I was a bit surprised when my article last week on BYD’s (OTCPK:BYDDY) new e6 electric car and the related post with videos of Wang Chuanfu received far more attention than coverage of Berkshire Hathaway’s (NYSE:BRK.A) Q1 2009 results. However, perhaps I should not be surprised given the intense interest in the auto industry in this economic environment. With Chrysler in bankruptcy protection and General Motors (NYSE:GM) likely to suffer a similar fate, consumers and investors are eager to learn about companies that have been able to navigate the economy without the drama of government aid and bankruptcy proceedings.
I have been reading more on BYD’s history and the path taken by Wang Chuanfu over the past several years. Perhaps the most revealing story I have found was published in the Financial Times in November. The FT article goes into considerable detail regarding BYD’s strategy and background, but what I found most interesting had to do with the work ethic involved in building this company from the ground up over a very short time frame. Here are a few excerpts from the story:
Smarter and Harder Working Engineers
Although many might disagree, Wang Chuanfu considers the Chinese business climate and work ethic to be a major competitive advantage over western competitors:
Mr Wang says Chinese companies are smarter and work harder than their western competitors. He says China’s main advantages are the size of its market and the quality of its people; 5m graduates leave Chinese universities every year, “more than the population of some European countries”, he says. And they will work for much lower salaries than their western or Japanese competitors.
BYD employs 10,000 engineers, half of them working on cars, and Mr Wang says he will have 30,000 automotive engineers within a decade. His US and Japanese competitors cannot afford to hire so many, he says. “The cost is too high.”
BYD recruits most managers straight out of university, trains them on the job and lodges new graduates in a high-rise dormitory-style building adjacent to the factory.
Can Better Battery Technology Outweigh “Fit and Finish” Issues?
BYD has not adopted the typical supply chain that is used by most auto makers. Instead, nearly all components of BYD vehicles, except for the tires, and produced by the company. This kind of integrated supply chain may or may not be the best strategy in the long run since the “fit and finish” of BYD’s vehicles is reportedly not up to par with many other manufacturers. Mr. Wang believes that this will improve over time and defends the overall quality of Chinese manufacturing. He considers the battery technology to be the competitive differentiator for BYD:
BYD will be competing with plug-in models produced by Renault, Nissan, Mercedes-Benz, and General Motors, which plans to make its Volt model in China. Mr Wang says he is ready. “I believe Chinese companies can become leaders in the alternative car business because we make good batteries,” he says. More experienced carmakers are struggling with such issues as the speed of charging and durability of automotive batteries – which need to last far longer than in laptops – in their prototype plug-in cars.
Mr. Wang also points out that other manufacturers have suffered battery recalls but BYD has never had a recall and is confident in the quality of the batteries. Given that battery reliability is a key aspect of the success of electric vehicles like the e6, BYD’s long term success may depend on this point and on keeping this intellectual property proprietary — not always an easy task in China.
… Given cases of exploding lithium-ion batteries in laptops, the potential product liability risk of electric cars faced by carmakers – Chinese or not – is huge. Mr Wang deflects the point firmly. “We’re the only battery maker that has never had a recall,” he says, leaving unspoken the names of Sanyo (OTC:SANYY) and Sony (NYSE:SNE), which have both had expensive recalls. “We’re very confident of the quality of the batteries.”
Work-Life Balance? Not So Much …
Mr. Wang and his employees apparently are not enamored with western concepts such as “work-life balance”. Whether you agree with the need for this balance or not, it appears obvious that there is a competitive advantage when you have a workforce that is willing to make major sacrifices in order to advance the interests of the company. To be sure, this type of work ethic exists in many other countries, but typically in only a small subset of the population.
Wang Chuanfu is all work and no play – and proud of it.
He says his punishing seven-days-a-week schedule is par for the course in China. “Maybe in the Western world, life is number one and work is number two,” he says one bright Saturday morning at the bustling headquarters of BYD, his battery-cum-car company in Shenzhen. “But in China, work is number one and life is number two,” he adds. “Especially in my generation. I don’t know if the next generation will be the same. I enjoy working very much, if you ask me to go sightseeing for a day I probably wouldn’t enjoy it.”
In the rare moments when not at the office, Mr Wang lives in a modest penthouse flat in the “workers’ village” with his wife and daughter.
Mr Wang spurns the trappings enjoyed by many of his western peers, such as corporate jets and expensive clothes.
Whether BYD works out as an investment or not is an open question and there are many factors that will determine business success beyond work ethic and technology. However, one cannot help but be impressed with the thirteen year history of this company and the culture put in place by its founder. Like it or not, this is the type of competition the legacy automakers are up against in today’s economy. In my opinion, the world will have better transportation options in the future as a result of agile, hard working, and innovative companies like BYD.