A Look at Electric Car Competition

January 13th, 2009 at 10:20am Bob Trojan

I saw this story in the WSJ yesterday and it made me ask the questions:

Beside the battery technology, with significantly fewer parts, do you think the US auto companies resisted going full bore to develop the electric car for either fear of dislocating suppliers or maybe getting resistance from them?  Just think, if the electric car requires fewer parts, what industry disruption would occur?  Now comes a new company from China without all these problems to worry about and saying he’ll be in the U.S. market before GM or Ford!

Here is an excerpt from that article….

SHENZHEN, China — It would seem like a lousy time to get into the car business, especially if you’re a little-known company in the developing world. No start-up has grown into a major auto maker in at least half a century.

Wang Chuanfu, the founder and chairman of BYD Co., a Chinese battery and car maker, thinks he’s got a shot.

Last month, BYD began selling a plug-in electric hybrid car in China, at least a year ahead of similar efforts in the U.S. and Japan. The car, called the F3DM, plugs into a home outlet and comes with a small gasoline engine that can recharge the battery on the go. It is the first of an array of electrified cars BYD plans to introduce around the world, starting in China and then in the U.S. and Europe as early as 2010.

On Monday, Mr. Wang is expected to pitch the F3DM to U.S. consumers, during a news conference at Detroit’s North American International Auto Show, which opens to the public Saturday. His venture has already attracted the attention of industry veterans and investors, including Warren Buffett.

Mr. Wang’s strategy: capitalizing on the electric car’s low barriers to entry. Few products are as complex to develop and produce as gasoline-powered automobiles, which are assembled with thousands of precisely engineered parts. But electric cars use only basic motors and gearboxes, and have relatively few parts. Aside from perfecting the battery itself, they’re far easier and cheaper to build — and that makes for a level playing field.

In China, BYD Co. has developed a plug-in electric vehicle that can run as a gasoline-electric hybrid with the flip of a switch.

“It’s almost hopeless for a latecomer like us to compete with GM and other established auto makers with a century of experience in gasoline engines,” said Mr. Wang in an interview, pacing and juggling calls in BYD’s headquarters on the outskirts of Shenzhen. “With electric vehicles, we’re all at the same starting line.”

It’s still a bumpy road to a full-blown era of battery cars. Punishingly high gasoline prices have come down, potentially damping the public’s willingness to embrace alternative-fuel vehicles. In addition to convincing consumers to try untested technology, BYD has to fight mistrust in the West of Chinese-produced goods. Safety has also come into question, as some of the lithium-ion batteries — widely believed to be the key to making viable electric cars — have shown a tendency to overheat and sometimes catch fire.

Mr. Wang says BYD’s batteries use a new technology that makes them safer than other lithium-ion models. He also says cheap abundant labor helps keeps his costs down, another factor that could sway consumers. In China, the F3DM is priced at 150,000 yuan, or $22,000, and BYD expects it to sell for a similar amount in the U.S. The Chevrolet Volt, by contrast, may be priced at $40,000 or more when it hits the market in late 2010.

Another potential BYD edge: more than a decade of experience specializing in making batteries. Mr. Wang started the company in 1995, borrowing $300,000 from a cousin, and making batteries for cellphones. Today, BYD is the world’s second-biggest producer of lithium-ion batteries. The company made 21.2 billion yuan ($3.1 billion) in revenue last year and has a work force of 130,000. Last September, MidAmerican Energy Holdings Co., an Iowa-based energy producer, invested $230 million in BYD for a 10% stake. Mr. Buffett is majority owner of MidAmerican.

BYD caught the investors’ attention in part because of its army of 10,000 technicians and engineers, many fresh out of college and technical schools, says David Sokol, chairman of MidAmerican. “Mr. Wang has built high-quality but low-cost research and development capabilities in China,” says Mr. Sokol.

The first of BYD’s electric cars, the F3DM, is more of a purely electric car than the gasoline-electric hybrids on the road today. It can go about 50 to 60 miles exclusively on electricity when fully charged.

By contrast, Toyota Motor Corp.’s Prius is essentially a gasoline-fueled car with an electric engine that propels the car at low speeds and assists the gasoline engine when accelerating. The F3DM is similar in design to General Motors Corp.’s Chevy Volt. But it is being launched two years earlier than the Volt and one year ahead of Toyota’s plug-in hybrid, which is due out for late 2009.”

Source WSJ

Entry Filed under: Management, Economy