*

BYD's expansion in Japan hindered by consumer scepticism

*

Automaker faces subsidy cuts in Japan, increase in

marketing

costs

*

BYD aims for 100 quick chargers in Japan by end of next

year

By Daniel Leussink

YOKOHAMA, Japan, Sept 5 (Reuters) - BYD is rolling out

electric-vehicle charging stations and ramping up marketing and

customer incentives in Japan, aiming to boost sales in a market

that has become a stumbling block in the Chinese automaker's

global expansion.

Warren Buffett-backed BYD has become China's

largest EV maker after years of breakneck growth at home. Now it

is expanding overseas, including in Japan, one of the world's

largest auto markets.

But Japan remains tough for foreign automakers to penetrate.

Demand for EVs has long been sluggish and the government this

year changed how EV subsidies are calculated, reducing them for

BYD and several of its rivals, and raising concerns about

protectionism.

To win over Japanese drivers, BYD has offered discounts

on the first 1,000 cars sold of its newest model, and is airing

TV commercials starring a Japanese actress.

The strategy has meant higher-than-expected marketing costs.

BYD's overseas push is being closely watched, not least because

the automaker is almost as valuable as GM and Ford

combined.

Still, some Japanese are wary of buying big-ticket Chinese

products due to quality concerns. Asia's two largest economies

also share a complicated wartime history and years of political

tension.

"The cars are great, but I don't think they'll sell in

Japan," said 58-year-old Yukihiro Obata, who was visiting a BYD

showroom in Yokohama, which neighbours Tokyo, in July with his

son.

"Japanese people think Japan's manufactured goods are

superior to Chinese and South Korean ones. We just can't believe

Chinese products could be higher quality," he said.

Obata said he was not opposed to buying a foreign automobile

and was also considering EVs from Mercedes-Benz, Audi

and Hyundai.

Shenzhen-based BYD opened its first showroom in Japan in

February last year and has so far sold over 2,500 cars.

By contrast, Toyota Motor ( TM ) sold just over 4,200

battery EVs in Japan over the same period, while nearly 17,000

Teslas were registered in the country as of end-March

2023, according to the most recent industry data available.

BYD offers three models and now has more than 30 showrooms.

"There are people in Japan who absolutely hate Chinese

products, so it's not a good idea to try and force ourselves on

them," Atsuki Tofukuji, president of BYD Auto Japan, said.

Instead, he wanted to win over people by BYD's affordability

and performance, he said.

GOVERNMENT SUBSIDIES

EVs accounted for just a little more than 1% of the 1.47

million passenger cars sold in Japan in the first seven months

of this year, according to industry data. That does not include

the low-power "kei" mini cars made for the domestic market.

EV sales have been slow in Japan because Toyota ( TM ) and other

domestic automakers have focused more on hybrid technology.

The government in April revamped its EV subsidy scheme,

saying that will promote the spread of chargers and other

infrastructure.

Subsidies, which were previously determined by the car's

performance, now take into account criteria such as the number

of quick chargers a manufacturer has installed, and after-sales

service.

The subsidy on BYD's Atto 3 SUV, which sells for 4.5 million

yen ($30,996.00), was cut by almost half to 350,000 yen, from

650,000 yen.

The subsidy cuts have dragged on sales, Tofukuji said at

a company event in July.

BYD responded by offering 0% loans during April to June, and

cashbacks on home chargers in July and August. It also plans to

put a quick charger at 100 locations by the end of next year,

Tofukuji told Reuters, a previously unreported plan that could

help it qualify for bigger subsidies.

To increase its brand awareness, it started broadcasting

television commercials starring Masami Nagasawa, a Japanese

actress and model.

That has helped bring in more customers, although the

automaker has now spent more than it originally budgeted for

marketing in Japan, Tofukuji said, declining to give the size of

the marketing outlay.

BYD's Japanese line-up includes the Seal sedan, which

retails for 5.28 million yen for the rear-wheel-drive version

and qualifies for a 450,000 yen subsidy. It also sells the

Dolphin, priced from 3.63 million yen and qualifying for a

350,000 yen subsidy.

'JAPANESE WAY'

The subsidy change could reflect a government drive to

safeguard the domestic industry, said Zhou Jincheng, manager of

China research at auto research firm Fourin in Nagoya.

"They had to take some kind of measures to protect their

auto industry," Zhou said.

An industry ministry official said the aim of the change was

to create an environment where EVs were used sustainably and

promoted "in a Japanese way".

Other car makers that saw subsidies cut included Mercedes,

Volkswagen, Peugeot, Volvo, Hyundai,

and Japanese maker Subaru.

Nissan ( NSANF ) and Toyota SUVs still qualified for the maximum

850,000 yen, and Tesla also saw equal or higher subsidies on the

models it sells in Japan.

While overall EV sales are low, foreign auto brands

accounted for almost 70% of the sales in the first seven months

of the year.

The lower subsidy did not stop Kyosuke Yamazaki, a

first-time car buyer in his early 30's, from buying a BYD Atto

3, though he missed out on roughly $2,000 in savings because he

bought the car after April.

He said he liked the longer cruising range of the cars

compared to Japanese rivals - and did not mind buying from the

Chinese manufacturer.

"I used to work in Shanghai," he said. "I know BYD well."

($1 = 145.1800 yen)

(Reporting by Daniel Leussink; Writing by David Dolan; Editing

by Muralikumar Anantharaman)