BYD Company (HKG:1211)

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Automotive World  Aug 15  Comment 
BYD Company Ltd.’s presence was strong at this year’s United Nations Rio+20 Summit on Sustainable Development. Attended by more than 1,500 heads of state, sustainability staffers, NGO Leaders and representatives of the media, BYD’s...
Automotive World  Jul 16  Comment 
Green Technology Leader Sees South America as Priority Region; R$ 200,000,000.00 Invested, 450 Jobs Created The city of Campinas (in the São Paulo region of Brazil) has been selected as the home to the BYD’s newest factory creating ~450 new...
OilVoice  Oct 16  Comment 
Nighthawk AIM HAWK and OTCQX NHEGY announces an update on drilling at its 100 controlled and operated Smoky Hill and Jolly Ranch projects in the DenverJulesburg Basin Colorado. Big Sky 1211 W
ValueWalk.com  Aug 27  Comment 
China based car maker, BYD Company Limited (HKG:1211), an auto manufacturer partly owned by Warren Buffett's Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B), has reported 94% plunge in profits for the 6-month period ending on June 30. The...
Green Stocks Central  Oct 25  Comment 
LDK Solar (LDK) has announced it landed a big $300 million, 2 year contract with BYD Company of China for a supply of polysilicon every month to begin in January.  A deposit for the shipments has already been received. "We are very excited to...
JLM Pacific Epoch  Sep 17  Comment 
The Hang Seng Index climbed 1.29% to close at 21,970.86 on Friday, September 17, 2010, in main board trading turnover of HK$78.85 billion. The Hang Seng China Enterprises Index improved 1.41% to close at 12,171.19. Electronics and technology...
JLM Pacific Epoch  Jun 8  Comment 
BYD Company ([b]1211.HK[/b} recorded sales of 45,020 vehicles in May, up 38% annually, 163.com reported June 7. The company sold 22 electric cars in May and targets sales of 1,000 electric vehicles by the end of 2010, the report said. Statistics...
Capital Essence's Investment Blog- 錢途集團 » Page not found  May 2  Comment 
CEM News - Market Outlook (the technical analysis of financial markets) for May 3, 2010: "...the S&P is once again pulled back to support at the area of Tuesday’s key reversal low after recent rebound into the area of Monday’s bearish downside...
Samurai Trader  Apr 23  Comment 
There was a down note this morning on durable goods orders (although ex-autos, the number wasn;t bad), which was blamed on declining aircraft orders. I can vouch for that, I haven't ordered a single aircraft in the last month. The problem with...




 

BYD Company Limited (HKG: 1211) is engaged in two core businesses: the IT parts business, which consists of rechargeable battery and handset component production, and the automotive manufacturing business.

Since its founding in 1995, BYD has grown to become the second largest producer of rechargeable batteries by volume in the world after Sanyo at 285 million units.[1] Part of the company's success in the rechargeable battery business has been its unique business model. Instead of using fully automated production lines like its competitors in Japan and Korea to manufacture batteries, BYD has implemented a manufacturing line that breaks down the production process into simple jobs performed by workers, thereby replacing a conventionally capital intensive business model into a labor intensive one, which is cost effective for the company due to the availability of cheap labor in mainland China. [2] The company's sales of rechargeable batteries and handset components increased 10.7% to 18.1 billion RMB (US$ 2.65 billion) in 2008. [3]

BYD's expertise in both rechargeable battery technology and automotive production have allowed the company have to become the world's first manufacturer of a mass-produced plug-in hybrid, the BYD F3DM, establishing the company's place as a global leader in innovative fuel-efficient automotive technology. The company's automobile business was also able to achieve an output of 170,000 vehicles in 2008.[3]

BYD has gained global recognition from a substantial investment made by Warren Buffet's Berkshire Hathaway (BRK) subsidiary MidAmerican Energy Holdings Co. of $1.8 billion in 2008. The investment gave Berkshire Hathaway a 10.98% shareholding of BYD.[4]

Company Overview

BYD was founded by Wang Chuan-Fu, a former Chemist and government researcher, in Shenzhen, China in 1995. Wang's business model for BYD was to make use of qualified engineers and the large inexpensive Chinese labor pool to make quality components at low cost. This business model initially employed a labor intensive strategy that was and continually is supplemented by the deployment of self-designed and self-produced equipment in the production line. In 2003, BYD expanded operations to include automobile production, which has become the company's fastest growing segment, averaging 140% growth in sales from 2005 to 2008.[3] [5] 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.[1]

BYD's operations span across nine production bases in China with the largest sites located in Guangdong, Beijing, Shanxi and Shanghai. The company employs over 130,000 people with branches and offices established in the Americas, Europe, Japan, South Korea, India, Taiwan, Hong Kong and other regions.[6] All production work is performed in BYD's Chinese locations. The company's branches located outside of China are primarily responsible for sales and marketing of its products.[2] The company has three segments business segments: battery and related products, mobile handset components, and automobiles and related products.[3]

BYD has reported a 78 percent sales increase for the first five months of 2010 after May sales rose 38 percent to 45,020 units. The company plans to double sales to 800,000 units this year. The car maker is expected to launch four models including the G3 sedan in the second half of 2010.

Business Segments

Automobiles (55%)[7]

BYD’s automobile segment is run through its subsidiary, BYD Auto, which specializes in the manufacturing and selling of a wide range of vehicle lines. It is a product of BYD Co's acquisition of Shaanzi Qinchuan Auto Company Limited and Beijing Jichi Car Module Company in 2003. As of 2009, BYD Auto offers a line of 7 vehicles that target consumers in low, medium and high ends of the market. The company's automobile business is its fastest growing segment, with sales increasing 1275% from RMB628,594 in 2005[5] to RMB8,645,898 in 2008[3]. It has also grown to become the BYD's primary source of revenue increasing from 10% of total sales in 2005 to 55%[5] in the first half of 2009. Almost all vehicle sales came from China, with a small percentage of vehicles shipped to Russia.[7] In addition to its line of traditional internal combustion engine vehicles, BYD has successfully integrated technology from its rechargeable battery division with the introduction of the BYD F3 DM, the world's first mass-produced plug-in hybrid.[8] The division's growth has also been fueled by a US$1.8 billion investment by Warren Buffet's Berkshire Hathaway (BRK) through its subsidiary MidAmerican Energy Holdings Co. giving the company, a 10.98% shareholding of BYD.[4]

BYD Handset Shipments by Region
BYD Handset Shipments by Region[1]

Handset Components and Assembly Services (33%)[7]

BYD's handset components segment is run through its subsidiary, BYD Electronic, and specializes in the manufacturing and assembly of handset components. The division is vertically integrated such that it handles every aspect of handset production, which allows it to easily service demand. Revenues for this segment are primarily influenced by demand from global handset manufacturers of various brands. BYD produces 25% of of casings and 40% of keypads for Nokia as well as 80% of Motorola's RAZR handsets. Nokia is currently BYD's biggest customer, accounting for 40% of the company's handset sales in 2008.[1] Despite decreased production volume and price reductions imposed by such handset manufacturers, revenues from the division have increased by approximately .2% from RMB5.32 billion in the first half of 2008 to RMB5.33 billion in the first half of 2009.[7]

Rechargeable Batteries and Related Products (12%)[7]

BYD’s rechargeable batteries segment specializes in the sale of rechargeable lithium-ion and nickel batteries. The company has managed to maintain its position as one of the leading manufacturers of rechargeable batteries in the world with RMB1.92 billion in sales in the first half of 2009; despite the decline in sales by 41% compared to the first half of 2009. The decline in revenue was primarily due to the decrease in global demand for handsets which followed the 2008 Financial Crisis, subsequently resulting in a decreased demand for rechargeable batteries to power those handsets. BYD's rechargeable battery segment maintains a cost advantage over its competitors through its employment of a production process that relies more heavily on low cost labor and less on assembly machines compared to other manufacturers. [7]This difference in the manufacturing process allows BYD to set its battery prices at 20-30% lower than those of its Japanese and Korean competitors. BYD's major customers in the segment include Nokia, Samsung, Motorola and LG. [9]

Financial Performance and Business Metrics

Growth from 2005-2009

Automobile,Battery,Handset Component Revenue
Automobile,Battery,Handset Component Revenue[10] [3] [7]

BYD has experienced substantial growth with an average increase of 62% in annual revenue from 2005 to 2008[3] and a 33% increase in sales in the just the first half of 2009[7]. Such growth was primarily due to the rapid development of its automobile business, which the company had acquired in 2003. Through a large scale sales strategy that targeted consumers all across China, offering models that catered to high-end as well as low-end portions of the market, the company was able to achieve RMB3,232,178,000 in automobile sales in 2006, a 414% increase over vehicle sales in the previous year.[5] A major contributor to the growth of BYD's automobile business has been the expanding Chinese economy, which has led to increased income and a higher standard of living for Chinese consumers. Per capita income for urban residents of China increased to 8,856 yuan in the first half of the 2009, up 9.8% from the previous year, or 11.2% after adjusting for inflation.[11]

BYD's battery and IT parts businesses also managed to sustain growth during the period due to growth in output of low and medium-end handsets in the global handset market with demand primarily coming from the emerging markets of Brazil, India and China. Sales for all segments experienced the greatest growth in the People's Republic of China with annual revenue sales in China growing 431% from RMB4,552,080 in 2005[5] to RMB19,628,313 in 2008.[3]

BYD has been pursuing several business opportunities in order to expand its automotive segment. For example, in June 2010 BYD Auto signed an agreement to sell a group of cars to Budget Rent a-Car in Bahrain.[12]

BYD Co also has formed a 500 million yuan (US$73 million) auto financing venture with France's CGL. BYD said the venture, which is still subject to government approval, will provide auto loans to both dealers and individuals on the Chinese mainland. Car makers including GM, Ford, Toyota and Nissan have set up auto financing businesses here to boost sales. In April 2009, banks in Shanghai extended 1.2 billion yuan in auto loans, double the rate of a year earlier.[13]

Trends and Forces

Changing Battery Demand

Financial Crisis Causes Decreased Global Battery and Handset Demand

The 2008 Financial Crisis caused a deep decline in global demand for handsets, which translated into a decline in battery sales for BYD amounting to a 13% decrease in 2008[3] and a 46.9% decrease in the first half of 2009 over the previous year.[7] Given that handsets are not readily disposable goods, the period of use of a handset is primarily determined by consumer preferences, consumer disposable income, and rate of changing technology. Since consumer income is highly influenced by the state of the economy, handset and battery demand tends to decrease during economic downturns.

Growing Demand for Lithium Ion Batteries from Electric Vehicles Manufacturers

Increased investment in the development of alternative energy vehicles as well as increased government incentives for the purchase of such vehicles has increased the demand for lithium ion rechargeable batteries from electric vehicle manufacturers across the globe. Almost all major automakers in the world have begun to develop electric vehicles, which require rechargeable batteries to store power. However, since adequate automotive rechargeable battery technology has yet to be developed, automakers have to either buy from leading battery producers or engage in joint ventures with battery makers. BYD, on the other hand, produces both rechargeable batteries and automobiles, so is able to control the costs of both segments and integrate the technology of its multiple divisions to produce hybrid electric vehicles at a cost advantage over its competitors.

Growing Chinese Automotive Market

BYD's growth potential is largely dependent on China's market for automobiles since the company's automobile business generated 55% of total revenue in the first half of 2009[7], and revenue from sales in China accounted for 73% of total sales in. 2008[3] It is currently the sixth largest car maker in China with 5.52% market share as of August 2009, a position which only required 6 years for the company to achieve. The company has explicitly set its primary objectives of becoming China's top automaker by 2015 and the world's number 1 automaker by 2025, as stated by Wang Jianjun, the deputy general manager of BYD Auto Sales Co Ltd.

China's automotive industry experienced a surge in vehicle sales with an increase in passenger vehicle sales in the January-August period by 37% to 6.23 million units. Total vehicle sales during the period amounted to 8.33 million units, a 29% increase over the previous year. There market for automobiles in China has immense potential due to the fact that 70% of automobile customers in China are first-time buyers, which means that there is need and demand for automobiles in China, and BYD is positioned to service that demand.[14]

Foreign Investment

BYD's growth has in part been fueled by investment from foreign firms, most notable of which is the US$1.8 billion investment made by Warren Buffet's Berkshire Hathaway Inc. through its subsidiary MidAmerican Energy Holdings Co. This investment gave Berkshire Hathaway a 10.98% interest in BYD, and also resulted in a surge in the stock price of over 700% over the one year period from September 2008 to September 2009. Buffet's investment has generated a profit of over HK$10 billion (US$1.28 billion) for Berkshire Hathaway as well as boosted the CEO of BYD Wang Chuanfu's wealth from US$880 million to US$5.1 billion.[4]

Foreign investments such as Buffet's have increased the value of BYD as well as supply the company with working capital to expand its operations, which have resulted in a significantly increased level of capacity to accommodate greater demand, allowing the company to produce over 6 million vehicles in the first half of 2009, an year-on-year increase of 18%. [7] MidAmerican Energy's investment in BYD also benefits BYD through both companies jointly working on research and development. The relationship developed by the investment also creates the potential for BYD to export vehicles to the United States with Buffet's support.[1]

Oil Price

The price of oil has an immense impact on consumer demand for hybrid electric vehicles. The price of gasoline in China in June 2009 was approximately 5.23 yuan per liter.[15] Given that most drivers in China drive less than 15,000 km per year, the incentive to pay a premium on a hybrid electric car is minimal.[1] If gas prices were to increase, BYD can expect increased consumer demand for its F3DM plug-in hybrid vehicle; however, without any increases in gas price, other incentives such as government subsidies must be provided for consumers in China to want to purchase hybrid electric vehicles.

Government Support

Direct Government investment in Alternative Energy Research

BYD's growth in China is highly facilitated by support from the Chinese government, which plans to support domestic automakers' research into alternative-energy vehicles in a bid to have 60,000 on the roads of 10 Chinese cities by 2012. The Chinese government's direct support of research for alternative energy vehicles officially began in 2001 with the inclusion of the 'alternative energy vehicles strategy' in its 'S63 Program,' which was China's state plan for the development of advanced technology in a wide range of fields.[1] BYD's signing of an agreement of "financial cooperation" with the Export-Import Bank of China also demonstrates the important role the Chinese government plays in the future of BYD in the Chinese market.[8] The government has also given automakers funding for research in the areas of hybrid electric vehicles (HEVs), including plug-in HEVs (PHEWs), pure EVs, and fuel-cell battery vehicles.

Government Subsidies for Alternative Energy Vehicles

In February 2009 the government announced its offering of subsidies up to US$8,800 to bus companies, taxi operators and state agencies for each alternative energy vehicle purchased in 13 major cities to boost sales of hybrid vehicles.[1] The hybrid vehicle industry in China is also heavily dependent on the Chinese government to provide the infrastructure for charging the electric vehicles. Government support in this area would increase the appeal of hybrid electric cars and increase sales because of the convenience of charging stations and the monetary incentives for purchasing hybrids.[16]

Competitors

Global Battery Market Share
Global Battery Market Share [1]

Rechargeable Battery Business

The global rechargeable battery market is dominated by firms in Japan, China and South Korea. BYD's primary competitors in this rechargeable battery market are Sanyo, Sony, Samsung SDI, Marushita, and LG Chemical.[1] [17] The global lithium ion battery market is dominated by six suppliers located mainly in Japan, South Korea, and China, with BYD being the leading Chinese supplier with 11% global market share. BYD maintains a 20-30% cost advantage over its competitors in the battery market; however, Japanese suppliers are able to maintain position in the market mainly due to strict requirement on safety by handset and notebook PC products. [1]

Global Handset Market Share
Global Handset Market Share [1]

Handset Components Business

BYD's main competitors in the global handset components market are Silitech, Shin-Estu, DK UIL, Sunarrow, and Polymatech. BYD has approximately 12% market share with revenues primarily coming from Nokia, Samsung, LG, Sony Ericsson, and Motorola. BYD maintains a cost advantage over its competitors in this market through customized equipment designs, chemical material development and manufacturing material flow to best make use of low cost labor while ensuring quality.

Automobile Business

BYD ranks 6th in China for market share in car sales
BYD ranks 6th in China for market share in car sales

BYD's main competitor's in the automotive market consist of joint ventures between foreign automakers and mainland Chinese corporations and independent Chinese automakers. Its primary competitors include Shanghai Volkswagen, FAW Volkswagen, Shanghai GM, Beijing Hyundai, Dongfeng Nissan Motor (NSANY), Chery, Guangqi Honda, FAW Toyota and Chang'an Ford.

U.S. Auto Industry Market Share by Sales
Manufacturer Sales in Units (Jan-Aug'09) Market Share%
Shanghai Volkswagen430,7059.62%
FAW Volkswagen420,3329.39%
Shanghai GM375,1078.38%
Beijing Hyundai321,4587.18%
DongfengNissan283,4426.33%
BYD246,8815.56%
Chery240,2755.37%
Guangzhou Honda209,1694.67%
FAW Toyota204,7334.57%
Chang'an Ford193,0024.31%

Shanghai Volkswagen - a 50-50 joint venture between Volkswagen and Shanghai Automotive Industry Corporation and the largest foreign-invested enterprise in China in terms of sales.[18]

FAW Volkswagen - a large scale joint venture passenger car manufacturer between FAW Group Corporation and Volkswagen AG, with share investments of 60% and 40% respectively. Volkswagen's 40% investment consists of 20% from Volkswagen, 10% from Audi AG, and 10% from Volkswagen Automobile (China) Investment Co., Ltd.[19]

Shanghai GM - a 50-50 joint venture between Shanghai Automotive Industry Corporation Group and General Motors, which assembles and distributes Buick, Cadillac, Chevrolet, and Saab branded vehicles from three plants in China.[20]

Beijing Hyundai - a 50-50 joint venture between Hyundai Motor and Beijing Auto.[21]

Dongfeng Nissan - a 50-50 joint venture between Dongfeng Group and Nissan Motor Company. It is the first joint venture in China to have a full line-up of passenger vehicles, light commercial vehicles and heavy commercial vehicles.[22]

Chery - a local automobile company founded by five local state owned investment companies in China's Anhui Province. Chery is the first Chinese car maker to export whole vehicle, KD parts, manufacturing technology and equipment of the vehicle abroad and currently exports product to more than 60 countries and regions, allowing it to rank 1st among car exporters in China from 2003 to 2008.[23]

Guangqi Honda - a 50-50 joint venture between Guangzhou Automobile Group and Honda Motor Company.[24]

FAW Toyota - a joint venture among China FAW Group Corporation, Tianjin Faw Xiali Automobile Company, Toyota Motor Corporation and Toyota Motor (China) Investment Co with the Chinese parties contributing to 50% of the venture and the parties under Toyota contributing to 50% of the venture.[25]

Chang'an Ford Mazda Automobile Company - a joint venture among Chongqing Chang'an Automobile Company, Ford Motor Company and Mazda Motor Corporation in which Chongqing hold 50% ownership, Ford holds 35% and Mazda holds 15%.[26]

References

  1. 1.00 1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 CLSA Analyst Report for BYD 17 Sept 2009 Selected Financial Data
  2. 2.0 2.1 Warren Buffett takes charge.
  3. 3.0 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 BYD Annual Report 2008 Selected Financial Data
  4. 4.0 4.1 4.2 Buffett Posts $1 Billion Profit on China Hybrid Carmaker BYD.
  5. 5.0 5.1 5.2 5.3 5.4 BYD Annual Report 2006 Selected Financial Data
  6. BYD Company Limited Company Profile.
  7. 7.00 7.01 7.02 7.03 7.04 7.05 7.06 7.07 7.08 7.09 7.10 BYD Interim Report 2009 Selected Financial Data
  8. 8.0 8.1 BYD Adds Plug-In as China Gets Edge on Toyota, GM.
  9. Daiwa Analyst Report for BYD 6 March 2009 Selected Financial Data
  10. Residents' income growing faster than GDP: NBS.
  11. "Fakhro Motors and Budget Rent a-Car sign agreement" June 16, 2010.
  12. "BYD sets up venture to give out car loans" June 23, 2010
  13. China Auto Sales Surge.
  14. China raises gasoline, diesel prices.
  15. Buffett-Backed BYD Seeks China Funds for Hybrid Sales.
  16. Major Lithium-Ion Battery Suppliers.
  17. Shanghai Volkswagen Automotive Company, Ltd.
  18. FAW Introduction.
  19. Shanghai General Motors Co. Ltd..
  20. Beijing Hyundai eyes '09 sales of 400,000 cars.
  21. Beijing Hyundai to Launch 3 New Models; New Elantra To Be Produced In April.
  22. Chery Company Overview.
  23. Guangqi Honda Company Overview.
  24. Tianjin FAW Toyota Motor Co. LTD Brief Introduction.
  25. Changan Ford Mazda Automobile Corporation, Ltd..
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