BYD is pinning high hopes on the F3 sedan launched earlier this year to demonstrate that
“We’re switching the focus of our attention onto auto manufacturing, but that does not mean we will drop our IT business,” Xia Zhibing, general manager of BYD Auto Sale Co., Ltd. told a press conference in Shenzhen late last August.
Xia explained with an analogy: “In fact, we think it’s good for BYD to engage in two successful businesses at the same time, just like a giant with two strong legs on which he’ll find it easier to leap forward to catch up with others than hopping with just one.”
Two weeks later, however, one of those legs seemed to be weakening. BYD’s mid-term financial statements for the period ending June 2005 showed a 48 percent cut in revenue. Sales of its lithium batteries dropped for the first time since the company was listed in the Hong Kong Stock Exchange in 2002.
“Shrinking market shares of domestic cell phone producers were responsible for what had happened to our business,” Wang Chuanfu, chairman of BYD told Zhongguo Qiyejia (China Entrepreneur) in an interview.
Statistics from CCID Consulting Co., Ltd. showed that local mobile producers’ market shares had shrunk to 41.3 percent by last September, from 50 percent for the previous year. Wang noted that domestic mobile phone manufacturers contributed 35 to 40 percent of BYD’s sales in 2004, but this was likely to drop to no more than 10 percent in 2005.
Fast growing competitors have brought additional pressure on BYD. Among these, Shenzhen BAK Battery Co., Ltd. has been pressing forward most steadily to outstrip BYD. BAK, founded in 2001, has copied BYD’s manufacturing mode and sells its products at lower prices. The company’s daily production capacity of lithium cells is 1.5 million units. BYD’s daily production capacity of all cells is three million.
One year ago, the company got listed in OTCBB securities of the
Meanwhile, BYD’s Japanese rivals are not sitting idle. Sanyo, the industry leader, has decided to change its line of business from manufacture of home appliances to production of cells and electronic components, according to the company’s operation plan for the 2005-2007 period. The battery giant will invest mainly in solar power battery segment in the future.
BYD, the world’s second largest IT and electronic parts manufacturer, is also losing its cost advantages to its Japanese rivals, especially Sanyo.
According to Wang, two years ago, the cost gap between BYD and Sanyo is around 40 percent, but now it is no more than 20 percent.
Wang created a “cost-effective management mode with BYD characteristics” when launching BYD in 1993, by combining the use of manual labor with automation in its assembly lines. Thus, a Chinese manually operated production line costs only ¥3 million ($375,000). In contrast, a Japanese automatic one costs ¥83 million.
BYD rocked the price system set up by Japanese manufacturers with a 40 percent price gap soon after entering the market. Motorola and emerging domestic cell phone makers, such as Haier, Bird, TCL, etc., became BYD’s customers one by one.
“We have been the world’s second largest battery manufacturer since 2003, and there’s limited potential for us to grow further,” Wang told China Entrepreneur.
This made Wang consider entering the automobile assembly business, which witnessed a soaring growth in 2003. The Qinchuan Automobile Co., Ltd., located in
On January 2003, Wang Chuanfu announced in
In automobile assembly, BYD benefited from both its R&D strength in battery electronics and the lower cost in die manufacturing. With these two competitive edges BYD hopes to clear shareholders of suspicion about its chance of survival in automobile assembly.
“If we can make batteries at a cost 20 percent lower than Japanese firms, then it’s possible for us to make dies at a cost of just one 400th of that of the Japanese,” said Wang. “The core competitiveness of future auto manufacturing is cost in production. We are not afraid of competition as far as pricing is concerned!”
Starting at ¥73,000, the F3 is powered by a Mitsubishi 1.6L engine (4G18). “Its outstanding performance-price ratio attracted over 200 orders in the first two weeks after it debuted in
The market response was better than Wang had expected. “We sold 81 units of F3 just within five days this January, which made F3 the best selling sedan in
Wang also revealed that together with other dealers nationwide, he was invited to Shenzhen to decide the retailing prices with BYD, before it hit the market last September.
One month later, he noticed that ¥73,000 was just their suggestion.
F3’s competitive price is, to some extent, secured by the lower cost of dies (which accounted for 40 percent of the cost in a new car) independently developed by BYD. The company acquired Beijing Automotive Industry Corp.‘s subsidiary die manufacturing plant in 2003, which saved its R&D cost in developing the F3.
However, it takes time to lure consumers, especially those in
BYD has not carried out promotions for launching F3 in
“Personally, I like this sedan for its fashionable exterior design and competitive interior features,” Du said.
“The promotion for F3 in Beijing will surely help us with sales,” Su Qiang, sales director of one of BYD’s primary dealers in Beijing, told CBU/CAR one day after F3 debuted in Beijing. “We sold more than 50 units of F3s this month, and that’s close to our expectation.”
BYD sold 4,425 units of the F3 in the domestic market in March, according to statistics from National Passenger Car Market Information Association.
“F3 is to be exported this June or July,” Xia told CBU/CAR in late February. “Export of the F3 to
In February, Burmese Premier Sein Win visited BYD’s auto assembly line in
“We do have plans to export to ASEAN member countries,” Xia confirmed in a telephone interview with CBU/CAR on the company’s export strategy. “By now the Flyer is on sale in
Wang Shijie of Zhongjin, a car dealer for 23 years, said that BYD’s business ethics and solid financial capability made him decide to sell cars for this new market player.
Despite all the happy tidings, however, BYD’s debt-asset ratio had climbed to 65.2 percent, with net debts reaching ¥2.75 billion last June.
The F3 is expected to help improve the battery giant’s balance sheet. But it remains to be seen if the new car model can become a cash machine, so that BYD can walk on two strong legs instead of one.