BYD’s ambitious overseas sales targets

A slew of factory investments suggests BYD is responding to growing protectionism

BYD Executive Vice President Stella Li announced last week the company’s goal to lift overseas deliveries to almost half of total sales. In the first seven months of 2024, overseas sales accounted for 14 percent of BYD’s total (270,000 of nearly two million sales). Europe’s tariffs on Chinese-made EVs average 37.6 percent, while the US and more recently Canada have implemented a 100 percent tariff. India, the third largest auto market in the world, has steep tariffs on imported vehicles. BYD has not had much success in penetrating countries with sizeable, well-developed auto markets, such as Japan, Korea, Taiwan and India.  

To break through rising trade and export barriers on Chinese made EVs, BYD must increase overseas production. In July, BYD announced plans to build a US$1 billion EV factory in Turkey. As well as exempting them from Turkish tariffs, the factory will allow BYD tariff free access to the EU market. BYD’s factory in Thailand, which began production in July, comes as BYD reported a 40 percent share of the Thai EV market in 2023. Beyond Thailand and Turkey, BYD has committed to building factories in Brazil, Indonesia, Hungary and Mexico. BYD’s growing dominance of the Chinese market and a steady increase in overseas sales ultimately holds it in good stead to become one of the largest auto companies globally – up from 7th currently.

Seoul pursues nuclear reactor exports to Europe

US restrictions and lack of domestic bipartisanship on nuclear power are challenges

South Korea wants to expand exports of nuclear reactors, competing with dominant Western companies on their home turf. In July, state-run Korea Hydro & Nuclear Power (KHNP) emerged as preferred bidder on the Czech Republic’s US$17 billion tender to build at least two nuclear reactors. The first reactor is due for trial by 2036, and the second in 2038. They will be the first nuclear reactors constructed overseas by KHNP since 2009. KHNP also struck a deal in 2022 to co-build a nuclear facility in Poland – the construction of which has been paused.

South Korea is also exploring the possibility of building nuclear plants in Finland, Sweden, Slovakia, the Netherlands and the UK. The successful bid in the Czech Republic reflects KHNP’s cost and time advantages over traditional Western players such as France’s EDF and the US’ Westinghouse. French build costs are estimated at US$5,833 per kilowatt versus US$3,571 per kilowatt for a Korean plant. KHNP is well regarded for on-time delivery, whereas EDF projects are facing 12-year delays.

South Korea’s ambition to becoming a nuclear player in export markets has its hurdles. Nuclear power remains politically contentious in South Korea, putting into question the health of KHNP’s home market. Upon becoming president in 2022, Yoon Suk Yeol overturned the previous government’s policy of phasing down domestic nuclear energy projects. US restrictions on nuclear technology are another issue. Seoul is bound by an agreement signed in the 1950s which limits its ability to access raw materials for nuclear generation and prevents it from enriching uranium. This precludes KHNP from providing a full suite of services for the reactors it constructs. KHNP must also navigate Westinghouse’s firm grip on the legal rights to many nuclear technologies. The companies are in dispute over the technology used in KHNP’s APR1400 reactors.

Afghanistan hands out mining contracts for country’s abundant mineral reserves

The Taliban’s ability to bring projects to fruition is unproven

State-owned China Metallurgic Group (CMG) has begun operations in Afghanistan at the world’s second largest unexploited copper deposit, part of the Taliban’s wider push to exploit its vast untapped mineral deposits. The Mes Aynak mine near Kabul is estimated to hold 4.4 billion tons of copper ore and could produce revenues between US$300 million and US$400 million per year. Development of the mine, which has been contracted to CMG since 2007, has been accelerated by the Taliban since it took over government in 2021. Since it came to power, it has granted 200 mining licences for deposits of minerals such as gold, marble, gemstones, lead, chromite and zinc worth billions of US dollars. Many such licences have been handed out to companies in China, which is one of only a few countries to have established diplomatic ties with the Taliban. The Taliban aims for its mining push to provide the country with much needed economic relief.

However, doubts persist. Many deposits, such as Mes Aynak, lie in isolated locations lacking electricity and transport infrastructure. The cash-strapped Taliban is relying on mining companies to finance infrastructure. Afghanistan also has limited water resources, which are often essential to mining. Sanctions and security risks will also present issues. Washington’s numerous sanctions are likely to provide a headache to companies trading out of Afghanistan - even those based in China. Solving these problems will be a tall order for the Taliban given its lack of technocratic expertise. Even deep pocketed and state-backed Chinese companies appear to be in no rush to invest.

China’s restrictions on gallium and germanium leave global supply chains vulnerable

The West considers alternative production options to circumvent sole reliance on Chinese exports

China’s latest move in the burgeoning tech and trade war with the US has been to limit germanium and gallium shipments, leaving key players in the tech industry concerned about supply availability and cost. In July 2023, China announced export controls on germanium and gallium – mineral by-products of zinc and copper refining used in semiconductors, weapons and communications devices. These controls are widely believed to have been a retaliation to US semiconductor export restrictions. Unlike some previous export controls announced by China, the available data suggests that these export controls – which require a license before shipments can be made – have led to an appreciable decrease in exports. Gallium prices are now averaging US$2,280 per kilogram in China, a 52 percent increase since June.

This has left China-dependent companies in an unfavourable position. Indium Corporation, a US electronics manufacturer, announced last week that it only has a few weeks of germanium and gallium supply left. China has a dominant foothold in gallium production, controlling approximately 98 percent of exports. Similarly, China controls 60 percent of global germanium production. Only one company in the EU and a few in Japan can make gallium at the required purity for use in electronics.

Traditionally, China’s subsidised on gallium and germanium made Western companies unable to compete on costs, but these new export controls are forcing countries to reconsider production. Companies in the US, Germany, and the UK with existing zinc and copper infrastructure are considering production, but governments may need to provide financial incentives. In considering gallium and germanium production, Greek metals company Mytilineos expressed concerns over the possibility of China once again moving to flood the market when Western supply comes online. Nyrstar, a European minerals producer, estimated that a US$150 million factory at its Tennessee smelter could meet 80 percent of germanium and gallium demand in the US. Meanwhile, the US Department of Defense has reportedly earmarked US$29 million to support gallium and germanium extraction under the US Defense Production Act.

New Modi government withdraws contentious bills from Indian parliament

The BJP’s previously unassailable dominance may be fading

The ruling Bharatiya Janata Party (BJP) in India has pulled multiple bills from parliament as it navigates its first months in a coalition government. Last month, it scrapped plans to introduce a controversial broadcasting services law which critics argue would allow the government to influence online content. It also sent to a parliamentary committee a bill requiring Islamic charities to register with a government office following pressure from the opposition and even the BJP’s parliamentary allies.

The moves reflect difficulties that Prime Minister Modi’s government will encounter in passing legislation without an outright majority. During this year’s election, the BJP finished 32 seats short of a majority, requiring it to rely on its allies to form government and pass legislation. In the previous ten years, the BJP wielding an outright majority and was able to ram through controversial legislation such as removing Kashmir’s special status in 2019 and withdrawing high-value bank notes from circulation in 2016.

Difficulty in passing the government’s agenda will have a particular impact on Modi’s plans to sell India as an alternative manufacturing hub to companies looking to diversify from China. Prior to the election, the Modi government had reportedly been mulling a series of pro-business reforms that aim to attract foreign investors, including greater subsidies for domestic manufacturing, lower import taxes on components for domestically-made products, a streamlined national labour code and lower barriers for companies seeking to buy land. The passing of highly contentious reforms will now be more susceptible to scrutiny by opposition and allies. Notably, the government has already had to slow down on its plans to privatise hundreds of state-owned companies.