Having Overtaken Tesla, BYD Is Running Into Problems Overseas

Executives at BYD, which overtook Tesla late last year as the top global seller of EVs, said the issues included weak market demand, too-high pricing, quality control and internal tension over how quickly BYD should seek to grab market share.

They said the company’s inexperience showed in some problems that have arisen, such as the handling of mold in cars and the piling up of thousands of vehicles in European warehouses.

BYD has taken the EV industry by storm with breakneck growth, mostly in its home market, where it has become the No. 1 carmaker by overall sales.

Executives said the company was unlikely to achieve the leadership’s internal target of selling 400,000 cars outside China this year, compared with 242,765 sold last year. The shortfall is partly because of a global slowdown in EV sales growth as well as issues specific to BYD.

In Europe, BYD sold around 16,000 vehicles in 2023, according to registration data compiled by Jato Dynamics, below an internal target set the previous year for the continent.

A BYD representative said The Wall Street Journal’s reporting was “inconsistent with facts." The company didn’t provide details about the discrepancies.

“BYD is very satisfied with the achievements made by our overseas teams, including the one in Europe," the representative said, adding that the company has been exporting EVs for just two years and is confident about its overseas business.

Under Chairman Wang Chuanfu, BYD hopes to follow in the footsteps of Japanese and South Korean automakers that built themselves into global brands.

The Warren Buffett-backed company is building from a strong foundation, having earned the equivalent of about $4 billion in 2023, nearly double the previous year’s figure. Its market capitalization has fallen by more than a fifth since last summer because of concerns about the slowing EV growth rate but remains above $70 billion, more than either Ford Motor or General Motors.

BYD’s Asian forerunners had overseas learning curves. In 1991, South Korea’s Hyundai had to recall almost all of its 1986-89 Excel models sold in the U.S., its most popular car among Americans at the time, owing to an engine problem that could lead to fires. It took an outsize warranty offer by Hyundai to win over consumers, and later its quality ratings improved.

BYD has avoided major quality issues affecting a large number of consumers. Still, incidents have occurred affecting both passenger and commercial vehicles.

In January, a BYD bus in London caught fire, prompting U.K. authorities to recall nearly 2,000 buses. No one was hurt. Authorities cited a problem with the vehicles’ heating, ventilation and air-conditioning system that could result in fires when they were left unattended.

One internal concern involves the number of fixes or repairs that passenger-car models exported from China require before they can be sold to consumers.

Post-import touch-ups are common in the auto industry, but BYD models often require more extensive fixes than most, executives and people handling the cars said, reflecting in part what they see as the company’s inexperience in handling long-distance logistics.

Recently, vehicles have arrived in Japan with surface imperfections such as dings, scratches and parts that need replacing to meet local standards, while in Europe, some vehicles have arrived from China containing mold, they said. The issue wasn’t so much the existence of mold, which is known to grow in cars shipped over long distances, but concern that the vehicles didn’t receive professional treatment with an ionization process to remove spores fully.

A smattering of BYD quality issues have become public, including complaints about paint and plastics peeling in Thailand and vehicles warping under the weight of roof racks in Israel, where its EV sales have been strong. One BYD executive described overseas customers’ reception of BYD vehicles as similar to “going to a decent restaurant but finding the plate is chipped."

Executives have flagged concerns internally that the system of ad-hoc fixes to imported vehicles, while perhaps manageable for a small number, wouldn’t work for the kind of large-scale business BYD hopes to build.

People at the company said global sales targets issued by top leaders in China are broken down by region and relayed to local business heads, and they often don’t factor in each market’s situation.

The company’s sales targets resulted in friction at a meeting late last year. A BYD executive in Europe questioned their feasibility and said the European goals couldn’t be met because of problems such as weak demand and the need for quality fixes, said people at BYD who attended the meeting or were briefed on it.

BYD’s Wang questioned the drive of the Europe leadership, they said, and he and other executives have stepped in to oversee operations in Europe more directly.

BYD vehicles cost a lot more overseas than in China, which diminishes the company’s ability to compete with better-known brands on price. BYD’s flagship export model, the Atto 3, costs more than $41,000 in Germany, its biggest European market, as the company seeks to widen profit margins. That price is 5% lower than Volkswagen’s comparable ID.3 compact crossover EV after price cuts from both brands.

The same BYD car sells for less than $20,000 in China.

BYD rolled out dealer networks, new models and product promotions too late to catch EV sales before they fell off in countries including Germany late last year when subsidies for EV buyers were phased out, said analysts and dealers.

BYD has begun chartering ocean carriers to ship its cars to Europe and elsewhere. After an initial ship with capacity of up to 7,000 vehicles was dispatched in January, Wang said in February that the company planned to use an additional seven ocean carriers over the next two years.

Meanwhile, as of the end of last year, more than 10,000 BYD passenger cars were waiting in warehouses in Europe, people at the company said, and the certificates authorizing them to be sold in the European Union are set to expire soon, meaning it may not be possible to sell them in Europe.

For now, the Chinese carmaker’s biggest export destinations are Thailand and Brazil, where it is the bestselling brand and driving EV growth in a nascent market. BYD is opening new factories in both of these countries, as well as in Uzbekistan and Hungary.

BYD sold more than 12,000 vehicles in Australia last year, one of its bright spots overseas. In January, it began offering rebates of more than $1,300 for its most popular EV model there.

Write to Selina Cheng at selina.cheng@wsj.com, River Davis at river.davis@wsj.com and Raffaele Huang at raffaele.huang@wsj.com