Byd – the Case for Electric Cars
While most Americans have never even heard of the Chinese company BYD, it is a company with plans to make a big impression on the auto industry. What started off as a young man’s fascination with batteries in 1995 has grown to be one of the leading manufacturers of rechargeable batteries. BYD Company Ltd is headquartered in China’s largest and fastest growing city, Shenzhen which sits just north of Hong Kong. The company began in 1995 when twenty-nine year old chemist and government researcher, Wang Chuan Fu, started a rechargeable battery company. He received an initial investment of $300,000 from relatives for the company’s start-up.
Despite being raised by siblings after his parents’ death, Wang Chuan Fu rose to rank number 559 on the 2009 Fortune’s World Billionaires List. His net worth is reported at $1. 3 billion. Wang studied battery technology at Beijing’s Non-Ferrous Research Institute. He wanted to design superior rechargeable batteries to replace poor quality imports. He studied the Japanese imports by dissecting and studying Sony’s and Sanyo’s battery patents. Both Sony and Sanyo unsuccessfully sued BYD for patent infringement. BYD improved the quality of rechargeable lithium batteries.
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Unlike its major competitors, BYD’s battery products have never been recalled for safety problems. Although Sony currently controls the largest share of the consumer battery market, BYD is a major provider of batteries for many Motorola and Apple phones and electronics. Rechargeable lithium ion batteries contain more power than other batteries of comparable size. They are used in most consumer products like cell phones and laptops. BYD R&D teams are researching lithium ion batteries that steam instead of explodes when they overheat. Another R&D project combines solar power to recharge batteries.
Without having any automobile manufacturing experience, Wang Chuan Fu purchased Tsinchuan Automotive Company in 2003. The acquisition of the defunct Chinese state owned car company created BYD Auto Company LTD and focused on creating limited gasoline powered vehicles that use batteries such as hybrids and electric vehicles. Why Electric? Emissions from automobiles are a major contributor to Global Warming, and many organizations are working diligently to provide viable transportation solutions. BYD has produced 2 options that are offered in China: hybrids/dual mode and electric vehicles called F3DM and e6, respectively.
In traditional vehicles, the fuel tank supplies gasoline to the engine which turns the transmission and wheels. In contrast, an electric car uses a set of rechargeable Lithium Ion batteries that provides electricity to its small electric motor. The motor in turn powers the transmission and wheels, providing force and no emissions. Unlike gas-powered cars, EVs have no transmission, internal combustible engine or engine parts (i. e. spark plugs, valves, fuel tank, tailpipe, distributor, starter, clutch, muffler or catalytic converter).
Instead, EVs uses wires to connect the electric motor, controller, and rechargeable batteries. A hybrid car uses both electricity and gasoline to power its motor. It has a battery-powered electric motor that assists the engine when accelerating, and an energy-recovery system from braking that charges the battery. Its engine is smaller, and the battery is larger to hold more energy than the traditional gas powered vehicles. Hybrids significantly increase the mileage and reduce the emissions of a gas-powered car while overcoming the shortcomings of an electric car.
Are Electric Cars a Viable Option? There are several major hurdles to overcome before electric vehicles are truly viable alternatives to gasoline-powered vehicles. Due to the frequent need for batteries to be recharged, electric vehicles are only useful for travelling short distances. Research continues and several companies are currently producing recharging options for EV owners. They include attached and detached solar panels, household plug-ins, and plug-ins stations. In addition to the traveling and recharging capacity of EVs, the viability is tested with the general safety of the vehicles.
There are also concerns surrounding the use of the highly volatile lithium ion as a source for energy. Due to rising prices and short supply of oil and the push for a greener planet, the public’s interest in EVs will continue to grow. In response, auto manufacturers will need to pursue safety, cost-cutting measures and efficiencies in production in order to make EVs a viable and affordable option for future generations. SWOT BYD has made great strides in the industry by finding innovative ways to manufacture high quality batteries at lower costs.
In order to get an accurate picture of their potential, it is important to examine their strengths, weaknesses, opportunities and threats. Strengths: 1. First auto maker in the world to produce a hybrid vehicle on a mass production basis 2. Low cost production in comparison to competitors, due to the abundance of cheap labor in China 3. High quality batteries that are safer than lithium ion batteries and 100% recyclable 4. BYD is building employees’ loyalty by providing housing and other living expenses Weaknesses: 1. BYD is currently labor intensive and the cheap labor cost is considered the main cost saving component.
Expensive high capacity machinery does not seem to be an option for BYD at this stage, which could cause an imbalance as the demand is growing rapidly. 2. High mileage models are expensive 3. BYD has not developed a battery that is much lighter and cheaper that its competitors Opportunities: 1. Berkshire Hathaway (Warren Buffet) partnership in the company may bring other international investors 2. Chinese government supports the Lithium ion battery industry as a strategic industry and will be investing 1. 5 B in support 3. Global push for greener environment Threats: 1.
Giant players in the market such as GM, Ford, Mercedes Benz, Volkswagen and Toyota will create aggressive competition for BYD 2. Undersupply issues from large lithium producing countries outside China 3. Foreign government regulations that could be a hurdle to enter global markets 4. The lack of battery charging networks will slow down market penetration for BYD Recommendations There are three recommendations for BYD to become the world largest automaker. Marketing to the American consumer, purchasing a Chinese competitor and concentrate on hybrids. Marketing to the American public should have a two-pronged approach.
Part one is to target the baby boomers born between 1945 and 1964, who have the income to purchase electric vehicles. The majority of patriotic “buy American” baby boomers who are reluctant to buy foreign vehicles are now out of the new car market. Their population is approximately 78 million. The electric vehicle will appeal to them because they are typically local drivers and extended trip range is not necessarily a deal breaker for them. Following the Baby Boomers is Generation X, born between 1965 and 1984. They number a mere 46 million and are dwarfed by both Generation Y following them and the Baby Boomers.
While there will be buyers from Generation X willing to purchase, the number of them is so small that BYD could have a difficult time winning over enough of them to make a difference. The second approach is targeted at Generation Y, born between 1985 and 2004. There are about 90 million in this group. Gen Y has grown up with the internet and they are accustomed to ordering items as they want them. Japanese automakers have successfully marketed directly to Gen Y and have found success in letting them customize cars to their specifications. They want a car that is reliable, small, lightweight, fuel efficient and fast.
These vehicles must also have aesthetic appeal to this group with such options as ground effects, spoilers, and exotic paint. The prime car buying consumer in America is currently a 43 year old male. The peak buyer of Generation X has already surpassed the optimum car buying age. Generation Y has not hit that age yet but they are in the midst of the younger buyer looking for the car that can be easily modified. The peak age of Generation Y is currently 18 years old. When Gen Y reaches the prime car buying age BYD should already be entrenched in America as a viable option for them to continue buying.
They will need a better web and market presence prior to the expected 2010 release of the e6 vehicles for sale in the US. BYD should strongly consider buying a competitor in China. Because BYD is so labor intensive they should look to automate production tasks to keep them competitive. Purchasing a failing competitor would give them the least expensive entry into an automated process. The Chinese government is pushing the infrastructure to make hybrid and electric vehicles more viable by putting forth an effort to construct recharging centers for hybrid and electric cars.
When this project is completed, BYD could see an increase in demand for their electric and hybrid model cars. If they are not automated, they could lose potential sales to competitors and not be able to regain the lost customers. While it cannot be denied that BYD is reaping the benefits of cheap labor, the question of how long that is sustainable must be considered. China’s regulations controlling birth rates could eventually cause labor issues. Currently there is more than enough labor to go around. Declining birth rates is not a major factor at this time but is something that should not be completely ignored.
Even though BYD’s core competency is in batteries, the performance of electric cars is not yet equal to that of hybrids. Hybrids can cover more miles per charge and running on gas is still a plus due to lack of infrastructure requirements for recharging centers. The European Commission, for example, will introduce its so-called Euro 6 regulations in 2014. Euro 6 includes penalties for fuel consumption. However experts still claim the move to all electric vehicles will be gradual. Information about BYD is not easy to find.