BYD Already Surpassed Ford, and It's Only Now Revving Up Ambitions. Here's How It Can Win.

BYD made a huge splash after exploding onto the global electric vehicle (EV) scene and impressively surpassing Tesla in battery-electric vehicle (BEV) sales for the first time in history last year. Perhaps more surprising was that BYD also surpassed Ford Motor Company for No. 6 in total global units sold, including sales of BYD's plug-in hybrid EVs (PHEVs) that year.

Rather than enjoying its meteoric rise to EV prominence and overall success, the Chinese juggernaut set its sights even higher: becoming the world's top automaker. Here's how it can get there.

Target in sight

BYD's new target is ambitious: to overtake Toyota Motor (NYSE: TM) to become the undisputed largest car company in the world in five years. That would certainly be a feat considering Toyota sold more vehicles last year globally at 11.3 million than BYD (~4.6 million) and Ford (~4.4 million) combined, by a fairly wide margin.

Some investors may have scoffed at BYD's new goal. Still, one person who certainly didn't was Toyota's vice chairman, Koji Sato, who didn't name Chinese automakers directly but suggested standardizing certain components across Japanese automakers as a new "Japan standard" to cut costs, improve efficiency, and drive innovation in more valuable areas.

This is one of the concepts the Chinese have used to dramatically undercut global competitor pricing without sacrificing advanced EV technology. "Unless things change, we will not survive," Sato said during Toyota's annual supplier meeting in March, according to Automotive News.

A simple example of how this works effectively is that a component, such as an air conditioning unit, which doesn't affect consumers' choice of one brand over another, is shared among competing Chinese automakers. This reduces development costs and increases order volume, thereby lowering unit costs, among other factors.

As long as it works, this is brilliant. A counterargument would be that if a shared component such as this triggers a massive hardware recall, it could ding the entire Chinese automotive industry.

How does BYD get there?

If BYD can achieve its goal and overtake Toyota, it'll essentially do so with one hand tied behind its back. That's because, thanks to steep tariffs on Chinese EVs entering the U.S., which remains the second-largest EV market by volume globally despite slower-than-anticipated growth, BYD won't likely enter the U.S. in the near term.

So, how does BYD get to No. 1? Amid China's softening automotive market and economy and a brutal price war, BYD will continue to focus on exports to drive overseas growth in regions with surging EV and PHEV demand, specifically Europe, Southeast Asia, Australia, and Latin America. As it does so, and eventually the Chinese market improves and demand returns, it will likely return to domestic growth.

BYD will also have to eat a piece of Toyota's pie directly. The EV maker is already rapidly feeding into crucial segments in key regions of the previously mentioned emerging markets, which will directly eat into the traditional sales volumes Toyota has enjoyed.

Image source: BYD Co.

Alongside those direct growth paths, BYD will also need to double down on what it already does well: roll out advanced technologies such as its second-generation Blade Battery and five-minute fast-charging technology and continue to drive greater efficiencies through its vertically integrated supply chain to make its vehicle price points more aggressive.

Lastly, BYD needs to continue pushing high-end vehicle development. While known for its prowess with affordable high-volume brands, it's currently gearing up to unleash a luxury segment offensive through three brands: Denza, Fangchengbao, and Yangwang. This push won't have the same high-volume impact as its mainstream brands, but there is incremental growth to be had -- the bonus is that those sales will come with higher margins, too.

What it all means

The way I see it, BYD is shooting for the stars, and if it falls short, it'll likely still be a highly valuable investment in the long term. BYD has competitive advantages in cost and vertical integration, a strong footprint in both powertrains of the future (BEV and PHEV), and has shown an ability to rapidly develop not only technology but new vehicles at a much faster pace than the global industry is accustomed to.

BYD doesn't need to overtake Toyota to be a great investment, and it's likely to remain one.

Daniel Miller has positions in Ford Motor Company. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends BYD Company. The Motley Fool has a disclosure policy.