China.
Its anonymity is partly due to refreshingly bad PR.
![Workers leave BYD's headquarters in Shenzhen, China.](/content/dam/images/g/w/8/6/n/f/image.imgtype.afrArticleInline.620x0.png/1495096270447.jpg)
During AFR Weekend's visit to its Shenzhen headquarters we were driven around in a BYD petrol car that would make a Holden Barina look innovative, despite the company churning out a sleek new range of fully electric cars and hybrids.
Even its name doesn't quite work. BYD stands for Build Your Dreams, and it was added long after the company was founded
Full automation goal
The lack of Silicon-Valley sheen has a lot to do with BYD's founder Wang, a lab coat-wearing chemist who flies economy and appears to care little for the amenity of his headquarters, which is a mixture of industrial brutalism and corporate bland.
![Liu Xue-liang, the Asia-Pacific general manager of BYD's auto sales division. Sydney Airport has bought six buses, the ...](/content/dam/images/g/w/8/6/n/6/image.imgtype.afrArticleInline.620x0.png/1495096249491.jpg)
Its dusty campus on the outskirts of Shenzhen gives the impression of being a state-owned enterprise in the rust belt, not an innovative company seeking to change the world with electric vehicles and distributed power.
There are dank meeting rooms, drab workers' dormitories and, at one entrance, piles of rubbish.
Yet the scrunge impression evaporates when you enter BYD's latest battery factory, a short drive from the main campus. From the outside, it looks like any other low-end factory across China.
Inside, the 8.6-gigawatt factory, which spans five buildings of four floors each, is 99 per cent automated. Robots hand components to robots in near silence, as preprogrammed cranes move batteries around the factory floor.
![The BYD showroom in Shanghai. The company increased its electric vehicle sales in China 70 per cent to 114,000 units ...](/content/dam/images/g/w/7/r/0/g/image.imgtype.afrArticleInline.620x0.png/1495096208509.jpg)
The only people to be seen are those in the packaging and dispatch departments, but according to the brand manager, Li, they may not be required for much longer.
"Our goal is full automation," he says. "This factory is the backbone of the company."
Not that any of it can be photographed. The shambolic guided tour goes into overdrive when it comes to secrecy.
Cameras are strictly banned inside the factory. Visitors must submit to having tape placed over the lens of their mobile phones. Employees working on the factory floor use special phones that don't have a camera. AFR Weekend is obliged to delete even exterior photos of batteries and other components being loaded onto trucks.
This is how BYD keeps the world's eyes off a factory set over 10 hectares that produces enough lithium-iron phosphate batteries each year to power 335,000 standard sedans, equivalent to a third of all the new vehicles sold in Australia during 2016.
South Australia push
And that's just one of BYD's factories. It plans to bring a further 4 gigawatts of capacity online by the end of the year, making its annual battery output 12 times larger than Tesla's.
The ability to reach such scale so quickly is a demonstration of the so-called "China Model" of production.
![A BYD charging point. The automaker plans a 48-fold increase in the number of charging points nationwide to 4.8 million ...](/content/dam/images/g/w/7/r/0/q/image.imgtype.afrArticleInline.620x0.png/1495096146787.jpg)
It's also allowed BYD to diversify away from car and mobile phone batteries to produce everything from electric buses and garbage trucks to forklifts and, most recently, a monorail system.
"If it has wheels we want to put a battery in it," says Liu.
The company has also moved into energy storage, with small household systems and large-scale battery technology to support electricity grids during peak periods.
In mid-March, BYD said it would bid on one of Australia's largest grid-scale battery storage projects, in South Australia, being hastily installed after blackouts crippled the state last summer.
But unlike Tesla or Zen Energy, chaired by economist Ross Garnaut, BYD's name has hardly been mentioned in relation to the project, even though it issued a press release on the subject.
"The company is confident it can meet South Australia's requirements and demands," BYD said, noting it was the world's largest supplier of rechargeable batteries.
The price is right
And if its experience in the US is anything to go by, it should be highly competitive on price.
![BYD chairman Wang Chuanfu "is a very humble guy, you won't see him make speeches or do public events ... he's more ...](/content/dam/images/g/w/8/6/g/a/image.imgtype.afrArticleInline.620x0.png/1495107033312.jpg)
"BYD is now setting the battery price in North America, because of its scale," says one person who works for a major utility in the US and asked not to be named.
"Everyone else has come down to meet BYD's price."
The price advantage has been achieved through the rapid deployment of scale, which has come with the tacit support of the state.
For BYD this has not been done through a government shareholding, but through access to credit mostly from state-owned banks in China, leaving the company with a gearing ratio above 60 per cent and gross debt of nearly 90 billion yuan ($17.6 billion).
That's the type of leverage that would usually make investors nervous, who like to see debt ratios about 30 per cent. But in the case of BYD it comes with the implicit guarantee of China's central government, which is seeking to develop a string of national champions and ultimately become a clean-energy superpower.
Having come late to the conventional auto game, Beijing is now focused on promoting BYD and others in the electric vehicle space in the hope that one day they will form the backbone of a new export industry.
The first step in this model of state-sponsored capitalism is to build the home market through cheap finance, government subsidies and favourable policy.
In all three areas China is leading the world.
!["If it has wheels we want to put a battery in it," says Liu Xue-liang.](/content/dam/images/g/w/8/6/9/d/image.imgtype.afrArticleInline.620x0.png/1495107135459.jpg)
Central and local governments provide cash subsidies of 66,000 yuan ($12,900) for approved China-made electric vehicles. Also, cities like Shanghai give away number plates to people driving electric vehicles, a saving of 90,000 yuan ($17,600) compared with the plates for a conventional car.
This means in Shanghai the effective subsidy to BYD is approaching $30,500, which makes the company's best-selling passenger car, the E6 400, price competitive with petrol cars in its category.
Such support led to 45,000 so-called new-energy cars being registered in Shanghai alone in 2016, a 74 per cent increase on the previous year, according to government figures.
But more than the high up-front price, the biggest hurdle for the development of electric vehicles has been the lack of public charging points.
In this area Beijing is also deploying the full resources of the state.
It plans a 48-fold increase in the number of charging points nationwide to 4.8 million by 2020, by which time it forecasts there will be 5 million electric vehicles on Chinese roads, up from a million today.
Long march
"This is not just a new product, it is a new industry," says sales manager Liu.
"This should not be seen as a subsidy but as support."
These subsidies helped BYD to increase its electric vehicle sales in China 70 per cent to 114,000 units last year, although a cut in the subsidy had sales fall 12 per cent in the first three months of the year.
Liu said the market stabilised in April and is growing strongly again, although far slower than previously.
He said such fluctuations are inevitable and believes government subsidies will be largely gone by 2020, by which time the likes of BYD are expected to be major international players.
"We see ourselves as an international company. We want overseas sales to be bigger than China, but this will be a long process," he says.
At present international sales make up just 1 per cent of the business, and this is where "brand China" and BYD's own lack of marketing savvy appears to be an issue. Take Australia.
BYD has spent the past three years chasing deals and has emerged with just one client in the form of Sydney Airport, which has bought six buses, the same number of electric cars and 20 forklifts.
"Still that's 100 per cent of the electric bus market in Australia," jokes You Wing, BYD's Australian sales director.
"But it's really tough for producers of Chinese brands."
This might be owing to the "Great Wall effect". The Chinese car company came into Australia with aggressively priced pick-up trucks in 2009, but was forced to leave the market after poor safety tests and the discovery of asbestos in some of its components.
Great Wall has since relaunched in Australia, but its poor safety rating remains.
The Australian sales director, You, said overcoming this negative perception of Chinese vehicles had been difficult, although the company is confident of winning two upcoming city bus projects.
This is perhaps the biggest difference between Tesla and BYD.
While Tesla is focused on selling direct to consumers, BYD is increasingly looking towards mass transport, believing its products are best suited to fleets, including buses, taxis, garbage trucks and forklifts.
"Tesla's products are for the super-rich, which is only a very small group, our products are mainly for mass transportation," says Liu.
If Stanford University economist Tony Seba is right then BYD's focus on "mass transportation" could be a winner. In a report that has captured the attention of many, he predicts there will be no more petrol cars sold within eight years, as the price of batteries plummets and consumers gradually switch to self-driving electric cars.
"We are on the cusp of one of the fastest, deepest, most consequential disruptions of transportation in history," Seba says in his report. "What the cost curve says is that by 2025 all new vehicles will be electric, all new buses, all new cars, all new tractors, all new vans, anything that moves on wheels will be electric, globally."
That sounds a lot like BYD's aim of putting a battery in "anything that has wheels" and is perhaps what Warren Buffet liked about the company when he bought into its Hong Kong-listed stock in September 2008.
The investment has delivered Buffett more than five times his money or a $1.4 billion paper profit in 10 years, but his return could be many multiples of this if Seba's view of the world does indeed prove correct.