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Chinese automaker expands its electric-vehicle lineup to more than 20 models in its push overseas and into higher price brackets

HONG KONG—BYD 1211 -2.40%decrease; red down pointing triangle overtook Tesla TSLA 0.15%increase; green up pointing triangle as the world’s top electric-vehicle seller by pumping out a range of affordable cars that gave Chinese drivers what they wanted: choice.

Now it is moving into the luxury market as it prepares to take on the world.

BYD is releasing the cars under a different brand, Yangwang, marking a strategy shift from relying on lower-priced runarounds to producing less conventional vehicles that come with a hefty price tag. They include a $150,000 supercar that resembles a Lamborghini and an SUV that it says can rotate 360 degrees on the spot and float in water—features that turn heads in China’s cutthroat car market where buyers chase the latest smart technology.

Tesla, meanwhile, banks on continuing strong global demand mostly for its Model 3 and Model Y cars, which it refreshed last year. Tesla’s Cybertruck, its first release in years, isn’t available in China, though the automaker is planning to take the vehicle on a roadshow in the country.

In China, the world’s biggest EV market, Tesla’s market share has been shrinking: BYD now sells five cars to every one that the U.S. automaker does. BYD’s popularity has surged as it cranks out new and varied models at a rapid pace, growing its portfolio of electric vehicles to more than two dozen models, catering to almost every taste and budget.

Backed by Warren Buffett, BYD has become so dominant in its home market that sales in the country enabled it to dethrone Elon Musk’s automaker as the bestselling global EV brand last quarter.

BYD also has ambitious export and expansion plans. BYD has topped EV sales charts in Thailand and is quickly rising in markets including Australia and Israel. It is building factories in Brazil, Hungary and Thailand. Its first chartered cargo ship with a capacity for 7,000 vehicles set sail for Europe this month.

Whether BYD can repeat its home success on the global stage depends on whether it can translate the formula winning over Chinese buyers to international consumers. In the U.S., South Korean carmakers Hyundai Motor and Kia are emerging as Tesla’s biggest competition by offering a broader range of vehicles.

Challenges loom large for BYD as Chinese carmakers face pressure on profit margins at home, deal with a subsidy probe in Europe, and remain largely shut out from the U.S., where BYD has long had ambitions to sell passenger EVs.

Beyond existing U.S. tariffs on Chinese cars, the Inflation Reduction Act will exclude cars made with Chinese components from EV tax credits. For now, the company has been manufacturing and selling buses and trucks in the U.S. Its current strategy is to focus on commercial vehicles in the U.S., a company spokeswoman said.

Export ambition

BYD expects to export 400,000 cars abroad this year, a goal that is achievable, said CMB International analyst Ji Shi. Exports offering higher profit margins are likely to become the next engine of growth for BYD, HSBC analysts wrote in a note earlier this month.

BYD has yet to make much progress toward its main prize: Europe. BYD is estimated to have sold around 13,000 cars in the European Union last year, far from Tesla’s 270,000, according to figures compiled by data firm GlobalData.

In China, BYD held almost 12% of the passenger-car market and Tesla under 3% for the first 11 months of last year, according to figures compiled by GlobalData. Tesla was the market leader in electric vehicles four years ago. While Tesla’s Model Y remained the most popular electric car in China last year, BYD claimed half of the nation’s 20 bestselling electric models as it churned out new minivans and sedans.

BYD “has the China market completely covered for the most part,” said Tu Le, consultant at Sino Auto Insights.

This month, Tesla cut prices in China for some versions of the Model 3 and Model Y, the latest fluctuation over the past year as carmakers engage in a price war in China. Tesla’s refresh of its Models 3 and Y last year added new features such as ambient interior lighting and a smaller rear screen, features that analysts said were already common among Chinese EVs and might not move the needle for Tesla.

Tesla didn’t respond to requests for comment.

While Tesla has fended off past challenges from a range of Chinese automakers, BYD’s move upmarket presents drivers with more prestigious homegrown choices over foreign rivals.

A price tag of 150,000 yuan, equivalent to around $21,000, used to be the ceiling customers were thought to be prepared to pay for Chinese-branded vehicles, a BYD executive said. Customers flaunted their status with an imported Western vehicle as there were no Chinese-designed cars priced above a million yuan, BYD sales representatives said.

Delivery ceremonies

Yangwang luxury vehicles are sold through direct-sales showrooms separate to BYD. Customers picking up their vehicles are offered a delivery ceremony, complete with balloons and floral decorations for special occasions such as a birthday, marriage proposals or anniversaries.

Buyers of its hybrid U8 SUV have the car key delivered in a gift box, nested with a miniature of the vehicle. BYD videos show the U8 doing a full 360-degree “tank turn” on the spot, which has garnered a lot of attention on Chinese social media.

Jin Songchang, a Chinese businessman, was shopping for an off-road SUV to drive across China’s vast provinces once he retires. After months of test driving luxury foreign cars, he finally whipped out a deposit for BYD’s U8, which costs just over $150,000.

Jin said he was swayed to BYD after company founder Wang Chuanfu said at its launch event that the U8 can run steadily on just three wheels if a tire bursts, thanks to its four powerful in-wheel motors. Jin placed a deposit the next day.

“I’ve always appreciated foreign brands more. BYD is the first one I decided to buy on the spot,” added Jin, who said he owns many cars.

Together with its other two high-end car brands, BYD counted more than 135,500 orders of premium and luxury cars in 2023, according to company data. The U8 SUV will be available in Brazil, the company said last year.

BYD has yet to open up sales for its supercar, the U9, after it was revealed at the Shanghai Auto Show in April. The sports car can accelerate from 0 to 62 miles in two seconds. This month, Yangwang teased its coming luxury sedan.

BYD is following the footsteps of companies such as General Motors, Ford and Volkswagen with its family of different car brands, analysts say.

“There’s no global automaker that just sells one brand, outside of Tesla,” said Le, the consultant.

VistaJet’s big pandemic expansion now looks overstretched, posing a risk for Canadian plane maker Bombardier

Private jets were a rare pandemic winner in the otherwise decimated travel business. Now that they are coming back down to earth, one heavily indebted operator could give the industry a hard landing.

Based in Malta, privately owned VistaJet grew at breakneck speed after 2019 to become the world’s second-largest flier of private jets. But, through complex financial engineering involving its founder and owner, Swiss entrepreneur Thomas Flohr—who briefly showed up in the Forbes billionaires list in 2018—it also accumulated big debts that could prove unsustainable. The company offers a kind of private-jet taxi service.

Globally, private-aviation flights are still above pre-Covid levels, but they are steadily coming down from their 2022 peak, data by lessor Global Jet Capital shows.

Investors are getting increasingly worried: A VistaJet bond issued last May, which was very oversubscribed, is now selling off. On Friday, its yield closed at 17.23%, the highest on record. This means a price of 77 cents on the dollar and a spread over Treasury yields of 13.18 percentage points. Ratings companies haven’t downgraded the bonds, which have a B-minus sub-investment grade. But only 9% of securities in that category trade at spreads above 10 percentage points, the typical threshold for distress, S&P Global Market Intelligence data shows.

Disclosures related to VistaJet’s bond showed the company’s net loss rising to $139.5 million in 2022, compared with $50.5 million in 2021. Its net debt increased to an eye-watering 23.5 times equity, up from 7.8 times a year earlier. Auditor EY warned in April that “a material uncertainty exists that may cast significant doubt on the Group’s ability to continue as a going concern,” the Financial Times reported in May.

VistaJet’s debt load is also an underappreciated risk for Canada’s publicly-listed Bombardier, its key plane supplier, and the whole market for secondhand private jets.

Last year, Delta Air Lines rescued one of VistaJet’s peers, U.S.-based Wheels Up, from a bankruptcy that would have brought 180 planes to the market. VistaJet is bigger. During the pandemic, it acquired rivals such as Air Hamburg and Jet Edge and tripled its owned fleet to 270 jets, including many top-of-the-line Bombardier Globals with a range of 6,000 miles or more.

For now, secondhand jet prices remain sky-high, but some aircraft brokers fear that could soon change. Data from JETNET shows that the number of private aircraft for sale rose to around 1,700 in December, from a low of about 700 in early 2022.

Many of VistaJet’s aircraft deliveries from Bombardier have come via orders made between 2012 and 2015 by Flohr himself through other companies he owns, bond documents show. Export Development Canada, a public export credit agency, financed many of them, though VistaJet was on the hook for the money. Flohr then sold options to buy these planes to a firm now owned by VistaJet. Some were canceled.

How much Flohr profited from dealing in aircraft—that is, from differences in the price paid to Bombardier and what VistaJet paid him—is hard to pinpoint, because there has been a constant crisscross of payments between the firms.

The risks he took in performing the trades may have benefited the plane operator. In its bond prospectus, though, VistaJet was unable to assure investors that it “couldn’t obtain more beneficial terms by transacting with unrelated parties.”

VistaJet’s rapid growth was facilitated by state-backed guarantees. EDC’s transactions with VistaJet amounted to at least 1.7 billion Canadian dollars, equivalent to around $1.3 billion, between 2020 and 2022 alone, official data shows.

Wheels Up and VistaJet share similarities. They made a splash because, unlike Warren Buffett’s NetJets, they don’t require customers to commit a large sum upfront to own a fraction of an aircraft. Instead, the operators own planes and charge members for trips and prepaid hours. VistaJet also argues that a dense network of long-range aircraft can be used intensively across the globe.

Perhaps the strategy could be made to work, but the firm’s deep financial losses suggest that it spent too much on big aircraft. Flohr has said he is focused on improving earnings before interest, taxes, depreciation and amortization, but this isn’t the most important metric for a capital-intensive business that must pay back hefty investments.

VistaJet left its high-growth phase behind in 2023, which will have improved its finances and freed up more cash to pay lenders. But there is only so much to go around: Operating cash flow in 2022 amounted to just 16% of the company’s debts at the end of that year. Meanwhile, soaring bond yields will likely push up the cost of refinancing. A $150 million bond matures this June.

Were VistaJet to sell some of its Bombardier jets to reduce debt, it would put pressure on used prices. If, in the worst case, the company suddenly collapsed, the impact on the market could be nearly unprecedented. The operator has 94 Challengers—almost as many as the 109 for sale in the entire secondhand market, data by broker Guardian Jet shows. Its 18 Global 7500s, hard-to-move aircraft with a price tag of $60 million each, would overwhelm the eight currently available. Adding to high-end supply, the G700 made by General Dynamics-owned Gulfstream could enter the market later this year.

Bombardier makes high margins on these premium planes and could struggle to sell new ones if used prices tumble. Unlike its rivals General Dynamics and Textron, it doesn’t have other businesses to fall back on when the cyclical private-jet market turns down, having sold its regional and commercial plane lines, as well as its train business in 2021.

To be sure, the company’s long order books provide protection. And if the global economy keeps booming in 2024, private-jet values may prove resilient. For now, planes still sell quickly, JETNET data shows.

Bombardier’s stock has gained 241% since it slimmed down. But investors might yet regret that all their eggs are in such a small basket.