Chinese Government Subsidies & BYD’s Rise

BYD has been one of the principal beneficiaries of government largesse, emerging as a state champion in electric vehicles and hybrids on its way to becoming the world’s largest electric car manufacturer.

BYD sold 58,000 electric and plug-in hybrids last year. New energy vehicle sales were up more than two-and-a-half times from 2014 , and BYD’s popular Qin and Tang models give it an 80% share of China’s plug-in hybrid market.

Electric and plug-in hybrid car sales in China quadrupled to 351,000 last year. Government subsidies have played a big part in that surge. Consumers receive a range of subsidies and other perks when they buy electric and hybrid vehicles. But BYD, too, benefits from lavish government support, support that has played a key role as it has established its global lead in electric vehicles.

What a lot of help indeed BYD has received. In the five years ending December 31, 2015, the company reported receiving a total of 2.9 billion yuan ($435 million) in government support. Even in a big country like China, $435 million is a lot of money for a single, nominally private, company to get in the form of government largesse.

The figure for what the company terms “government grants and subsides” is even more significant when measured against total profits of 6.4 billion yuan – equal to about 45 percent of net profit over the past five years.  In fact, in 2012 and again in 2014, subsidies outstripped profit. In 2012, government grants and subsidies of 550 million yuan were more than two-and-half times net income of 213 million yuan.

Smaller subsidies that BYD benefitted from. There is the 1.6 million yuan subsidy on 2015 interest costs and the 12.2 million tax refund subsidy. Other, unspecified, subsidies totalled 73.1 million in 2015, up from 60.0 million yuan in 2014.

New energy vehicles are an important part of China’s current five-year plan, a plan which represents China’s most concerted effort to deal with the country’s environmental nightmare. The Shenzhen company is in the middle of a very sweet spot at a time when much of China’s manufacturing sector is struggling with the effects of weak export demand and the hangover from a capacity expansion binge. If the generous subsidies BYD has enjoyed in recent years are any indication, continuing government support will make it even more likely that BYD will emerge as a winner in China’s fast-growing electric car market.

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