BYD Sets New Course
OMAHA -- Stella K. Li is a petite, gregarious woman, who dresses smartly and speaks with a soft voice. As a Senior VP with BYD Company Limited, she is the English speaking representative for the Shenzhen, China-based company in which Berkshire Hathaway invested approximately $230 million dollars in 2008. While serious money by most people's count; comparatively, it's really pocket change for the Omaha-based investment firm, whose CEO, Warren Buffett, laments the fact that it has around $30 billion in cash burning a hole in his pocket.
Ms. Li sat down with me in the Club Lounge of the CenturyLink Center along the Missouri River in Omaha, moments after the lunch time break during this weekend's Berkshire Hathaway shareholder meeting and convention. Warren and his long-time partner, Charlie Munger, had just finished their morning session, giving the people filling the 17,000 seat arena a chance to get a bite to eat; something the other half of the 35,000 attendees were already actively engaged it, noshing on typical stadium fare - hot dogs, pizza, colas (Coke, of course) - as well as boxed lunches; most listened with an attentive ear to the multiple television monitors scattered around the Lounge. Between the constant buzz of chatter, Ms. Li's soft, Chinese-accented voice, and my tinnitus, we talked about BYD. This was the first year since coming to the meeting in Omaha, that the company did not have a display. I think Ms. Li said something to the effect that BYD was in the process of re-prioritizing. And to be fair, they were just coming off the Shanghai Auto Show last week where they debuted the Denza electric car prototype it built in partnership with Daimler. They also introduced the stylish successor to their F3DM electric hybrid, the Qin. More on Denza later.
I started off asking about the announcement that they where shifting their product strategy, the long term goal of which is to no longer produce any gasoline-only automobiles. Eventually all of their models would be, at least, mild hybrids that use a 42V lithium iron phosphate (LiFEPO4) battery to automatically restart the engine in their new 'Green Hybrid' system; essentially an auto stop-start system similar to the e-Assist system on GM's Buick LaCrosse. You get some of the fuel savings and emission reductions of a hybrid, but at less up-front expense to the buyer.
She explained that the company will implement a gradual rollout of the technology with each successive new model upgrade staring with the S7 in early 2014. I asked her about whether or not there would be a price premium for the Green Hybrid upgrade, but she said that the company hasn't yet announced it. By way of comparison, both GM and Lincoln, which offer similar upgrades, have elected not to charge a price premium.
Eventually, Ms. Li told me, BYD's entire car line would be mild hybrids, which is clearly a dramatic shift in strategy away from the all-electric or none approach to date.
What about the observation that despite government incentives, sales of electric cars have been tepid? I queried her. She agreed, it is a problem, saying there are two key obstacles: a shortage of public charging stations and a general lack of confidence on the part of the Chinese people in EV technology. Pretty much the same thing holding back similar sales in the US and Europe.
The company, she continued, would still build its e6 electric crossover and its k9 all-electric transit bus, the former for taxi fleets, the latter for transit authorities. She said the Chinese government is pushing for greater electrification of the nation's transit and taxi fleets, and offers substantial financial incentives from 30,000 yuan (US$4,871) to as much as 120,000 yuan (US$19,498). In the case of the k9, earlier this week, the company officially opened its new assembly facility in Lancaster, California.
Will BYD be importing the parts for the bus, with final assembly in Lancaster? I asked, wondering if they would be arriving as knock-down kits made mostly from Chinese parts.
She explained that the U.S. Federal Transit Administration (FTA) requires that at least 60 percent of the cost of the bus must come from American made parts. The k9's to be built in California are already at 75 percent, she stated. The company's first order for 10 of the buses came from Long Beach. She hoped that by the end of 2014 the plant, which will build buses mainly for the North American market, would have turned out 50 buses.
Make no mistake, electric buses are expensive, but Li explained that their calculations show that operating a conventional diesel transit bus over a 12 year operational life-span will cost the owner between $1 million to $1.2 million in maintenance and operational costs, along with the capital expenditure for the bus itself. The k9, she contends, will be 20 percent cheaper than the diesel over that same time period, and 10-15 percent cheaper than a compressed natural gas model.
Of course, then there's the intangible benefits to drivers and passengers not being exposed to toxic diesel exhausts containing a host of carcinogens and particular matter. It is the clean air nature of the bus and the taxi that is winning over drivers and cities in China. She said that the original fleet of 300 e6 taxis has now grown to nearly 1,000 and that taxi drivers are eager to be next to get one. (This despite a deadly fire that killed the driver and his two passengers when a sports car traveling at high speed collided with the e6 taxi on a major Shenzhen road in May, 2012.)
Taxi drivers, she explained, have now adapted their schedules to the charging regime of the car, which they like to drive because they don't have to breath petroleum fumes during their long shift. Fast charging of the battery is typically done over their meal and rest breaks, about two to three times a day, she thought.
The new Denza pre-production prototype -- pictured above at Shanghai debut (Photo credit: Autohome.cn) -- is the result of collaboration between BYD and Daimler, with the German car maker developing the chassis and BYD providing the electric drive train and battery pack. Daimler, Li told me, has some 30-40 German engineers working in Shenzhen, which is also where the car will be built starting in 2014. While production of the all-electric car will be within BYD's Shenzhen auto assembly complex, the Denza will have its own separate assembly facility. It will also be marketed and sold through its own branded distribution system.
So, what's the car like? I asked. Have you driven it yet? Ms. Li replied that the Denza people are pretty secretive, and no, she's not driven it yet, but that the car is nearing the end of its compliance testing. Once it starts rolling off the assembly line, it will be sold exclusively in China.
We wrapped up the interview with a photo session in the arena moments before Warren and Charlie resumed their traditional afternoon Q&A session. Bidding Ms. Li and her assistant, also named Li (but no relation, she informed me) goodbye, I headed down to the convention center to walk through the exhibits representing just some of the 80 companies Berkshire Hathaway owns: Fruit of the Loom, Geico Insurance, Justin Boots, Borsheims, Nebraska Furniture Mart, Dairy Queen. This is where the other 17,000 people were gathered, looking over goods, having their photos taken, munching on ice cream bars. It's an amazing spectacle and everyone seems to be having a good time. They should: Berkshire's investments are making the company $1 billion a month, and the value of their stock is soaring!
Warren and Charlie have been pretty successful in the companies they keep. BYD might have had a difficult last couple of years, but Berkshire's management says they'll stick by them until at least 2020. By then, we should know how their new strategy is working, and whether or not the world has finally warmed up to the idea of electric cars.
|<< PREVIOUS||NEXT >>|
blog comments powered by Disqus