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BYD changing course, shifting focus onto electric public transport vehicles

At BYD headquarters in Pingshan, Shenzhen, BYD chairman Wang Chuanfu paced back and forth between several photographers. He patiently struck whatever poses they asked him to – standing, sitting or leaning on a car and smiling.

This was Wang Chuanfu’s first public appearance in 2014, a rather rare occurrence. He looked pale and thin, and one of the reporters even told him “You may not even be 50 years old, but you’re the most exhausted executive I’ve seen in a while.” Wang just smiled and said, “I’m all right.”

Wang has walked and survived a long path full of doubts and anxiety ever since he entered the industry in 2003 and set his sights on new energy vehicles. He took quite a bit of his style from Warren Buffet, and yet for many years BYD’s NEV sales struggled.

However, the industry terrain changed for the better in 2014. The government took active steps to support the industry with tax exemptions and subsidies at the national, provincial and city levels. In the first 10 months of 2014, NEV sales in China leapt upward. According to China Association of Automobile Manufacturers (CAAM), cumulative sales of NEVs through September were 38,163 units, a 280 percent growth rate. Currently BYD’s plug-in hybrid Qin has monthly sales of over 1,000 units. In the first half of 2014, BYD sold 6,478 units of new energy vehicles, 41 percent of all NEV sales in the country.

What does this mean? Wang believes that by the end of the year China will be ahead of the U.S. in monthly NEV sales. That is, more than 10,000 units per month. “The next two to three years will see an explosion in sales, and that China will become the world’s largest NEV market is unquestionable.”

However, compared with its promising NEV projects, BYD’s traditional vehicle projects are struggling. A manager at BYD told China Enterpreneur reporters that in 2014 BYD’s traditional vehicle sales dropped 20 percent. On the one hand it has rapid growth, on the other a downward slide. It is clear the direction the company is taking. “BYD won’t be making individual petrol models anymore. Rather, it will be making a single model coming in BEV, plug-in hybrid, and petrol versions,” according to Wang.

To prepare for a possible burst in NEV sales, BYD is expanding its iron battery production line. At the same time it will be releasing its Tang, Han and Ming lines of hybrids, and promoting the Denza, produced through its joint venture with Daimler.

Four years ago, bad decisions slowed BYD’s growth in the traditional vehicle segment. The terrain has changed, with NEVs making market breakthroughs. How will Wang walk the line between ambition and stability? 

According to Wang, “These days it’s as if there is only first place. Being in second is as good as being in tenth.”

Wang is a rather stubborn man, and a perfectionist. He provides continuous feedback to employees when solving problems. However, he is never resistant to change.

“We got some success in the petrol car industry, but we also got lazy and made a few mistakes. We’re fixing those mistakes now, and it’s a process that takes time. We’re in a period of strategic adjustment,” said Wang to China Enterprenuer.

BYD’s adjustments started four years back, when dealers were dropping its products and its 800,000- unit sales goal amounted to nothing. At the time, critics pointed out that BYD touted itself as an NEV company, but because of barriers like regional protectionism by local governments, the company’s NEV products were not able to break out. 

BYD’s course has changed quite a few times. It began as a company focused on traditional vehicles in order to bring in income and technical experience. Now, again it is moving from its focus on passenger electric vehicles to buses and other public transport NEVs.

“At the moment, public transport is the most important market segment. Projects like electric buses and taxis are our first priority, and our efforts have resulted in quite a few orders.” According to Wang, public transport vehicles account for only 1.7 percent of cars in the country, but their emissions account for a third. So it would be quite an accomplishment to take that 1.7 percent of vehicles and replace them with electric vehicles, getting rid of a third of all emissions.

In Wang’s opinion, there is a systematic advantage in promoting electric vehicle usage in China. Foreign governments are rather powerless, he says, often taking a while to get things done. But the Chinese government has already begun actively supporting the industry, and crushing regional protectionism, so a lot of these problems can be improved rapidly. BYD Sales Co. vice president Li Yunfei told China Enterpreneur that BYD’s electric K9 bus model would have sales revenue of ¥10 billion ($1.62 billion) by the end of 2014. This is quite a large change. For comparison, BYD’s total revenue in 2013 was ¥27 billion.

BYD’s ambitions do not stop at buses and taxis. It has also set its sights on sanitation vehicles, shipping trucks, as well as cement mixers and other work vehicles for use at airports, harbors, warehouses and mines. Wang’s hope is that all these will be using BYD’s electric vehicle technology, opening up a large market for them. 

Contrasting with its public transport and work vehicles, BYD’s passenger vehicle business is focused mainly on hybrid electric vehicles (HEVs). Wang says that for public-use vehicles, the government foots the bill, but for passenger vehicles citizens are the ones who decide what sells. He believes that for Chinese households buying their first car, for those that choose NEVs, 70 percent will buy HEVs and just 30 percent will choose BEVs.

Wang believes HEVs are more promising because, for BEVs, charging stations will need to be just as widespread as petrol stations. The country will need another 20 to 30 years to get to that point. With limited access to the charging network, car buyers have to worry about long- and short-distance trips, which makes an HEV the best choice. Tesla’s large scale charger construction is not what BYD has in mind, according to Wang. Rather, he believes the company should stay focused on its current plans, rather than invest heavily in building its charging network.

In the past BYD’s NEV efforts have been rather small-scale and it had worked alone. Now, Wang is trying to create alliances to push its HEVs. GAC, SAIC, Chang’an, Volkswagen, Mercedes-Benz, BMW are all allies in Wang’s mind, and not competitors. To him, HEVs are the way the NEV industry is going, despite the rather diverse market.

Backing up this decision is the strong sales in Shanghai of BYD’s hybrid Qin model. BYD accounts for over half the NEV sales in Shanghai, and for the Qin demand is always outpacing supply. Of course this may be related to the high NEV subsidies in the city. The Qin sells for ¥200,000, but after national, municipal and district subsidies it can be bought for just ¥120,000. On top of this, the city waives the ¥80,000 registration fee, which brings savings up to ¥160,000. It is easy to see why the Qin does so well.

This raises the question of whether BYD can sustain this performance if subsidies ever begin to decline. Wang’s opinion is that subsidies will gradually lessen, but with strong sales growth the cost of buying an NEV will go down. He believes that if the company can reach annual sales of 100,000 units, neither technology nor policy will be an issue any longer. In the future, he says, there will be no cost difference between NEVs and traditional vehicles.

The company is working on both public-use electric vehicles as well as passenger hybrids. In the future, as NEVs become the focus of BYD’s sales and revenue, its petrol cars will play a smaller and smaller role. After years of ups and downs, Wang sees clearly the difficulty of breaking into the petrol vehicle industry. “The difficulties we faced were mainly just strong competition. Our competitors’ prices just kept dropping, and international companies brought in strongest talent from abroad. It was tough,” said Wang. However, the progress BYD has made over the last three years is likely greater than the previous 10. Safety, quality and technology have all made great strides, but in the public eye, BYD is as it was six years ago.

An obstacle for BYD is that it is still seen primarily as a vehicle, battery and IT component manufacturer. Wang’s ambitions lie beyond these. “Solar power, power storage and NEVs are the three pillars of BYD’s future,” said Wang.

BYD entered the photovoltaics industry quite a few years ago. However, because of the industry’s ups and downs, BYD never was able to make much progress. Talking to Wang, one can see that in his heart he sees BYD as an energy company. Batteries, photovoltaics and storage are all energy technologies, while vehicles are the combination of these technologies.

His reason for developing energy products is that photovoltaics are the ultimate goal for human energy production, but the industry faces technical obstacles. One of these includes what to do when night falls, which is where storage technology comes in.

“We can put battery technology into a distributed form, and use cars as storage units. That way everyone will be able to store solar power.” Wang says that in BYD’s R&D for its electric vehicle products, it already had plans for its use in energy storage. Using AC to charge the vehicles means that they are able to directly interface with the grid.

Wang notes that most drivers spend only about two hours on the road in a day, and access to the grid is ubiquitous. The BYD e6 can charge straight from the grid, Wang says that e6 owners could easily program the car to charge from the grid at night when power is cheap, and sell it back to the grid during the day.

This rather idyllic situation may sound exciting, but there is a long way to go before it becomes reality. It would need cooperation from the national grid, as well as from the owners of electric vehicles and parking lots.

Over the past four years BYD has been reflecting on its faults and changing itself, and Wang’s personal style has always had a strong influence. For example, BYD almost always promotes from within, very rarely from other companies. Those that are poached from BYD are never allowed back in. Much of the middle management at BYD was hired straight from college into Wang’s circle.

Furthermore, even though four years back BYD had some product quality problems arise due to vertical integration, that has not changed Wang’s passion for it. During his interview, Wang went on for quite a while on the benefits of vertical integration. In his opinion, when the industry is calm, the factors that push it forward are management and efficiency, and this requires expertly controlled division of labor. When the industry is undergoing a transformation, vertical integration becomes a necessity, as it is necessary to control development at all stages to achieve any kind of breakthrough.

The industry climate has changed, and many are wondering how BYD will change with it now that NEVs are experiencing such explosive growth. Wang says the company is staying the course. Tesla is integrating Internet technology into its products, but Wang wants to focus just on the vehicles themselves.

(Rewritten by Oliver Spiro based on author’s article on iceo.com.cn)

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