Price war at sea: The largest electric car manufacturer enters the shipping industry
Earlier this month, a massive ship picked up over 5,000 electric cars from two ports in northern and southern China. Five days later it passed Singapore and was on its way to India. The final destination is Europe, where most of the cars will be sold.
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The name of the ship is “BYD Explorer No.1”. It is the first of a large fleet that BYD is building and reflects the Chinese company’s ambition to build a maritime business that supports its new role in the global auto trade.
BYD was founded in 1995 by a Chinese metallurgy researcher named Wang Chuanfu and initially made small batteries for mobile devices. The company later expanded its business into cars and eventually combined both areas to produce electric vehicles. Within two decades, the company became the largest electric vehicle manufacturer in China. In the fourth quarter of 2023, it was even the largest in the world.
BYD offers a variety of vehicle options, from affordable sedans to luxury SUVs, and demand for its cars is increasing overseas. Last year, BYD exported more than 240,000 vehicles, and in 2022 it was 55,000. But it has a problem: To reap the most financial benefit from its exploding popularity abroad, the company needs to expand beyond auto sales and into the shipping business.
The shortage of car transporters
To understand why BYD made this move, you need to know a little about how cars are transported across the sea. Typically, roll-on/roll-off (RORO) vessels are used in the cargo industry. Unlike ships where the cargo is lifted and brought on board using a crane, RORO ships have ramps onto which the vehicles can be driven directly, making the entire process much easier.
But these ships have been in short supply for several years. While old ships are being retired, orders for new ships have declined due to the 2008 financial crisis and the industry-wide shift to greener fuels, creating a bottleneck.
In addition, most car companies have long-standing relationships with shipping companies or own their own fleets of ships. For example, Japanese automakers such as Nissan and Toyota each have fleets of RORO vessels capable of transporting tens of thousands of cars. However, China’s domestic car transport vessels account for only 2.8 percent of global shipping capacity, leaving Chinese brands with few options to transport their cars across the seas.
As a result, their access to RORO vessels has become unaffordable. According to Clarksons Research, the intelligence arm of the world‘s largest shipping services provider, the price of renting – chartering – a car transport vessel for a day had jumped to $115,000 in 2023. That’s a historic high and almost seven times the pre-pandemic average price, which was $17,000 in 2019.
The new demand for car transport is currently coming primarily from China. The country is on the verge of becoming the world‘s largest car exporter (in fact, it may have achieved this status as early as 2023, but we won’t know until the official numbers are out). The country exports a mix of traditional gasoline cars, electric cars from Chinese companies and Tesla cars made at the Giga Shanghai factory. But the lack of transport capacity is standing in the way of the company.
Entry into shipping
That’s why Chinese auto companies, which have become such major exporters thanks to the rise of electric cars, are starting to set up their own transportation companies. The news that BYD plans to buy or charter ships was first published by shipping agency Lloyd’s List at the end of 2022. In December of the same year, the company changed its corporate registration to enter into the business of international cargo shipping and ship management. MIT Technology Review reached out to BYD for comment, but it was not available in time for publication.
BYD Explorer No.1, which can carry 7,000 cars at a time, was delivered earlier this year. The RORO vessel is officially registered to the British company Zodiac Maritime, controlled by Israeli shipping tycoon Eyal Ofer, but BYD has leased it for an undisclosed period. BYD plans to add seven more ships to its fleet in the next two years. It also wants to give other companies the opportunity to export their vehicles using BYD’s ships.
On its maiden voyage, the ship has over 5,000 BYD vehicles on board and is heading to the ports of Vlissingen in the Netherlands and Bremerhaven in Germany, according to Chinese state news agency Xinhua.
BYD is not the only Chinese automaker to take this step. The Chinese state-owned company SAIC Motor sold around 1.2 million vehicles overseas in 2023, 24 percent of which were electric vehicles. The company launched a RORO subsidiary in 2021, and its newest RORO vessel – the largest of its kind and with capacity for 7,600 cars – set sail for the first time in January. Like the BYD Explorer No.1, it is heading to Europe.
Although BYD has announced that it will equip its ships with batteries, the RORO ships it charters today are not yet electric. Most newer ships can run on either conventional fuel or liquefied natural gas, a relatively clean energy source.
From pulp to car transport
It will still take some time for these Chinese companies to complete their maritime freight empires, as these massive new ships take years to build. In the meantime, some of them have found creative solutions to the supply shortage: They are using ships designed for other types of cargo.
They are particularly looking at gigantic ships that normally import thousands of tons of pulp from South America to China, where it is processed into everyday products such as tissues, paper and books. These pulp transporters often end up empty or barely loaded on the way back because China has no similar products to export.
However, in recent years, Chinese car companies have started selling their vehicles on the South American continent, and shipping companies saw this as an opportunity. China Ocean Shipping Company (COSCO), one of the world‘s largest shipping companies, has developed a foldable frame that can be used to load cars and stack them into a logging truck. In July last year, COSCO loaded one such ship with over 2,700 cars and sent them to Brazil.
With such makeshift solutions and the construction of new RORO ships, shipping bottlenecks for Chinese automobile manufacturers could be significantly reduced in the next few years. Own fleets or chartering ships from domestic shipping companies could further reduce costs and further increase the competitiveness of Chinese cars abroad.
And just as the auto industry in Japan and South Korea propelled those two countries to become global leaders in shipping, electric vehicles could also make China a major player on the sea.
(jl)
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