| June 06, 2012
Car manufacturer, BYD, first came to most people’s attention outside China when
Warren Buffet bought 10 percent of the company for $230 million.
Four years ago when this happened, BYD was thought to have a chance to become the world's largest automaker, primarily by selling electric cars. But now that future seems in doubt as the brand struggles to deliver on its purpose.
BYD’s original business success was as a manufacturer of mobile phone batteries. By replacing technology with migrant workers, the CEO Wang Chuan-Fu lowered manufacturing costs. By 2002, BYD had become one of the top four manufacturers in the world. In 2003, Wang Chuan-Fu acquired a state-owned car company and, by applying the same “human resource advantage,” has become a major player in the Chinese car market.
The idea of combining new battery technology into the company’s vehicles promised to bring new, fast-charging and long-lasting electric cars to the global market. And it is a very laudable and potentially profitable goal. Replacing gasoline engines with electric could lower running costs and substantially reduce carbon emissions.
But, fast forward to 2012, and the New York Times reports that BYD’s stock has dropped dramatically on analyst concerns that the company has neither the technology, nor the quality, to be an enduring competitor in the Chinese market, never mind the world. Sales are reported to be declining as Chinese consumers migrate to more expensive competitors.
Much of these concerns rest in the quality of the current BYD vehicles, concerns apparently shared by Chinese consumers. A quick glance at our BrandZ data suggests that perceptions of any Chinese manufacturer are relatively poor, and that BYD, while better than other Chinese manufacturers, lags the foreign competition by a wide margin. If BYD has an advantage today, it is its price point, not the driving experience.
If BYD really does want to challenge the likes of Toyota, VW and Buick, then it is going to have to address its quality issues: real or perceived. Without doing so, even the introduction of radical new battery technology seems unlikely to address the brand’s waning fortunes, since consumers often shy away from radical advances in technology until it is proven reliable.
It is going to be interesting to see where the BYD story goes from here. Reading the CNN Money story, no one can doubt the CEO’s drive and company’s potential, but I can’t help wondering if chasing business opportunities rather than committing to a single purpose will undermine that drive. But then, maybe that doubt reflects my cultural background more than the reality of business in China.
What do you think? Does a company need to focus on one purpose? What might the future hold for BYD?