This story is contributed by Adesh Mehta
- BYD, the first Chinese company to make lithium-ion batteries, started as a mobile phone battery manufacturer for 8 years before entering the EV industry in 2003.
- BYD is the world’s first fully vertically integrated EV maker, with the capability to manufacture battery cells and IGBT transistors, the two most expensive components in an EV.
- BYD’s CVD approach of culture, vertical integration, and diversification have contributed to its rise in China and beyond.
Story of BYD: Back in the Day
Battery giant BYD, a leader in Chinese manufacturing for decades, is now facing increasing competition in the EV era.
Before the company entered the automobile industry, it had spent 10 years developing its mobile phone battery business, capturing over half the world’s cell phone battery market. With the acquisition of Tsinchuan Automobile company in 2003, BYD began its foray into car manufacturing with wholly-owned subsidiary BYD Auto just as China was at the cusp of becoming the largest manufacturer of cars in the world.
With ten years of experience in battery technology and its newfound capability to manufacture automobiles, BYD transitioned from conventional cars to electric cars it to become one of the world’s first vertically integrated EV makers.
Using its own in-house supply of batteries, BYD established a joint venture with Daimler, and, with some investment from Warren Buffet, led the industry in EV sales in China for four consecutive years to become the largest EV battery manufacturer in China.
In 2017, however, the fast-growing CATL took the crown of the top EV battery manufacturer from BYD for the first time and has held the lead since. In addition, with increasing competition from both promising EV startups like NIO, Xpeng, and Li Auto and Tesla entering the Chinese market, BYD has lost market share, ceding the position of top EV sales to Tesla. Unwilling to be left behind, BYD is now fighting to regain its share of the EV market with its proprietary LFP blade battery format. Using this unique cell-to-pack architecture, which is not only safer and lower cost but also cobalt-free, BYD is making the world’s first electric vehicle with a range of more than 600 km.
This is not the first time BYD has bounced back from big challenges. Looking back on BYD’s history, there have been many times the company struggled to survive.
When BYD decided to enter the car business in 2003, it had zero experience in automobile manufacturing. Starting with its acquisition of Qinchuan Auto, Chuanfu Wang, the founder of BYD, made an aggressive push to become the market leader. However, BYD’s first car, internally code named 316, was rejected by dealers due to its lack of aesthetics and had to be scrapped even before it could even reach the market, resulting in a loss of hundreds of millions of dollars. Learning from this initial failure, BYD quickly changed its design strategy to not only provide dynamic performance but also cater to consumer tastes. When the passenger vehicle F3 finally rolled off the production line in April 2005 at the low price at 73,000 RMB (roughly 10,000 USD), it became the hit of the year with sales of more than 63,000 units.
Nor was it easy for BYD to start selling abroad. BYD was not well prepared when it entered the US auto market in 2010 and suffered from its focus on cheaper cars, failing to understand that American consumers were looking for quality and innovation. In addition, BYD lacked branding, a track record, and political connections, and had difficulty raising capital. It was a classic example of failed product-market fit.The company struggled to launching electric fleets and buses in the North American market through 2015. They then realized how crucial brand building is to winning consumers in North America and building trust among these customers. Now more than 50% of electric buses in North America are from BYD and this brand recognition among consumers will pave the way for electric cars.
Having overcome many challenges, the company has formed its core values of culture, vertical integration and diversification.
Let’s look deeper into how BYD developed through these crises and how the team’s CVD approach of culture, vertical integration and diversification led to its success:
C- Culture: Being agile
BYD’s actions reflect its mission of wanting to improve people’s lives. In the early days of the pandemic, BYD’s engineers and designers flew to mask manufacturing factories to study how mask machines work. Despite having no previous experience in mask production, BYD increased the daily output from 1 million to 50 million masks per day in only 2 months, making BYD the largest mask manufacturing company in the world. This reflects the entrepreneurial spirit of the executives and employees who brought together different organizations within BYD to focus on one common goal.
Not only do BYD vehicles use battery packs manufactured by the company, but it is also the only EV company to make its own insulated-gate bipolar transistors (IGBT), the CPU of an EV. IGBT’s are the second most expensive component in an EV after the battery, accounting for 7–10% of the total manufacturing cost. Manufacturing of the two most important EV components in-house has allowed BYD to decrease overall costs significantly. BYD has recently spun out its own semiconductor business and made strategic investments in partners focused on the manufacture of IGBT’s. BYD’s goal is to become self-sufficient in the production of electric vehicles.
V- Vertical Integration: Structural design behind EV business
Vertical integration in mobile phone manufacturing set the foundation for BYD’s auto manufacturing business model. Vertical integration has allowed the company to shorten the development lifecycle and lower overall costs by spending more time on research and solving potential integration problems ahead of time. This requires identifying the most critical component, building the product development expertise in-house, and scaling the product in manufacturing.
BYD is the world’s leading producer of rechargeable batteries, including both Lithium-ion and NiMH. BYD owns the supply chain from mining to battery cells to packs. These batteries have a wide variety of uses including consumer electronics, electric vehicles, and energy storage. The team has been able to develop expertise in these segments due to sustained investment in research and development. The company focuses on constant innovation and staying ahead on advanced technology with the help of its scientific talent.
D- Diversification: 3 categories of BYD products
In order to save energy, reduce emissions, and improve the quality of life in cities, BYD has developed a wide range of economical EV solutions. Its commercial vehicles cover ten market segments: buses, coaches, and taxis; logistics, construction, and sanitation vehicles; and vehicles for warehousing, port, airport and mining operations; and consumer cars. The team works constantly on improving customer experience, product appearance, interior design, intellectualization as well as human-computer interaction in the vehicles.
2. Handset component and assembly services
This group is a one-stop shop for high-end manufacturing needs. The team works on building integrated product research and development, innovative materials, components, manufacturing finished products, supply chain management, and logistics. The group offers a wide variety of businesses ranging from smartphones, smart wearables, and computers to intelligentautomotive systems, the Internet of Things (IoT), smart home, gaming hardware, robots, unmanned aerial vehicles, communication equipment, electronic atomization, and medical devices.
3. Rechargeable batteries and photovoltaics
This segment of the company includes lithium-ion batteries widely used in mobile phones, electric tools, and other portable electronic devices. In addition to electronic batteries, BYD builds energy storage systems for utilities and commercial, industrial, and residential customers. The team has recently started offering a new business model integrating photovoltaics and battery storage under New Energy Solutions to meet various market applications.
When we compare the revenue in 2019 and 2020, automobiles and related products contributed ~54% revenue, followed by 39% from handset components and assembly services and only 7% from rechargeable batteries and photovoltaics. The company is investing significantly in this last segment, though, and considers it a growth opportunity.
Huge gains this year in the stock price of some Chinese EV companies (up by 436% in just 1 year) have made many investors rich. This increase in price, however, is not sustainable over the long term. Prices may drop at any point, but BYD is a sound bet among its competitors. The CVD approach will help the company stay successful in the future. This unique set of attributes has taken more than 2 decades to build. For me, this is a classic example of how to scale a hardware startup and follow your unique path in developing world-class products. Consistently focusing on these areas will foster deep technological innovation in the company by building a self-sufficient ecosystem and creating enterprising leaders who will solve the challenges of tomorrow. As the world’s largest EV company and a major battery manufacturer, BYD is well-positioned to take advantage of the secular growth in energy systems and products, both in China and overseas.
Interesting facts about the company
- BYD was the first Chinese company to make lithium-ion batteries. The production method invented by BYD helped lower the barrier of entry for many local firms, in terms of capital requirements. The company also became a hub for talent in the battery industry. Due to the high employee turnover rate in China, many employees left BYD and started their own battery manufacturing companies. As a result, there are currently about 100 lithium-ion battery manufacturers in China, and the price of batteries has dropped dramatically.
- Cathie Wood’s ARK Autonomous Technology & Robotics ETF (ARKQ) holds 2% of its total fund in BYD. Companies within ARKQ are focused on and are expected to substantially benefit from the development of new products or services, technological improvements, and advancements in scientific research related to, among other things, energy, automation and manufacturing, materials, and transportation.
- Warren Buffet’s Berkshire Hathaway group holds 8.25% stake in the company which was bought in 2008 well before electric vehicles started to take off. Buffet calls Wang Chuanfu, CEO and founder of BYD, a combination of a modern-day Thomas Edison and Henry Ford who fundamentally changed the laws of physics and significantly impacted humankind.
- BYD employs 230,000 people all across the world compared to its competitors Nio (3000), Xpeng (4000), and Tesla (71,000).
Thanks to Katherine He, Ashish Gogia, Linda Jing, and Tim Suen for reviewing drafts of this article and providing helpful feedback.
Adesh Mehta attended Northeastern University and graduated with a degree in Energy System Engineering. Currently, he is an Applications Engineer with BoxPower in California, where we build microgrids for remote locations in North Americas. He specializes in system modeling and optimizing for microgrids (PV+BESS) and product management. He is passionate about investing, energy storage, and startups.
Interested in publishing in BatteryBits? Apply at this link to become a contributor.
Join our discussion with other battery professionals at the community slack space Battery Street!