Q1 - Technology and Incentives - 15 Marks Consider the relatively young automotive company BYD, founded in 2003 by the Chinese chemist and entrepreneur, Wang Chuanfu. BYD is the world's largest electric vehicle (EV) maker, selling the most total vehicles (both full-electric and plug-in hybrid) mainly to middle-class consumers in China and beyond. Recently the firm announced a massive 100-billion-yuan investment into the so-called 'vehicle intelligence' arm of the business. You can read more about BYD's rise in the following key articles

(listed in chronological order):

1 . Xue, Yujie, Daniel Ren, Pearl Liu (2023) 'China EV war: how BYD grew from Elon Musk's ridicule to Berkshire Hathaway's 'ridiculous' US$98 billion success in 12 years', South China Morning Post, April 15th, available: https://www.scmp.com/business/companies/article/3217091/china-ev-war-how-byd-grew-elon- musks-ridicule-berkshire-hathaways-ridiculous-us98-billion-success-12

2 . Fickling, David (2024) 'It's not Tesla in BYD's sights - it's the whole car industry', Australian Financial Review, January 3rd, available: https://www.afr.com/companies/transport/it-s-not-tesla-in-byd-s-sights-it-s-the-whole-car-industry-20240103-p5euyo

3. Kharpal, Arjun and Evelyn Cheng (2024) 'Musk once laughed off BYD as a threat. Now the Chinese giant has taken Tesla's EV crown - here's how', CNBC, January 4th, available: https://www.cnbc.com/2024/01/05/how-byd-grew-from-a-phone-battery-maker-to-ev-giant-taking-on-tesla.html

4. Xue, Yujie (2024) 'China EVs: BYD plans US$14 billion investment to develop smart cars, seen as the next battlefield', South China Morning Post, January 17th, available: https://www.scmp.com/business/china-business/article/3248710/china-evs-byd-plans-us 14-billion-investment-develop-smart-cars-seen- next-battlefield

5. Bradsher, Keith (2024) 'How China Built BYD, Its Tesla Killer', New York Times, February 12th, available: https://www.nytimes.com/2024/02/12/business/byd- china-electric-vehicle.html

6. Meyer, Robinson (2024) 'China's Electric Vehicles Are Going to Hit Detroit Like a Wrecking Ball', New York Times, February 27th, available: https://www.nytimes.com/2024/02/27/opinion/gm-ford-electric-vehicles.html

Based on these discussions and economic theory, draw an appropriate diagram using relevant isocost lines to illustrate and explain in some technical detail how BYD has enjoyed Schumpeterian (innovation) rents over its competitors in the past few years. To support your diagram and analysis, use hypothetical values (rough guesses) relying on intuition. Provide reasons for the values for the technology you assign and what they represent. Use incremental integer values (say ranging from 1 to 20) on both axes; and you optionally may choose to use specific equations in your answer. As a suggestion, you could opt for 'labour' on the horizontal x-axis and 'EV batteries' on the vertical y-axis. Discuss the role of this entrepreneur and elaborate on the likely creative-destructive processes at work should BYD go from strength to strength in the future (e.g. if the market share of BYD increases in Europe and its impact on European automakers). 700 + 200 or so words should be sufficient [5 marks for diagram + 10 marks for quality of analysis and discussion = 15 marks]

Using the marking rubric below, help me answer the question above.

Discriminating understanding and application of key economic concepts/ theoretical framework in response to the case questions. diagrams are well-labelled, drawn with excellent accuracy, adapted to the case question and with technical rigour. (in this case draw an Iso cost diagram)

Discerning and comprehensive, informed by robust analysis and synthesis of research evidence from the relevant articles and beyond. Perceptive observations and solid use of the available information in the key articles/ sources.