BYD Company Limited's strategic expansion into Japan is reaching a critical milestone. On November 6, JPMorgan noted in a research report that BYD unveiled its Japan-exclusive K-car model, the Racco, at the Tokyo Motor Show. The bank estimates the automaker could capture over 30% of this niche segment, contributing 400 million to 1 billion RMB in annual profit.

Analyst Nick Lai highlighted that this marks BYD’s first vehicle specifically designed for overseas market needs, demonstrating its long-term commitment to global expansion. Japan’s K-car segment accounts for 30-40% of total auto sales, with annual volumes around 1.2 million units, presenting a major growth opportunity.

While the Racco’s direct profit impact may only represent 1-2% of BYD’s projected 2026 earnings, JPMorgan emphasized its outsized strategic significance. The model embodies BYD’s "In Japan, for Japan" localization strategy, signaling Chinese automakers’ shift from basic exports to deep localized operations.

The bank maintained Overweight ratings on BYD’s A-shares (target: 140 RMB) and H-shares (target: 150 HKD), anticipating a gradual rebound driven by new models and overseas growth.

**A New Chapter in Globalization: Japan’s K-Car Blue Ocean** The report noted BYD’s surprise debut of the all-electric Racco—its first model tailored exclusively for a single overseas market—at the Tokyo show. This contrasts with peers’ minimal adaptations of existing models for export, underscoring BYD’s localization resolve.

Japan’s K-cars, subject to strict size (≤3.4m x 1.48m x 2.0m) and engine power rules, offer tax incentives and up to 550,000 yen in subsidies for EVs. The segment dominates 30-40% of Japan’s auto market.

Suzuki (38%), Daihatsu (22%), and Honda (19%) control ~80% of the 1.2 million-unit K-car market. Priced competitively at ~2.5 million yen (~$17,000), the Racco reflects BYD’s refined "In Japan, for Japan" approach, building on lessons from Europe.

Earlier, BYD’s Europe-focused Dolphin-surf (an upgraded Seagull with extended wheelbase) gained traction at ~20,000 euros. The Racco signals a more mature, targeted global expansion phase. JPMorgan noted its near-doubled price versus China compact models, boosting margins.

**Profit Potential: 400M–1B RMB Annual Lift** JPMorgan framed the K-car push as both strategic and financially material:

- **Market Size**: Japan’s 1.2–1.3M annual K-car sales include a 30-35% addressable pool open to new brands (~350K–450K units). - **Share Target**: BYD could secure 20-30% of this addressable market post-Racco’s 2026 launch. - **Margins**: Despite higher initial costs, the Racco’s ~114,000 RMB price (versus China compacts) may yield 5,000–8,000 RMB per-unit profit.

At scale, the Racco alone could add 400M–1B RMB to annual net profit—a 1-2% boost to 2026 earnings, deemed "meaningful" for a single compact model.

The bank stressed the Racco validates BYD’s global commitment, supported by overseas plants in Brazil, Indonesia, Malaysia, Thailand, Hungary, and Turkey.

**From Exports to Localization** Beyond the Racco, BYD showcased broader global ambitions at Tokyo:

- **New Design Language**: Dynasty D (SUV) and Ocean S (sedan) concepts preview future production models. - **Balanced BEV/PHEV Shift**: Moving from BEV-heavy exports to equal emphasis on plug-in hybrids. - **Aggressive Channel Expansion**: ~70 countries covered via local dealers, with 900–1,000 overseas stores.

Overseas prices (1.5–2x domestic) allow 8-13% dealer margins, enabling rapid payback (6 months in Southeast Asia, 9–12 months in Europe)—fueling partner enthusiasm.