Sunday, April 18, 2010

The 8th Most Innovative Company IN THE WORLD?

This week's Bloomberg Business Week contains the results of their annual "Most Innovative Company" survey, conducted in cooperation with Boston Consulting Group. (A sortable list of the top 50 can be found here.)

The number eight company on this list this year was a bit of a surprise to me: BYD, the automaker from Shenzhen. While it doesn't surprise me at all that the number of Chinese companies on this list should increase (from only one last year to four this year), I was shocked to see BYD at number eight -- with a bullet -- and ahead of the likes of GE, Sony, Samsung and Intel.

Among auto companies, only Toyota ranks above BYD at number five. (The survey was conducted last December before the extent of Toyota's current woes became known.) Behind BYD are Ford (13), VW (15), Tata (17 - also a bit of a surprise from the Indian automaker), BMW (18), Hyundai (22), Honda (26) and Fiat (43).

So why should BYD be ranked so highly its first time on this list? Is it because BYD makes the highest selling sedan in China? Hardly. The F3, though a hot seller, is basically a copy of a Toyota Corolla. And based on feedback from a number of auto journalists, a very poor copy at that. In all fairness, however, those same journalists credit BYD for great improvement since it entered the car business in 2003.

The BYD F3

The Toyota Corolla (2008)

Is it because BYD is the leading Chinese manufacturer of electric and hybrid vehicles? Perhaps. The plug-in hybrid version of the F3 (the F3DM) was announced to much fanfare back in December of 2008 as the world's first production plug-in hybrid. BYD had beaten the Japanese, the Americans and the Europeans to market. The only problem was, no one could actually buy one.

As of last August, only a few hundred had been sold, and only to fleet purchasers such as the local government of Shenzhen. Supposedly, consumers are finally, as of this month, able to buy the F3DM, but as even Business Week admits, it comes with a $24,900 pricetag. The regular version of the F3 only goes for about $9,000. (Why buy a Corolla for $19K when you can get a look-alike for $9K? Why buy a look alike-hybrid for $25K when you can get the real thing for $19K?)

And even if Chinese consumers had been able to buy the F3DM as early as December 2008, how exactly is a plug-in hybrid innovative? The Toyota Prius, a hybrid of the non-plug-in variety has been available in Japan since 1999. And nearly every car company in the world now has some variety of electric and/or plug-in hybrid in the works, most using the same lithium-ion battery technology.

I am not saying that BYD is not an innovative company. In fact, from what I have learned talking to current and former BYD employees, the company's internal philosophy is all about innovation -- learning, experimenting, finding new ways to do things. And it is because of this that I really want to see BYD succeed in its mission. What I am saying, however, is that, for all their innovative talk, they have still produced very little beyond a hot-selling copy of a gasoline car and a hybrid version that is still untested by the driving public.

Isn't ranking BYD high on a list of innovators sort of like handing out a Nobel Peace Prize to someone because he talks a lot about peace? Let us hope that both peacemakers, and innovative carmakers, can live up to their reputations.


  1. One thing that BYD is very good at is PR, with announcements seemingly timed to keep the momentum going on its market-leading PE multiple.

    Some of these announcements look tenuous to say the least (one earlier this year that it was moving ahead with its plans to sell hybrids in the US being a case in point: as you say, their technology is still unproven on a mass uptake basis, still rather expensive, and there is a major legal case already underway in the US on the IP behind the lithium ion battery - before BYD even turns up with its "re-engineered" designs).

    Overall, I am pretty sceptical on them. But they're investor smart, especially in trading hard on the Buffett name, and the periodic "alliances" with major international brands.

    I read too that the company's supposed competitive advantage in labour-intensive assembly is not actually too good for product reliability either. Although I am not sure how that is panning out with their gasoline engine cars?

  2. What we are missing is credible data on the quality of automobiles in China. JD Power does these great surveys on initial quality, but, unlike their quality surveys in the US, for some reason the data for China are kept secret. I'm not sure how that is supposed to help consumers make an enlightened choice.

    The one survey that JD Power China does reveal is on customer service, and across the board, BYD gets the lowest rating (along with quite a few other Chinese companies).

    The survey data are here:

  3. I did find this summary report on the 2009 Initial Quality Survey. Unfortunately, JD Power only includes the top one or two cars in each segment. BYD models do not appear anywhere on the list.

    My guess about the lack of detail on these surveys is that JD Power, being new to China, is taking it slow, not wanting to "name and shame" anyone yet. Probably a wise move considering their revenues in China all come from the auto companies.

    Here's a pdf of the summary report:

  4. thanks Greg. I will look at the links.

    The JD Power situation is interesting, I had not realised that they were so circumspect. In other countries, are their revenues also more reliant on the manufacturers or do consumers/advertisers pay for their surveys?

    Not that we can put the boot in too much, what with all the commentary on Wall Street's relationship with Moody's and S&P on the sub-prime ratings!!

  5. Thanks, Will. I wasn't actually blaming JD Power for withholding information (well, I kinda was), but actually, I think they are doing the right thing in China.

    My understanding is that JD Power's revenues come from the car companies in both China and the US. (I could be wrong, and I'll ask someone I know who used to work for JD Power.) However, while the US is a mature market and all cars sold in the US are of reasonably high quality now, China still isn't quite there. If the initial quality surveys on Chinese auto companies were release in full detail, there would be a major loss of face for the Chinese companies whose quality is still significantly lacking.

    If my assumption is correct, then I can understand why JD Power wouldn't fully reveal the survey results. As JD Power's reputation as an honest broker grows among Chinese companies and consumers, and as the quality of Chinese cars increases, I assume we'll be seeing more detailed info in the future.


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