It wasn’t the kind of presentation that executives at Berkshire Hathaway were expecting. But to demonstrate his firm’s eco-friendly credentials, Wang Chuanfu, founder of BYD Auto, is reported to have drunk a glass of recyclable battery fluid. Talk about showing faith in your own product, we suggested at the time (see WiC11).
Four years on, and Wang has some convincing to do once again, although this time as much with potential buyers of his electric cars as with his American co-investors.
BYD’s sales fell almost 12% in the first five months of this year, according to the China Association of Automobile Manufacturers, and at a time when the industry has been on an upward trend. In the first half of 2012, overall passenger vehicle sales gained 7.1% to 7.61 million units, the association said.
A key problem, say industry insiders, is that BYD has put too much focus on electric vehicles but neglected gasoline-engine models, where it makes almost all of its sales to car buyers. Despite significant investment, sales of new energy vehicles didn’t extend much beyond a thousand units last year, or less than 1% of BYD’s total.
WiC has written before about the problems of convincing Chinese consumers to buy electric cars (or hybrid fuel-electric combinations). Most are put off by the higher price, as well as concerns about the convenience and cost of recharging vehicle batteries.
But many will now add safety to the list, after a fatal accident involving BYD’s leading electric model in Shenzhen at the end of May when an E6 taxi burst into flames, killing its driver and two passengers.
The taxi was actually hit by a sports car at high speed. It then ploughed into another taxi, which was not an electric car – no one in either of those two vehicles was badly hurt. Unfortunately for BYD, that has led to speculation that it was the E6’s electric battery that caused the mortal explosion, and its shares fell the day after the accident.
Company executives came out fighting, announcing via weibo that the lithium ion battery had undergone fire risk testing that met national safety standards. Instead, they attributed the fire to the impact of the crash, highlighting that the sports car was said to be travelling at almost 180km/h.
Despite this, sections of the domestic media seem to need more convincing, noting that BYD has made no mention of the research body that conducted the battery testing, nor said anything about the specifics of the results. A government report into the crash is also said to be forthcoming.
The immediate problem for BYD is one of perception, especially when survey results released two weeks ago by JD Power Asia Pacific, a research firm, cited safety and quality as the top criteria for new car purchasers in China.
Unsurprisingly, German brands came out on top of the rankings. The danger for BYD is that it will now slip further down the ladder. There are even signs of that happening within its commercial heartland (and hometown) of Shenzhen in Guangdong, says Southern Metropolis Weekly. Backing from the local government has made Shenzhen the only city where BYD electric vehicles can be seen in numbers, with a fleet of 1,300 electric buses and 700 taxis out on the roads. The authorities had hoped to see these fleets increase in size and there had been positive signs. For example, passengers for taxis often preferred to travel in the E6, which is larger than the standard taxi and doesn’t demand a fuel surcharge.
But after the accident, the mood seems to have changed, says the newspaper, with passengers now opting for ordinary taxis instead.
“After the crash, many passengers want to keep BYD at arm’s length, so our business is now doing a lot better,” the driver of a regular taxi reported.
As a result, it looks like the BYD public relations team is going to be a lot busier than the sales staff in the weeks ahead. This month they’ve already had to deal with rumours that over half of its factories were not in operation due to the sales slowdown.
Not so, insisted BYD sources.
Then this week the company’s stock fell again by almost 10%, on a report that Daimler had suspended the use of BYD’s batteries in the United States and Europe. (BYD has a joint venture with Daimler to produce electric cars under the Denza brand, with production due to start next year.)
Company sources denied the claims once more, pointing out that BYD’s cooperation with Daimler is for the Chinese market only. That means that the speculation is pointless, they said, as there is no overseas partnership to abandon.
© ChinTell Ltd. All rights reserved.
Exclusively sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.