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Why BYD Is Doing Better - Polestar Posts $242M Loss While BYD’s Profits Surge Despite Discounting

BYD had a great quarter while Polestar tanked and lost its CEO, here we look at the brand strength of both companies and why BYD is doing better.

Polestar just posted a significant $242M loss while BYD got a surprise profit boost even though they were heavily discounting. Polestar is owned by Volvo which is, in turn, owned by Geely which, like BYD, is a Chinese company. Polestar sells internationally including the US while BYD sells mostly in China (they sold around 15K cars in Europe). Polestar positions as a premium brand with few dealerships, while BYD is more of a mainstream brand with far more attractive prices. Polestar has a rigid pricing methodology and is not known for discounting, which is unusual in a Chines company, BYD discounts heavily when needed and prices are more fluid. Electric cars are evolving quickly, but some companies may not make it until the end.

Let’s talk about why one Chinese brand with Volvo roots is doing worse than a pure Chinese brand.

Why Investing In The Brand Is Important

When you go to buy a car, typically you pick brands you know and trust, you may explore a new brand, but you are more likely to consider a brand you’ve already had a positive experience with. We’ve seen this in the States as historically people bought Fords or Chevy’s and rarely switched brands. A lot of people are loyal to the brands that have treated them well and only change when they’ve had a bad experience with the car or dealer.

Given the market is well served with a wide variety of car types with existing brands it is very hard for a new brand to establish itself. And given where advertising is (social media has weakened or destroyed most of the traditional advertising mediums) getting to buyers requires an aggressive advocacy network which Tesla demonstrated successfully as those under-advertised cars became successful. Granted Tesla is suffering now but that is mostly due to a combination of quality issues, poor choices (Cybertruck), and Elon Musk. However, they remain a good example of how to use advocacy to drive interest in a new brand.

It is particularly important to invest in a premium brand because people typically pay extra for status. If you drive in a Porsche, Audi, BMW, Mercedes, or other luxury brand people tend to be impressed with what you drive in.

The Problem with Polestar

The issue for Polestar is few know the brand, there are few Polestars in the market and the lack of dealers or store fronts (which Tesla had) limits the amount of interaction between buyers and owners and reduces the ability to increase the brand’s ability to drive consideration and sales suffer despite the fact that the cars are nicely built and perform well. They live up to the Volvo promise, they are owned by Volvo, but the dealership network doesn’t and there is no hard connection to Volvo.

Volvo is a powerful well-known brand that people trust and the fact that it is owned by a Chinese company hasn’t, so far, done much damage because most people don’t know this and they still look at Volvo the way they always have and Volvo under Geely, seems to have maintained quality.  In addition, Volvo has a variety of power train options and a wide range of cars and its latest financials, while off a bit from 2023, were relatively strong.

But Polestars don’t use the Volvo dealer network for sales or service making it harder to buy the cars and even harder to service them. In addition, people don’t know or trust the Polestar brand yet, there are just too few cars on the road and even though reviews of the Polestars have been good, they don’t provide engine choices, and they have few vehicle option lowering interest in the cars which are not helped by an unknown brand.

BYD

BYD is a high-value brand, they also generally review well though they have had some quality problems in the past. With BYD, instead of luxury you get value. Reviewers often gush about how much car you get for the money and for the value buyer they hit all the buttons. While BYD is well known in China, where have been selling very well, they have started growing in Europe showcasing a measured strategy to first be successful in their home country and then spreading out.

I’ve often found a measured strategy like this allows you to build on regional success while if you try to go too wide too fast you end up like Polestar did with too few dealerships and too few people who advocate your brand.

They seem to have been more aggressive at opening dealers in the markets they target than Polestar has and premium cars, which require a far higher dealer experience, meaning that BYD isn’t hurt as much by a lack of dealers as Polestar is.

As a result, BYD is challenging Tesla now, while I doubt Tesla worries about Polestar at all.

Wrapping Up:

With cars, as with any branded product, you have to build interest to get consideration, and then you need a mechanism to close the sale. BYD is better structured for both, while the mistake of not at least allowing Polestars to be serviced in Volvo dealers badly hampers Polestar sales for no good reason.

While a premium brand will never outsell a value brand, they should be more profitable as a percentage of sales due to higher margins but here we see the value brand BYD significantly outperforming Polestar largely because BYD executed very well, and Polestar is struggling to find a path to success.

Polestar is getting a new CEO, but the skill set they are looking for is very rare, suggesting a CEO swap may not help them as much as getting a critical mass of employees from a company that has executed better. Were it me, I’d be recruiting from Tesla because those employees are really not that happy with Musk at the moment.

Rob Enderle is a technology analyst covering automotive technology and battery developments at Torque News. You can learn more about Rob on Wikipedia, and follow his articles on Forbes, on X, and LinkedIn.

Comments

John Goreham    September 5, 2024 - 3:44PM

Keep an eye on BYD's progress in Turkey. This is a country with Europe's most populous city and almost no EVs. The market is wide open. Whichever Chinese company strikes the best deal with President Erdoğan's administration will see massive and immediate growth. Polestar is a mystery to me. I'm a media member covering EVs in an EV-friendly region and have never met Polestar's PR team. I've never seen a Polestar retail location or service center in my life. They are invisible in Metro Boston and the Northeast.