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Wang Chuanfu: EV turning point coming in 3 to 5 years

Autohome.com.cn recently interviewed BYD chairman Wang Chuanfu to hear his thoughts on the latest development of electric vehicles and the company’s future prospects. The following are highlights of the interview. – Editor

Among China’s independent brands, BYD has taken the lead in new energy vehicle development, manufacturing and sales. In your opinion, what does it take for local independent brands to gain a foothold in the electric vehicle business?

Wang: The key to developing electric vehicles is mastering its core technologies. This topic has been discussed over and over again, but we haven’t made sufficient progress in that regard.

Traditional auto manufacturing has developed a complete industry chain over the past century and it is highly specialized in division of labor. The electric vehicle industry, however, is a different thing. It needs a new industry chain that should be centered on electricity, mostly referring to the three major auto components:  electric motors, electric control systems and power batteries.

It seems BYD is placing the focus on commercial electric vehicles instead of private consumer products, why is that?

Wang: We are taking a gradual approach in realizing our goal. It takes scientific planning to launch new energy vehicle products. It is not practical to substitute all the vehicles in different segments with electric ones all at once. As we see it, the commercial vehicle market and public transportation sector are more mature for us to enter.

It is more convenient to build charging infrastructure for public transportation vehicles because their travelling routes are regular and fixed. Besides, the public transportation sector is more subject to government administration and policy making. But private consumers are not so guided by the government.

We are entering the commercial vehicle market also for an economic reason. Average driving cost for an e6 electric car is ¥0.2 ($0.03) per kilometer, compared to around ¥0.8 per kilometer in a gasoline car. In taxi fleets, an e6 will travel 150,000 kilometers a year and it will save up ¥90,000 in fuel costs compared with regular gasoline taxis

But it would take a private family car 10 years to travel the 150,000 kilometers, making an EV purchase less economically feasible.

Additionally, the operation of commercial EV fleets will help improve infrastructure construction, which also lays ground for further EV adoption by private consumers.

How long will it take to perfect the charging infrastructure with the help of commercial EV operation?

Wang: It is hard to predict that. It depends on the impact of regional protectionism, the implementation of EV subsidies and the established interests in procurement in the public transportation sector. In my opinion, the turning point will come along in the next three to five years. And before that, we have to look for more pilot cities where our products can be delivered and operated.

BYD has invested greatly in the photovoltaic industry (PV industry), which has negatively affected the company’s financial position.

Wang: The investment brings long-term and short-term benefits. Many people think we were holding up our traditional auto business when BYD set out to develop electric vehicles. Based on company sales reports, our major sales volume decrease comes from the A00-class F0 model, but our profitability rate has risen by 15 percent compared to 2011. We knew that we had made some mistakes in the traditional auto business including drastic dealership expansion and poor management in public relations. But on the whole, BYD is improving itself, especially in terms of the quality of the products.

As for the PV industry, we were not able to predict the quick change in the market when the price dived down to $0.6 per watt from $1.6. The impact on us is considerable in the short term. But we never regret entering the PV industry. The urgent thing for us is to survive in the industry and sustain the business. 2012 is the last year of BYD’s adjustment period. I believe the year 2013 will be a new beginning for our company.

Will BYD place more emphasis on the car-unit profit margin?

Wang: Yes. Our sales volume has dropped 10 percent but sales income rose by more than 10 percent. The car-unit profit margin also rose by 15 percent.

What’s behind the rising profit margin is the delivery of premium cars. We want to improve the premium price in addition to increasing profit margins.

Which you think is more attractive to consumers: the high configuration of independent-branded cars or the advantageous premium price of joint venture-branded products?

Wang: That’s a profound question we have to confront. Chinese people are unique for their emphasis on “face,” setting them apart from foreign consumers. They need a car not only to commute but also to represent their social status. The same thing happened to the home appliance industry a decade ago, when many Chinese saw the purchase of a Sony TV set as a face-elevating transaction. Now local brands have come to dominate 80 percent of the home appliance market from zero presence back 16 years ago. So I believe the auto market will progress similarly, but it may take it longer to happen.  I predict things will change around 2020.

Many local carmakers are hiring foreign designers to do their car styling. What about BYD?

Wang: While such a move is understandable, we won’t do it. We think aesthetics is culture based. Only Chinese know what is good design for the Chinese.

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