Saturday, September 17, 2011

Dalio Says `Nothing Surprising' About European Crisis

BYD responds to public concerns


Chinadaily.com.cn's reporter Meng Fanbin interviewed Mr Wang from BYD Public RelationsDepartment about recent issues under public scrutiny . Here are the scripts.
"Revenues falling"
ReporterBYD was reporting an 89 percent fall in first-half net income due to sluggish sales.What are the main reasons?
Mr WangThe expiration of government incentives for small cars and increasing competitionare the main reasons for the sales plunge.
ReporterApart from the outside reasonsis there something wrong with BYD?
Mr WangBYD is a green hand in auto industryWe lack experience in regional channelexpansion and regional channel allocation.
"Staff reduction"
ReporterHow large-scale is BYD's staff reduction?
Mr Wang: "Staff reductionis not the appropriate term to describe our recent adjustment. "Workforce rearrangementcan be better wordsBYD is just downsizing the auto salescompany and increasing working efficiency in accordance with the changing market.
ReporterBYD will close its marketing and sales divisions by Sept 30. What other departmentswere dismissed by BYD?
Mr WangFirst of allwe don't need many regional managers who serve for auto dealerssothey were sent to other departments to learnSecondlyemployees who had been in closeconnection with techniques were dispatched to work in the technique department.
ReporterThat is to say there was no large scale layoffis that right?
MrWangWe didn't lay them offMany quit their jobs voluntarily because they didn't getsatisfactory payments in the new positionSeveral former employees in BYD curse thecompany on the Internet to vent their discontentWhat they have said are not the total truth.
"Airbags flaws"
ReporterCCTV reported that the airbags on the popular F3 model cars failed to automaticallyopen in several crasheswould you please explain this?
Mr WangAuto Safety airbags are used only for emergency and they deploy on the condition ofparticular angels and strengthWe accept that we have some responsibility for itbut it is oneof the common problems that the whole auto industry must faceOther luxury car brands hadonce faced similar claims after accidents.
"Three yearsadjustment phase "
ReporterWhat is BYD going to do in the three year adjustment period?
Mr WangBYD's main goal is to optimize its productsIn order to improve the quality of carsithas to improve the quality of productionssale skills and management systemsUntil nowwehave done a lot to improve the quality of our autosfor examplewe just launched our first SUVS6 model to adapt to the Chinese marketOur newly-produced cars have made great progressin quality.

BYD: What went wrong when everything looked so right?


BYD was once the star of the Chinese auto industry. BYD’s founder, Wang Chuanfu was said to be a combination of Jack Welch and Thomas Edison. His company, meanwhile, made bold predictions of becoming the largest Chinese auto manufacturer by 2015 and the largest in the world by 2025.


Indeed, as one of China’s youngest auto companies, BYD exploded onto the scene in 2003. Within just a few years, its F3 and F0 models became among the best selling vehicles in their class. BYD ramped up production rapidly, even purchasing a Changsha-based bus manufacturer. Simultaneously, BYD built dealerships at “Shenzhen speed,” exploding from just 100 in 2005 to some 1100 by the end of 2010. It appeared to many that BYD’s draconian policies with its dealerships and its targeted dealer networks (A1, A2, A3,A4…) formed the ‘secret sauce’ of their success.
On top of all that, BYD became the darling of Warren Buffet and the media after a $232 million investment by Berkshire Hathaway. BYD promised to make lithium batteries that were cheaper and more reliable than anyone else. By combining their auto business with their battery business, it was assumed, BYD could conquer the burgeoning EV market and leave competitors far behind.
What went wrong?
Suddenly, less than two years after being featured on the cover of Fortune Magazine and being named as among the most innovative companies in the world by Fast Company, BYD appears to be on the ropes. Their land and factory complex was confiscated in Xi’an when the government determined that the land was obtained “illegally.” BYD dealers have rebelled, staging protests against BYD’s upper management and harsh polices, some have thrown in the towel entirely arguing that BYD’s policies allow them no room for profit. Auto sales are falling, and profits are plunging.
If that wasn’t bad enough, BYD’s EV dream seems to grow dimmer by the day. BYD managed to sell just 400 F3DM’s in 2010. The e6, meanwhile, has faced repeated delays in the Chinese market, and its appearance in North America is more than a year behind schedule.
Poised for a turnaround?
The simple fact is that BYD expanded too quickly in its early years. Like an overheated economy, a correction will (and is) taking place. But, if managed correctly, BYD may recover a much stronger and competitive company than it was prior to 2010.
If one peers deeper, behind the doom and gloom presented in the media, BYD is actually showing signs of a turnaround. While the media was quick to cover the Xi’an land scandal, it made little mention that the regulatory agency later revoked it decision and returned the land and factories to BYDBYD has stopped its senseless dealership expansion and removed of number of redundant facilities. Furthermore, they abandoned their draconian policies and focused on improving the training of dealership personnel. It is said that the number of complaints lodged against BYD’s dealers has fallen to half.
Furthermore, BYD’s sales numbers mask an important trend: diversification. BYD’s meteoric sales boom from 2005-2009 was driven almost exclusively by just two models, the F3 and F0. Now, as those two models face growing competition and market saturation, their sales are declining. The decline of the F3 and F0 is pulling down BYD’s sales numbers…but this does not represent a trend across all models. In fact, BYD’s newer models, such as the G3 and L3 are doing modestly well. The S6 SUV has gotten off to a great start and is among the top selling SUVs in the country. I expect that the G6, to be released soon, will also do quite well. Unfortunately, it appears that both the S8 and M6 models are dead on arrival (a price cut on the M6 should solve that, but I see no hope for the S8 as it was misguided from the beginning).
BYD’s sales diversification is coupled with a strong push upmarket; away from the cheap vehicles that most Chinese auto manufactures produce. Geely, the only other large privately-owned Chinese automaker, experienced a similar drop in sales as it began its transition away from low-end vehicles in 2007. Geely managed to pull through,and has reaped the benefits of higher-end vehicles…which carry larger profit margins. If BYD can manage to break through this ceiling, they too will be able to take advantage the larger profits margins it affords.
That said, BYD’s unique selling point has never been their gasoline vehicles, but rather their much touted plug-ins and EVs. While sales of the F3DM have been disappointing to say the least, the car is actually doing well in comparison to other electric vehicles being marketed in China. The failure of the F3DM is as much the failure of the Chinese government as it isBYD’s. What you say? China’s government has hefty support for “New Energy Vehicles,” therefore we cannot blame the government for BYD’s failure?
The reality is that China’s government has been very resistant to subsidizing EVs and plug-ins. In 2009 the government began providing up to $7,500 in subsidies for plug-ins and $8,800 for full EVs. That may sound like a great deal, but the subsidies were only available in 13 Chinese cities, and even then only to fleet buyers…not private individuals. The subsidy program was expanded to 20 cities in 2010, but even now, only 5 cities actually subsidize the private purchase of New Energy Vehicles (Beijing may be added this year). I believe that China’s government, which favors their own state-owned giants like BAIC or SAIC, is waiting until their own companies catch up in battery technology before rolling out a comprehensive/national plan to bring EVs to the forefront.
This is unfortunate for BYD, and may make significant EV sales impossible for a few years. Nonetheless,  BYD’s much-delayed e6 is showing some limited success. Last year, fifty e6s were deployed as taxis in a joint venture with the Shenzhen government. After a year of operation, the e6s had no safety incidents and despite frequent rapid charging, had less than predicted levels of battery decay. This year, the Shenzhen government has ordered 250 more. Hertz has signed on to begin renting the e6 in select cities, and a redesigned (and much improved) version of the e6, called the e6B or e6 Sport should go on sale in China by the end of October. Meanwhile, plans to export the e6 to North America are steadily moving forward. BYD recently launched a redesigned website for North America, and appear ready to begin shipping their vehicles in early 2012. Development of the joint BYD-Daimler luxury EV is said to be going smoothly as well. We should expect to see a prototype by the end of the year, with production beginning sometime next year.
BYD’s K9 electric bus seems to be generating a fair degree of attention as well, and may prove to be BYD’s savoir. The economics of electric buses may prove easier to justify as they follow pre-determined routes and therefore require fewer charging stations than taxis or private EVs. In the near term, the K9 could be the breadwinner for BYD. Already the Shenzhen government has ordered some 200 buses, and Changsha has followed with an additional 100. Reportedly, the Chinese central government also ordered 70 and orders for small numbers of K9s have poured in from Taiwan, Hong Kong, Singapore, Los Angeles, Rotterdam, and Frankfurt. Though the orders have typically been small, just a few units, they are intended as test orders and could lead to large fleet orders in the future.
BYD clearly has their work cut out for them. There is no denying that BYD bit off more than it could chew…and now is dealing with the consequences. But I wouldn’t give up on BYD just yet. How one views BYD is a matter of seeing the glass half full or half empty. The choice is yours.

Thursday, September 1, 2011

As Sales Slump, BYD Exec Says Auto Maker is Going Upscale



Forbes Conrad/Bloomberg
Stella Li, senior vice president of BYD Co, poses in a BYD e6 electric car at the company’s headquarters in Shenzhen, Guangdong Province, China, on Friday, June 17, 2011.

BYD
A promotional image shows BYD’s S6 sedan-SUV crossover.
Thanks to a nagging slump in car sales, Warren Buffett-backed Chinese battery producer and auto maker BYD appears to berunning short of funds to carry out its ambitious plans for electric cars and other “green” technologies. The big question: When will BYD’s sales of gasoline cars rebound?
While most industry observers are doubtful about the prospects for an early recovery, Stella Li, a key BYD executive now based in the U.S., said the company expects sales of gasoline cars to start posting year-on-year growth again by the end of the second quarter next year.
Of course, that is well at least half a year from now, and in the mean time BYD is likely to continue to report dismal business results. Sales of BYD’s gasoline cars have slipped every month since August last year.
Still, Ms. Li expects the turnaround to happen because Chinese consumers are responding positively to new cars BYD launched recently – most notably a new car-SUV crossover called the S6. The company also has high hopes for an upcoming sedan called G6. Both are larger and supposedly more upscale than compact cars BYD has focused on since they entered the car business in 2003 when it took over a small car maker in Xian.
“Our strategy is to focus more on premium-feel cars, and we are also focusing on introducing more green cars,” Mr. Li said in a recent telephone interview from Los Angeles, where BYD’s U.S. operations are headquartered. “Our target is to turn vehicle sales around by Q2 next year,” she said, referring to the second quarter of 2012.
Ms. Li said the reason why BYD is recalibrating its product strategy and is refocusing its product lineup on more upscale cars is because more and more Chinese consumers are now replacing their first cars, which they purchased several years ago, and are spending a bit more to buy new cars. Those consumers have tended to buy cars from foreign makers producing vehicles here with local Chinese partners – a trend that has depressed sales of cars from the country’s home-grown brands such as BYD, Chery and Geely. By coming up with more upscale cars such as the S6 and the G6, BYD is trying to keep those consumers from deserting the BYD brand.
BYD says it still plans to make an all-electric car called the e6 widely available to private buyers in China and the U.S. over the next couple of years. The company is also expected to launch another all-electric car in China it has been developing jointly with Germany’s Daimler AG by 2013. A Daimler spokeswoman said last week that project “is on track.”
Industry insiders and analysts say strategic cars like the S6 crossover and the G6 sedan aren’t likely to save BYD. “They lost momentum in terms of traditional vehicles because even though they have done well with compact cars, they have not had any other breakthrough products,” said Yale Zhang, head of automotive consulting company Automotive Foresight in Shanghai.
Take the S6 for instance. “The car looks like a copy of the Lexus RX. BYD’s brand image simply cannot support the type of more luxurious product they’re trying to promote,” Mr. Zhang said.
Ms. Li said she expects sales of those new cars to gain more momentum toward the end of this year. Banking on the “popularity” of the S6, BYD is setting aside enough capacity to produce by the last quarter of this year 10,000 S6 crossover cars a month, or 120,000 of them a year.
“The car is very popular and demand is very strong,” Ms. Li said.
While BYD doesn’t lack for optimism, history suggests the company and its investors may want to temper their expectations.
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