Its vast expertise in battery technology gives China’s BYD a major unique selling point – but can it translate that to success in the marketplace without resorting to deign piracy? Mark Bursa surveys China’s potential auto champion.
 
Chinese automakers have been regular participants at Western motor shows for nearly three years now, but despite their high profile, the Chinese invasion still hasn’t happened.

There have been some impressive vehicles too – the Great Wall Hover SUV and Wingle pick-ups caught the eye at the 2006 Paris show, but since then it’s all gone rather quiet, with Great Wall concentrating on launching a domestic-market car range. Unfortunately these cars aren’t so exportable – they’re blatant copies of Western designs. Two steps forward, three steps back…

Meanwhile Brilliance has ticked most of the boxes, including sensible branding and an experienced European management team. Heck, even the sales literature is written in English, not amusing “Chinglish”. But Brilliance’s efforts have been hampered by the other Achilles heel of the Chinese – crash testing. An independent test on the Brilliance BS6 sedan was as disastrous as the notorious Landwind test of 2005. Two steps forward…

The same safety issue prompted major rethinks on the part of the two most aggressive Chinese independent automakers, Chery and Geely. Geely wound back its launch schedule – and now won’t name a date for exports to developed markets. Meanwhile Chery has changed tack completely and taken the more traditional partnership route, forging alliances with Chrysler and Fiat.

The effect of these faltering plans has created an opportunity for the Chinese auto industry to put forward a new champion – a company with something original to offer, rather than the usual recipe of low-cost budget cars with unpronounceable names. Establishing a brand from the bargain basement is a slow task – it’s taken Korean brands such as Hyundai and Kia more than twenty years to become accepted as mainstream automakers. And for the Chinese today it might take even longer, given the growing brand-awareness and sophistication of the modern consumer.

However, one Chinese company has given more than a hint that it might just be able to leapfrog that slow drag out of the bargain basement. BYD has impressed with its presentations at both the Detroit and Geneva Shows this year, where it has put its cards on the table – and those cards are green.

BYD is an automaker with a difference – it's the subsidiary of one of the world's largest battery manufacturers, and that could give it a crucial advantage in developing environmentally friendly vehicles. “Battery technology is our core competency, and we think we are well-placed against GM and Toyota,” said chairman Wang Chuanfu at last month’s Geneva show.

BYD showed a range of China-market cars at both shows, but these are not the cars it plans to sell in Europe or North America. Indeed, among these cars are still some elements of the “bad old ways” of the Chinese auto industry. The F8 coupe-cabrio is very much Mercedes-derived, while the F1 city car, shown at Geneva, is a blatant copy of the Toyota Aygo. But none of the cars on show will ever be sold outside China, said Henry Li, general manager of BYD’s auto export trade division. Instead, special European models will be designed, with major input from European design consultancies.

“It will take two or three years before we enter the European market, and we know it take time to build a positive image,” Li said. “But we are bringing a lot of innovations to the market. We are focused on technology, and have greater competence than most other Chinese companies.”

At the heart of this competence is an advanced dual-mode (DM) hybrid system fitted to the Toyota Corolla-sized BYD F3 model. This combines hybrid and electric vehicle systems, with an 110km pure EV range. The DM system employs BYD’s own Ferrous (Fe) battery technology, which offers a “significant price advantage” over rival battery technologies such as Lithium Ion (Li-Ion) or Nickel Metal Hydride (NiMH), Li added. The most significant feature of the ferrous batteries is their rapid charge ability - BYD said they can be recharged to 50% of capacity in just 10 minutes, though a full recharge takes 9 hours.

This is potentially game-changing. It would be possible to stop at a motorway service area to have a cup of coffee, while charging your car for a 50km, zero-emissions journey. BYD’s North American vice-president Micheal Austin said at Detroit he believed DM technology would replace current hybrid technology. “It will change the world as we know it today,” he said.

In January 2006, BYD established its Electric Vehicle Institute in order to focus on EV and hybrid systems development. This has been responsible for the development of the Fe battery, which offers high performance in terms of durability and safety – with a voltage of only 3.3V, the battery will not explode in a crash, even if it is burning. And BYD claims it will outlast the car to which it is fitted, offering 2,000 charge cycles or 600,000km.

Two DM prototypes have been shown. The F3DM shown at Geneva is already in production in China; a larger version, the F6DM, was shown to the US market. This has a slightly lower range of around 100km in electric mode and a further 190 miles when using the gasoline engine as a generator to charge the battery pack. The F6DM will go on sale in China later this year, with a USD6,000 price premium over the standard F6 – and that investment could be recouped easily in terms of vastly reduced fuel usage.

If there were any doubts about BYD's battery expertise, here are some impressive statistics: BYD is the global number one supplier of Nickel Cadmium (NiCad) batteries for laptop computers, with a market share of around 65%, and it is the biggest supplier of Li-Ion batteries for mobile phones with a 35% share, supplying companies including Motorola and Nokia. BYD claims that 25% of all the mobile phones in the world are powered by BYD batteries, and most staggering of all, the company says 17% of the world’s population use BYD batteries.

This dominant position has been achieved in rapid order – chairman Wang Chuanfu founded BYD in 1995, but by 2002 it was listed on the Hong Kong Stock Exchange, setting the highest IPO price record. By 2003, BYD had become the second largest rechargeable battery manufacturer in the world, with more than 120,000 employees, and a market value close to USD4bn.

What prompted this successful company, operating in a highly profitable and growing sector, to take a risky punt on the car business? In fact, BYD’s entry to the car business wasn’t that risky at all. In 2003 BYD bought a bankrupt state-owned small automaker called Shaanxi Qinchuan Auto Company Ltd, based in Xi’an. This was a clever move as it gave BYD a Government-sanctioned “permission” to produce automobiles in China. This loophole has now been closed – now the permissions do not automatically transfer with changes of ownership.

Qinchuan made a small car based on Suzuki technology called the Flyer. It’s still built, though in dwindling numbers. Meanwhile, seeing considerable synergy between the battery business and the car industry, BYD has ploughed the profits of its battery business into a major expansion of its auto manufacturing operations, giving it an annual capacity of 300,000 units. “Electricity will eventually replace gasoline” as the main propulsion for cars, Wang Chuanfu told reporters at Detroit.

BYD currently has two car plants: the original 1m sq m Qinchuan plant in Xi’an and a new, 1.8m sq m factory in Shenzhen. There are also R&D centres in Xi’an, Shenzhen, and Shanghai. R&D operations alone in the group employ 6,000 people, nearly half of these at the latest centre, next to the new plant in Shenzhen’s Pingshan Industrial Park. And taking a leaf from its IT business, BYD has become an auto parts supplier to western companies via its mould plant in Beijing, which is reputed to be one of the largest and most advanced in China and supplies moulds for many international auto brands including Chrysler and GM.

So where to now for BYD? The company has a grand ambition – to be number one Chinese manufacturer by 2015, by which time production will have soared from 2007’s level of 100,000 units a year to 1.5m. There are a lot of pretenders to this crown – but BYD’s DM hybrid technology gives it a genuine chance to make an impression in the West without having to enter the market through the bargain basement.

It still has some learning to do. It’s all very well copying foreign designs that are not offered in China and building facsimiles for the Chinese market. In fact it’s quite legal to do so under the vague Chinese copyright laws. Toyota has no comeback against BYD over the F1, as its Aygo is not on sale in China. But it’s another thing to display these cars blatantly in the West, at auto shows where the original Aygo is just a few metres away.

Copyright infringement makes foreign companies suspicious of doing business with BYD – and BYD needs to wise up to this, as it wants to do business with other automakers. At Detroit, BYD’s Micheal Austin said BYD would like to offer the DM hybrid and Fe battery technologies to a partner, but said none of the US Big Three had expressed an interest. At least BYD has changed its logo – the original was a straight copy of BMW’s. Instead it’s now using its corporate group badge on the cars.

Perhaps there is a bigger future for BYD as a dominant powertrain Tier 1 rather than as an automaker – supplying batteries and hybrid powertrains to global automakers, much the same way as it supplies batteries for Nokia phones and Toshiba laptops. We’ll see. Right now, it’s looking as likely as any other Chinese car firm to be the breakthrough brand without needing to resort to focusing on becoming a supplier. And that’s a strong position to be in.

Mark ‘Coolbear’ Bursa

 

 

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