| This article is reprinted from our green investing newsletter, Progressive Investor. |
Update: 3/19/10
BYD decided to delay the widely anticipated commercial rollout of its Model E6 electric car, which was scheduled for late 2010. They will build only 100 E6s to be used as taxis instead. Further development of EVs depends on the success of the taxis.|
BYD says it still plans to introduce its F3DM plug-in hybrid in the US by the end of the year, and will market hybrids and the E6 EV in Europe next year. The plug-in went on sale in China on April 1.
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BYD Company (1211.HK; BYDDF.PK)
Shenzhen, China
Market Cap: $157B
Price: $68.90
52 Week Range: $13.38-88.40
Rating: Hold
BYD Company, which stands for Build Your Dreams, emerged from relative obscurity when Warren Buffet’s Berkshire Hathaway (BRK.A, BRK.B) spent $231 million for a 10% stake in September 2008.
Founded by China’s wealthiest man, BYD is the world’s largest producer of rechargeable batteries and a major car manufacturer in China, which recently surpassed the US as the world’s largest market for cars. It also makes handsets and parts for mobile phones. Its F3 sedan was the bestselling automobile in China last year.
Wang Chuanfu founded BYD in 1995 and has rapidly grown the company to 130,000 employees. Revenues have grown about 45% annually over the past five years, reaching $4 billion in 2008.
Just five years after it opened its doors, BYD became one of the world’s largest cell phone battery manufacturers, making batteries for iPods, iPhones and low-cost computers, and cell phone handsets and parts for majors like Nokia and Motorola. In 2003, BYD entered the auto-making business by buying a near defunct state-owned car company, and went public on the Hong Kong exchange in 2007.
The company has its sights set on becoming China’s top automaker by 2018 and a major global player by 2025 with 8-9 million vehicle sales. Last year, BYD sold 400,000 cars and plans to double that this year through increased exports.
When it introduces the e6 EV in California this year it will be the first Chinese vehicle-maker to sell in the US. It plans to export the EV to Europe next year.
The e6 has a top speed of 87 mph, travels 205 miles on a single charge and only takes about an hour to charge. Some say the car won’t sell well in the US because its design looks outmoded to Americans, and the quality of body panel fit and paint finish doesn’t meet US standards. The price tag will be a steep $40,000, on par with GM’s Chevy Volt.
Last year, BYD launched the world’s first plug-in hybrid, the F3DM sedan, but sold fewer than 100 units in the first eight months. It goes 62 miles on a charge and sells for only $22,000.
Solar Too
BYD is also leaping into solar with a vertically integrated manufacturing model. It began building a massive $3.3 billion, 5 GW crystalline silicon plant in 2009, to be completed in 2015. The company claims its proprietary production process can cut polysilicon costs in half.
Future Village, a small complex at its corporate headquarters, runs on eight wind turbines and solar PV, all made by BYD. There’s also an energy storage unit that captures excess solar and wind energy, also made by BYD.
BYD’s entry into solar is supported by government subsidies, land rights to two silica mines, and the purchase of its output.
Buffet and BYD
Buffet has already made a $1 billion on his investment in BYD, while holding a stake in the world’s adoption of clean energy and China’s economic growth. Besides leading in rechargeable batteries of all kinds, BYD has a shot at becoming the world’s largest automaker, primarily by selling electric cars, as well as a leader in solar production.
The purchase was viewed as atypical for Buffet, who doesn’t typically invest in new, disruptive technologies like electric vehicles. He also doesn’t invest in technologies he doesn’t know much about. But it takes a special person to capture a leading market share in batteries and vehicles in such a short time – Buffet invested in Wang Chuanfu as much as the company.
Chuanfu has been able to quickly turn BYD into a low-cost battery producer by turning the capital intensive battery manufacturing model on its head. Rather than investing in expensive robotic manufacturing, he created a simple production process that relies on China’s cheap labor instead.
He’s spent far more on R&D than other Chinese manufacturers, improving products and modifying the manufacturing process. He’s also been able to attract leading scientists because of an emphasis on great benefits: free housing, food, health insurance and access to free education for their children.
Chuanfu has been called a combination of Thomas Edison and Jack Welch, and, like Henry Ford, is a skilled engineer and scientist as well as an outstanding entrepreneur. He started BYD after raising $300,000 from relatives and set out to compete with Sony and Sanyo making rechargeable batteries.
Buffet liked the fact that Chuanfu would only sell him 10% of the company – he wanted 25%. Buffet believes that all cars will be EVs in 20 years and BYD has a legitimate shot at becoming one of the largest suppliers of EV battery technology and EVs. But the biggest advantage may be access to BYD’s energy storage technology. Buffet’s utility, MidAmerican Energy Holdings acquired the shares in BYD and has already started using BYD’s energy storage system in Oregon.
BYD was a top performer on the stock market in 2009 – its shares rose 439%, propelling Wang to the top of Forbes 2009 list of China’s wealthiest. In addition to the Hong Kong exchange, BYD is planning a $100 million IPO on the Shenzhen exchange this year. The stock is down about 10% this year and is worth keeping on your radar screen.
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| This article is reprinted from our green investing newsletter, Progressive Investor. |
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