BYD: The Global Leader in Battery Technology

With fuel prices higher than ever, energy policy has become one of the key issues in the U.S. presidential campaign. Although it has taken a backseat lately to the economy as the country struggles to deal with the meltdown on Wall Street, everyone realizes that new solutions — and alternatives to the current sources of energy supply — are needed to meet America’s needs over the long term. So much so that John McCain, the Republican presidential candidate, proposed that a $300 million prize be given for new technology that would be 30% cheaper than current batteries for passenger cars and have “the size, capacity, cost and power to leapfrog the commercially available plug-in hybrids or electric cars.”

Well, the U.S. won’t have to spend that money after all and can apply it instead to the economic bailout package. Warren Buffet has beaten everyone to the punch by investing $230 million in what he considers to be the most promising battery technology in the world. Who’s the lucky winner? A whiz kid from Silicon Valley? An automotive engineer from Detroit? Or perhaps an engineer trained at Toyota, the company that pioneered the development of hybrid technology? Remarkably, it’s none of the above. The prize goes to a Chinese company that is a relatively recent entry to the battery business, and an even more recent entry to the automotive industry.

Warren Buffet announced Monday that he had agreed to pay 1.8 billion Hong Kong Dollars (about $230 million) for a 9.89 percent stake in BYD, a Chinese battery manufacturer that plans to sell electric cars in the United States by 2010.  Established in 1995 and based in Shenzhen, BYD is one of the world’s largest makers of rechargeable batteries for cellphones and other uses. The company’s fast-growing auto-making unit, which it only established in 2005, makes compact and subcompact cars for the Chinese market and now accounts for nearly a third of the company’s revenue. In the first half of 2008, BYD sold 72,357 gasoline cars in China, a 94 percent increase from the year before. The company plans to offer its first fully electric-powered car to Chinese customers in June 2009.

Buffet’s investment was made through MidAmerican Energy Holdings Company, an 87.4 percent-owned subsidiary of Berkshire Hathaway that is a global provider of energy services. David Sokol, the chairman of MidAmerican, said that the company wanted to address climate change and considered electric cars as a way to do so. “This is a technology that can really be a game changer if we’re serious about reducing” emissions of carbon dioxide, the main gas associated with manmade global warming, Mr. Sokol said.

In my recent interview with Sina.com, I stressed that the development of new products and new technologies would be the future trend in China. As the China market grows larger and develops its own unique set of requirements, products and technologies that have been developed elsewhere for another set of consumers may or may not have applications in China. Of all the countries in the world, for example, China has the greatest vested interest in developing vehicles that are more affordable, more fuel efficient and more environmentally friendly. The China economy needs to grow larger so that it can provide the opportunity for a better life to the 900 million Chinese who still live in the countryside. The more China grows, however, the greater the need for transportation. The more buses, trucks and cars on China’s roads, the greater the demand for fuel and the greater the stress on the environment. If China can’t provide more transportation, its economy can’t grow. It’s that simple. For China, therefore, developing vehicles and other forms of transportation that are more affordable, more fuel efficient and more environmentally friendly is a matter of economic life and death.

In this context, it should not be too surprising that the next advances in automotive technology come from China. Warren Buffet’s investment in BYD is yet one more sign that Chinese companies are moving upward technologically and gaining world class status. The executives at MidAmerican believe that BYD is at the cutting edge of battery technology and were impressed by BYD’s ability to produce electric cars that can be 80 percent recharged in 15 minutes and have a range of almost 190 miles on a single charge. GM’s Chevrolet Volt, by way of comparison, has a battery range of just 40 miles on a full charge.

In addition to their belief that plug-in electric cars are well-suited for the U.S. market because the country already has the infrastructure to recharge almost anywhere, Berkshire Hathaway and Mid American want to tap into China’s vast engineering talent. Investing in BYD, which has 11,000 engineers and technicians among its 130,000 employees, provides a way of doing so.

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