Wednesday, October 28, 2009

Electric Vehicles: China can do no Wrong. Right?

Think Again.

This past week, columnists Anil Gupta and Haiyan Wang published an opinion piece in Business Week that dares to go against the flow. While the rest of the world seems ready to declare China the winner in electric vehicle technology, Gupta and Wang explain why China has no real advantage -- a position with which I agree. They make two important points that are worth highlighting:
  1. Despite the apparent importance of battery technology for cars in the future, batteries are merely one component among many others. The apparent early success of China's BYD in battery technology (which is also questionable) does not mean that BYD is certain to enjoy success in other important factors such as "performance, safety, reliability, comfort, styling, dealership network, service quality, and price". In an article in the Wall Street Journal this week, Norihiko Shirouzu quotes the tech chief of a global automaker who had test-driven BYD's E6 as calling it "half-baked".
  2. First mover advantage ain't what it used to be. Gupta and Wang give plenty of examples in which non-first movers eventually came to dominate an emerging technology, leaving first-movers in the dust.
Gupta and Wang don't dismiss the importance of battery technology, and indeed, BYD seems to have somewhat of an advantage because, after all, they've been a battery company since the early '90s. But when you put the whole package together -- battery, auto body, electric motor, etc. -- BYD's success has been less than stellar. Through the first eight months of 2009, they only managed to sell 100 of their F3DM plug-in hybrids.

They also seem to speculate, as have I before, that Buffet's consolation prize with BYD may very well be the battery technology itself. Even if they cannot manage successfully to assemble the entire package for a mass market, BYD's battery technology -- if it is advanced as they claim -- could be licensed to dozens of global auto manufacturers. Indeed, Volkswagen has already partnered with BYD on battery technology.

I would add to this argument the fact that, among all of the auto specialists and insiders I have interviewed in China this year, I have yet to find anyone who believes that BYD -- let alone any other Chinese automaker -- has a lock on EV technology. They all see it as very experimental, and while they believe China is finally on a level playing field with developed countries in this emerging technology, they all acknowledge that the solution is just as likely to come out of Japan, Europe or North America. (I have yet to interview anyone at BYD, so perhaps this will change once I make it to southern China.)

I don't want this post to be interpreted as attempt to knock BYD. In fact, I admire BYD's CEO, Wang Chuanfu, for his courage and optimism and I wish the company every success. However, I think the rest of the world (i.e., all three people who still read my blog) deserve to read views contrasted with those of non-Chinese speaking foreign correspondents who fly first class, ride in limousines, stay in 5-star hotels, then return home to tell everyone China is the new land of milk and honey and BYD will own the future of electric vehicles.


  1. A very important advantage that China has is a dominance over rare earth elements which they have already started to restrict export of. This is enough to insure that battery technology will developed and produced within China. They can also continue and put restrictions on export of such batteries, meaning auto makes will have to produce the machines themselves in China. Not unlikely to happen.

    Of course, this might also mean that it would force the world outside China to find solutions which do not use these elements as they wont have a choice. The result of which that the advanced techonlogy will not be in China and there might be a backslash due to restriction on rare element.

  2. Thanks for your comment.

    I've seen a lot of the news on this, and most of it appears to me to be hand-wringing by an odd grouping of rare metals investors trying to pump up stock prices, the Pentagon trying to justify more weapons systems, and just China-haters in general.

    While it's true that China does produce a lot of these metals currently, there are huge reserves in Bolivia that have yet to be fully exploited, and I've also seen reports that there is a lot buried under the (melting) ice in Greenland.

    I have only come across one really good analytical article that attempts to honestly address this question, but unfortunately I am unable to find it now. If I find it later, I will be sure to post it here.

    I think you make an excellent point, however, that if China is indeed able to lock up most of the world's rare earth metals, they run the risk of sending everyone else looking for other technologies that don't require them. I think they would have enough sense to charge exactly what the market would bear, and not one penny more.

  3. the thing is this,,humans will always take an easy route in any tech because it is mostly cheaper (at first anyway) so innovation usually comes out of adversity!!so i hope that rare metals will become restricted and expensive and that way we can start the ball rolling using that most common of elements SILICA SAND as a basis for magnets batteries etc.the isralis have made a start on this research with good results but as with oil let us hope that the mineral conglomerates do not stifle further research.


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