Meet The Warren Buffett-Backed Billionaire Driving China EV Maker BYD Ahead Of Flashier Rivals
China electric vehicle makers have won the attention of global stock investors in the past three years in part through hugely successful U.S. IPOs by upstarts Nio, XPeng and Li Auto. The stocks have all doubled in value since listing, thanks to growth in China’s auto market, the world’s largest. Their run has minted new billionaires, enriched venture capitalists and retail traders, and highlighted the shifting balance of power and technology in the global auto industry.
Outselling each of these newly public outfits is BYD, China’s biggest supplier of electric vehicles. Like those newcomers, its shares have soared of late (up 174% in the past year in Hong Kong). Unlike those newcomers, however, the Warren Buffett-backed company has deeper industry roots and makes money: its net profit more than doubled to $660 million last year from 2019, on sales that rose by more than a fifth to $25 billion. BYD’s market capitalization of $91 billion tops GM ($80 billion) and Ford ($54 billion). Its financial and stock performance has also helped propel its billionaire CEO Wang Chuanfu to No. 3 on the 2021 Forbes China Best CEOs list unveiled on Thursday. (See story here.)
China, the world’s No. 2 economy, will be central to electric vehicles’ future. It boasts the biggest auto market and accounted for nearly a third of all motor vehicles produced worldwide last year, up from just 13% in 2008, according to Statista. It’s also the leader in EV sales that grew by 40% globally in 2020 to 3 million vehicles, compared with a 15% drop in overall sales amid the pandemic, according to the International Energy Agency. This year, auto purchases will fall to 69.8 million, down from their 2017 peak of 80 million, Statista says.
The way BYD’s Wang see it, EVs will soon dominate in China. The EV penetration rate of new sales during the first six months of the year rose from 6.4% in January to about 14% in June, Wang noted in written replies to interview questions from Forbes China. “New phenomena never develop at similar rates, and the industry is changing at a pace even faster than imagined,” said Wang, adding that he expected new EV sales to account for 70% of the Chinese market by 2030.
Fast growth and huge global stakes are attracting not just new entrants but also potential partners to the auto field including telecom maker Huawei, internet heavyweight Baidu, smartphone maker Xiaomi, TV maker Skyworth, and real estate developer Evergrande.
And that’s just in China alone, where many Internet companies see the auto becoming a smart device akin to a smartphone. “Many of these (new auto) companies won’t survive, but some will,” says Bill Russo, founder of Automobility, a Shanghai-based consultant. “We’re at the beginning of the next wave of the competitive landscape. And the ones that do survive may just be the next Apple of the world.”
Wang, an orphan born into one of China’s poorest provinces, made it into college and graduate school where he studied battery technology. After a stint as vice supervisor of the Beijing Nonferrous Research Institute, he was influenced by the wave of entrepreneurism sweeping China in the reform-minded 1990s. His institute set up a company in private-sector mecca Shenzhen, and that eventually led to Wang founding BYD there with his cousin Lv as a rechargeable nickel battery business in 1995. A successful spinoff company, BYD Electronics, still sells batteries to Samsung and others; its sales in the first quarter of this year topped $3 billion. BYD entered the auto business in 2003 with betting that his batteries would work there; he started selling a plug-in hybrid passenger EV models back in 2008.
It was then that BYD received a stamp of approval from Warren Buffett’s Berkshire Hathaway, which bought a 9.9% stake in BYD for HK$8 per share. Buffett called partner Charlie Munger Berkshire’s “team leader” on BYD in 2009; Munger called Wang and BYD’s success until then a “near miracle,” lauding its technology progress and ambition. “I know it looks like Warren and I have gone crazy,” Munger said of the BYD stake. “But I don’t think I have.”
Indeed. BYD’s stock on Friday closed at HK$212.40, giving Berkshire a 26-fold return from the Chinese company. New models this year helped BYD sell approximately 41,000 new energy vehicles in June alone, almost triple a year ago and a monthly record.
For the first six months of the year, it sold 154,579 new electric vehicles, an increase of 154% from a year earlier. Wang’s BYD boasts an EV line that now includes buses, taxis, coaches and private cars, as well as logistics, construction and sanitation vehicles. To date, BYD delivers models in more than 50 countries and regions, including the U.S., where it assembles buses in California; in China, its partners include Toyota, with which it has a research and development joint venture. Overseas sales, amid the pandemic, accounted for 39% of BYD’s business last year. For its success to date, BYD has generated at least three billionaires: Wang, vice chairman Lv Xiangyang ($12 billion) and Xia Zuo-Quan ($3.9 billion).
Buttressing BYD’s competitiveness is what 55-year-old Wang calls a “full industrial chain and full market” strategy for EVs: core technologies for EV manufacturing that include batteries, electric motors, electronic control systems, and automotive semiconductors. Spinoff BYD Semiconductors aims to list in China this year. Yet among that group, batteries may be key for Wang: BYD’s long-term expertise puts it in a position to sell to other carmakers, not just put them into its own models.
Ironically, Tesla’s start of mass production at a new China factory in 2019 has benefitted BYD by raising awareness of individual Chinese retail consumers of the appeal of EV ownership. “Tesla is educating the customer,” Nick Lai, head of Asia Auto Research at JP Morgan told an American Chamber of Commerce in Shanghai podcast this month. Wang is now courting those customers with new sedan models, moving to expand beyond his own EV long-term strength in fleet sales. Of late, he has been launching sedans named after Chinese dynasties such as Tang and Han.
It’s been a winning approach. “You start as a battery company,” Russo said. “You anticipate EV. You pivot to making vehicles. You stay true to your battery roots. You start with the fleet market because that’s what the market presents to you. You wait for the global leader Tesla to come in and open the retail segment, and you quickly follow up with retail-oriented products and then you separate them into purpose-built fleet designs. And your end game is to eventually capture value from the battery business supply chain which was right there from the beginning. You stay true to your core and you extend your business as opportunities present themselves. It’s very smart.”
While expanding its line-up at home, BYD is looking to expand passenger EV sales overseas. It announced in May that 1,500 Tang EVs would be shipped to Norway within this year. In February 2021, it signed an agreement with Australian customer Nexport to ship passenger EVs there. It continues to chip away at the global market for electric buses: it delivered 43 electric businesses to Finland last month, for instance. In the U.S., BYD’s California electric bus plant employs about 800 people.
Wang’s lead at the top of the China EV pack “demonstrates the willingness of Chinese companies to pivot to where the opportunities are,” says Russo. “What the Chinese companies seem to get that the foreign ones do not is that the future of mobility isn’t an extrapolation of the past.” Rather, EV successes will involve nimble entrepreneurs who are able to adapt quickly and target younger Chinese customers that are among the world’s most willing to try new products.” Foreign automakers “are completely blinded by this,” he said.
Wang’s overall costs are likely to be lower than rivals due to his in-house component strengths, Russo said. Yet he’ll need that advantage because of price pressure from the growing number of new EV models produced by local rivals. One early investor just reduced its BYD holding this month: Himalaya Capital Management, whose founder Li Lu introduced Munger to BYD, trimmed its stake to 6% from a previous 6.35%.
Wang, nonetheless, has another advantage that his current round of upstart Chinese rivals don’t: long experience. “The market is like a battlefield, and competition a war,” Wang said of business leadership in the cutthroat EV market. “Generals play a crucial role. This requires entrepreneurs to play a leading role,” he said.
Other requirements for success: Wang suggested: “Dare to pioneer innovation,” and “persevere and never capitulate — such dependability is a vital part of entrepreneurship.” Last but not least, Wang said, “entrepreneurs should stay focused on what they are doing; in their leading roles, they must do more and talk less.”
Given a leader with those skills, Wang added. “A successful company must fully grasp key technologies, implement accurate strategies, and possess a mechanism for speedy decision-making.” The wrong strategy may be the worst mistake of all, however. “If the strategic direction is wrong, five years may be wasted, and nobody can buy time,” Wang said. Don’t expect long-term thinker Wang to fail to have a direction he wants to go.
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