ISOM 5370 Technology and Innovation ManagementFall 2013 – Project

BYD Auto

Cliff Cheung Helen Ching

Jason Yeung Joseph Man

Justin Allen Matthew Tam

Wonsky Chan

2 http://www.youtube.com/watch?v=OxMVRta1gaw

BYD

Warren Buffett Invests in BYD

In 2008, Buffett invested US$230 million to buy BYD Auto at HK$8 per share.

In the following year, the price increased to HK$80 per share.

What attracts Buffett?

http://www.marketwatch.com/story/warren-buffett-looks-to-electric-car-in-byd-stake

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THE STORY OF “BUILD YOUR DREAMS”

Technology Based and Innovation Oriented

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“The manufacturing of cars starts with

manufacturing of talents, then tools, and then cars.”

-- Chuanfu Wang, Founder and CEO of BYD

“Wang announced that BYD aims to be the

number 1 automaker in China by 2015 and

number 1 in the world by 2025, reflecting

Wang's great ambition for the company.”

www.wikinvest.com/stock/BYD_Company_(HKG:1211)

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COMPANY BACKGROUND

BYD Business

BYD AUTOBYD POWER BYD ENERGY

http://www.byd.com.cn/views/home/indexe.htm

Business Performance of BYD

Automobile is half of the revenue

Battery revenue is ~10%

http://bydit.com/doce/investor/CorporateReport/AnnualReport/AnnualReport2012/7

BYD Annual Report 2012

http://www.byd.com.cn/views/home/indexe.htm

• “Circular of the State Council on Printing and Issuing the National Plan for Fostering Capacities for Innovation During the Twelfth Five-Year Period (《國務院關於印發「十二五」國家自主創新能力建設規劃的通知》)”

• Government Policy to support & subsidize the industry.

China Policy

• Direct Government funding for research into hybrid electric vehicles.

• Subsidies of US$8,800 per alternative energy vehicle purchased by bus companies, taxi operators and state agencies.

Catch the Wave!!

The BYD Geography

They are building up their international footprint.

Revenue growth in US, Europe and India in 2012 vs 2011

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BYD Products

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F3DM - the world’s first dual mode electric car

M6 - The first multi-purpose vehicle

E6 - The world’s first pure EV taxisK9 - pure electric bus

Variety

Fuel Vehicles

Hybrid

eCars

eTaxi

eBus

Good Enough Quality

Acceptable appearance, quality and performance

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Specification

Top speed: 100 mph (160 km/h)

Quick Charge 50% capacity in 10 minutes

Range 122 miles (200 km)

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SUCCESS FACTORS

Technological & Process Innovations

Technology Innovation

World’s first manufacturer of mass-produced plug-in hybrid vehicles using Iron-

Phosphate rechargeable battery: BYD F3DM.

Proprietary technology = fuel-efficiency gains

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Automotive Production Innovation

Labour intensive production rather than capital intensive

Manufacturing process decomposed into simple jobs = high-quality components

Benefit: cost-savings due to large inexpensive Chinese labour pool

Strategic Innovations

Alliances: Partnerships & Contracts = Network Effects

Car rental market

June 2010 BYD Auto signed agreement to sell cars to Budget

Rent a-Car in Bahrain.

Airport Transport

BYD supplies Schiphol Airport a new fleet of electric buses to

transfer passengers

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Enhances Image Reduces

Maintenance

Costs

Improves

Air Quality

Allow Trial Usage

for Renters

Experiment and

Feedback

Strategic Innovations

Alliances: Partnerships & Contracts = Network Effects

Public Transport: Buses

Transport Authorities onboard.

Los Angeles: BYD Supplies fleet of 25 buses as part of Transport Authority’s

Clean Air Bus Project.

Similar ventures across Europe & Americas:

Poland, Finland, Denmark, Spain

Canada, US, Uruguay

Israel

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Strategic Innovations

Alliances: Partnerships & Contracts = Network Effects

Public Transport: Taxi

Shenzhen Taxi fleet & Trials in Hong Kong of E6 car

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Strategic Innovations

Alliances: Joint Ventures = Network Effects

50:50 JV to make electric buses (K9) for Bulgarian energy company: Bulmineral.

BYD’s first overseas JV.

50:50 JV. BYD Auto and Daimler AG: Shenzhen BYD Daimler New Technology Co.,

Ltd

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Strategic Innovations

Certification

Public Transport: European Certification (Promotes same-side positive effects)

Granted Whole Vehicle Type-Approval – European coverage.

Does not require certification from individual member countries.

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Platform Characteristics

Product variety - manufacturing and selling of a wide range of their own vehicle lines

Whole product solution

(1) Addresses a new market (luxury cars)

(2) Addresses an existing market (Private consumers)

(3) Addresses a re-segmented market (eTaxi & eBus)

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Costs and revenues on both sides of the platform

Consumers and Public / Private

Transport Corporations

Infrastructure (e.g. charging station)

Network Effects

Strong Same-side Network Effects

Easy to provide infrastructure to Airports and Bus / Taxi Depots

Weak Cross-side network effects

Private consumer market is lagging in comparison due to the lack of infrastructure

Catch 22 problem for BYD

Produce EVs or Charging Stations first - Which will trigger the network effect?

High switching costs to change from gasoline vehicles

Infrastructure & Ecosystem are Key

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Complementary Services – Evidence of Ecosystem?

BYD Charge Station Mobile Apps

Distance

Availability

https://itunes.apple.com/us/app/byd-charge/id557491810?mt=8

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Challenges to Overcome

• Lack of Government Support BUT highly dependent on Government

• Racing to form alliances to lock in partners to beat the competition

• Potentially disruptive innovators: Online Electric Vehicles, hydrogen fuel cell

vehicles, solar power vehicles

• Highly dependent on providing supporting infrastructure – who else will?

Charging stations

Production facilities for global market

Battery and car service centres – Critical for consumer adoption

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SUGGESTIONS FOR BYD – THE FUTURE

First and Fast Mover

BYD is among the first to R&D electric vehicles

Move FAST - Already signed agreement with foreign organizations and governments

Have network and connections not only in China but oversea countries

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Bridging Early Adopters and Mainstream Segments

BYD has strong incentive to race for scale to win through

Stronger network effects

Higher switching costs

Infrastructure is key to adoption

Locking in ‘marquee’ car manufacturers through JVs is key to network

effects.

Needs to assess consumers (money-side) sensitivity to quality and cost.

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http://www.chinaanalysis.com/opinion/2011/04/the-byd-way-of-production-emerging-but-incomplete/

12-Ways of Innovation

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eBus, eTaxiEV from Battery and Auto

productsSubsidize and provide charge

stations in HKEV for green vehicles

eTruck, eVanEvolve high power eBus to

commercial vehicleFinancial package of Charger for

domestic EV driver

Safety, Battery Weight,Duration, Speed Charge,

Battery Swap, Battery Cost

Cloud Keys, Charge Station Apps

Capture Government Subsidies• Labor Intensive in China• Process Decomposition

Office at different regions

Alliance with Internet giants -Automate production process in

LA and Europe-

Source parts from all supplierBattery as own products

R&D with Universities

• China as a stepping stonefor entering the World;

• LA plant for US market

• Commercial vehicle,• Selling to Government

• JV, Denza• Airport eBus• eTaxi

Crowdsourcing R&D,C&D

Further commercial vehicleAlign with government for

building infrastructureFormular-e

Offerings

Success Innovation

Recommendation

Platform Solutions Customers

Customer

ExperienceValue Capture Processes Organization

Supply Chain Presence Networking Brand

Success Innovation

Recommendation

Success Innovation

Recommendation

Success Innovation

Recommendation

- Innovation being executed currently by BYD;

- Recommend innovation activity to BYD;

Improvement – Safety & Quality

Quality and Safety

Three BYD e6 passengers killed in a taxi car clashed in May 2012 at Shenzhen.

Safety concerns on electronic vehicles.

http://chinaautoweb.com/2012/05/three-byd-e6-passengers-killed-in-fiery-crash-spurring-ev-safety-concern/

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Improvement – Battery Performance

Different geographic needs and concerns

Brussel traffic department STIP declined to buy BYD electronic bus in Mar2013.

" The electric buses have beautiful technology , but it's pretty too premature to say that we will switch on electrical equipment as the autonomy of the battery is not sufficient on the Brussels slopes and cobbles to ride around. “

http://www.brusselnieuws.be/artikel/elektrische-mivb-bussen-niet-voor-morgen

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Continuous Innovation

Battery Technology Trends

Cheaper

Smaller & Lighter

Fast Charging

High Power

http://about.bnef.com/markets/energy-smart-technologies/energy-storage/

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http://cleantechnica.com/2013/07/08/40-drop-in-ev-battery-prices-from-2010-to-2012/

http://www.nature.com/nmat/journal/v11/n1/full/nmat3191.html?WT.ec_id=NMAT-201202

Continuous Innovation

BYD should try different innovation in their products and test the acceptance level of the market.

Self charge e-Bus

Wireless inductive charging

http://dailycaller.com/2013/09/22/global-lockmaker-seeks-key-to-future-profits-in-the-cloud/

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http://www.ibtimes.com/self-charging-bus-korean-electric-buses-use-wireless-technology-charge-while-driving-photos-1376259

http://www.evwireless.net/ http://www.pluglesspower.com/

Continuous Innovation

Battery Swapping

Quick but costly

How BYD can acquire and use this technology?

http://gigaom.com/2013/06/21/what-is-electric-car-battery-swap-tech-and-why-is-it-important/

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http://www.smartplanet.com/blog/bulletin/watch-teslas-90-second-electric-vehicle-battery-swap-demonstration/22436

R&D and Crowdsourcing

BYD already joint R&D with universities in Beijing and Shanghai.

They have their own team.

Crowdsourcing Competition

Technology breakthrough

Recharge Time

Energy Density

Customer experience, convenience, usability and comfort

Connect & Development (C&D)

http://www.crowdsourcing.org/navigate-search?q=Electric%20Car

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http://dailycrowdsource.com/20-resources/projects/104-crowdsourcing-an-electric-car

Prepare for the Disruptive Innovation

Solar Electric Vehicle

Hydrogen fuel-cell Vehicle

Ethanol powered Vehicle

Nitrogen

Self-charging vehicles

http://www.solarelectricalvehicles.com/

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http://edition.cnn.com/2012/11/25/business/eco-hydrogen-fuel-cell-cars/index.html

May not be as popular as electric auto at the moment

Market is not big enough

Not yet BYD’s business?

Will be good enough one day and overtake the market?

Which one shall R&D bet on?

Crowdsourcing competition

Subsidise the platform

Subsidise the charging stations and provide charge meters to make them as popular as petrol stations.

BYD built 37 charge stations in HK when launching eTaxi in 2013.

Park & charge

Car Park and Shopping Mall

Government Street Park-meters

Residential Charging Station Manufacturers

http://www.motortrend.com/roadtests/oneyear/1106_2011_chevrolet_volt_arrival/photo_04.html

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Financing Home Charger

Tailored Financial Package

Grow the buyer side – subsidies the car buyers

http://www.sfgate.com/business/article/Novel-financing-for-electric-car-charging-stations-4837333.php

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"We're making it easier, we're making

it convenient, we're making it part of

the way we live."

Marketing and Sports Events

Promote Brand

Participate the Formula E or even sponsor a team

Globally promote brand image

R&D and test high performance e-racing technology’s adoptability by daily household or commercial usage

http://www.scmp.com/sport/hong-kong/article/1320785/formula-e-electric-motor-racing-coming-hong-kong-streets-after-all

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New Market Segment

Commercial Vehicle

E.g Trucks, Vans

Blue ocean of EV

Ride on the eBus technology

http://www.greencarcongress.com/2013/07/byd-20130717.html

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Huge Potential Less Competition

Comparing Car and Truck Market

3.3% of truck market is not small.

Less competition than car market

http://electricdrive.org/index.php?ht=d/sp/i/20952/pid/20952

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http://www.goodcarbadcar.net/2013/02/usa-january-2013-midsize-car-sales-figures.html

http://www.goodcarbadcar.net/2012/02/us-minivan-truck-sales-january-2012.html

Total Truck Unit Sales: 125 K

Estimation : 125K x 3.3% = 4.1 K

Cost Effectiveness

Manufacturing Plant in California

80% made in US as policy for US bid

More costly if labour intensive the same way as in China

R&D to automate and improve process

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http://www.chinaanalysis.com/opinion/2011/04/the-byd-way-of-production-emerging-but-incomplete/

http://www.plugincars.com/chinas-byd-opens-electric-bus-production-plant-california-127131.html

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BRIGHT FUTURE?

Market Growth

Raising Sales in 2012

High competition without dominating player

Market is growing.

EV grows even faster than HEV

http://articles.latimes.com/2013/jun/26/autos/la-fi-hy-electric-car-growth-20130625/

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http://www.greencarreports.com/news/1085724_electric-cars-sell-faster-than-hybrids-did-at-same-point/

The ancestor of Electronic Vehicle

Electric Vehicle in 1904

Not commercialize d due to cost

Not as price competitive as the Ford fuel vehicle

http://www.denverpost.com/lifestyles/ci_898608542

All depending on

Marketing

Platform

Grow the Demand

It is all about business!

Q&A

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Appendix : Government & Platform

• Cheaper vehicle tax and other monetary incentives for consumers that switch to

hybrid cars

• Support in the form of backing the required infrastructure for charging electric

vehicles

• Boosting appeal by promoting the monetary incentives for consumer adoption

of hybrid electric

• Taxing oil corporations so that petrol prices increase and thus, consumer

demand for hybrid vehicles also increases

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