Saturday, January 10, 2009

Build Your Dreams

You might not have ever heard of BYD Co., but if you have a cellphone or an MP3 player, it is likely powered by one of their batteries. BYD (Build Your Dreams) is a company based in Shenzhen, China. Founded in 1995 it has rocketed from obscurity to become one of the world's largest producers of cellphone batteries. 

The company has caught the eye of Warren Buffet. Buffet's Berkshire Hathaway recently purchased a $232 million stake in BYD Co. citing its management and R&D strengths.

Look out GM, BYD is coming to town
If you are a battery company and you are looking for a new market today, where do you look? Cars! Hybrids, plug-in hybrids, & electric cars all need batteries, lots of batteries.  

BYD is already selling a plug-in hybrid in China and on Monday they will unveil the car to the North American audience in Detroit on the main floor of Cobo Hall. They will also being showing the e6 electric CUV and providing details about the battery and plug-in hybrid system.

To branch into the auto industry BYD did not attempt to make a deal with an existing car company, unlike A123 who had pinned their hopes on GM selecting them for the Volt (GM selected LG Chem instead). Rather, BYD bought a car company and started BYD Auto. 

Does BYD have a chance?

To understand why I think BYD could be successful, you'll have to understand why I think previous EV attempts have failed. 

The documentary Who Killed the Electric Car? lists several "suspects". GM claimed there was no significant customer interest, that the batteries were not ready and that customers had "range anxiety". The documentary clearly shows all of these not to be true, there were waiting lists for the cars and the people who had leased them loved them so much some were willing to be arrested in an attempt to keep them and to prevent them from being crushed. Then there are those that believe in the big oil conspiracy that forced EVs out of existence.

My hypothesis is much simpler. EVs were not profitable vehicles. Producing an EV costs nearly as much as an internal combustion vehicle before you add the cost of the batteries. The battery packs then can add $10,000-$30,000 to the cost of the car. That business model does not work when the car company has to buy the batteries from someone else and then try to sell the car profitably. Plus, now the most important aspect of the vehicle's performance, the batteries, is outside of the car companies' core competency. 

"The holy grail continues to be the battery technology," said John Viera, Ford's sustainable business strategies director, at a New York sustainability forum. "That's the thing that is making electric vehicles cost-prohibitive."

When GM says the batteries are/were not ready, they mean batteries are not a commodity item like steering wheels, seats or tires that they can get cheaply from multiple vendors.

The GM EV1 (and my Chevy S-10 Electric) used batteries from Delco or ECD Ovonics. Cobasys provides most of the batteries for American hybrid cars today. Toyota uses Panasonic batteries. Volkswagen and Audi are partnered with Sanyo. That means the profits for plug-in cars are shared between the automaker and the battery company.

Conventional car manufactures have no significant expertise in battery technology. They are, therefore, dependant on other companies. BYD on the other hand, is using cars as a new way to sell their batteries.

For plug-in cars, the most challenging engineering problem is energy storage, aka the batteries. In short, I think BYD can be successful because they are foremost a battery company.

So what is BYD doing with all this technology? Stay tuned for the next post about their cars.

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