BYD vs Indian Automobile Companies: Why We Should Stop Fretting

The UPA government prohibited sales of telecom equipment from China’s Huawei and ZTE back in 2009 citing security concerns. These security concerns were later ‘resolved.’It is still not clear whether real threats were detected and rectified or such controversy was the handiwork of incumbent players to prevent the entry of stronger competitors from China.The electric vehicle market is now witnessing a similar controversy. Indian companies are vehemently protesting the entry of BYD, a formidable competitor from China, on numerous pretexts.The outcome of this commercial battle could play a much larger role than India’s policy initiatives in determining the pace at which India adopts electric vehicles.India unveiled its ‘National Electric Mobility Mission Plan 2020’ in 2013 projecting sales of 6 to 7 million electric vehicles in India by 2020.In the same year, China recorded sales of 17,642 electric vehicles. Two years later, India unveiled a subsidy scheme titled FAME (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles), 2015.It contained little in terms of a roadmap to create the entire ecosystem necessary to support adoption of electric vehicles. Annual sales of electric vehicles in China had already touched 331,092, representing a twenty-fold increase in just two years. With this, China established itself as the world leader in terms of electric vehicle adoption and has since extended its lead over the US.In May 2017, NITI Aayog published a report titled ‘India leaps ahead: transformative mobility solutions for all.’ Astonishingly, this report contained no reference to China, the world’s largest market for electric vehicles, which by then had close to 1.7 million electric vehicles in use.A hasty announcement to achieve 100 percent adoption of electric vehicles by 2030 made last year has now been scaled down to 30 percent. Coupled with this, the Indian government has also decided that no specific EV policy is required to achieve this target.BYD vs Indian CompetitorsRegardless of the confusion surrounding policy formulations, a few government procurement projects have managed to trigger the demand for electric vehicles in India.The state-run Energy Efficiency Services Limited (EESL) floated a tender for procurement of 10,000 passenger cars in September 2017, and has announced plans to procure another 20,000 cars before March 2019. Tata and Mahindra were the only beneficiaries of the first tender.Recent tenders for procurement of electric buses have witnessed more intense competition. China’s BYD which has occupied no 1 position in China’s electric vehicle market since 2011, has been successful in winning orders for 290 buses – or 60 percent of the tendered quantity – across 10 Indian cities.The BYD’s Indian competitors have not lost time in crying foul, alleging the use of Chinese government subsidies and ‘dumping’ practices being adopted by the BYD. They have also contested the claim of 35 percent localisation made by the BYD.The BYD, on the other hand, has maintained that the initial unit sale price or cost of its buses is much higher than of its Indian competitors. The only reason it has been able to bid aggressively and win contracts for buses is due to their significantly lower operating costs.The tenders are based on a supply-operate-maintain or Gross Cost Contract (GCC) model with payments being made per kilometre of usage rather than purchase of the buses. In other words, superior battery technology can allow the supplier to run the buses over longer distances on a single charge, thus prolonging the life of the battery and keeping operating costs low.Is it not possible that the BYD with its market leading position in electric vehicles is relying on its superior technology to offer a lower price? Why will the Chinese government want to subsidise the BYD’s sales in India and indirectly support the improvement of public transportation infrastructure in India?Unlike other sectors such as steel or solar panels where China is grappling with excess capacity and concerns of dumping are warranted, electric vehicle industry is registering consistent growth in China and there is no hint of such over capacity.Of course, unrealistic claims made by a new entrant in a nascent market must be taken with a pinch of salt. For instance, the Indian government can elect to conduct stringent quality tests before purchasing electric buses from the BYD to prevent mishaps such as battery explosions.This is a valid concern and warrants attention. This is what the UK did when there were protests against procurement of telecom equipment from China’s Huawei on the pretext of national security several years ago. Instead, if the Indian government succumbs to protectionist tendencies and disallows the BYD’s bids on any flimsy pretext, yet another opportunity to benefit from our northern neighbour’s large strides in technology will be lost.A Shining ExampleDespite these frictions surrounding the BYD’s entry into the Indian market, there also exists a shining example of Sino-Indian partnership in the electric vehicle space across the border in China.Tata Technologies recently announced its close partnership with NIO China for the design of ES8, a high-performance all-aluminium electric SUV. The mass reduction designs, mainly driven by Tata’s software capabilities, have been successfully coupled with China’s manufacturing prowess. So, such a win-win business partnership is not entirely the stuff of dreams then.What prevents Indian companies from acknowledging the significance of technologies developed by their Chinese peers? Is it misplaced national pride? Is it lack of awareness? Or is it merely adherence to the stereotype that anything made in China is not good enough?Warren Buffet’s Berkshire Hathaway invested US $230 million in the BYD back in 2008. Today, that stake is worth close to US $2 billion. Clearly, the Oracle of Omaha’s bet on the BYD has paid off handsomely. Is it still not good enough for India?(Santosh Pai is a partner at Link Legal India Law Services, and has been advising Chinese companies in India since 2010. He also teaches a course on legal aspects of India-China business at IIM, Shillong. He can be reached at @hatpassion. The view expressed above are the author’s own. The Quint neither endorses nor is responsible for them.)

BECOME A MEMBER

BYD vs Indian Automobile Companies: Why We Should Stop Fretting

Indian companies are vehemently protesting the entry of the BYD, a formidable competitor from China.

Read Latest News and Breaking News at The Quint, browse for more from opinion

Topics: Automobiles Electric Bus Electric Vehicle