China's Plug-In Carmaker BYD Checks the Wires

Weak buyer demand and dealer discontent preceded the surprise resignation of automaker BYD Co.'s Xia Zhibing, the company's vice president for auto sales, in early August.

But the woes at privately owned BYD apparently run far deeper than the anemic sales figures suggest, indicating Xia might have decided to jump from a floundering ship.

(Xia Zhibing)

BYD recently listed on the Shenzhen Stock Exchange but its debut share prices fell short of market expectations. Shortly thereafter, it reported dismal half-year sales results.

The company reported selling about 220,000 vehicles in the first six months of 2011, down 23 percent from the same period last year. The report came August 23, less than two weeks after Xia announced through a microblog that before leaving he had "misled the company sales team" due to "eagerness for quick success and instant benefits."

While under pressure to boost sales, Xia said he'd been too harsh with the company's retail dealers. He failed to elaborate, however, declining media interviews.

Eight years ago, BYD was a maker of lithium-ion batteries that made a major leap into the auto industry. Not only did the company attract an investment from U.S. billionaire financier Warren Buffet, but for a time BYD's sales results backed up these aspirations.

According to company statements, BYD booked 48.4 billion yuan in revenue last year, a 21-fold increase from 2002, when the Shenzhen-based company listed on the Hong Kong Stock Exchange.

But Tang Jun, an analyst at GF Securities, said BYD is currently working through the growing pains any rapidly developing company may face.

Dealer Exodus

The pain was apparently too great for Xia. He officially left the company for "personal reasons," according to a BYD statement, but after some 308 unhappy dealers, or nearly 23 percent of its nationwide total, stopped selling the company's vehicles.

Last year's exodus from the dealer network was described in June in the prospectus for the Shenzhen exchange filing. The prospectus said dealers withdrew either because they failed to meet company-assigned sales targets or had lacked confidence in BYD's growth outlook.

But an industry source told Caixin that, in fact, the dealers quit because they were upset with BYD's management.

"In general, manufacturers give dealers sales targets," the source explained. "Once a target is met, manufacturers return some profits to dealers.

"But BYD often ignores this unspoken rule."

In late 2010, BYD founder and Chairman Wang Chuanfu admitted in an interview with Caixin that the company had made mistakes with its dealer network. "We're making adjustments," he added.

The market itself has been adjusting as well. Since January, auto sales have cooled because the central government lifted tax incentives for car buyers and several major cities introduced car-purchase restrictions to fight traffic jams.

Despite the tougher climate, China's automakers still booked 3.4 percent year-on-year sales growth in the first half of 2011 to 9.3 million units, according to the China Association of Automobile Manufacturers.

Some analysts say BYD fell behind other carmakers because Chinese consumers started shunning its models.

"Chinese consumers now pay more attention to quality and the brand names of cars," said an industry source. "That is what homegrown carmakers like BYD are really weak at."

BYD has an image problem, the source said, as consumers now lump its cars together with other indigenous brands that have a reputation for a lot of small problems. And its image is unlikely to change in the short term.

Dying Batteries?

BYD launched its first electric car in 2008, but according to the prospectus total plug-in sales have yet to exceed 1,000 units. That includes the estimated 500 electric buses and taxis that the company built for the World University Games held in Shenzhen in August.

Plug-in cars had been the big attraction for Buffet in September 2008, when the investor bought 10 percent of BYD's shares for US$ 230 million. Investors were generally positive about the company's strategy which called for pouring money earned from sales of conventional cars into electric car research and development.

Wang last year acknowledged that it's hard to make money selling electric vehicles. But he optimistically predicted profits from conventional vehicles would support the development of electric vehicles, as well as help the company master complete-vehicle manufacturing technology to build a foundation for a whole line of electric vehicles.

Most analysts interviewed by Caixin said BYD will not abandon its ongoing research and development into electric vehicles. But Chen Huanyu, an analyst with Guotai Junan Securities (Hong Kong) Ltd., admitted that the market for new-energy vehicles has yet to mature.

Chen does not expect BYD to achieve significant growth in the plug-in sector until 2013. Other analysts agreed that several years would have to pass before the electric vehicle industry is fully charged in China.

Moreover, BYD's alternative car story apparently has lost some of its appeal among investors. Many may have good reason now to doubt Buffet and other BYD backers, since profits from traditional car manufacturing are now shrinking.

According to the latest financial report, BYD's net profit fell 89 percent year-on-year in the first half to 275 million yuan. Earnings also fell 33 percent between 2010 and the previous year.

Auto sales made up 46 percent of BYD's revenue between January and June, down 25 percent from a year earlier, to 10.3 billion yuan. BYD's mobile phone component manufacturing and rechargeable battery operations, respectively, accounted for 43 percent and 11 percent of total revenues. Both non-car divisions posted year-on-year growth.

BYD raised 1.15 billion yuan through its IPO in late June. To ensure a successful listing on the Shenzhen bourse, Wang had voluntarily lowered the debut price to 18 yuan per share, compared with a recommended price of 22 yuan set by lead underwriter UBS Securities, according to a source from the Chinese unit of UBS AG.

BYD adopted this conservative strategy mainly because its growth momentum is slowing. The company is in urgent need of new financing to sustain growth and could not afford a failure with its mainland listing, said a securities analyst.

Switching Gears

The company is trying to get back on track by altering its vertically integrated business model, a mid-level executive told Caixin.

Analysts previously praised BYD for forming an integrated industrial chain, saying the system effectively kept costs in check. Like other Chinese auto brands, BYD takes a low-cost approach to carmaking. Yet its profits are higher than domestic counterparts, apparently because it uses an integrated industrial chain model.

Industrial Securities analyst Li Gangling said the business model may actually drag BYD's operations now that the consumer climate is weak and automakers have excess capacity. The model means the company must bear more operational risks and raise management challenges.

"Previously, BYD supplied 100 percent of its own components," the company executive said. "Now it's changed to 80 percent. The other 20 percent were introduced with competing outside vendors."

And that 80 percent self-supply rate is not BYD's baseline, the executive added.

"If vendors have components of high quality, (we'll) use those," he said. "If internally we're still not okay, it's possible we'll reduce the self-supply rate from 80 percent to 60 percent.

"The idea is we'll continue to eliminate backward production processes."

This sort of adjustment may also change recent investment arrangements. According to the prospectus, the company plans to invest in auto and component production bases in Changsha and Xi'an, as well as testing grounds and an auto parts production base in Shaoguan.

But the executive told Caixin that the Changhsa and Shaoguan projects may be scrapped.

A Changjiang Securities report said BYD's focus used to be pure expansion, but for the past year it's switched gears and adopted a new philosophy that puts more emphasis on product quality.

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叩关海外 比亚迪 (BYD) 储能电池日本市场受热捧

近日，据日本东京电视台《晚间新闻》播出，比亚迪蓄电池正式进入东京都内调剂药局安装使用。东邦药品河野博行社长对此表示，基于今年日本大地震对医疗事业所产生的影响(停电导致药局医疗电脑不能使用，影响工作进程)，调剂药局决定引进家庭用的小型电池以确保医疗工作的顺利开展，而此次采用的蓄电池是中国最大的电池厂家比亚迪所研发制造。

　　 据悉，在2010年收购了日本荻原馆林模具工厂之后，比亚迪在日本市场一跃成名，而日本的电池市场也是其新的市场目标。对此，比亚迪蓄电池代理店负责人铃木智英表示：“对于此项计划，公司已经筹备良久并开始顺利销售，预计日本市场对此将有很大需求”。

　　 自3月日本大地震以来，日本家电量贩店的防灾产品柜台上，最受瞩目的就是家庭用蓄电池，而比亚迪的蓄电池更广受追捧。Bic camara新宿西口店牛渡広树副店长表示，该店从上个月开始销售比亚迪的蓄电池，和之前的中小型蓄电池产品相比，比亚迪产品的最大特点是有2.4kwh的大容量，“500升的冰箱、42寸的液晶电视采用比亚迪蓄电池可以使用长达12小时之久”。而在普遍高于100万日元的大型蓄电池中，比亚迪80万日元的价格远低于同行，在日本市场具有极大的优势。

　　 据介绍，日本国内对比亚迪早已进行过深入的考察、研究，日本媒体WSB更专程为此远赴比亚迪深圳总部工厂进行考察。WSB记者児岛太一表示，“WSB来到了对日本市场发起攻势的比亚迪总部基地，这里开发、生产的产品面向全世界在出货。”约300万平方米的比亚迪总部基地让児岛太一倍感惊叹，他对于比亚迪特色之一的省电住宅及Smart-house——未来村表示出了浓厚的兴趣。据介绍，Smart-house能把太阳光及风能高效率地转化为电能，完全满足家庭的所有用电。同时，该住宅3年前在实际应用中已取得显着成效，并已成功进军欧美市场。对此，比亚迪日本商务部高级销售经理王驰表示：“比亚迪既有小容量的系统，同时也有应用于一栋独立房屋供电用的18kwh大容量系统。”

　　 WSB记者児岛太一表示：“比亚迪的储能电站值得信赖，并已供货给中国南方电网，采用比亚迪的电池作为停电时的备用电源，最大可以给7000代供电”。对此，比亚迪王驰表示，“在技术及成本方面，我们很有信心，我们致力于给日本提供好的产品。一栋独立的房屋能使用多少电？在空间方面有何需求？今后我们也会致力于这方面的研究。”

　　 随着日本的家电厂家、住宅厂家以及汽车厂家相继进入家庭用电池市场，产品的开发及相互的价格竞争也许会加速其面向家庭的普及，而比亚迪蓄电池的强势进入，不仅使其成为中国电池行业走向国外的新标杆，更为世界电池市场的发展提供了强大的技术支撑，成为中国创造的一面旗帜。

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Duke Energy CEO Jim Rogers On The Future Of Coal, Nuclear, And The Energy Industry

What have been some of the biggest challenges of running a massive utility?

In the five years since I've been at Duke, our biggest challenges have been several things. One is the recognition that after 50 years, the real price of electricity is going to rise because of tighter regulations on coal plants and the recognition that we have to restrict carbon. [After the merger] we will be [one of the] largest emitters of CO2 in the U.S. We have a special responsibility to lead on that issue.

We will have to retire and replace virtually every plant by 2050. In a sense, that gives us a blank sheet of paper. What will we build in the future? One of our challenges is going to be to try to position the company to totally remake its system of generation and at the same time modernize our grid, which effectively means going from an analogue grid to a digital grid.

What do you believe the energy mix will look like in the coming decades?

Over the last 20 years we have started using coal in a cleaner way. But there needs to be more technological development to use it in a low carbon world. Is this carbon capture and storage (CCS)? Is it a system to use algae to capture carbon and accelerate the growth of algae and then use it as a biofuel? I think CCS will play a role particularly if utilities are in a region where the geography works, but that's predominantly in the Midwest. The ultimate solution to [make coal more sustainable] is to recycle the carbon. We have relationships with a number of Chinese companies, and they're actually more focused on how you recycle the carbon rather than storing it. On some level, it seems like a more sustainable practice to take it and reuse it rather than store it in the ground.

So you do still believe coal will play an important part of the energy mix in the future?

By 2030 coal will still be here and be used, but in the longer term, with the realization that we will have carbon constraints, the question is whether the technology will evolve to allow coal to remain a [clean] alternative. Whether or not these technologies will be here in 2050 is a function of how well we can develop technology to reduce their emissions footprint. With respect to renewables, how fast can we bring down the cost of solar and wind in a way that we don't need subsidies?

Do you think solar and wind will become cheap enough to compete with traditional energy sources?

I do. [The price of] wind has come down rather dramatically. What's going to drive down the cost of solar--although I don't believe Moore's Law applies to solar--if you look at the Chinese who are leading the world in solar panel production, wind turbine production, and probably lead the world in the development of batteries ...the Chinese are developing the intellectual property of scaling, and that in itself is what creates value. The Chinese are going to find a way to scale this, and as they scale this, they will drive the costs down. I am confident that over the next two to three decades you're going to see prices come down pretty dramatically.

What about the future of nuclear plants?

We will have to retire and replace every [Duke Energy] nuclear plant by 2050. Lets start with the simple assumption that 70% of [low-carbon] electricity today comes from nuclear. If we had to replace that with gas...it would have a fairly detrimental impact with respect to climate. Two things give me hope. One is evolving technologies, the second is development of modular nuclear technology.

When I look at nuclear, I look at it both as modular as well as large plants in the future. I believe we have to solve the spent fuel issue. The question is whether we store it or recycle it. My judgment is that we'll find a way to recycle it. So [nuclear] will play a role, and it's kind of hard now to really predict the role. I mean, that's what makes this puzzle so interesting, because we know what the pieces are, we kind of have inklings of what some of the shapes of the pieces will be tomorrow, but to put the map together of what the mix will be--it's a pretty intriguing exercise. We've got to do it. We don't have a choice.

What are some of the new energy technologies that will be prevalent in the future that aren't so well known today?

If I knew that I'd be taking money and making bets. I think modular nuclear as a group will be breakout. I think there are going to be breakthroughs in solar technology. I think in the long run solar will trump wind because solar can be distributed [on rooftops] and also I think will be more efficient than wind turbines over time for a variety of different reasons.

I think battery technology will be transformative, not just with respect to intermittent sources of power, but also it has a fundamental impact on how the grid actually operates. I'm following very closely what BYD is doing. I think zinc air [battery technology] is kind of interesting because [the cells] become grid storage, which I think is important.

These are some of the areas that I think will evolve. The only question is which ones will be lowest cost and most efficient. We're at a very important point, I believe. I wish I could be a CEO for another 23 years. The technologies are coming together and are evolving. Some are clearer than others. I've always told people particularly recently that we're a technology company disguised as a utility.

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BYD Zinc-Air Battery

Notes: Thanks to Yahoo Msg Board

BYD-Daimler’s first car hits the patent office

BYD and Daimler signed a joint venture several months ago with plans to build a new brand which would utilize BYD’s electrical know how and Daimler’s automotive engineering skills and would focus solely on building new energy cars. The two have pushed a design to the Chinese patent board which of course was leaked in rapid time to the internet, the design clearly shows that BYD and Daimler have taken a design styles from existing models in their own respective portfolios, the side profile shows a little bit of the Mercedes B-Class where as the front grill is clearly BYD inspired, although this all changes when you get to the rear and see BMW 5-series style lights.

On looking at the car from the front and the side it appears to be a sedan, but in actual fact it seems to be a hatchback with a small protruding rear tail like in the style of Skoda’s more recent models and possibly more in line with the BMW 5-Series GT.

News on the powertrain seems to be very thin on the ground, its not entirely clear what the new car will be packing under the hood, but we will keep you updated as news becomes available.

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China is player to watch in tech R&D

China is evolving from the world’s factory to a crucible of innovation, rapidly approaching a world-class level in terms of both quantity and quality of research carried out. This carries profound implications for the competitiveness of Korea’s main industries and so-called growth engines. 

The big strides in China are in response to the government’s push to nurture indigenous innovation in order to end dependence on foreign technology and to help shift the Chinese economy into more capital and technology-intensive industries. But the seeds of the R&D commitment were sown even before a national innovation development plan was unveiled in 2006. 

Since 2000, the nation’s annual investment in R&D has expanded by 23 percent. In 2011, China is expected to rank second in terms of R&D investment based on purchasing power parity. In addition, China is benefitting from the largest national R&D workforce in the world, 20 percent of the world’s total R&D brain power. 

In both quantitative and qualitative terms, China has shown an impressive performance in innovation. From 2007-9, the annual average number of Chinese articles published in international science and technology journals totaled 104,157, placing China second. As for the number of articles covered in the top 10 percent of international journals, China ranked fourth from 2007-9, up from 19th place in 1987-89. 

According to a Total Factor Productivity analysis of approximately 1,200 companies each from China and Korea from 2001-9, Chinese companies’ annual average TFP growth stood at 4.46 percent compared to Korea’s 3.36 percent. If we assume Korea and China’s productivity levels were equal in 2001, China’s TFP growth was 20 percentage points higher than Korea’s in 2001-9. Technological progress accounts for nearly 90 percent of the TFP growth in China but only 63 percent in Korea. In particular, China is rapidly closing the technology gap with Korea’s mainstay industries such as electronics and automobiles. In new promising industries such as pharmaceuticals, solar power and electric automobiles, China’s technological capability has already overtaken Korea, leading the global industrial trend. 

In the electronics industry, China has surpassed Korea in R&D investment. It also started to overtake Korea in terms of the number of Patent Cooperation Treaty filings in 2008. As for telecommunication equipment and smart home solutions, China is grabbing the lead in next-generation product development. And in the electric car industry, strong government support already has led to international standards being set by Chinese companies such as BYD.

Being sandwiched between advanced countries’ high-end products and emerging countries’ low-end products, Korea has tried to gain competitiveness advantages by maximizing its strengths as a “fast follower” that upgrades existing products but keeps costs in check. However, China’s low-price and high-quality products, thanks to its innovation capabilities, will likely enjoy an increasing presence in the global market and apply pressure on Korean products. 

In response to China’s innovation strides, Korea needs to reestablish a national R&D system geared to maximizing its technological competitiveness. Rather than pursuing quantitative competition, Korea should pursue qualitative competition by supporting “star companies” or “star researchers.” 

Meanwhile, by strengthening a link between R&D main performers such as universities, research institutes and companies, the utilization of research results should be significantly improved. Second, Korean companies quite simply need to outpace their Chinese rivals in the innovation race. Korea’s world-class operational technology and operating efficiency in mainstay industries need to be maximized and bold investments into future industries should be made. 

Lastly, Korean companies should explore ways to utilize China’s top personnel related to key technologies.

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