China Poised to Crack U.S. Electric Car Market

BYD is the one of the largest manufacturers of rechargeable batteries in the world. Now its eyes are fixed on producing an affordable, mass-market car.

In the worldwide race to build an electric car, BYD has chosen a backdoor path. Unlike Toyota, Honda, Nissan, Ford or any of the dozen other major players with plans to release petroleum-free automobiles in the next several years, BYD has minimal expertise in building cars.

In fact, until last year, BYD's name was more closely identified for its empire in rechargeable batteries. But the company has shifted gears, entering slowly into the automotive market, where it currently sits as China's seventh-largest carmaker. Now, it has even more ambitious goals: supply the world's thirst for an affordable, mass-market electric vehicle.

BYD twice made news this week, in each case sending ripples across industry. First, Wang Chuan-Fu, the company's chairman and chief executive officer, said BYD would start selling its e6 all-electric sedans in the United States next year, a year ahead of schedule. Then, Wang suggested Warren Buffett's MidAmerican Energy Holdings Co. is seeking to buy a broader stake in the Chinese automaker, but may not be able to do so. Buffett already owns 10% of BYD after investing $230 million in the company last year.

"MidAmerican has always intended to raise its stake in BYD because it believes BYD has good prospects in the development of renewable energy, but we are still considering (whether to sell more)," Wang told Reuters.

Chuanfu's statements suggest BYD is ready to challenge General Motors in the U.S. electric car market. GM plans to roll out its Chevrolet Volt in 2010. BYD's e6, by comparison, will be a more affordable option.

Much of that difference in price comes as a result of battery cost.

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"The fact that they have that expertise gives them a leg up as far as potentially coming up with batteries and electric drivetrains," says John Dinkel, president of Dinkel & Associates, an automotive consultancy group. "They might be more advanced than what other competitors might have and that could help them get cars here sooner."

BYD's remarkable growth is a product of an uncanny combination of both ingenuity and sheer audacity. The company began in 1995 with a stated aim of building a far less expensive battery than either Sony or Sanyo. In this it was wildly successful, substituting migrant workers for machines. In place of the robotic arms used in Japan's assembly lines, BYD reduced costs by hiring hundreds, then thousands, of laborers.

In 2003, Wang purchased a Chinese state-owned car company. Unlike other automakers, BYD manufactures nearly all its cars by itself, from the engines and body, to the air conditioning, lamps, seatbelts, and electronics.

But according to Dinkel, cracking the U.S. market might not be so easy. Italian automaker Pininfarina, for example, will have a far easier time transitioning its new electric car.

"It's a small car, but it has an advantage in that it's electric and, coming from Europe, it's going to be a lot closer to our regulations than anything from China right now," says Dinkel.

The domestic auto manufacturing market has exploded in China, which is made all the more remarkable by the fact that its base was nonexistent 10 years ago. Today, there are between 80 and 100 different Chinese car companies, according to Dinkel.

"The government is not going to allow that to continue because they recognize that they can have maybe five or six major companies in that industry to make it work," says Dinkel. "So everybody now is vying desperately to be one of those companies left standing."

BYD has armed itself with Buffett's name and a bold entry into the U.S. market. Time will only tell if it's as successful manufacturing electric cars as it was rechargeable batteries.

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