BYD appears to be more like a venture capital speculative investment then a value investment. Would you both explain that investment, your logic behind it and your expectations for it. Charlie is our team leader on BYD.
And he gets very excited, so I may have to control him, but go to it Charlie. There are competitors now ramping up, as you are familiar with BYD which is also on the West coast, I think they are ramping up production of their electric vehicles. Warren Buffet owns 10 per cent.
I have never in my life felt more privilage to be associated with something then I feel about BYD I think they are ramping up production of their electric vehicles. Warren Buffet owns 10 per cent stake in that. Why do you laugh?
Here he is trying to compete. Why do you laugh? I know it looks like a miracle and it looks like Warren and I have gone crazy but I dont think we have.
Well one of us at most. Here he is trying to compete. Why do you laugh?
Have you seen their car? BYD is a huge conglomerate that makes batteries, mobile phones, electronics, monorails, trucks and buses and above all electric cars. But surprisingly BYD’s founder was born into immense poverty.
Growing up during the Cultural revolution in China he was eventually orphaned at a young age when his mother and father died of disease and hard work. So the story of how this orphan managed to create the largest EV car company in the world is unbelievable. But to some BYD is seen as a huge threat to western countries as the company is accused of copycatting, overcapacity and using cutthroat tactics to get rid of competitors, reportedly even putting out a call to ”demolish the Old legends”.
So it is now high time you finally hear the real story of BYD. Poor start The stage is set in China 1966. Mao Zedong lets loose the cultural revolution This was a difficult time as China had not yet recovered from the disaster of the second world war and the following Civil War and Famine.
In this famine, Anhui province was the worst hit making it one of China's poorest. And It was in this unlikely place that Wang Chuanfu was born on April 8, 1966. His mother was a farmer and housewife taking care of the 8 children in the household.
Wang remembers his family being very poor but happy. Wang has stated that his father who was a carpenter was not highly educated but instilled in his children to be honest, trustworthy, hardworking and kind. As a kid he would watch his dad build things with his own hands, perhaps igniting something in him.
But when Wang was 13 his dad got diagnosed with liver cancer and was thus unable to provide for the family. Now they had to watch as their father got weaker and weaker eventually dying from the disease. This became a disaster for the family so his 5 older sisters hurried to get married and his 18 year old brother had to quit school to get a job.
Sadly the they could not afford to take care of his youngest sister so arrangements were made so she would go into foster care. Wang now realized that the best way he could help his family was if he managed to get into vocational high school so he would be able to get a secure state job. But after just two years of applying himself in school disaster struck again.
After his fathers death his mother became the main breadwinner. But while working on the fields she suddenly collapsed and passed away before she could get to the hospital. To make matters worse, the news of her death reached him when he was half way through the middle school graduation exams, making him run home in a panic thus losing his chance to be admitted to vocational school.
After losing his mother young Wang was totally heartbroken. His older brother was now the one that took care of him but recently he had started his own family and moved in with his wife. Not wanting to be a burden, Wang decided to drop out of school so he could make his own money and move out.
But as soon as his brother and sister in law heard of his plans they got angry with him and refused his offer, telling him that he should not separate the family and that he should worry about finishing his studies and nothing else. His brother and sister-in-law worked hard in their small business. With great sacrifice, they managed to scrape together a meager 10 yuan each week to support Wang.
One time his sister-in-law was unable to provide for the coming week so she went door to door, borrowing money and selling her jewelry until she scrapped together enough to help Wang endure another week. But all their sacrifice was not in vain because in 1983 Wang managed to get accepted to Central South University to study Metallurgical Physical Chemistry. Something that would change his life forever.
Restless mind His elder brother and sister-in-law celebrated his achievement by giving him their wedding present a “Shanghai” brand timepiece. They also told him they would relocate to start a business near his university so the family would stay together. At university Wang became more outgoing, joining the Communist Party and earning the title of “dance master”.
Yet he remained devoted to his family, helping out in their shop on weekends. In 1987, he was offered a postgraduate position at the prestigious Beijing General Research Institute for Nonferrous Metals. Later becoming the institutes executive officer, a huge achievement.
Wang excelled in his role and because of this he was appointed General Manager of a new battery manufacturing joint venture between his Institute and Baosteel Group. The company would be located in Shenzhen, China's first special economic zone. The following year Wang read an article saying that Japan was abandoning its nickel-cadmium battery industry due to environmental concerns.
He saw this as a big opportunity for his company, but despite being its General Manager, his ideas were dismissed. For years, Wang craved stability. His older brother and sister-in-law were improving their lives, he had recently married, and his wife was expecting.
But Wang felt compelled to follow his vision so he took the decision to resign and start his own battery company. But soon Wang would come to question his decision. The battery king After deciding to start a battery company, Wang faced a huge problem: he had no capital.
Banks and investors turned him down, leading him to doubt his decision. However, his family came to his aid again. His cousin a successful businessman, lent him 2.
5 million yuan. His cousin also brought in his friend who after being impressed with Wang decided to invest his life savings. So on November 18, 1994, they founded Yadi Electronics in a modest workshop at the Metallurgical Academy in Shenzhen.
Yadi was the name of the road where they were located but they later changed the name to Biyadi, or BYD, in order to be listed higher up in the company indexes. But the initial conditions for the startup were very poor and the employees often had to sleep side by side on makeshift beds to save costs. During this time Wang worked tirelessly.
Even missing the birth of his daughter due to his busy schedule. By reading patent applications and reverse engineering competitors batteries BYD managed to create their own products. But there was a huge problem that was threatening to end the company before it had even started.
Despite the initial investments, the company couldn’t afford an automated production line. To solve this issue Wang used First Principles. He calculated the cost of automated robots spread out over the production run and compared it to the cost of manual labor doing the same work.
His calculations showed that by utilizing China’s abundant labor force he could create a competitive manual labor intensive production line that would be more cost effective then his competitors. In addition to this they would also make their own machines making the company more vertically integrated and saving costs. A trait that would be essential in their future business ventures.
Wang's approach was a huge breakthrough. With just over 1 million yuan, he established a line that produced 4,000 nickel-cadmium batteries daily. By 1997, BYD became China’s largest battery manufacturer selling 150 million batteries within three years.
Now BYD had a competitive product but there was a problem. Big International customers had never heard of the company, why should they trust their batteries. So in order to get customers Wang sent his top sales manager Stella Li to the headquarters of one of the biggest mobile phone makers in the world, Motorola.
She showed up at their headquarters in Georgia with little English and a box full of batteries pitching them to switch their supplier and use BYD instead. At first they were irritated with her because she was so persistent but after some time they came to be impressed by her relentlessness and decided to give BYD a chance. Stella Lis work impressed Wang and she would later be appointed as CEO of BYD Americas.
Now big customers started rolling in and by 2002, BYD was set to be listed on the Hong Kong stock exchange. But during this time concerns arose among his partners about share distribution since there were no formal contracts, only oral agreements. But when asked about the shares, Wang simply replyed, “What was said will be done.
” He valued loyalty above all, remembering the sacrifices made for him by his family and colleagues. As a result, the 34 original executives received 22% of the company’s shares, each becoming a millionaire. By 2003, BYD surpassed Japan’s Sanyo to become the world’s largest battery manufacturer.
This was an enormous achievement for a Chinese startup. Yet, at the pinnacle of success, Wang felt a growing unease. He looked at another booming industry with great interest.
Little did the world know how his next move would transform one of the biggest industries on the planet. The car king Wang decided that he wanted to venture into the automobile industry. When he shared his idea to his colleges and investors they all thought he had lost it.
Wang knew nothing about car manufacturing and he did not even have a drivers license. But Wang dismissed the private counsel of his senior executives and the threats from investment firms and in January 2003, BYD acquired 77% of Qinchuan Automobile for 270 million yuan. The announcement sent BYD’s stock plummeting, wiping out a staggering 2.
7 billion Hong Kong dollars in just two days. Qinchuan Automobile had produced a cheap sedan known as the “Flyer” together with Japan’s Suzuki. Following the acquisition, BYD continued to sell the Flyer under their brand while trying to develop new models.
But the first car badge they came up with had some people saying it looked very much like BMWs badge, making them change it after a few years. The sales of the Flyer were not going well so Wang decided to create a new model from scratch. But the model was not well received by the dealers, so it was scrapped and Wang instead opted to make something that looked more familiar.
The result was the BYD F3, which launched in September 2005, resembling a Toyota Corolla so closely that many parts were interchangeable. Wang mirrored his battery manufacturing method by creating production lines with plenty of manual labor, cutting costs significantly, allowing the F3 to be priced at half of a Corolla. The consumers responded well and within a year, F3 sales surpassed 100,000 units, making it the fastest domestic brand to reach that milestone.
BYD then followed up by successfully launching the F3R and the F6 that had a striking resemblance to some General Motors and Toyota models. On August 9, 2007, BYD officially opened its new Pingshan base with a grand press conference. But the Pingshan Complex was not just a factory, the complex also had housing and restaurants for the workers.
In comparison with other CEO Wang decided to live with his workers and he could often been seen eating with them. In an interview with CNN he explained the philosophy that guides his company culture. ”due to work requirements I became the chairman of this company, but after work we are all equal, we live and talk together, this is our culture” During the event Wang Chuanfu boldly declared BYD’s goal: to become China’s number one car manufacturer by 2015 and a world leader by 2025.
So confident was Wang in this vision that he decided BYD would participate in the 2008 Detroit Auto show. But there was a problem. The problem with BYD was that, unlike established car brands BYD lacked a compelling story.
While global brands had loyal fans who knew everything about their history and models, no one could even answer what "BYD" stood for. Someone jokingly said that it could stand for "Bring Your Dollars", but after some thought, they decided the acronym would stand for "Build Your Drams," a slogan that highlighted its focus on engineering and work ethics, perhaps even a subtle tribute to Wang's father who was a carpenter. But the truth was that BYD was not ready for the Detroit Auto Show.
Everything was rushed and their car brochure had not even been properly translated into English causing journalist to have a field day by just reading out loud what was written. To quote BYD's official brochure one last time. Adopt the reclaimed stuff, could be recycled.
Some journalist joked about how the front of the BYD car looked like a Toyota Corolla and the back looked like a Chevrolet Optra. Others were filming the doors of the cars not shutting correctly. One Journalist uploaded a critical video of BYD and wrote in the description “Welcome to Detroit.
Now come back when you're ready. ” But some car experts did take notice of how the Chinese brand was actually planning to bring to market some of the worlds first Hybrid electric and fully electric car models while many of the American car brands where still struggling to develop a single one. But this was also the year that Tesla launched the Roadster.
The car had received a lot of praise for its long range and high speed. This gave Tesla a leg up as their cars were seen as a high quality products compared to BYD’s. But all was not lost as the young Chinese car company had peaked the interest of one of the most important American investors.
The sage of Omaha BYD had managed to catch the eye of one of America’s top investors, Charlie Munger, Vice Chairman of Berkshire Hathaway. Munger convinced Berkshire Hathaway's chairman, Warren Buffett, to take a closer look at BYD. This led to a $230 million investment for a 10% stake in the company, sending BYD's stock price soaring and propelling Wang into the ranks of China’s wealthiest, with a fortune of 35 billion yuan.
Wang belief in the power of battery electric cars had captured the support of the investors and in 2009 BYD launched its first pure electric EV, the E6. But in the excitement of this new direction Wang made a fatal mistake. In order to direct the company towards electric car manufacturing, Wang slashed investments in traditional car models putting the company in a downward spiral as dealerships abandoned BYD.
In 2010 BYD’s revenue declined by 8% from the previous quarter, with net profits plummeting by an alarming 58%. The following year profits nosedived by 88. 6% in the first half of the year culminating in resignations, widespread layoffs and a surge in product quality issues.
To make matters worse, when displaying BYDs latest electric car in the US, Elon Musk was asked on live Television what he thought of the Chinese competitor. He started to laugh. BYD which is also in the west coast I think they are ramping up production of their electric vehicles.
Warren Buffet owns 10 per cent stake in that. Why do you laugh? Here he is trying to compete.
Why do you laugh? Have you seen their car? This was a difficult time for BYD and Wang’s next decision could determine the survival of the company.
The rethink Wang had to rethink. The quality issues had caught up with him and there was risk that the public perception of BYD would always be of a low quality product. To remedy this Wang did something drastic.
He took a trip to the local Mercedes Dealer and bought the most premium car in the lot, the S-Class. He then drove the car to the BYD R&D department and gathered all of his top engineers and said here you go. Tear it apart.
The engineers looked at each other but nobody was moving. At last one engineer said. “But it is your car, it is brand new”.
Realizing the situation he had created Wang took his car keys and made a huge scratch on the side of the luxury vehicle. Saying. “Well now its not new anymore, tear it apart”.
Wang was determined to catch up to his competitors. And in a show of support Charlie Munger and Warren Buffet chose to visit the struggling Wang to send the message that investors where still behind him. This was a smart move because even though BYD’s gasoline cars were not selling, in 2015, BYD sold an impressive 61,722 new energy vehicles, a term used for Hybrid electric cars and pure electric cars.
Because of these numbers BYD was now claiming an 11% share of the global NEV market making them the nr 1 NEV company in the world. In addition, the Chinese government had just declared that they were gonna support the transition to EV’s. Suddenly BYD was well positioned for the future of the car industry.
In 2016, many were surprised when Oscar-winning actor Leonardo DiCaprio became BYD's brand ambassador showcasing the company's newfound confidence as an electric car manufacturer. That year marked a turning point and comeback for BYD. In the first half of 2016 the company had a 130% increase in NEV sales, celebrating a 65% share of the plug in hybrid market in China.
The following year the company held a huge ceremony in their Electric bus factory in the USA as they announced that they were be quadrupling the factory flor to increase the production of electric buses. This gave Wang hope that they would be able to sell cars in the lucrative US market. Things were looking up but little did Wang know that disaster was just around the corner.
The darkest moment Between 2017 and 2019 everything started to turn south again. In a move to weed out unprofitable EV companies the Chinese government cut funding for electric vehicle purchases. This made BYD profits drop to a mere 1.
6 billion yuan in 2019, making Wang declare it the “darkest moment” for the company. He said that from now on the only goal for the company was to survive. In contrast its main global competitor Tesla introduced its anticipated model Y to raving reviews.
Marking Tesla as the biggest pure electric car company in the world and propelling the company into the Fortune 500 list. To make things worse Tesla started to construct a massive car factory in China potentiality nullifying BYD’s edge over efficient manufacturing. To add on the bad news a new company had risen up to challenge BYDs position as the number 1 battery supplier.
And when things could not get any worse, they did. In the past two weeks. The number of cases of covid-19 outside China has increased 13-fold.
The Covid 19 pandemic was declared worldwide, it caused widespread lock downs, closed borders, and travel restrictions. As a result, few people were interested in buying cars. In China, fear of the virus was compounded by a shortage of Personal Protection Equipment like masks and sanitizers.
The forecast predicted an economic slowdown, making layoffs the smart choice. But Wang was different from other CEOs he lived with his workers, shared meals, and knew their families. If he could avoid layoffs while maintaining the company’s financial integrity, perhaps BYD could weather the pandemic.
So Wang ordered his 3,000 engineers to refit production lines to make masks and hand sanitizers. In a short time, BYD became the world’s largest mask producer. But during this time the company was also preparing their next move.
They knew the pandemic would eventually come to an end, and when it did, they would have a little surprise for their competitors. The comeback Behind the scenes BYD’s engineers had been busy developing a new type of battery that would mark a new standard in the EV industry. By switching to lithium iron phosphate (LFP) chemistry and re modeling the battery pack the company had achieved a breakthrough in battery safety and durability.
To demonstrate this BYD published a video of a nail puncturing a conventional battery going up in flames and then doing the same thing to their Blade battery, with hardly any reaction. This PR demo was a brilliant move since there were many news reports about electric vehicles bursting into flames. But the engineering team was not the only ones making an effort.
To combat BYD’s low quality image the company had been busy developing new models that would once and for all settle the debate on Chinese cars being just bad copies of western ones. The company announced a new line of cars developed by some of the worlds top designers. This time they would come after the number 1 pure electric company in the world Tesla.
In late 2020 BYD launched the Han, an electric luxury sedan that had a level of style and sophistication that no BYD car had before. Its premium interior design even out shined the ones found in Tesla cars. By naming the car Han after one of the Chinese dynasties, Wang was declaring it a statement of the country's progress and innovation.
But the company did not stop there, releasing several models of SUV and sport sedans competing with almost every segment Tesla had to offer. From 2020 to 2023 BYD sales skyrocketed growing from 427,302 vehicles to 3,024,417 and astonishing 700% increase in just 3 years. Now BYD felt confident, now it was time for global expansion and the first stop was Europe.
But an ugly surprise awaited. The blowback In 2023 BYD attended the prestigious International Motor show in Munich Germany, making it clear that their technology was miles ahead of most of the competition. The company had chosen to totally abandon their combustion car production the year before and they where now all in on Electric.
Now even Elon Musk acknowledged the success of the company by stating that BYDs cars were “Highly competitive”. But the meteoric rise of the company also resulted in a backlash from the western media that started to churn out articles warning about the coming Chinese EV invasion. The portrayal of BYD as a threat was bad publicity and on top of that BYD’s first year of sales in Europe were abysmal, only representing 1.
1 percent of the market. The company was the number 1 NEV company in China and in the world but you have to understand that China is by far the biggest car market and BYD sales were 90% in China. So now experts were saying that perhaps BYD did not have what it takes to become a global brand.
To make things worse, many Europeans who bought BYD's didn't like the company’s slogan, "Build Your Drams," leading the company to remove it from some European models. What resonated as aspirational in China didn't translate the same way in Europe, with some even posting YouTube videos on how to remove the slogan themselves. The first year in the European market was horrible for BYD.
Not only did they miss the mark in customer tastes the sales were hugely disappointing. But the worst was yet to come. In September 2023 the EU Commission launched an investigation into Chinese electric car companies, alleging they were unfairly subsidized by the Chinese government and should have tariffs imposed on them.
Suddenly, Chinese automakers found themselves caught in a geopolitical game, threatening to end their global ambitions. But the problems for the Chinese car brands were even bigger in the US. The American media had for years been publishing scaremongering articles about Chinese EV:s even calling their cars a national security threat, effectively shutting the doors to the US market.
In order to lift the spirits of the Chinese automakers BYD released a video celebrating all the different Chinese car brands that had emerged as major competitors. The video ended with an encouragement to make Chinese car brands global quality brands and to Crush the old Myths about Chinese cars. But the western media interpreted it as a declaration of war against western brands and Crush the old Myths became demolish the old legends causing a huge media backlash.
But in the midst of these headwinds help would come from an unexpected place. The overtake In 2023 the newly elected Brazilian president Lula da Silva had a discussion with the Chinese president Xi Jingping where he asked if there were any Chinese car companies that were willing to take over a car plant in the state of Bahia that Ford had abandoned a few years ago. The Brazilian president was an old auto worker and he knew how important well paying jobs in the car industry were to the workers of his country.
After some discussions the offer was presented to BYD and they decided to go for it. The move payed off. The Brazilian press reported positively about the new investments and the state of Bahia even made a welcome video for the company.
The dream of becoming a truly global car brand was still alive. All this goodwill would pay of in the end, because that same year BYD took a 72 per cent share of the Brazilian EV market making them surpass Tesla as the best selling pure electric car company in the world. And to put the cherry on top.
The Brazilians did not seem to mind the Build your dreams slogan. Perhaps also being a global south country there was an understanding of the aspirational message. In fact, in many global south countries the message of build your dreams seems to be well understood.
In many delivery videos in countries like India, Indonesia, Thailand people are extremely happy and proud when they receive their BYD car. People take their family with them, the dealerships put ribbons on the cars and people dress up and take pictures. In some occasions people even bring priests to bless the car.
An electric car was not long ago something that was only reserved for the Tesla buying rich people but BYD managed to make quality EV’s for people that would otherwise never been able to afford them. Suddenly they feel they are part of the future and that feeling can be very powerful. Perhaps this is the reason why Wang Chuanfu many times participates in deliveries of BYD cars.
Perhaps he more then most knows what it means to come to a place where you feel that the future is bright. BYD has come a long way from its humble beginnings. In an ironic twist, BYD went from relying on Toyota for inspiration to now helping Toyota produce its electric and hybrid vehicles.
It went from being ridiculed by Elon Musk to now supplying the batteries for his cars. One of the stanchest supporters of Wang Chuanfu and BYD was the American investor Charlie Munger who described investing into the company as a great privilege for him. In a 2019 investor meeting he praised Wangs brother as a true Hero, that had sacrificed himself so that his little brother could have a chance to escape poverty.
I am terribly impressed with BYD, its been one of the real pleasures of my life. Wang Chuanfu is the eight son of a peasent. An older brother recognizing a genius had been born into the family he just gave up everything in life to nurture that little brother genius.
Now thats confucianism. And confucianism partly created BYD. That older brother of Wang Chuanfu is a hero.
And of course what Wang Chuanfu has done is a miracle. Oddly enough BYD is not the only car company from a communist country that is making headlines. In Vietnam Vinfast is expanding rapidly and has even managed to do what Chinese car companies could not, enter the US market.
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