BYD: The Most Transformational Company of the 21st Century?

Interesting article in Fortune about the Chinese battery and automobile company BYD (see previous posts) and Warren Buffet's decision to invest in them. BYD has the potential to be the most transformational company of the 21st century as batteries and electric vehicle are two key products and they are rewriting the rule book on how to build them.

BYD's breakthrough came when Wang decided to substitute migrant workers for 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.

"When I first visited the BYD factory, I was shocked," says Daniel Kim, a Merrill Lynch technology analyst based in Hong Kong, who has been to the fully automated production lines in Japan and Korea. "It's a completely different business model." 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), according to a Harvard Business School case study of the company. And Wang stresses that BYD, unlike Sony and Sanyo, has never faced a recall of its batteries.

I think that is amazing that they shifted from using robots to humans to build batteries. I don't know of another example of a high tech product that shifted from a more high tech manufacturing product to a lower one while producing a product of similar quality. Imagine the amount of poverty that could be eliminated in the world if more manufacturing was able to go in this direction.

When David Sokol toured BYD's operations last summer, Wang took him to a battery factory and explained that 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. "Doesn't taste good," he said.

I have heard of eating your own dog food, but drinking your own battery fluid? Someone just coined a catch phrase for environmentally responsible startups.

BYD has also begun selling a plug-in electric car with a backup gasoline engine, a move putting it ahead of GM, Nissan, and Toyota. BYD's plug-in, called the F3DM (for "dual mode"), goes farther on a single charge - 62 miles - than other electric vehicles and sells for about $22,000, less than the plug-in Prius and much-hyped Chevy Volt are expected to cost when they hit the market in late 2010. Put simply, this little-known upstart has accelerated ahead of its much bigger rivals in the race to build an affordable electric car.

A lower priced lower quality electric car has the potential to take a large share of the market.

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. Both will be sold first in China, primarily to fleet users: the government, post office, utilities, and taxi companies, all of which will build central fast-charging facilities.

This adoption curve for electric vehicles sounds smart and mimics what I have written before. This contrasts with the whole Better Place business plan, which hopefully I will find some time to write about just how dumb it is.

The whole article is interesting and worth a read and if BYD stock ever trades in the US, it is one to watch.