BYD's Speed ​​of Life and Death: Uncontrolled Expansion Leads to Future Fog

Whether it is traditional fuel vehicles or new energy vehicles, BYD's future is full of haze.

On October 24th, 2011, BYD’s North American headquarters settled in Los Angeles. Warren Buffett's gold partner Richard Munger attended the ceremony and said: "Los Angeles and BYD are engaged in this great thing in the world. BYD owns 20,000, Perhaps more engineers now are really trying to change the world."

But now, BYD is eager to change itself. BYD's three quarterly report shows that the first three quarters of earnings were 352 million yuan, down 85% year-on-year. However, the company’s operating income in the third quarter increased by 10.95% year-on-year, and its net profit was 77.37 million yuan, a significant increase of 582% year-on-year.

This seems to be a sign of gloomy weather. On November 1, A shares of BYD (002594) accidentally ushered in a daily limit. However, the haze that shrouded in BYD's head did not disperse.

On this day, Xu Lai, one of the 1,000 employees reassigned by BYD, is rushing about for the next job. A distributor of BYD Xuzhou Antong has still not recovered more than RMB 300,000 in debt from BYD, and BYD’s The neighbors - the owners of Shenzhen Zhenye Valley Valley, are still bragging about the excessive emissions of BYD Baolong Industrial Park.

"A company is not good for his employees, not good for distributors, not good for neighbors, you say he can go?" A BYD Xuzhou Antong dealer in bankruptcy liquidation to the Southern Weekend The reporter said.

The vertically integrated Magic China’s abundant labor resources was once the cornerstone of BYD's success. Decomposing a job into several actions does not require a high level of skills for the employees. Almost anyone can do it.

According to BYD's initial public offering of A shares prospectus, as of December 31, 2010, its registered employees were 183,317. Every employee who enters BYD will receive a job number. An incomplete version of the BYD's internal contact list for August 2011, which was obtained by the Southern Weekend reporter, has reached the maximum number of 12,12072.

In other words, since the establishment of BYD in 1995, it has lost 85 of every 100 employees recruited. An insider of BYD stated that the vast majority of them were ordinary workers – ordinary workers in the production line.

It can be said that China’s abundant labor resources have once been the cornerstone of BYD's success. Decomposing a job into several actions does not require a high level of skills for the employees. Almost anyone can do it. The staff was lost and it was easy to recruit new ones. From July 2009 to February 2010, BYD even tried to recruit more than 65,000 first-line production workers by way of labor dispatch.

From battery to electronics OEM to automotive manufacturing, the secret of BYD’s success has been its success. This vertical integration model maximizes vertical integration, control of upstream raw material costs, and synergy of processes. Reduce production costs and increase efficiency.

This set of rules once made BYD invincible. In 1995, Wang Chuanfu, former deputy director of the Beijing Institute of Nonferrous Metals, Room 301, borrowed 2.5 million yuan to establish BYD. More than one million yuan has been built into a nickel-cadmium battery production line. It has built its own production equipment, broken down the production line into a single process that can be completed manually, making full use of China’s labor resources, and winning the market with low prices and high quality.

NiMH battery production began in 1997 and lithium battery production began in 2000. In 2001, BYD entered the world's second nickel-cadmium battery, nickel-metal hydride battery third, and lithium battery fourth.

The best performance of BYD nickel batteries is 70% of the global market share. However, nickel batteries also have their life cycle and market limitations. For example, in December 2004, the European Union banned the use of cadmium in civilian batteries to prevent toxic heavy metals from seeping into water and air. The application of cadmium batteries is mainly in electric tools, medical equipment, emergency lighting and warning systems.

With the development of lithium batteries, the substitution effect on nickel batteries has begun to show, which is also weakening the market position of BYD batteries.

The mobile phone is currently the world's largest application market for secondary rechargeable batteries. At present, the vast majority of lithium batteries are used. The BYD prospectus quotes statistics from the Japan Institute of Information Technology (IIT). BYD's global market share of lithium-ion batteries for mobile phones was approximately 8.75% in 2010, ranking fifth. The top three Samsung SDI, LG Chemicals, and Sanyo add up to 55% of the market share.

The market share of BYD lithium batteries relies heavily on their foundry business.

A machine tool supplier from Japan told the Southern Weekend reporter that only two of their Chinese customers never purchase a complete set of products, but purchase components. One of them is Foxconn, and the other is BYD.

On November 27, 2002, Foxconn Group headquarters invited BYD Chairman Wang Chuanfu and his party to visit Foxconn's mobile phone factory production line. The two sides failed to reach an agreement. Did not expect to return after BYD set up a third business unit, began processing agents mobile phone parts products.

In 2003, BYD formally entered the mobile phone OEM business. In 2006, the turnover of its mobile phone parts reached 3 billion yuan, accounting for 40% of its total turnover, surpassing batteries to become its largest business segment. In December 2007, BYD split the mobile phone precision parts business into BYD Electronics and listed on the Hong Kong Stock Exchange.

Although latecomers BYD Electronics are not as good as Foxconn, the two companies in Shenzhen are gradually forming a pattern of one mountain and two tigers, excavating angles, competing for a single battle, and becoming increasingly fierce with infighting. Foxconn, the "king of foundry," is known as Since August 2006, it has repeatedly indicted BYD and former Foxconn employees for infringement of commercial technology secrets.

In June 2007, Foxconn filed a lawsuit in the High Court of Hong Kong, China: BYD informed the use of confidential information from Foxconn and established a mobile phone production system extremely similar to Foxconn, which cost the company 5.13 billion yuan in value. contract.

The most undecided part of this lawsuit was the detention of BYD founder Xia Zuoquan by the police on March 20, 2008. Afterwards, BYD issued an announcement that Xia Zuoquan had been released on the 4th day after detention because of insufficient evidence. It is worth pondering that BYD's board of directors approved Xia Zuoquan's resignation on the same day (March 20) as Xia Zuoquan was arrested. On July 7, Xia Zuoquan’s relocation notice was announced, saying that he had resigned from the position of vice president of the company due to “handling of personal affairs” and was replaced by a non-executive director.

Wang Chuanfu's cousin Lu Xiangyang has not been involved in the actual affairs. After Xia Zuoquan, the company’s vice president and executive director, left for the past 6 years, only one of Wang’s three co-founders will remain Wang Chuanfu, and he will become the sole leader of the company. Since the development of BYD, the general manager of more than 20 divisions has reported directly to Wang Chuanfu. Everything needs him to make a decision. This centralized structure has a profound impact on BYD's strategic decisions.

Where is the automotive business lost? The automotive business is BYD's first direct consumer and not business user. Although BYD can quickly create low-cost cars through reverse R&D and vertical integration, it is still difficult to keep up with rivals in the research and development of core technologies.

The success of batteries and OEMs seems to give BYD's omnipotent confidence. In 2003, BYD acquired the original Xi'an Qinchuan Automobile Co., Ltd. and entered the automotive industry.

In 2008, with the curiosity of “Chery Geely’s rapid development and no surprise to BYD”, Li Gang, General Manager of China National Automobile Industry Corporation, Jin Luzhong, Research Fellow of the Strategy Research Institute of the Ministry of Science and Technology, and Guo Konghui, Academician of the Chinese Academy of Engineering, went to BYD for research. After Beijing, it submitted a report entitled “The Model of Emancipating the Mind and Walking at the Forefront of Independent Innovation” and suggested that Premier Wen Jiabao of the Chinese State Council also visit BYD.

Li Gang recalled to the Southern Weekend reporter that the survey was actually a day's time. In the morning, Wang Chuanfu made a report on the history of the company and visited the factory in the afternoon. In the meantime, Li Gang proposed to look at BYD's power battery production line, but Wang Chuanfu said that it is being demolished and cannot be seen. Li Gang still feels sorry for this. He just listened to the verbal description and said that the production line is very advanced and can be handmade by hand.

In private communication, Li Gang remembered that China FAW had also done similar vertical integration in the 1950s, but because there was no co-operative unit at that time, it would not work in the next five or six years and it had to be divided up.

In the 19th century in Europe and the United States, the application of the vertical integration model was also popular. The iron and steel, petroleum, and aviation industries, including Ford Motor, all tried vertical integration. However, with the development of information and communication technology, the transaction and communication costs between different entities in the market have been greatly reduced, and the transaction costs between companies have been lower, so vertical non-integration has emerged. "Coase's Law" believes that a manufacturer's sustainable development will increase until each additional transaction will increase the internal cost of the transaction is equivalent to the termination of the transaction. With the reduction of transaction costs in the market, the company does not need to do anything on its own.

Jin Luzhong instead acknowledged the vertical integration of BYD. The developed countries have become more and more automated. BYD has replaced the machine manually. This is contrary to the trend, but it is in line with China’s national conditions at that time.

Guo Konghui admitted that he did not understand BYD's vertical integration practices. He told the Southern Weekend reporter that Wang Chuanfu and his team can control many departments well and can control the quality and cost of many parts more cheaply and effectively than other suppliers. This has to be their own skill.

In early August 2011, Xia Zhibing, the general manager of BYD Auto Sales, revealed that vertical integration was forced and voluntary when interviewed by Netease before leaving. Because when BYD first entered the automobile industry, no one believed that he could survive from the battery field into the automobile field. The earliest domestic counterparts had high prices and had low efficiency in cooperating with the entire vehicle, and they had various factions. When it was productive, it would We supply our own brand, but when we don't have (production capacity) we have to wait a while.

The vertical integration model helped BYD create affordable automotive products. The BYD public relations managers relished the fact that, in addition to glass and tires, BYD auto parts almost all of their own R&D.

In 2009, BYD F3 became the best-selling vehicle of the year. BYD's overall automobile sales increased 161.3% year-on-year to 448,500 vehicles (a growth rate much higher than the average growth rate of passenger vehicles by 48.1%); operating income increased by 158.1% to 22.365 billion yuan. It accounted for 53.6% of its total operating income, becoming its largest business segment and pushing BYD's performance to its highest ever.

However, unlike in the past, the automobile business is BYD's first direct consumer and not business user. Although BYD can quickly create low-cost cars through reverse R&D and vertical integration, it is still difficult to keep up with rivals in the research and development of core technologies. With the rise of the Chinese auto market, the short-term victory also led BYD to start its expansion too early. BYD's groundbreaking "one brand four sales network" sub-network sales measures and densely distributed outlets have caused dealers to intensify competition and pressure. is too big.

Market bottlenecks will soon come. In 2010, the Chinese auto market continued to grow at a rate of 34.5%, becoming the world's largest market. But BYD's auto sales only increased by 16.4% to 519,980, not reaching the mid-year adjusted target of 600,000 vehicles, not to mention the beginning of the year. Assumed 800,000 vehicles.

On August 8, 2011, Xia Zhibing after resigning wrote on Weibo, “Because of my personal eagerness for quick success, I misled the company and the sales team. The strategy I set was harsh on the business. I asked for too much and the team was overstressed. The channel is too hard. It hurts dealer friends."

In the vertical integration mode, the downstream market has slowed down, and the same feedback to the upstream of the product has dragged down the overall efficiency, which is also an important reason that cannot be avoided.

Uncontrolled expansion BYD is also planting, but no one knows how long the sowing period will take. The news from the other side of the ocean makes this prospect even more obscure.

A middle-level reporter from BYD lamented the Southern Weekend reporter. When the market situation is good, the difference cannot be seen. Fertilizer seedlings can be grown, seedlings can also be long seedlings.

The excellent situation in 2009 made BYD appear somewhat careless about automotive products in the second year. Several new cars launched in 2010 did not give too many surprises, and there were no products that sold over 10,000 such products as F3.

With the rapid decline in the automotive business, BYD’s plans for more expansion are already in full swing, which further adds to BYD’s condition.

Following the battery, foundry and automotive business, BYD tried to continue to replicate the vertical integration model in other areas. A group of people from the automotive business group went to prepare to build the Home Appliances Division and finally let it go.

In June 2010, the Chinese government started a subsidy policy for private consumers to purchase new energy vehicles. Electric vehicles have just begun to make headway. BYD has already put its perspective on storage power stations, photovoltaic cells, and LEDs.

The third quarter of 2011 reported that BYD recently delivered 200 electric buses and 250 electric taxis to the Shenzhen public transport system, which is the biggest achievement of its new energy vehicle. In F3DM, which was launched in March 2010, monthly sales have so far only hovered around 50 units.

The number of BYD's investment in R&D and production of new energy is unknown. Publicly available data show that in order to lay out the new energy vehicle market, BYD acquired Ningbo Zhongwei, a semiconductor manufacturing company, for integrating the upstream of the electric vehicle industry chain in nearly RMB 200 million in October 2008; In July, the company purchased the Xiangxiang Bus of Hunan Meimei Bus Manufacturing Co., Ltd. for RMB 60 million, and used its Changsha plant as the production base of BYD's new energy bus. It plans to invest 2 billion to 3 billion yuan; in September 2010, it spent 2 more. 100 million yuan to buy 18% stake in Tibet Zabuye Lithium.

The Chinese government's new energy vehicle line has repeatedly swayed, and the new energy vehicle policy has been difficult to produce. Let BYD entered the market with the banner of new energy vehicles.

The BYD North American headquarters originally planned to open at the end of 2010 has actually been postponed for 10 months; it plans to hire 150 employees in Los Angeles at the end of 2011, and it is now only 20. BYD also postponed the sale of electric vehicles to private consumers in the United States. Its main business is currently focused on solar panels, batteries, LED lights and electric buses.

The city of Los Angeles welcomed the arrival of this Chinese company with great enthusiasm, including a $2 million government subsidy to rebuild the old building where BYD's office is located.

"It's like seeding," said Austin Beutner, former deputy mayor of Los Angeles. Some of them grow faster and others grow slower, but you have to sow them.