Chinese Character

Fully charged, raring to go

Buffett thinks BYD’s founder could be the world’s next great industrialist

Wang Chuan-Fu: a cross between Thomas Edison and Jack Welch

Six years ago, Wang Chuan-Fu admitted to an interviewer that when he came up with his company’s acronym – BYD – the letters had “no special meaning”.

He later joked to Businessweek that it stood for ‘Brings You Dollars’.

Much has changed since then. For a start, Warren Buffett is now a major investor in his company. So Wang has decided to add a bit of gravitas. He now says BYD stands for ‘Build Your Dreams’.

It certainly encapsulates Wang’s own philosophy on life.

Wang – who last week announced plans to raise fresh capital on the Shenzhen Stock Exchange – has transformed his company in recent years.

Initially known for making mobile phone batteries, the firm built up a reputation with Hong Kong investors when it listed there in 2002. But Wang gave fund managers a jolt when he announced he would be moving the company into the electric car industry. Investors initially took fright; worrying that this was a hair-brained gamble on a totally unproven technology.

But Wang’s logic was disarmingly simple. He felt that he’d already outflanked his Japanese competition in the rechargeable battery arena, and that this business had a dim growth outlook.

So his vision was to enter a new industry and use his technology – his batteries – to design an electric vehicle that could ride the new ‘green’ wave. The electric car – he premised – had decades of growth ahead. And unlike his mobile phone batteries – which feature largely anonymously in products like Apple’s iPhone – he intended to use BYD’s cars to build a major international auto brand that was based in China. He predicts BYD will be the world’s top carmaker by 2025.

Wang, who is convinced his DNA includes a ‘risk-taking’ gene, seems to have convinced Warren Buffett too. The world’s most famous investor purchased a 10% stake in BYD last September for $230 million, and recently showcased the firm’s new electric car, the E6 at Berkshire Hathaway’s AGM in Omaha.

The 78 year-old American gave Bill Gates a lift in the car, and after a test drive told Wang he thought it very good. “The acquisition of shares in BYD is a big deal for us,” insisted the wily Nebraskan.

Buffett’s sidekick, Charlie Munger reckons that Wang will be a future global business leader. He believes he mixes the temperaments of Thomas Edison and Jack Welch: “Edison was good at solving technological difficulty. Welch was good at getting what he needed to succeed. Wang Chuan-Fu also has these qualities.”

Wang sees himself as a trailblazer: “Good technology always comes from good companies. In the past Chinese enterprises were 100% state-owned, and so we didn’t have good companies.”

First and foremost, Wang is an engineer. According to the Bund magazine he likes wearing loose jackets “which makes him look no different from an ordinary engineer” and his office is piled with technology books, rather than management tomes. The Bund says his principal hobby is taking apart his Mercedes and Lexus and putting them back together.

In one illuminating moment of management philosophy he discovered his engineers were reluctant to take apart a luxury car; so he scratched his own Merc with his car key and then said, “Okay, now you can demolish my car.”

And when a friend picked him up from an airport in a Japanese car, Wang became curious how Toyota had put together his car seat, so he disassembled it.

Taking cars apart is part fascination and part business. Wang could not have got this far in the car business had he not possessed a flair for reverse engineering.

As late as 2003, Wang admitted that he knew “nothing” about cars. A first step was to plough through the Xinhua bookstore’s selection of automotive manuals. It does not seem to have daunted him: “To put it bluntly a car is just a pile of iron and steel,” he concluded.

He also decided all the talk of R&D costs and such like was industry propaganda designed to scare off would-be competitors. By his own assessment: “A mobile phone is more difficult to make than a car.”

Wang graduated with a chemistry degree, and after getting his masters, worked in a research laboratory for three years as an engineer. In 1995 he borrowed Rmb2.5 million from his cousin to set up BYD.

As a mobile phone battery maker, Wang didn’t want to compete purely as the lowest-cost provider. His goal was to make the best quality batteries at the cheapest price. It worked. BYD has become the world’s second largest maker of rechargeable batteries, with a 15% market share.

But when he started out he discovered that a fully-automated battery production line would cost hundreds of millions of dollars. So he developed his own assembly line, in which every process could be broken down and completed by the world’s cheapest skilled workers (the Shenzhen labour force).

If you visit a BYD battery factory you will find 39 assembly lines, each 40 metres long, with 1,500 workers beavering away.

If Wang out-Forded Henry Ford, he also taught the Japanese a thing or two. His competitors in Japan tried to replicate his approach but failed – he claims they found his approach too difficult to manage. But for Wang it gave him a crucial edge – it made his batteries 15% cheaper than those produced by rivals.

Costs are also a big deal for Wang. He and his staff always travel economy class and his family still live in one of the ordinary dormitory apartments at BYD’s main factory in Shenzhen.

Like a lot of visionary-types, it is the process of executing his vision that gets him motivated. “I have no interest in wealth,” he claims.

Then again, he earned $2.65 million in 2008 and has just sold $36.1 million worth of his stock to an institutional investor. He still holds 27.8.% of the company, according to 21 CN Business Herald.

But it is fair to say this is a guy for whom the products are more exciting than personal wealth.

Or his personal health, perhaps. How else to explain an incident – reported by CNN – that left Berkshire Hathaway amazed: to prove his product’s green credentials he took a glass of his recyclable (and non-toxic) electrolyte battery fluid and drank it. This is a man who believes in his products – one of which, the firm’s F3DM car, surprised many. Released last year, and targeted at environmentally-aware drivers, it can be fully charged from mains electricity.

The E6 (as driven by Buffett) is its latest model; and his product line now includes fully electric cars as well as hybrids and conventional combustion engine vehicles.

GM is trying to catch up with the plug-in Chevy Volt, which it hopes to release next year, but Wang has got to market first. And his ambitions now extend beyond cars. He recently bought a Hunan-based company that makes hybrid buses (a potentially huge market, see WiC2) .

R&D remains key. He is working on a new battery technology (in iron phosphate-based lithium) that will steam rather than explode if it overheats. And his engineers are working on a project that will combine BYD’s batteries with solar power.

Buffett’s protégé David Sokol has got to know Wang well and after spending several days at BYD told his boss: “The good news is that Wang Chuan-Fu is only 42 years-old. The bad news is that he is the only person driving the company. He has to quickly set up a team and I believe he will do so.”

Keeping Track: In WiC25 we profiled Wang Chuanfu’s BYD. This week it announced a doubling of first half net profit and said it would launch its e6 all-electric car in the US next year – a year ahead of schedule. The stock surged to HK$48.60, nearly six times what Warren Buffett paid for his 10% stake 12 months ago. Wang said he was considering selling more shares to Buffett.(4 September 2009)


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