SOLAR TODAY - June 2010

the biz | green stocks report
Byd: an investor’s dream?
Warren Buffet spotted a winner in a fast-growing Chinese battery company.

By RONA FRIED, Ph.D.

rona fried, ph.d., is president of Sustainable Business.com, the online community for green business: daily sustainable business and investor news, Green Dream Jobs, Business Connections and the sustainable investing newsletter, Progressive Investor. contact fried at rona@ sustainablebusiness.com.

Consult your financial advisor before making any investment.

BYD Co. ( 1211.HK; BYDDF.PK; byd.com), which stands for Build Your Dreams, emerged from rela- tive obscurity when Warren Buffet’s Berkshire Hathaway (BRK.A, BRK.B) spent $231 million for a 10 percent stake in the Shenzhen, China-based company in September 2008.

Founded in 1995 by Wang Chuanfu, BYD has skyrocketed to become the world’s largest producer of rechargeable batteries and a major car manufacturer. It also makes handsets and parts for mobile phones. And Wang has become China’s wealthiest man.

B YD now employs 130,000 workers, and its market cap has grown to $182 billion. Revenues have risen about 45 percent annually for the past five years, reaching $4 billion in 2008. BYD makes batteries for iPods, iPhones and low-cost computers, and cell phone handsets and parts for several companies, including Nokia and Motorola. In 2003, BYD entered the auto-making business by buying a near defunct state-owned car company. The company went public on the Hong Kong exchange in 2007.

Last year, B YD sold 400,000 cars. The company plans to double that this year through increased exports. Its F3 sedan was the bestselling car in China last year. BYD believes it can become China’s top automaker by 2018 and a major global player by 2025.

driving into the u.S. auto Market

B YD introduced the F3DM plug-in hybrid in Shenzen in April. It carries a retail price of $24,859, before government rebates for low-emission vehicles. It’s said to go 100 kilometers ( 62 miles) on its electric charge before needing to run its three-cylinder gasoline engine (see page 48 for more details). When it debuts in California later this year, the F3DM will be the first Chinese-designed car sold in the United States. It will undersell the $40,000 Chevy Volt, which is designed to do 40 miles on the initial electric charge.

The E6 electric car, originally planned to launch in the U.S. market this year, has been delayed. Instead, 100 samples are being tested in China. The E6 has a top speed of 87 mph, travels 205 miles on a single charge and only takes about an hour to charge. Some say the car won’t sell well in the United States because its design looks outmoded to Americans, and the quality of body panel fit and paint finish doesn’t meet U.S. standards. The price tag will be a steep $40,000.

trying out Solar

BYD is also leaping into solar, with a vertically integrated manufacturing model. It began building a massive

$3.3 billion, 5-gigawatt crystalline silicon plant in 2009, to be completed in 2015. The company claims its proprietary production process can cut polysilicon costs in half.

Future Village, a small complex at its corporate headquarters, runs on eight wind turbines and solar photovoltaics, all made by BYD. There’s an energy storage unit that captures excess solar and wind energy, also made by BYD.

BYD’s entry into photovoltaic manufacturing is supported by direct government subsidies, by land rights to two silica mines and by direct and indirect government purchase of BYD products.

Buffet approves

Buffet has already made $1 billion on his investment in BYD. The purchase was viewed as atypical for Buffet, who doesn’t often invest in a new, disruptive technology like electric vehicles. He also doesn’t invest in technologies he doesn’t know much about. But it takes a special person to capture a leading market share in batteries and vehicles in such a short time. Buffet invested in Wang Chuanfu as much as in the company.

How did B YD become the leading low-cost battery producer so quickly? Wang took advantage of China’s cheap labor. He turned the capital-intensive battery manufacturing model on its head. Rather than investing in expensive robotic manufacturing, he created a simple production process that relies on labor instead.

But he’s also spent far more on R&D than other Chinese manufacturers, improving products and modifying the manufacturing process. And he’s attracted leading scientists because of an emphasis on great benefits: free housing, food, health insurance and access to free education for their children.

Wang has been called a combination of Thomas Edison and Jack Welch, and, like Henry Ford, is a skilled engineer and scientist as well as an outstanding entrepreneur. He started BYD after raising $300,000 from relatives, then set out to compete with Sony and Sanyo making rechargeable batteries.

Buffet believes that all cars will be electric in 20 years and that BYD may become a dominant supplier of electric vehicle batteries as well as electric vehicles. But the biggest advantage may be access to BYD’s energy storage technology. Buffet’s utility, MidAmerican Energy Holdings, acquired shares in BYD and has already started using a B YD energy storage system in Oregon.