BYD has radically reduced the price of expensive lithium-ion batteries by using less costly raw materials and learning how to make them at ambient temperatures rather than in expensively heated “dry rooms”. This has reduced their price from $40 to $12 apiece and made them competitive with less powerful nickel-cadmium batteries.
BYD created the “clean box” production facility, an innovation. With clean box, a single worker can insert his hands into through rubber gloves to work on the batteries in a clean atmosphere. This brought down the cost of the facility in comparison to clean rooms which other manufacturers were using.
BYD was essentially a process innovator, finding greater value through process improvements to make things of high quality, cheaper than the incumbents.
It took the same route in car production after buying a car company in 2003, Xian Qinchuan. When the company started building a supplier network, its small size became an impediment and vendors didn’t want to offer good prices due to lack of volume. The company took up the challenge and designed its own machines for painting vehicles that were a fraction of the cost of buying in. BYD also designed its own car mould machinery and then even started selling them to other carmakers.
BYD had proven its capability of doing what others did at lower costs. It imitated Toyota Corolla and provided its car for less than half the price. BYD shows pride in its “reverse engineering” skills. The company’s engineers also everse engineered a Mercedes car into the S8.
Its frugal, focused innovation approach catapulted BYD’s battery business into prominence (with 25 percent of the mobile phone battery market globally). Will it conquer auto business also with similar strategy?
Wang Chuan-Fu - The Ma Behind BYD
Charlie Munger, partner of Warren Buffett describes Wang Chuan Fu as a combination of Thomas Edison and Jack Welch - something like Edison in solving technical problems, and something like Welch in getting done what he needs to do.
Wang Chuan-Fu started BYD in 1995 in Shenzhen, China. A chemist and government researcher, Wang raised some $300,000 from relatives, rented about 2,000 square meters of space, and set out to manufacture rechargeable batteries. By about 2000, BYD had become one of the world's largest manufacturers of cellphone batteries and became a supplier that designs and manufacture mobile-phone handsets and parts to Motorola, Nokia Sony Ericsson, and Samsung.
BYD has begun selling a plug-in electric car with a backup gasoline engine called the F3DM (for "dual mode"), that goes on a single charge - 62 miles - and sells for about $22,000, less than the plug-in Prius and much-hyped Chevy Volt. This little-known upstart is ahead of its much bigger rivals in the race to build an affordable electric car. Today BYD employs 130,000 people in 11 factories, eight in China and one each in India, Hungary, and Romania.
BYD makes about 80% of Motorola's RAZR handsets, as well as batteries for iPods and iPhones and low-cost computers, including the model distributed by Nicholas Negroponte's One Laptop per Child nonprofit based in Cambridge, Mass. Revenues.
BYD's breakthrough strategy was using migrant workers instead of machines. In place of the robotic arms used on Japanese assembly lines, which cost $100,000 or more apiece, BYD actually cut costs by hiring hundreds, then thousands, of people.
To control quality, BYD broke every job down into basic tasks and applied strict testing protocols. By 2002, BYD had become one of the top four manufacturers worldwide - and the largest Chinese manufacturer - in each of the three rechargeable battery technologies (Li-Ion, NiCad, and NiMH),
Deploying the armies of laborers at BYD is an officer corps of managers and engineers who invent and design the products. Today the company employs about 10,000 engineers who have graduated from the company's training programs which has examinations and people who fail are not recruited.. BYD can afford to employ many engineers as their salaries are only about $600 to $700 a month; they also get subsidized housing in company-owned apartment complexes and low-cost meals in BYD canteens. Wang typically works until 11 p.m. or midnight, five or six days a week.
This "human resource advantage" is "the most important part" of BYD's strategy, Wang says. His engineers investigate a wide array of technologies, from automobile air-conditioning systems that can run on batteries to the design of solar-powered streetlights. Unlike most automakers, BYD manufactures nearly all its cars by itself - not just the engines and body but air conditioning, lamps, seatbelts, airbags, and electronics.
He owns roughly 28% of the shares, worth about $1 billion.
The company itself is frugal. BYD executives traveled to the Detroit auto show they rented a suburban house to save the cost of hotel rooms.
This attention to costs is one reason that BYD has made money consistently even as it has expanded into new businesses. Each of BYD's business units - batteries, mobile-phone components, and autos - was profitable in 2008. Overall, net profits were around $187 million. BYD, which is traded on the Hong Kong exchange, has a market value of about $3.8 billion. That's less than Ford ($7 billion at the beginning of April), but more than General Motors ($1.3 billion).
It's been reported that BYD stands for "Build your dreams," but Wang says that interpretation came later.
BYD wants to make its batteries 100% recyclable. To that end, the company has developed a nontoxic electrolyte fluid. To underscore the point, Wang poured battery fluid into a glass and drank it.
Assume a drive of 12,000 miles a year, gas costs $2 a gallon, and electricity price at 12¢ per kilowatt. A gasoline-powered car that gets 20 miles to the gallon will have annual fuel costs of $1,200 and generate about 6.6 tons of carbon dioxide. Electric car fuel costs drop to $400 a year and emissions are reduced to about 1.5 tons.
But, the big problem is the cost of the battery. Manufacturing a safe, reliable, long-lasting, and fast-charging battery for a car is a complex and costly undertaking. BYD claims to have achieved a breakthrough with its lithium ion ferrous phosphate technology.
BYD currently exports gasoline-powered cars to Africa, South America, and the Middle East, but they compete on price, not quality.
BYD's first plug-in hybrid, called a dual-mode car, is designed to run primarily on electricity, with an internal- combustion engine for backup. Two all-electric cars - the E3 and the E6 - will follow later this year. They will be sold first in China, to fleet users who will build central fast-charging facilities.
BYD researchers are talking of their next big idea, a product they call a Home Clean Power Solution. It's essentially a set of rooftop solar photovoltaic panels with batteries built in to store power for use when the sun's not out, all to be designed and manufactured by BYD.
Feb, 1995: BYD Company founded, with capital of RMB2.5 million and 20 members.
Sep, 1995: Recruited 300 employees.
July, 1996: Received ISO 9002 certification.
1997: Began manufacturing Li-ion battery.
Dec, 1998: Received ISO 9001 certification.
2000: Received UL certification.
2000: Became the first Li-ion battery supplier to Motorola.
Jan, 2000: Received ISO14001:1996 certification
2002: Became the first Li-ion battery supplier to Nokia.
May, 2002: Received QS-9000 certification.
Sep, 2002: BYD Shanghai Plant set up and Shanghai BYD Co., Ltd. founded.
Sep, 2002: BYD Lithium Battery Co., Ltd. received "Motorola Excellent Supplier Award".
Jan 22nd, 2003: Purchased Tsinchuan Automobile Company Limited (now BYD Auto Company Limited).
May, 2003: Assets reorganized with Beijing Jichi Auto Mould, BYD Beijing Plant set up and Beijing BYD Mould Co., Ltd. founded.
April 16th, 2005: First F3 comes off from the production line.
Sep 22nd, 2005: BYD F3 hit the market in Ji'nan, Shandong Province.
2006: First F3e, powered by Fe-battery, was developed successfully.
Nov 18th, 2006: BYD S8 first exhibited in the 9th Beijing Vehicle Exhibition.
March 6th, 2007: BYD Electronics India Private Limited founded.
July 30th, 2007: BYD F3R hit the market.
Aug 9th, 2007: First Business Sedan - F6 released in Shenzhen Pingshan Plant.
March 18th, 2008: BYD F6 hit the market.
Sep 2nd, 2008: BYD F0 hit the market.
Sep 27th, 2008: MidAmerican Energy Holdings Co, a unit of US billionaire investor Warren Buffett's Berkshire Hathaway Inc. took an approximately 10% stake by buying 225,000,000 new H shares issued by Hong Kong-listed BYD at HK$8.00 (US$1.03) per share. The total value of the investment is approximately HK$1.8 billion or US$230 million.
Oct 6th, 2008: BYD purchased the SinoMOS Semiconductor (Ningbo) Inc. with approximately RMB200 million.
Dec 10th, 2008: BYD Solar Battery Project Opening Ceremony held in Shangluo, Shaanxi; BYD Shangluo Base founded.
Dec 15th, 2008: BYD F3DM, the world's first dual mode electric car independent of specialized charging stations, hit the market in Shenzhen.
April 22th, 2009: BYD's first multi-purpose vehicle, M6, first unveiled in the 13th Shanghai International Vehicle Exhibition.
May 2nd, 2009: BYD e6 and several other vehicles displayed at Annual Berkshire Hathaway Shareholder Meeting.
May, 2009: BYD and Volkswagen (VOWG.DE) signed a Mou on EV and battery cooperation.
July 19th, 2009: BYD hardtop convertible S8 hit the market.
Oct 26th, 2009: G3 Vehicle hit the market.
May 27th, 2010: Daimler AG and BYD signed a memorandum of understanding to develop electric vehicles for China.
Jul 20th, 2010: BYD's first multi-purpose vehicle M6 hit the market.
Aug 16th, 2010: L3 Vehicle hit the market in Beijing.
Sep 30th, 2010: BYD's pure electric bus K9 came off from the production line.
Dec 24th, 2010: BYD's e6 get its first license in Netherlands, that is, e6 formally enters into European market.
Jan, 2011: BYD's pure electric bus K9 went into trial running in Shenzhen and Changsha.
More milestone information on company website