Chapter 10: Ecology and climate change

BYD, whose motto is ‘build your dreams’, was the brainchild of Wang Chuan-Fu, who started his business in 1995 in Shenzhen, China, on funds raised from relatives. A chemist and engineer by background, his vision was to make rechargeable batteries that were reliable and affordable. He began by manufacturing batteries for mobile phones, aiming to capture market share from dominant Japanese manufacturers, Sony and Sanyo, whose imported batteries were expensive, not least because of Chinese import duties. By 2000, BYD overtook its Japanese rivals, and Wang went on to design handset and parts for Motorola. BYD still makes 80% of Motorola’s RAZR handsets, but Wang soon moved on to bigger challenges. He saw the car market taking off in China, and decided to diversify into car manufacturing. His opportunity came in 2003, when he bought a dying state-owned car company. Wang had little knowledge of cars, and while entrepreneurs are noted for taking risks that other people would not contemplate, Wang’s entry into car manufacturing seemed ambitious even by entrepreneurial standards. However, he was soon manufacturing low-cost sedan cars and grabbing Chinese market share from the established VW Jetta and Toyota Corolla. Meanwhile, his research was proceeding apace on his biggest career challenge: electric cars.
Wang was undaunted by the fact that many large MNEs with huge resources were also working on producing electric cars. Reducing greenhouse gas emissions has become a major element in combating climate change, and as China takes on a more influential role globally, its environmental policies are coming under the spotlight. Governments throughout the world are taking legislative initiatives to reduce the levels of permissible CO2 emissions from motor vehicles. They are also concerned about dwindling oil supplies globally. Manufacturers are responding with a range of innovations to reduce emissions while maintaining the flexibility of the internal-combustion engine. The technology that has fired the greatest interest has been the lithium-ion battery. But these batteries are expensive and have disadvantages in terms of convenience and range. Recharging is slow and most have a range which makes them suitable only for city driving. The hybrid, with a back-up petrol engine, or a petrol engine which produces more electricity (the ‘series’ hybrid) is seen as a potential game changer. General Motors’ Volt (Ampera in Europe) is one. At an estimated price of $40,000, it is still expensive, leaving much to play for in the innovation stakes.
The electric car is more efficient than the car powered by the internal-combustion engine. The latter can travel 1.5-2.5 km on a kilowatt-hour of energy. A hybrid can go up to 3.2 km, but a battery-powered car can go 6.5 km. Moreover, the energy that goes into an electric car is cheaper. The electricity used is generated on a large scale at power stations and is less wasteful than fuelling an individual car by filling it with petrol or diesel. Battery firms, often in conjunction with carmakers, are now rushing to develop lithium-ion batteries for cars. A Nissan-Renault-NEC partnership is launching a family car. BYD has lost no time in launching its own electric cars, the E3 and E6. Wang considers that his breakthrough technology based on new materials - the lithium-ion ferrous phosphate technology – will be a game changer. What is more, he aims to make the batteries 100% recyclable, using a nontoxic electrolyte fluid. His argument is that helping to solve problems of environmental degradation should not create more environmental problems.
Wang has won over one big convert, the respected US investor, Warren Buffett, who took a 10% holding in BYD in April 2009, amounting to $230 million. Buffet, too, says he knows little about cars, but is impressed with Wang’s drive and passion. The speed with which he has built up global market presence would be exceptional for an internet company. But for a manufacturing company whose business model is based on its own innovations, it is remarkable. BYD now has 130,000 employees in 11 factories: 8 in China and one each in India, Hungary and Romania. For BYD, the dream of an affordable electric car is becoming a reality. Now, Wang is moving onto another big idea, enhanced solar panels. His Home Clean Power Solutions involves solar panels with built-in batteries to store power when the sun is not shining. In the super-charged world of BYD, the sun never seems to set.
Sources: Dyer, G. (2009) ‘Chinese puzzle’, Financial Times, 4 November; Gunther, M. (2009) ‘Warren Buffett takes charge’, Fortune Magazine, 13 April; The Economist (2009) ‘The electric-fuel-trade acid test’, 5 September.

Questions for discussion:

• 
  What are the advantages and disadvantages of electric cars?
  
• 
  Why would an American investor such as Warren Buffett buy a large stake in a Chinese company such as BYD?
  
• 
  How does a relative newcomer such as BYD hope to compete against the established global carmakers in the electric-car market?
  

2016 update:

From 2011, BYD’s growth slowed and profits fell. Weak sales of electric cars, in which Wang had held high hopes, continued in 2012. Nonetheless, their were signs that his two new up-market models would excite consumers in China, where car sales had become sluggish. 2012 also saw weakening in sales of BYD’s automotive components, mobile phone components and solar batteries, although a boost in marketing of the company’s solar batteries was giving some cause for optimism. The company slimmed down the number of employees: from 185,000 in 2011, it reduced staff numbers to 178,000 in 2012. In 2012, BYD entered a joint venture agreement with a government-run bus company to produce electric buses for Chinese cities. Electric buses were to become one of the company’s most promising businesses.
Increased competition in China’s car market posed continuing challenges for BYD’s electric cars over the following two years, and the company found it difficult to increase sales. Inexplicably, the stock price plunged 28% in a single day on the Hong Kong exchange in 2014, causing alarm within the company. The management assured markets that all the company’s businesses were stable, and the stock regained most of the loss the following day.
By 2015, European interest in BYD’s electric buses was growing, and by then, the company could point to their successful operation in various Chinese cities. BYD decided to build an e-bus factory in Hungary, to satisfy demand in a number of European cities. 51 single-decker e-buses were launched in London in 2016. They are produced through a joint venture with bus company, Alexander Dennis Ltd. (ADL). BYD provides the electric technology, and ADL specializes in manufacturing the body of the bus. The zero-emissions bus has generated much interest in cities such as London that have low-emissions zones. The new factory in Hungary is expected to produce 1,000 e-buses a year, helping to make BYD a world leader in e-buses.

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