Chinese Electric vehicle Giants turn into Shipping Companies : Buy Own Ships to control Supply Chain

Are the Chinese electric vehicle giant, turning into a shipping company?

As it aggressively pushes into markets overseas, BYD has ordered at least six massive car carriers, ships that can transport thousands of cars at a time. In part, BYD’s move reflects a keen frustration of the Chinese auto industry. Over the past two years, just as China’s vehicle exports boomed, pandemic-related supply chain snarls led to acute shortages of space on cargo ships.

Now, BYD appears to be maneuvering not only to ship its own products but also to offer global shipping services to other car manufacturers. Think car company meets ship owner meets shipping logistics provider, all rolled into one.

The Tianyancha update

BYD has made no public statements about its foray into shipping. But a recent update to information about the company on Tianyancha, China’s database of companies, offers some clues. According to a time-stamped update (link in Chinese) last month, BYD Auto Industry, a subsidiary of the broader BYD group, expanded a paragraph on the scope of its commercial activities. The section now lists activities not usually associated with a car manufacturer: ocean carrier operations, freight forwarding, international shipping agency services, and port cargo handling. (BYD did not respond to a request for comment from Quartz.)

The Tianyancha update suggests that BYD is looking to establish a foothold in global shipping. And it represents yet another push by the company to establish its dominance up and down the automotive supply chain.

BYD is one of the most vertically integrated company 

BYD has honed its vertical integration strategy for years, having started out as a mobile phone battery maker before manufacturing other electronics, auto components, and finally electric vehicles. That playbook has served it well in the competitive EV field.

“[BYD] has mastered the core technologies of the whole industrial chain of new energy vehicles, such as batteries, motors and electronic controls,” Wang Chuanfu, BYD’s chairman

BYD is looking to buy lithium mines in Africa and has secured a contract for lithium extraction in Chile, since lithium is integral to EV batteries. BYD has become a leading producer of EV batteries, even supplying competitors like Tesla and Toyota, and is expanding its battery production capacity from about 285 Gigawatt hours (GWh) in 2022 to an estimated 445 GWh by the end of this year.

“BYD is probably the most vertically integrated [car] company,” said Lei Xing, a US-based auto analyst and co-host of the podcast China EVs and More. “There’s nowhere else to turn to vertically integrate more than to [buy] your own ships... And it’s not out of the question that BYD becomes a provider that they can ship for other people, competitors.”

BYD Co., which only makes electric and hybrid cars, is going the extra length to avoid any last mile supply chain snarls, ordering at least six ships in October, each with the capacity to carry 7,700 cars, for 5 billion yuan ($710 million). State-owned SAIC Motor Corp., which already operates the world’s fifth-largest shipping fleet via transport arm SAIC Anji Logistics Co., has a tender out for seven new carriers that can each hold 8,900 vehicles.

Acute Shortage of Car carrier ships for China’s car exports

BYD isn’t the only Chinese car maker that’s getting into the shipping business.

Last July, SAIC Motor, the state-owned automaker, partnered with the Chinese shipping giant COSCO and the port operator Shanghai International Port Group to set up Guangzhou Yuanhai Car Carrier Transportation, described as a “vehicle supply chain” company.

With all the last leg supply chain disruptions it makes sense for Chinese automakers to strike out on their own, according to Tobias Bartz, chairman and chief executive officer of Rhenus Logistics. Ships have become “such a scarcity,” he said on the sidelines of a conference in Singapore last month.

The shortage has meant that some vessels almost 30 years’ old are still operating instead of being scrapped, raising the risk of accidents. Trying to extinguish any lithium-ion battery fires that occur may also be harder.

Chinese automakers aren’t alone in their desire for more freighters. Tesla Inc., which uses Anji Logistics’ car carriers, has also had trouble transporting vehicles from its factories.

“There weren’t enough ships, there weren’t enough trains, there weren’t enough car carriers to actually support the wave” of vehicle deliveries at the end of the last quarter, CEO Elon Musk said during Tesla’s third-quarter earnings call. “Whether we like it or not, we actually have to smooth out the delivery of cars intra-quarter, because there just aren’t enough transportation objects to move them around.”

This latest pinch point may be new but BYD and SAIC aren’t the first automakers to run their own shipping fleets. Toyota Motor Corp. owns shipping company Toyofuji Shipping Co., while South Korea’s Hyundai Motor Co. has logistics group Hyundai Glovis Co.

It’s also a telling sign of how far Chinese automakers’ export ambitions go.

Just a few years ago, China was mainly selling cars to developing nations in Africa and the Middle East. But the rise in electric-vehicle production has boosted made-in-China cars in Europe, which is now the biggest market for Chinese auto exports. China exported over 852,000 EVs in the first 10 months of this year, up from almost nothing a short while back. Over a fifth of those were Tesla electric cars produced in the US automaker’s Shanghai gigafactory.

“Car shipping costs are set to come down as the risks shift from backlogs to a glut in the car market,” said Craig Fuller, founder and CEO of supply chain market intelligence provider FreightWaves. With supply chain bottlenecks easing, “the risk is more on the demand side of the equation,” he said.

Until that inflexion point, Chinese automakers appear keen to control as much of the process as they can. Electric vehicle maker Nio Inc. and Chery Automobile Co. are also eying ship orders, local media reported last week.

Among Chinese brands, SAIC is the furthest along overseas. It sold 697,000 vehicles abroad in 2021 -- bolstered by the success of MG Motor, the British brand it acquired -- and is aiming for 800,000 this year. That’s a way off from meeting its annual shipping capacity, which stands at around 10 million vehicles, but meanwhile SAIC’s ships can and do serve other carmakers too, including Nio.