case review_byd electric car company

8/12/2019 Case Review_BYD Electric Car Company

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segment, averaging 140% growth in sales from 2005 to 2008. In August 2007, Wang

announced that BYD aims to be the number 1 automaker in China by 2015 and number 1

in the world by 2025, reflecting Wang's great ambition for the company.

BYD's operations span across nine production bases in China with the largestsites located in Guangdong, Beijing, Shanxi and Shanghai. The company employs over

130,000 people with branches and offices established in the Americas, Europe, Japan,

South Korea, India, Taiwan, Hong Kong and other regions. All production work is

performed in BYD's Chinese locations. The company's branches located outside of China

are primarily responsible for sales and marketing of its products. The company has three

business segments: battery and related products, mobile handset components, and

automobiles and related products.

BYD has gained global recognition from a substantial investment made by

Warren Buffet' s Berkshire Hathaway (BRK) subsidiary MidAmerican Energy Holdings

Co. of $1.8 billion in 2008. The investment gave Berkshire Hathaway a 10.98%

shareholding of BYD and contributed to a boost in BYD's stock price from HK$8 per

share in September 2008 to a max of HK$88.40 in October 2009.

A case article entitled Warren Buffet Takes Charge3

has been released byFortune Magazine last April 13, 2009. This article discusses in detail why Warran Buffet

invested 10% stake at BYD for a quarter of a billion dollars. This article shall be the

proponents subject of review.

3 -- Marc Gunther, Warren Buffet Takes Charge, Fortune CNN.com, published on April 13, 2009.
http://www.wikinvest.com/wiki/Warren_Buffethttp://www.wikinvest.com/wiki/Berkshire_Hathaway_%28BRK%29http://www.wikinvest.com/wiki/Berkshire_Hathaway_%28BRK%29http://www.wikinvest.com/wiki/Warren_Buffet


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Facts of the Case

In the early year of 2008, Charlie Munger, Warren Buffets friend and a long time

partner of Bershire Hathaway suggested to Buffet that they invest in BYD, an

obscure Chinese battery, mobile phone, and electric car company.

According to Munger, BYDs entrepreneur Wang -Chuan Fu is a combination of

Thomas Edison and Jack Welch - something like Edison in solving technical

problems, and something like Welch in getting done what he needs to do. David Sokol, chairman of a Berkshire-owned utility company known as

MidAmerican Energy, went to China to visit BYD.

In mid September 2008, an announcement was made where Berkshire Hathaway

bought 10% of BYD for $230 million Berkshire Hathaway thinks BYD has a shot at becoming the world's largest

automaker, primarily by selling electric cars, as well as a leader in the fast-

growing solar power industry.

Wang Chuan-Fu started BYD (the letters are the initials of the company's

Chinese name) in 1995 in Shenzhen, China. A chemist and government

researcher, Wang raised some $300,000 from relatives, rented about 2,000 square

meters of space, and set out to manufacture rechargeable batteries to compete

with imports from Sony and Sanyo.

In the year 2000, BYD had become one of the world's largest manufacturers of

cellphone batteries. The company went on to design and manufacture mobile-

phone handsets and parts for Motorola, Nokia, Sony Ericsson, and Samsung. Wang entered the automobile business in 2003 by buying a Chinese state-owned

car company that was defunct. Wang knew very little about making cars but

proved to be a quick study. In October 2003, a BYD sedan called the F3 became

the bestselling sedan in China, topping well-known brands like the Volkswagen

Jetta and Toyota Corolla. BYD has also begun selling a plug-in electric car with a backup gasoline engine, a

move putting it ahead of GM, Nissan, and Toyota. BYD's plug-in, called the

F3DM (for "dual mode"), goes farther on a single charge - 62 miles - than other


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electric vehicles and sells for about $22,000, less than the plug-in Prius and much-

hyped Chevy Volt. Today BYD employs 130,000 people in 11 factories, eight in China and one each

in India, Hungary, and Romania. BYDs U.S. operations are small - about 20 people work in a sales and marketing

outpost in Elk Grove Village, Ill., near Motorola, and another 20 or so work in

San Francisco, not far from Apple. BYD makes about 80% of Motorola's RAZR

handsets, as well as batteries for iPods and iPhones and low-cost computers,

including the model distributed by Nicholas Negroponte's One Laptop per Child

nonprofit based in Cambridge, Massachussettes. Revenues, which have grown

by about 45% annually during the past five years, reached $4 b illion in 2008.

Wang wanted to be in business with Buffett for two reasons: to enhance the brand of BYD and open doors in the U.S.. However, Wang would not let go of

more than 10% of BYD's stock. By 2002, BYD had become one of the top four manufacturers worldwide - and

the largest Chinese manufacturer - in each of the three rechargeable battery

technologies (Li-Ion, NiCad, and NiMH), according to a Harvard Business

School case study of the company. Wang stresses that BYD, unlike Sony and

Sanyo, has never faced a recall of its batteries. BYD can afford to hire skilled engineers because their salaries are only about

$600 to $700 a month; they also get subsidized housing in company-owned

apartment complexes and low-cost meals in BYD canteens and basically

breathing, eating, thinking, and working at the company 24/7.

BYD stands for Build Your Dreams. In order to sustain its lead, BYD will

never rest and is always open for improvement.


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Problem Statement

BYDs Chairman and entrepreneur Wang -Chuan Fu intends to penetrate the U.S.

market in terms of its sale of autmobile, with emphasis of introducing its plug-in hybrid

electr ic vehicle (F3DM Dual mode) and its all-e lectric vehicle (E6). Hence, Wang

agreed for Warren Buffet to invest 10% in its company. This case art icle review

primarily aims to provide solutions on how BYD will penetrate and to create brand

awareness to the U.S. market, with emphasis of introducing its plug-in hybrid electric

vehicle and all-electric vehicle models.

Specifica lly, it seeks to answer the following questions:

1) What is the current market situation in the United States in terms of:

1.1 Market share of existing automobile industry

1.2 Sales of private vehicles

1.3 Market share of plug-in hybrid electric vehicles and all-electric

vehicles

1.4 Sales of plug-in hybrid electric vehicles and all-electric vehicles

2) What are the different problems that may be encountered by the company

BYD in penetrating the U.S. Market?

2.1. sale of its plug-in hybrid electric ve hicle (F3DM dual mode)

2.2. sale of its all-electric vehicle (E6)

3) What are the different market development strategies that may be employed

by BYD in order to penetrate the U.S. Market?

3.1. plug- in hybrid electric vehicle (F3DM dua l mode)

3.2. all-electric vehicle (E6)

4) What conclusions and recommendation which may be derived from the case

article review?


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Statement of the Objectives

The proponent intends to achieve the following objectives for this case articlereview:

1) Create brand awareness to the U.S. market through niche marketing.

2) Within the year 2012, BYD Automobile will increase visibility in selected

areas of the United States, particularly the state of California

Areas of Consideration

I. Opportunity and Issue Analysis (Internal Environment)

Background of BYD and Warren Buffet

In 1995, BYD was established. In July 1996, BYD passed ISO9002 authenticat ion. In 1998, BYD EU Branch was set up. In December 1998, BYD passed ISO9001 authentication. In 1999, BYD USA Branch was set up. In 2000, BYD became Motorolas first Chinese Li - ion battery supplier. He

studied Sony and Sanyo patents and took apart batteries to understand how they

were made, a "process that involved much trial and error," he says. (Sony and

Sanyo later sued BYD, unsuccessfully, for infringing on their patents.)

In 2000, BYD Japan Branch was established. In 2001, BYD Korea Branch was established. In 2002, BYD became Nok ias first Chinese Li -ion battery supplier; in May 2002,

BYD passed QS-9000 authentication.


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In July 2002, BYD Company Limited (1211-HK) was listed on the Hong Kong

Stock Exchange, creating the highest IPO price record among 54 H stocks. In the

same year, BYD ranked No.1 among Asia Money 2002 Best -Managed

Companies and was named 2002 Best Medium -Sized Ent erprise IPO Project

by Asset Magazine. The successful IPO of BYD was an important landmark in

both Asian and global financial markets.

In September 2002, Shenzhen BYD Li- Ion Company Limited won Motorola

Excellent Supplier Award.

On January 22, 2003, BYD acquired Shaanxi Qinchuan Auto Company Limited

and established BYD Auto Company Limited and set up its Xian production base

after building a new plant of 1 million m2 in the Xian Hi -tech Development

Zone.

In 2003, BYD acquired Beijing Jichi Car Module Company Limited (covering an

area of 200,000m2). In the same year, BYD set up its Shanghai BYD Industrial

Park (covering an area of 560,000m2) in Shanghai and moved its car sales

headquarters to Shenzhen, thereby developing a layout to service the entire

country: east Shanghai, south Shenzhen, west Xian, and north Beijing.

On April 16, 2005, BYD Auto announced the formal offline of its first new car,F3, in Xian. At the same time, a new production base with a capacity of 200,000

units per year was formally established.

From April 2005 to February 2006, BYD F3 won 68 various awards within 10

months, including New Car Award, Best Popularity Award, and Most

Expectable Car in the Shanghai International Auto Show, as well as the most

valued Best Price-Performance Car Award in the 2005 Chinacars Annual

Billboard. In June 2006, BYDs pure electric car the F3e--was successfully developed.

Powered by Fe-batteries using ET-POWER technology, F3e realizes zero

pollution, zero emission and zero noise, with a range of up to 350km per charge,

thus symbolizing BYDs pure electricity vehicle technology reaching a leading


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position in the world.

In 2006, Ukraine started to import BYD car products in large quantities. The first

batch of 200 F3 cars represented the first time that Chinese cars have ever been

imported to the Ukrainian market. BYD Auto participated in the Beijing International Auto Show in 2006 with the

first ever Chinese hard-top convertible sports coupe the BYD F8; the worlds

first ET-Power car the F3e; and BIVT technology engines that BYD researched

and developed independently. This powerful combination from BYD triggered a

great storm of excitement at the auto show. On November 27, BYD F8 won the

Best Chinese New Car Award at this auto show.

In September 2006, BYD Micro electronics passed Nokia MOSFET supplierauthentication.

In January 2007, BYD F3 sales quantity exceeded 10,000 units per month,

representing for the first time a Chinese car brand that has ever entered the

10,000 club with a s ingle car model. In addition, the F3 became one of the four

giants in the medium -class car market (together with Elantra, Excelle, and

Family brands).

In April 2007, BYD F6 won Best (China) New Car Award, Best ShanghaiVogue Awa rd, and Best Car Design Award.

On July 30, 2007, BYD F3R was put on the Chinese market.

On June 18, 2007, the 100,000th F3 was produced in Xian, marking an

aggregated production quantity of 100,000 units of the medium-class model

within just 20 months starting in September, 2005. This also marked a sales

record (100,000 units) among national independent car brands (within the shortest

time on record).

On August 9, 2007, BYD Auto held the BYD Auto Shenzhen Modern Production

Base Completion & F6 Offli ne Ceremony in Shenzhen, symbolizing BYD

Autos strategy to enter the medium -high-class car market being put into practice.

During the ceremony, BYD Group President Wang Chuanfu announced two major


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goals for the group that shocked the automobile industry and the media world:

become No.1 in China in 2015 and become No.1 in the world in 2025.

Warren Buffet is known as the investor with 'the Midas Touch'. Buffet is the

most successful investor alive -- the only member among the Forbes' list of theworld's richest people to have earned his fortune entirely through investing. He

is the primary shareholder, chairman and CEO of Berkshire Hathaway. He is

consistently ranked among the world's wealthiest people and currently the third

wealthiest person in the world as of 2010

Human Resource Advantage and Business Model at BYD

In place of the robotic arms used on Japanese assembly lines, which cost$100,000 or more apiece, BYD actually cut costs by hiring hundreds, then thousands, of

people. To control quality, BYD broke every job down into basic tasks and applied

strict testing protocols. Deploying the armies of laborers at BYD is an officer corps of

managers and engineers who invent and design the products. Today the company

employs about 10,000 engineers who have graduated from the company's training

programs - some 40% o f those who enter either drop out or are dismissed - and another

7,000 new college graduates are being trained. Wang says the engineers come from

China's best schools. "In China, people of my generation put work first and life second,"

says the CEO Wang, whose wife takes responsibility for raising their two children. His

engineers investigate a wide array of technologies, from automobile air-conditioning

systems that can run on batteries to the design of solar-powered streetlights. Unlike most

automakers, BYD manufactures nearly all its cars by itself - not just the engines and body

but air conditioning, lamps, seatbelts, airbags, and electronics.

The company itself is frugal. Until recently, executives always flew coach. The

last time BYD executives traveled to the Detroit auto show, they rented a suburban house

to save the cost of hotel rooms.
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Leadership style

Transformational leaders are those who inspire followers to transcend their own-

self-interests and who are capable of having a profound and extraordinary effect on

followers. BYDs entrepreneur Wang -Chuan Fu can be best described as atransformational leader.

To better understand the leadership style of Wang-Chuan Fu, let us describe him

applying John Maxwells 21 Irrefutable Laws of Leadership. We shall describe Wang

by discussing which of the 21 Irrefutable Laws of Leadership is applicab le

The Law of Solid Ground

In this princip le, trust is the foundation of leadership. To build trust, a leader

must exemplify competence, connection and character. Character makes trust possible,

and trust makes leadership possible. In the Law of Solid Ground, a leader puts what is

best for his followers and the organizat ion ahead o f his personal agenda.

Shortly after BYD went public, Wang did something extraordinary: He took

approximately 15% of his holdings in BYD and distributed the shares to about 20 other

executives and engineers at the company. He still owns roughly 28% of the shares,worth about $1 billion.

The Law of Buy-in

People do not at first follow worthy causes. They follow worthy leaders who

promote worthwhile causes. In this principle, people buy into the leaders, then the

vision.

This principle was utilized by Wang in order for Warren Buffet to buy a 10%

stake at BYD. One of the rules of Warren Buffet is not to invest in something which

you do not understand. Buffett may not understand batteries or cars, or Mandarin for

that matter. Drive, which enticed Buffet to invest in BYD through its leader, is

something that needs no translation.


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The Law of Priorities

Wang leads on a worldwide scale. With his strong leadership and ability to

focus, he knew that the greatest success comes only when you focus your people on what

really matters. "They're basically breathing, eating, thinking, and working at thecompany 24/7," says a U.S. executive who has studied BYD.

The companys att ention to costs is one reason that BYD has made money

consistently even as it has expanded into new businesses. Each of BYD's business units

- batteries, mobile-phone components, and autos - was profitable in 2008, albeit on a

small scale. Overall, net profits were around $187 million. BYD, which is traded on

the Hong Kong exchange, has a market value of about $3.8 billion. That is less than Ford

($7 billion at the beginning of April), but more than General Motors ($1.3 billion).

In addition. Wang typically works until 11 p.m. or midnight, five or six days a

week. What he really learned ever since childhood is to put work first and life second.

The Law of Sacrifice

Leadership means setting an example and Wang certainly does not live a very

lavish lifestyle. He was paid about $265,000 in 2008, and he lives in a BYD-ownedapartment complex with other engineers. His only indulgences are a Mercedes and a

Lexus, and they have a practical purpose: Wang takes their engines apart to see how they

work.

Technology / Research and Development

BYDs engineers investigate a wide array of technologies, from automobile air -

conditioning systems that can run on batteries to the design of solar-powered streetlights.

Unlike most automakers, BYD manufactures nearly all its cars by itself - not just the

engines and body but air conditioning, lamps, seatbelts, airbags, and electronics. For


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Wang, he owns a Lexus and a Mercedes Benz all for a practical purpose: he takes their

engines apart to see how they work.

By reason of its concentration on research and development, the company has

already developed a nontoxic electrolyte fluid with the goal of making all itsmanufactured batteries 100% recyclable. Currently BYD will be using lithium ion

phosphate battery for its F3DM and E6 models which BYD claims that is it a major

breakthrough.

Currently, BYD researchers are on to their next big idea, a product they call a

Home Clean Power Solution. It is essentially a set of rooftop solar photovoltaic panels

with batteries built in to store power for use when the sun is not out, all to be des igned

and manufactured by BYD.

BYD is built on technological know-how who will never rest to achieve a major

breakthrough.

Distinct Competitive Advantage

BYD has a proactive and visionary Chief Executive Officer, Wang Chuan-Fu

whose brilliance can be compared to Thomas Edison and management style which can becompared to Jack Welch of General Electric.

Sustainable Competitive Advantage

BYD has an impeccable reputation for quality and innovation (being ranked as

8th most innovative company in the world by BusinessWeek and the 16th most

innovative company in the world by Fast Company) and with a rapid growth rate within

such a short period of time.

Penetration of BYDs automobiles in t he U.S. Market

The main goal of BYD is to penetrate and create brand awarenes of its

automobiles in the U.S. market. In the year 2010, BYD plans to penetrate the U.S.


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and introduce its electric vehicles, the hybrid F3DM dual mode and its all-electric E6

models.

BYDs all -electric vehicle E6 model

The BYD E6 pictured above is the model that is expected to go on sale to the

United States consumers in the year 2012 and BYD has models test ing in the US at the

time of writing. The car itself is a 100% electric vehicle and is said to be capable of 200

miles on a single charge, there are some caveats though, the initial price is said to be in

the region of $40,000 USD which is a big price for an unknown chinese brand and

positions the E6 at a p rice point of over $10,000 USD more than the all electric Nissan

Leaf, the Toyota Prius, the Chevy Volt and the hybrid Hyundai Sonata.
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BYDs dual mode F3DM

The F3DM (as photographed above) could go 63 miles on its battery or 360 miles

in hybrid mode with gasoline, with a top speed of 90 miles, and could acce lerate from 0-

60 in 13.5 seconds. BYD said that the F3DMs electricity cost was about a quarter of the

cost of a comparable gasoline-powered car.


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The above figure indicates the total revenues incurred by BYD in terms of its

current products being sold [.e. Automobiles (55%), handset components and assembly

services (33%), rechargeable batteries and related products (12%)] per region. In the

United States alone, BYD generated revenues amounting to 1,407,205 RMB

($206,065.00) in the year 2008. The United States scored the lowest in terms of revenues

for BYD because the latter has not yet offered automobiles in the United States.


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BYD (Internal Strengths) Weight Rating WeightedScore

Second largest manufacturer of rechargeable batteries in the world (including U.S.)

0.10 4 0.40

Reputation for quality (battery manufacturing)

and innovation

0.15 4 0.60

Warren Buffet (most influential investor in theworld) owns 10% of the company

0.05 4 0.20

Proactive and visionary leadership /Management Style

0.10 4 0.40

Growth rate 0.10 4 0.40

Technology / Research and Development 0.10 4 0.40

Inte rnal Weaknesses Weight Rating WeightedScore

A new entrant in the U.S. Market in terms ofsales in automobiles

0.20 1 0.20

Reputation for quality (automobilemanufacturing) for the U.S. Market.

0.20 1 0.20

Total (including strengths) 1.00 2.80

Using the IFE (Internal Factor Evaluation) Matrix, BYD has a total weighted

score of 2.80 indicating that the firm is above average in its overall internal strength.

However, there is a need for BYD to improve its weaknesses if it plans to become the

No. 1 automaker in the world by 2025.

II. Current Marketing Situation (External Environment)

Effects of the 2008-2010 automotive industry crisis in the United States

In the latter half of 2008, a global-scale recession began to affect the economy of

the United States. The impact of the recession contributed to declining automobile salesand a widespread automotive industry crisis. There is intense debate regarding the

content and approach to a massive United States auto industry bailout and restructuring.

Such a bailout may involve financial and other concessions from a variety of
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stakeholders, such as management, employees, labor unions, dealers, suppliers,

stockholders and bondholders.

Many note that the crisis occurred mainly as a result of bad business practices of

the Big Three U.S. automakers (namely Ford, GM and Chrysler). Analysts point out thatAsian companies that manufacture automobiles in the U.S. are not experiencing similar

problems. 4 A December 22, 2008 New York Times article stated, "For the most part, the

so-called auto transplants foreign-owned car companies with major operations in the

United States have deep pockets and ample credit, and they are not facing potential

bankruptcy like General Motors and Chrysler." 5

The US Big Three was first weakened by the substantially more expensive

automobile fuels 6 linked to the 2003-2008 oil crisis which, in particular, caused

customers to turn away from large sport utility vehicles (SUVs) and pickup trucks, 7 the

main market of the American "Big Three " (General Motors, Ford, and Chrysler) . The

US automakers also suffered from considerably higher labor costs than their non-

unionized counterparts, including salaries, benefits, healthcare, and pensions. 8

The support given to General Motors and Chrysler by the Obama Administration

is widely unpopular, with an April Washington Post poll finding that 41% of Americansapproved of the actions. 9

In President Obamas joint address to Congress in 2009, Obama stated that:

"We will invest fifteen billion dollars in technologies like...moreefficient cars and trucks built right here in America. As for auto industry,everyone recognizes that years of bad decision-making and globalrecession have pushed our automakers to the brink. We should not, andwill not, protect them from their own bad practices. But we are committed

4 -- If You Like Michigan's Economy, You'll Love Obama's , Wall St. Journal, September 13, 2008;Detroit: Same Old, Same Old , National Review, November 16, 2008 .5 -- Foreign Automakers in the U.S. Cut Back, The New York Times, December 22, 2008.6 -- Uncertainty in U.S. auto industry puts pressure on suppliers, International Herald Tribune. September 19, 2008. Retrieved 20 November 2008.7 -- Gas prices put Detroit Big Three in crisis mode. Associated Press , June 1, 2008. Retrieved 20

November 2008.8 -- Praet, Nico las Van, "Caw Girds For War," Financial Post, Retrieved: January 12, 2009.9 -- Byron York, "Will the GM ba ilout be Oba ma's tipping point?" . Washington Examiner , June 1, 2009.
http://en.wikipedia.org/wiki/New_York_Timeshttp://en.wikipedia.org/wiki/2000s_energy_crisishttp://en.wikipedia.org/wiki/Sport_utility_vehicleshttp://en.wikipedia.org/wiki/Pickup_truckhttp://en.wikipedia.org/wiki/Big_Three_automobile_manufacturers#United_States_and_Canadahttp://en.wikipedia.org/wiki/General_Motorshttp://en.wikipedia.org/wiki/Fordhttp://en.wikipedia.org/wiki/Chryslerhttp://en.wikipedia.org/wiki/General_Motorshttp://en.wikipedia.org/wiki/Chryslerhttp://en.wikipedia.org/wiki/Obama_Administrationhttp://en.wikipedia.org/wiki/Washington_Posthttp://en.wikipedia.org/wiki/Washington_Posthttp://en.wikipedia.org/wiki/Joint_address_to_Congresshttp://en.wikipedia.org/wiki/Joint_address_to_Congresshttp://online.wsj.com/article/SB122126282034130461.html?mod=opinion_main_commentarieshttp://online.wsj.com/article/SB122126282034130461.html?mod=opinion_main_commentarieshttp://corner.nationalreview.com/post/?q=NGE4MGEwMTkwMzE3MGE1NWI4MGJkYTA4M2NkMTIwZmU=http://corner.nationalreview.com/post/?q=NGE4MGEwMTkwMzE3MGE1NWI4MGJkYTA4M2NkMTIwZmU=http://corner.nationalreview.com/post/?q=NGE4MGEwMTkwMzE3MGE1NWI4MGJkYTA4M2NkMTIwZmU=http://h/Issues_Management/Case%20Analysis%20Review/Effects_of_the_2008-2010_automotive_industry_crisis_on_the_United_States.htm%23cite_ref-2http://h/Issues_Management/Case%20Analysis%20Review/Effects_of_the_2008-2010_automotive_industry_crisis_on_the_United_States.htm%23cite_ref-2http://h/Issues_Management/Case%20Analysis%20Review/Effects_of_the_2008-2010_automotive_industry_crisis_on_the_United_States.htm%23cite_ref-2http://www.iht.com/articles/2008/09/18/business/deal19.phphttp://www.iht.com/articles/2008/09/18/business/deal19.phphttp://www.iht.com/articles/2008/09/18/business/deal19.phphttp://www.iht.com/articles/2008/09/18/business/deal19.phphttp://www.msnbc.msn.com/id/24896359/http://www.msnbc.msn.com/id/24896359/http://localhost/var/www/apps/conversion/tmp/scratch_7/%22Caw%20Girds%20For%20War,%22http://en.wikipedia.org/wiki/Byron_Yorkhttp://www.washingtonexaminer.com/politics/Will-the-GM-bailout-be-Obamas-tipping-point-46675572.htmlhttp://en.wikipedia.org/wiki/Washington_Examinerhttp://en.wikipedia.org/wiki/Washington_Examinerhttp://www.washingtonexaminer.com/politics/Will-the-GM-bailout-be-Obamas-tipping-point-46675572.htmlhttp://en.wikipedia.org/wiki/Byron_Yorkhttp://localhost/var/www/apps/conversion/tmp/scratch_7/%22Caw%20Girds%20For%20War,%22http://www.msnbc.msn.com/id/24896359/http://www.iht.com/articles/2008/09/18/business/deal19.phphttp://h/Issues_Management/Case%20Analysis%20Review/Effects_of_the_2008-2010_automotive_industry_crisis_on_the_United_States.htm%23cite_ref-2http://h/Issues_Management/Case%20Analysis%20Review/Effects_of_the_2008-2010_automotive_industry_crisis_on_the_United_States.htm%23cite_ref-2http://h/Issues_Management/Case%20Analysis%20Review/Effects_of_the_2008-2010_automotive_industry_crisis_on_the_United_States.htm%23cite_ref-2http://corner.nationalreview.com/post/?q=NGE4MGEwMTkwMzE3MGE1NWI4MGJkYTA4M2NkMTIwZmU=http://online.wsj.com/article/SB122126282034130461.html?mod=opinion_main_commentarieshttp://en.wikipedia.org/wiki/Joint_address_to_Congresshttp://en.wikipedia.org/wiki/Washington_Posthttp://en.wikipedia.org/wiki/Obama_Administrationhttp://en.wikipedia.org/wiki/Chryslerhttp://en.wikipedia.org/wiki/General_Motorshttp://en.wikipedia.org/wiki/Chryslerhttp://en.wikipedia.org/wiki/Fordhttp://en.wikipedia.org/wiki/General_Motorshttp://en.wikipedia.org/wiki/Big_Three_automobile_manufacturers#United_States_and_Canadahttp://en.wikipedia.org/wiki/Pickup_truckhttp://en.wikipedia.org/wiki/Sport_utility_vehicleshttp://en.wikipedia.org/wiki/2000s_energy_crisishttp://en.wikipedia.org/wiki/New_York_Times


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to the goal of a re-tooled, re-imagined auto industry that can compete andwin. Millions of jobs depend on it. Scores of communities depend on it.And I believe the nation that invented the automobile cannot walk fromit." 10

Developments of the Electric Car Industry in the United States (2009)

The electric car industry was poised to take a giant leap forward. Brand new

start-ups as well as established automakers were jumping into the electric car, hybrid

retrofitting, and batterymaking industries. Funding for these projects continued to come

in, despite the troubled fortunes of the car industry in general in 2008 and 2009.

Large-scale transformation of the automotive industry from oil dependence to

reliance on electricity would require tremendous changes in manufacturing and

marketing. In addition, the success of the electric car depended on the construction of amassive infrastructure of charging stations that would a llow electric car owners to charge

or swap out their batteries. These charging stations could be simple boxes with electric

outlets located in peopl es garages or on the street next to parking meters. They could

also be similar to gas stations with employees and service stations. Plugging into the

electr icity grid meant that utility companies had to be partners as well, and in 2009 they

were just beginning to work with car companies, exploring ways to ensure that car

owners could get enough electricity at an affordable price. Another challenge was that

many people around the world, for example in China, lived in apartments without

garages, and so would be reliant on public charging stations.

Although it was unclear exactly what role the U.S. government would play, in

2008 it had begun talking about the energy crisis in earnest response to both skyrocketing

gasoline prices and a national mood that favored decreasing the U.S.s dependence on

foreign oil. These discussions included debates about offshore oil drilling, and included

plans for providing subsidies and other incentives for electric vehicle owners and

manufacturers. When President Barack Obama entered office in 2009, he made energy

independence one of his core issues, and his administration allocated billions of dollars

10 -- "Business | GM reports mass ive quarterly loss" . BBC News. February 26, 2009,http://news.bbc.co.uk/1/hi/business/7912544.stm. Retrieved May 1, 2009.
http://news.bbc.co.uk/1/hi/business/7912544.stmhttp://news.bbc.co.uk/1/hi/business/7912544.stm.%20Retrieved%20May%201http://news.bbc.co.uk/1/hi/business/7912544.stm.%20Retrieved%20May%201http://news.bbc.co.uk/1/hi/business/7912544.stm


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to promote electric vehicle manufacturing and development of advanced batteries for

those vehicles.

The Role of the U.S. Government in Shaping the Electric Car Industry in 2009

When he came into office, President Obama set a goal of having 1 million electric

cars on the road by 2015. 11 By September 2009, there were already multiple efforts

underway. The U.S. Department of Energy had a $25 billion direct loan program, called

the Advanced Technology Vehicle Manufacturing Loans Program, to develop electric-

powered cars and improve battery technology. Big recipients included Ford ($5.9

billion), Tesla Motors ($465 million), and Nissan (1.6 billion). The money for Japan-

based Nissan was allotted for building batteries and electric cars in Tennessee.

In addition, in August 2009, President Obama awarded $2.4 billion from the

American Recovery and Reinvestment Act to push forward electric car manufacturing in

the United States; $1.5 billion of that went to U.S.-based manufacturers to produce

batteries and battery components, and to expand battery recycling capacity; $500 million

went to U.S.-based manufacturers to produce electric drive components for vehicles,

including electric motors, power electronics, and other drive train components; $400

million was set aside for purchasing thousands of PHEVs and electric vehicles for test

fleets, and for installing electric charging infrastructure. 12 The grants were to cover 48 projects in over 20 states. 13

Recipients of this money included General Motors ($241 million) for their plug-in

hybrid the Volt; Compact Power, an affiliate of LG Chem ($151) for production of cells

for the Volt; Ford Motor Company ($30 million) and Chrysler ($70 million). The

administration also committed $11 billion to upgrade the nations power grid to prepa re

for introduction of electric vehicles in the U.S., and allocated an additional $15 million to

11 -- Eric Mayne, Future Shock, Wards Autoworld, June 2009.12 -- Department of Energy p ress release, August 5, 2009,http://www.energy.gov/news2009/print2009/7749.htm13 -- White House press release, President Oba ma Announces $2.4 Billion in Grants to Accelerate theManufacturing and Deployment of the Next Generat ion of U.S. Batteries and Electric Vehicles , August 5,2009.


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explore the purchase of alternative power train vehicles such as electric vehicles for the

General Services Administration fleet. 14

On the consumer side, government incentives existed for buying fuel-efficient

cars. As part of the American Reco very and Reinvestment Act, customers received a

$7,500 consumer tax credit for the purchase of an Electric vehicle or plug- in hybrid.

There were similar incentives in place for other alternative fuel vehicles, such as natural

gas or methanol, and for fuel cell vehicles. 15

The government also passed a cash for clunkers program in June 2009, which

provided government incentives of $3,500 to $4,500 to consumers who traded in o lder,

less fuel-efficient cars for new, more fuel-efficient ones. The program was extremely

popular, with the $1 billion allocated for the program running out within two months.

Congress subsequently allocated an additional $2 billion for the program. However,there was no mandate in the cash for clunkers program that the new vehicles had to be

conventional or plug-in hybrids or electric vehicles. Therefore many observers felt that

the program, as it was implemented in 2009, was primarily a short-term economic

stimulus measure, rather than an effort to promote the electr ificat ion of cars.

National Program to substantially reduce greenhouse gas emissions for automobiles

and power plants.

On April 1, 2010, the Obama Administration issued its final regulations

establishing a unified national program to substantially reduce greenhouse gas emissions

and improve fuel economy from light-duty vehicles for model years 2012-2016 for the

United States. At the same time, California issued its amended greenhouse gas

regulations which provide that compliance with the national program will be deemed

compliance with the California standards. This national program is through the efforts

of the Environmental Protection Agency (EPA) EPA and the Department of

Transportations National Highway Safety Administration (NHTSA) that will

14 -- Eric Mayne, loc. cit.15 -- Joseph Smith, Energy Saving Tax Breaks for the 2006 Tax Year, Locumli fe , February 2006.


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dramatically reduce greenhouse gas emissions and improve fuel economy for new cars

and trucks sold in the United States.

This National Program will apply to passenger cars, light-duty trucks, and

medium-duty passenger vehicles. They require these vehicles to meet an est imatedcombined average emissions level of 250 grams of carbon dioxide per mile, equivalent to

35.5 miles per gallon (MPG) if the automobile industry were to meet this carbon dioxide

level solely through fuel economy improvements. Togethe r, these standards will cut

greenhouse gas emissions by an estimated 960 million metric tons and 1.8 billion barrels

of oil over the lifetime of the vehicles sold under the program (model years 2012-2016).

The following automotive car companies and associations have signified their

intention to commit to the National Program:

1) Association of International Automobile Manufacturers

2) Alliance of Automobile Manufacturers

3) BMW

4) Chrysler

5) Ford

6) Honda

7) Toyota

8) Daimler

9) GM

10) Mazda

11) Volkswagen

In light of this turn of events, there has been a pending bill known as The American

Power Act. Its formal proposal reignites the prospect that the United States will take real

action this 2010 to reduce dependence on oil and produce more American-made power

and clean energy jobs. Among its key provisions are:

Strong goals for reducing carbon emissions and protecting the climate


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Significant consumer protections against cost increases, a nd Provisions to ensure environmental safeguards of any domestic energy

production.

On a final note, the Obama Administration finalized greenhouse gas rules for big

factories and power plants on May 13, 2010, giving momentum to the troubled climate

bill in the Senate. Starting next year (2011), the Environmental Protection Agency

(EPA) rules would require large power utilities, manufacturers and oil refiners to get

permits to operate or prove they are using the latest green technology to cut emissions

when building new capacity. US President Barack Obama has pushed the EPA to roll

out emissions rules where polluters could face more stringent future climate regulations

if the climate bill (The American Power Act) fails. "It's long past time we unleashed our

American ingenuity and started building the efficient prosperous clean energy economy

of the future," EPA Administrator Lisa Jackson said. The EPA said the new rules will

cover nearly 70 percent of U.S. emissions from stationary sources.

The role of the government of the Peoples Republic of China

In China, municipal governments in 13 test cities were offering up to $8,800 in

subsidies to taxi fleets and local governments for hybrid and all-electric vehicles.

Subsidies for private purchases were to be added later in 2009. The goal was to put60,000 low-fuel-consumption vehicles on trial. The subsidies were up to $7,300 for

hybrid cars, $8,800 for pure electric cars and up to $36,000 for hydrogen cars. These

vehicles had to be approved for mass market by Chinas industry.

The Chinas State Council (Chinas cabinet) enacted the Au tomotive Industry

Revitalization Program, which allocated $1.5 billion over three years to be spent on new

energy vehicles, technology upgrades, and dedicated parts and components. Other goals

of the program were to help independent vehicle brands, and p ush forward independent

innovation and industry consolidation. China felt that its automotive industry, including

the electric vehicle industry, would be more competitive with a few strong players rather

than many smaller companies.


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China also had a program similar to the United States cash for clunkers. Older

vehicles that did not meet certain environmental standards could be traded in for newer

vehicles with a subsidy attached. For rural residents, the government gave a 10 percent

subsidy to those replacing aged cars or three-wheeled vehicles with vehicles that had

engines of 1.3 liters or less, or small trucks. In early 2009, the government increased the

budget for these subsidies from 150 million to $900 million.

China saw the opportunity to capture its own growing market as well as to export

cars, which it believed it could make more cheaply, to the rest of the world.

Labor in the U.S. Auto Industry

Ever since 1980 and 1981, literally hundreds of thousands of people in the U.S.

Auto Industry have lost their jobs; communities dependent on the industry have suffereddevastating losses in employment and financial resources; and large facilities have

permanently closed. The Big Three Companies (Ford, General Motors and Chrysler)

went bankcrupt because of the following reasons:

1) Pressure from auto parts suppliers, which is coming from China.

2) These companies had union leaders who negotiated pension and other benefits

with management, which worked well for decades and it was assumed that

this would work eternally, without regard for changing times. In effect, these

companies, Ford and GM, had to pay benefits and compensation, even when

they were in decline and workers were also no longer contributing any thing

which added to their woes.

3) Increased penetration of the market by foreign manufacturers, especially from

Japan, Korea and China.

4) The US automakers have dominated the US market for almost a century

without a single rival, during which they little changed and whatever they

made was sold any way with no open mindedness for possible improvement. 16

Right now, the workforce in itself the people who design, monitor, maintain,

operate, assemble, inspect, supervise, coordinate and place should play a significant

16 -- US Auto Industry Decline: Less ons from Ford and GM, American Chronicle , July 4, 2006.


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role, not only in the traditional concerns of productivity and cost but also to the quality

and performance of the vehicle. 17

In the laws of California, the minimum wage for workers is $8 an hour.

The United Auto Worke rs (UAW ), is a labor union which represents workers in

the United States and Puerto Rico. It is founded in order to represent workers in the

automobile manufacturing industry. Headquartered in Detroit, Michigan, the union has

about 513,000 active members and more than 575,000 retired members in approximately

800 local unions, which negotiated 3,100 co ntracts with some 2,000 employers. 18

One perception is that the UAW is to be blamed for the automotive industry crisis

of 2008-2009. This viewpoint cites union workers' higher wages and more generous

benefits compared to those working at non-union Japanese auto plants in the U.S. as one

of the primary reasons for the poor competitiveness of the Big Three. In a November 18,2008, New York Times editorial, Andrew Ross Sorkin clamed that the average UAW

worker was paid $70 per hour, including health and pension costs, while Toyota workers

in the US receive $10 to $20 less. 19 The UAW asserts that most of this labor cost

disparity comes from legacy pension and healthcare benefits to retired members, of

which the Japanese automakers have none. Nor is it clear that labor costs, which are

approximately 10% of a car's total cost, were the decisive factor in the decline of

American automakers. The Big Three already sold their cars for about $2,500 less than

equivalent cars from Japanese companies, analysts at the International Motor Vehicle

Program say. According to the 2007 GM Annual Report, typical autoworkers earn a

base wage o f approximately $28 per hour. Following the 2007 National Agreement, the

base starting wage was lowered to about $15 per hour. 20 Detroit, Michigan is known as

the Motor City of America housing the Big Three Automobile Companies (Ford,

General Motors and Chrysler).

UAW Management granted concessions to its unions in order to win labor peace,

a benefit not calculated by the UAW's many critics. The UAW has claimed that the

17 -- The Competitive Status of the U.S. Auto Industry: A Study of the Influences of T echnology inDetermining the International Industrial Competitive Advantage, The National Academies Press ,www.nap.edu. , 1982.18 -- www.uaw.org.19 -- Andrew Ross Sorkin, A Bridge Loan? U.S. Should Guide G.M. in Chapt er 11, New York Times,

November 18, 2008.20 -- General Motors Corporation 2007 Annual Report.
http://en.wikipedia.org/wiki/Trade_unionhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Puerto_Ricohttp://en.wikipedia.org/wiki/Detroit,_Michiganhttp://en.wikipedia.org/wiki/Automotive_industry_crisis_of_2008-2009http://en.wikipedia.org/wiki/Automotive_industry_crisis_of_2008-2009http://en.wikipedia.org/wiki/Andrew_Ross_Sorkinhttp://www.nap.edu/http://www.nap.edu/http://en.wikipedia.org/wiki/Andrew_Ross_Sorkinhttp://en.wikipedia.org/wiki/Automotive_industry_crisis_of_2008-2009http://en.wikipedia.org/wiki/Automotive_industry_crisis_of_2008-2009http://en.wikipedia.org/wiki/Automotive_industry_crisis_of_2008-2009http://en.wikipedia.org/wiki/Detroit,_Michiganhttp://en.wikipedia.org/wiki/Puerto_Ricohttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Trade_union


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primary cause of the automotive sector's weakness was substantially more expensive fuel

costs 21 linked to the 2003-2008 oil crisis which caused customers to turn away from large

sport utility vehicles (SUVs) and pickup trucks, 22 the main market of the American "Big

Three" (General Motors, Ford, and Chrysler) . In 2008, the situation became critical

because the global financial crisis and the related credit crunch significantly impaired the

ability of consumers to purchase automobiles. 23 Worst, the Auto Bailout package for the

Big Three Automobile companies was rejected for Senate approval. The talks in the

Senate broke down at the last minute over Republican Senators' insistence to have labor

rates put on "parity pay" with non-labor employees at foreign car makers. 24

As of April 1, 2010, membership at UAW has plummeted bringing it to its total

membership at 355,000 already. This is the lowest level ever since the late 1930s.

UAW Vice President Bob King said in an interview that unionized workers each

gave up $7,000 to $30,000 per year in concessions to General Motors Co., Ford Motor

Co. and Chrysler Group LLC as the companies ran into financial problems and in 2008.

The union, he said, made tremendous sacrifices that helped all three automakers through

a crisis, working with company management to make the automakers competitive. 25

In February 2009, as one of his first duties in office, President Obama signed an

executive o rder that authorized federal executive agencies to use project labor agreements(PLA) on federal construction contracts with a total cost of $25 million or more. The

order also revoked President Bushs prior ban on man datory PLAs, an action Bush had

taken after congressional hearings produced evidence that PLAs were discriminatory

against open-shops and non-union workers, increased costs on most projects and were too

often vehicles for abuse . When the American Recovery and Reinvestment Act was

passed only days after Obamas order, agencies were encouraged to mandate PLAs for all

stimulus projects. 26

21 -- Jim Tankersley, No Easy Road For US Auto Industry, Los Angeles Times, April 9, 2009. 22 -- Gas Prices Put Detroit Big Three in Cr isis Mode, Associated Press, June 1, 2008.23 -- Bill Vlasik, Hazardous Conditions for the Auto Industry, New York Times, October 1, 2008. 24 -- Martin LaMonica, Auto Bail Out Package fails in Senate, CNET News, Dece,ber 12, 2008. 25 -- Tom Krisher, Union Leader: Workers Must Gain if autos recover, Associated Press , May 11, 2010. 26 -- Liberty Chick, Californias Class Warfare: PLAs Union and Non -union Workers against EachOther, Andrew Breitbart Presents BIG GOVERNMENT, pos ted on December , 2009,
http://en.wikipedia.org/wiki/2000s_energy_crisishttp://en.wikipedia.org/wiki/Sport_utility_vehicleshttp://en.wikipedia.org/wiki/Pickup_truckhttp://en.wikipedia.org/wiki/Big_Three_automobile_manufacturers#United_States_and_Canadahttp://en.wikipedia.org/wiki/Big_Three_automobile_manufacturers#United_States_and_Canadahttp://en.wikipedia.org/wiki/General_Motorshttp://en.wikipedia.org/wiki/Fordhttp://en.wikipedia.org/wiki/Chryslerhttp://en.wikipedia.org/wiki/Global_financial_crisis_of_2008http://en.wikipedia.org/wiki/Financial_crisis_of_2007-2008http://reviews.cnet.com/car-tech/http://www.abc.org/Government_Affairs/Issues/ABC_Priority_Issues/Project_Labor_Agreements/PLA_Fed_and_State_Activity.aspxhttp://www.abc.org/Government_Affairs/Issues/ABC_Priority_Issues/Project_Labor_Agreements/PLA_Fed_and_State_Activity.aspxhttp://www.abc.org/Government_Affairs/Issues/ABC_Priority_Issues/Project_Labor_Agreements/PLA_Fed_and_State_Activity.aspxhttp://www.abc.org/Government_Affairs/Issues/ABC_Priority_Issues/Project_Labor_Agreements/PLA_Fed_and_State_Activity.aspxhttp://reviews.cnet.com/car-tech/http://en.wikipedia.org/wiki/Financial_crisis_of_2007-2008http://en.wikipedia.org/wiki/Global_financial_crisis_of_2008http://en.wikipedia.org/wiki/Chryslerhttp://en.wikipedia.org/wiki/Fordhttp://en.wikipedia.org/wiki/General_Motorshttp://en.wikipedia.org/wiki/Big_Three_automobile_manufacturers#United_States_and_Canadahttp://en.wikipedia.org/wiki/Big_Three_automobile_manufacturers#United_States_and_Canadahttp://en.wikipedia.org/wiki/Big_Three_automobile_manufacturers#United_States_and_Canadahttp://en.wikipedia.org/wiki/Pickup_truckhttp://en.wikipedia.org/wiki/Sport_utility_vehicleshttp://en.wikipedia.org/wiki/2000s_energy_crisis


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Recently, skepticism of PLAs has increased under closer scrutiny of stimulus

project awards, and more business journalists have been examining current

unemployment numbers, looking at whos getting jobs from stimulus projects, and at the

relation of such issues to unionization statistics, as well as report ing on potential abuses.

Type of Industry: ELECTRIC VEHICLE (EV) or ALTERNATIVE TO FOSSIL

FUEL CAR INDUSTRY:

a) all-electric vehicle

b) plug-in hybrid electric vehicle (PHEV)

An all-electric vehicle (EV ), also referred to as an electric drive vehicle , is a

vehicle which uses one or more electric motors for propulsion. It is powered by long-

lasting battery and electric motor.

A Plug-in hybrid electric vehicle (PHEV), plug-in hybrid electric vehicle

(PHEV ), also known as a plug-in hybrid , is a hybrid vehicle with rechargeable batteries

that can be restored to full charge by connecting a plug to an external electric power

source. A PHEV shares the combination of both a conventional hybrid electric vehicle,having an electric motor and an internal combustion engine. Most PHEVs on the road

today are passenger cars, but there are also PHEV versions of commercial vehicles and

vans, utility trucks, buses, trains, motorcycles, scooters, and military vehicles.

Size of Industry

In 2009, the U.S. had about 250 million cars on the road, 40,000 of which were

electric vehicles. Most of these had a range of 20 miles, a speed of 25 miles per hour,and were generally used for fleet applications, checking parking meters, and transporting

people and clubs across golf courses.
http://en.wikipedia.org/wiki/Vehiclehttp://en.wikipedia.org/wiki/Electric_motorhttp://en.wikipedia.org/wiki/Propulsionhttp://en.wikipedia.org/wiki/Hybrid_electric_vehiclehttp://en.wikipedia.org/wiki/Rechargeable_batteryhttp://en.wikipedia.org/wiki/Electric_powerhttp://en.wikipedia.org/wiki/Electric_motorhttp://en.wikipedia.org/wiki/Internal_combustion_enginehttp://en.wikipedia.org/wiki/Scooter_%28motorcycle%29http://en.wikipedia.org/wiki/Scooter_%28motorcycle%29http://en.wikipedia.org/wiki/Internal_combustion_enginehttp://en.wikipedia.org/wiki/Electric_motorhttp://en.wikipedia.org/wiki/Electric_powerhttp://en.wikipedia.org/wiki/Rechargeable_batteryhttp://en.wikipedia.org/wiki/Hybrid_electric_vehiclehttp://en.wikipedia.org/wiki/Propulsionhttp://en.wikipedia.org/wiki/Electric_motorhttp://en.wikipedia.org/wiki/Vehiclehttp://www.youtube.com/watch?v=slFV1hQ7F1M


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Structure and Dynamics of the Industry

Porter Framework for the e lectric vehicle industry in the United States (as of 2009)

The above illustration indicates that there is a large opportunity for the all-electric

car industry to enter the U.S. market, now that there are laws passed in order to regulate

greenhouse gas emission (i.e. Carbon monoxide and carbon dioxide coming from

emission of fuel-engine vehicles) in automobiles and reconsidering solar energy as an

alternative form of charging batteries for electric vehicles. An alternative of putting up

an assembly plant in the United States may also be considered provided it complies with

standards of greenhouse gas emissions. Only one electric car (TESLA Roadster) is

outside the market. However, the threat of new entrants (such as the BYD E6 model) isstrong because of the Roadsters expensive price at approximately ($109,000).

There will be a problem in case battery charging stations or battery supply

stations may not be in place when electric cars will be sold in the U.S. That is why

establishment of these battery charging stations and battery supplies should already be in

New EntrantBYD (E6)

Nissan (Leaf)Mitsubishi (iMiev)Think (Think City)

Suppliers: Charging/Service Stat ions Utilities (electricitygenerating industries) Battery Makers/Suppliers Office EquipmentDistributors Office Supplies

Distributors Furniture Distributors Staffing Manufacturing engineers R&D Scientists and

Engineers

COMPETITO RTESLA (Roadster)

CustomersIndividuals : ProfessionalsEntrepreneurs , Employees,

Industries: GovernmentAgencies, hotel companies,Schools / universities, retail,Service, otherManufacu\turing industries.

Availability ofServicing s tations Hybrid vehicles Plug- in hybrid

(BYDs F3DM, GMs Chevy Volt ) Mild hybrid

Affordable Commute Bicycle

Substitutes


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order to cater to the needs of the all-electric vehicle industry. As of today, battery

charging stations are not yet in place, despite government efforts to provide subsidies for

establishment of battery charging stations and conversions of some companies from fuel

stations to electricity charging station.

In addition, battery makers, the same as battery charging stations, are sluggish as

an industry provider. Although partnerships have been made for creating battery supplies

for the new entrants, these battery suppliers and makers must already be in place to

prepare for the release of e lectric vehicles ready for mass production. Nevertheless,

use of plug-in hybrid vehicles (also an alternative to fuel-engine vehicles) may be an

alternative substitute in case there is shortage of battery charging stations.

There is a large opportunity of potential customers in the U.S. Market. Hence, it

is now ripe for BYD to enter. However, there is also a threat for the U.S. market not to

buy Chinese automobiles because of Chinas previous image and reputation for quality

and manufacturing toxic products. In order for China (BYD), to successfully enter the

U.S. market, it must provide an an affordable electric car which is safe to drive and

provides affordable maintenance, with provisions for charging stations and battery

supply.

The key external factors mentioned in the next page are based on the reported

environment scanning as mentioned above.


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BYD (Key External Factors)

Opportunities

Weight Rating WeightedScore

Laws related to the reduction of thegreenhouse gas emission

0.10 4 0.40

Government subsidies and benefits for theElectric Vehicle Industry

0.10 4 0.40

Markets untapped 0.10 1 0.10

Unemployment rate in the automobile industry 0.10 1 0.10

Lack of direct competitors in the market 0.10 2 0.20

Threats Weight Rating WeightedScore

United Auto Workers Union 0.10 1 0.10

Rivalry among the Big Three Automobilecompanies (Ford, GM and Chrysler)

0.10 1 0.20

Perception of American consumers on the products manufactured in China

0.10 1 0.10

Labor Standard Laws in the United States onwages and other monetary benefits

0.10 1 0.10

Lack of infrastructure for the Electric vehicleindustry.

0.10 4 0.40

Total (including strengths) 1.00 2.10

Currently, BYD has a total weighted score of 2.10 indicating that the firm is

below average in pursuing its strategies that capitalize on external opportunities and

avoiding threats.


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Competitor Fact Sheet for U.S. Sales (2009)

The illustration for the next page provides the Competitor Fact sheet for electric

vehicles that have concrete plans to sell its products to the U.S. Market. It will be

observed that the initial model is to install charging mechanism within the buyersresidences. Battery makers and/or suppliers are not yet in place until after five years.

It will be noted that BYD has an edge in battery supply as it has its own business

model to supply affordab le lithium-ion phosphate batteries to its buyers. In addition,

BYD is already putting up solar powered charging mechanisms ready for availability

upon release of its F3DM and E6 to the U.S. market.

Finally, the illustration will also indicate that BYD has to comply with the safetystandards for road and highways as approved by the U.S. Department of Transportations

National Highway Traffic Safety Administration. Otherwise, BYD auto products cannot

be sold in the U.S. (Sources: green.utoblog.com; www.caradvice.com.au; gm-volt.com;

BrighterEnergy.org)

Key Success Factors

In summing up the external factors and potential competitors and subsitutes, the

following constitutes the key success factors critical to the success of the electric vehicle

industry:

a) Affordability

b) Safety

c) Convenience and low cost services
http://www.caradvice.com.au/http://www.caradvice.com.au/


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ITEMS TESLA Think BYD BYD GM Nissan Mitsubishi

Country U.S. Norway China China U.S. Japan JapanVehicle Roadster Think City F3DM E6 Chevy Volt Leaf i-Miev

Type All-electric All-electric Plug-in hybrid All-electric Plug-in hybrid All-electric All-electricRetail Price to be sold in

the U.S. $109,000 $20,000 $21,900 $40,000 $40,000 $25,280 $30,000

Cost for the Battery

Energy Storage System Battery Pack$36,000 with life span of 7 years.Battery replacement for $1 2,000today to be delivered after 7 years

Lease batteries for $80-$90permonth; $1,000 KWh with a 10-year

warranty

Rechargeable and100% recyclable withbattery pack having lifespan of 2,000 cycles(16 years); $500-$900KWh warranty in 10years

Rechargeable and100% recyclable withbattery pack having lifespan of 2,000 cycles(16 years); $500-$900KWHr warranty for 10years

$600/KwHr or$7,500 warranty for

10 years

Installation cost for chargingstation is $2,200; Lifecycle

ownership cost for five yearsis $28,180 which is the cost

of the vehicle, cost of theelectricity and the cost of thecharging station; $375/KWh

or $9,000;

$340/KWh with lifeexpectancy of 10 years or

150,000 miles; The cost tocompletely charge is $2 per

charge

Charging Speed

Requires overnight charge of top-up electricity

Can fully charge in 7hours and charges50% in 10 minutes

Can fully charge in 7hours using 220V andcharges 80% in about15 minutes

Re-charge batteriesfrom a 110V outletin about 6.5 hours

Home charging at willrequire 220V to charge fullyfor 8 hours or 80% charge

for 30 minutes

Takes 14 hours for a fullcharge on a 100 volts and 7hours on a 200 voltindustrial outlet

Top Speed 201 km/hr (125mph) 105 km/hr (65mph) 90 mph 160 km/hr 120 mph 145 km/hr (90mph) 130 km/hr (81mph)

Nominal Range

393 km (244 miles) 210 km (130 miles)

100 km all-electricrange; 580 km on a

single battery chargeand a full tank of

gasoline (360 miles)

300 km (186 miles)

40 miles for abattery charge; 483

km on a singlebattery charge and

a full tank ofgasolinte (300

miles)

161 km (100 miles) 160 km (99 miles)

Best Features

Basic Safety features with Theftdeterrent mechanism and PIN for

security; seatbelts; airconditioning;power windows and locks Cruisecontrol; Leather seats

Basic safety features withseatbelts; surpasses all European

and US requirements; Powersteering, central locking, electricheater and electric windows and

mirrors, air conditioning, a pre-heattimer electrically heated

widescreen; full length sunroof;Radio CD with MP3, USB,bluetooth, a navigation and

multimedia system, alloy wheels,roof rack and 2+2 child seats

Battery can re-chargeusing a normal

household outlet; Solarpower charging

system; Basic Safetyfeatures with air bags

and ABS withelectronic brake force

distribution;Production of Iron

battery are completelyrecyclable and norharmful emissionsduring production;

Battery can re-chargeusing a normal

household outlet; Solarpower charging

system; Safety featureswith air bags and ABS

with electronic brakeforce distribution;Production of Iron

battery are completelyrecyclable and norharmful emissionsduring production;

Battery can re-charge using a

normal householdoutlet; Solar powercharging system

Basic safety features A/Coutlet, Stereo, power

steering and windows, Bluetooth; AM,FM CD

(WMA/MP3 US Interface forIpod and other MP3 player;

rear camera; great storage;5-door family sedam withseating for 5 (3 child seats fit

at the back of seat; Cruisecontrol; With lease plans at

$349 a months for 36months with $1,999 deposit

Standard safety featureswith twin air bags; ABS with

EBD, ISOFIX; child seatmounting; Personalization

programs which allowsbuyers to specify the

exterior color and they canopt for items such as floor

mats made frombiodegradable bamboofiber; Can be recharged

from a regular home socket

Required service CentersProvides anit-freeze charge every 5-7

years)

Needs charging stations but stillunavailable

Can be independent ofany charging station;

Needs gasoline stationwhich can hold 2

gallons of gasoline

Can beindependendent ofCharging stations

Needs gasolinestation; can hold 3-

12 gallons ofgasoline

Installation of Leaf'scharging dock station at your

home through Nissan'scharging equipment vendor(Aerovironment) at $2,200

Can be indepdendent ofcharging station

Highway Certified andCrash Tested EV Yes Yes No No No No No

COMPETITOR FACT SHEET


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Assumptions

The weights given by the proponent for this case article review for purposes of

developing the Internal Factor Evaluation (IFE) Matrix and the External Factor

Evaluation (EFE) Matrix as mentioned in the earlier part of this report are assumed.

However, the proponent used her sound judgement and discretion for placing weights

based on available data.

We are also assuming that the competitors as mentioned in the Competitor Fact

Sheet are Start-ups as there is no stable foundation yet for the battery charging stations

and battery production industries, with the exception of TESLA which already has

available service station for anti- freezing of batter ies every 5-7 years. Although there are

already incumbent automobile manufacturers in the United States, such as TESLA,

Mitsubishi, General Motors and Nissan-Renault, we will assume that all of the car

manufacturers that are considered potential competitors by BYD for purposes of market

penetration and market development in the United States as of this date are still

considered Start-Ups.

Finally, a recent information was gathered where BYD had already selected Los

Angeles to be its U.S. base after reviewing offers in other California cities. Beyond that,company Chairman Wang Chuan-Fu said the firm plans to emphasize green energy

efforts, including the development of low-cost solar panels for houses. 27 BYD expects to

hire 150 employees throughout 2010 and 2011 as it rolls out its fleet of vehicles (models

F3DM and E6) to California markets before expanding throughout the country. The

headquarters for BYD wi ll be located in LAs downtown business district. Among the

green energy technologies on display at the new facility will be vehicles, solar panels ,

energy storage systems and advanced LED lighting products. The building will also

27 -- Rick Orlov, Chinese auto, solar firm BYD chooses LA as its US headquarters,ContraCostaTimes.com, posted April 30, 2010.


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house BYDs research and development arm, which will adapt current versions of its

vehicles on sale in China for the U.S. consumer market. 28

To lure further BYD, the city of Los Angeles promised to buy some of the

companys electric vehicles, including buses; to streamline the approval process forinstalling charging stations in garages; to make it easier for people to install charging

stations in their homes and to display a BYD car at LAX, according to the Wall Street

Journal. BYD and KB Homes, the big homebuilder, announced that they would build

homes together that not only include solar panels on the roof but batteries in the garage

so that the owners can enjoy solar-p owered electricity even when the suns not shining.

This is a big deal, as the Sunpluggers blog reported: Off -grid solar owners for many

years have used battery banks to store their generated electricity for later use, but the planfor the KB Home development smack in the middle of a grid-tied suburban subdivision

could help alter the trajectory for adoption of both solar electricity and plug-in

vehicles. 29

On May 1, 2010 during the 2010 Bershire Hathaway shareholders meeting, an

announcement was made that 5,200 models of BYDs electriv vehicle products will be

carried to the United States to satisfy the fleet requirements. Sale of the vehicles will be

done in 2012. 30

The above recent development will be considered as a foundation or basis to

formulate and deve lop strategies for BYD for purposes of penetrating and developing

brand awareness in the U.S. Market.

28 -- Jack Nerad, BYD Takes its Dreams to Los Angeles, WFXS: Driving Today, pos ted on May 12,2010.29 -- Marc Gunther, Warren Buffets BYD: Revv ing up, fast, theenergycollective.com, pos ted on May 16,2010.30 -- Interview of Patrick Duan of BYD A merican Company by Bill Moore of EV World VideoProductions.
http://online.wsj.com/article/SB10001424052748703572504575214422913675724.htmlhttp://online.wsj.com/article/SB10001424052748703572504575214422913675724.htmlhttp://sunpluggers.com/2010/03/batteries-are-included-in-kb-home-and-byd-solar-house-000145.phphttp://sunpluggers.com/2010/03/batteries-are-included-in-kb-home-and-byd-solar-house-000145.phphttp://online.wsj.com/article/SB10001424052748703572504575214422913675724.htmlhttp://online.wsj.com/article/SB10001424052748703572504575214422913675724.htmlhttp://online.wsj.com/article/SB10001424052748703572504575214422913675724.html


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Alternative Courses of Action

A SWOT analysis is a tool in determining the companys strengths andweaknesses, exploiting the different opportunities which the company might face and

thinking of ways in order to ward off the possible threats that it may face.

It tends to present alternative courses of actions that will be the basis for the

various strategies that will be utilized for the BYD in penetrating and creating brand

awareness for the U.S. market. The strategies sho uld address the following issues:

How can th e company overcome it s weaknesses to ward of f th e thr eats i t faces?

(WT Strategies)

How can the company uti l i ze its str engths to ward off the threats it faces? (ST

Strategies)

How can the company uti l i ze its str engths to exploit t he opportuni ties it faces?

(SO Strategi es)

How can the company overcome i ts weaknesses to exploi t the opportuni ti es it

faces? (WO Str ategies)


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Opportunities (O) Laws related to the reduction ofthe greenhouse gas emission

Government subsidies and benefits for the Electric VehicleIndustry

Markets untapped Unemployment rate in theautomobile industry

Lack of direct competitors in themarket

Threats (T)United Auto Workers UnionRivalry among the Big ThreeAutomobile companies (Ford,GM and Chrysler)Perception of Americanconsumers on the productsmanufactured in ChinaLabor Standard Laws in theUnited States on wages andother monetary benefitsLack of stable infrastructurefor the electric vehicleindustry

Strengths (S) Second largestmanufacturer of

rechargeable batteries inthe world (includingU.S.)

Reputation for quality(battery manufacturing)and innovation

Warren Buffet (mostinfluential investor in theworld) owns 10% of thecompany

Proactive and visionaryleadership / Management

Style Growth rate Technology / Researchand Development

SO Strategies Build a manufacturing plant for batteries, (S4,

S1,S2,O1,O2,O3,O4)) Build an assembly plant in theU.S. but batteries will bemanufactured in China(S1,S2,S3,S4,S5,S6,O1,O2,O3,O4)

Import cars to U.S.(S4,O1,O2,O4)

Seek government funding for thesale and/or import of the EVsand/or its parts (O1,O2,O3,S3)

Conduct market study of the

needs and wants of potential buyers (S6, O1,O2,O3)

ST Strategies Join car manufacturingorganizations for networkingand benchmarking(T1,T2,T3,T4,T5,S1,S2,S6,S3)

Enter into MOUs with otherautmobile co mpanies and/orinfrastructure providers(S1,S2,S3,S4,S6,T5)

Provide intensive training for potential employees to berecruited in the U.S. withemphas is on establishing aculture of improving theeconomy of the U.S. ratherthan encouraging benevolentcapitalis m to employees(S4,S6,T4,T1)

Join trade shows(S1,S2,S3,S4,S5,T3,T4)

Provide a reasonable growth potential opportun ities foremployees to be recruited,without concentrating on highsalary or monetary benefits(T1,T4,S3,S4,S5)

Weaknesses (W) A new entrant in the U.S.Market in terms of salesin automobiles

Reputation for quality(automobilemanufacturing) for theU.S. Market.

WO StrategiesSeek Highway certification andcrash tested EV accreditation(W1,W2,O1,O2,O5) Pass U.S. safety standards(W1,W2,O1,O2,O5)

WT StrategiesCreate a pool of highlyqualified and skilledemployees having passedrigid examination(W1,W2,T3)


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Analyses

In summary, the following areas of consideration should be taken in account of

providing possible recommendations for the case article review:

1) The unemployment rate and losses of jobs in the automobile industy has really

affected the entire economy of the United States leading to an automobile industry crisis

from 2008-2010.

2) The passage of the National Program to reduce the greenhouse gas emission in

the United States will provide a significant impact on the estab lishment of electr ic

vehicles in the United States.

3) The United Stat es government is firm in implementing President Obamas

program in putting an end into the greenhouse gas emissions which will eventually

alleviate the countrys oil crisis being faced today.

4) Labor standards in the United States may also play a signifant role in terms

molding the countrys automobile industry. Labor in the United States is high, hence,

outsourcing from different countries like India, China and the Philippines are alternative

courses action being utilized by some entrepreneurs in the United States. In addition,

quality, not quantity, should be the primordial concern of automobile manufacturers,

without taking into consideration the monetary benefits that will be received by workers

in the meantime. That is why he United Auto Workers Union must work hand in hand

with automobile manufacturers in order to bridge the gap between management and

capital if there is an intention to move on and make the United States a better place to live

in.

5). Currently, the U.S. market do not have any faith on Chinese manufactured

products due to Chinas image in the past for manufacturing defective and toxic products.

There is a need to shift the mind set of the U.S. market if Chinas BYD would want to

penetrate the U.S. market.


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3) Emphasize on the corporate customers (i.e. government agencies, hotel

industries, transportation companies, schools/universities, other service-oriented

industries.

4) Roadshow Tours for specific towns and cit ies in the State o f California

5) Joining in trade shows

6) Accepting invitations for speakerships in universities to introduce electric

vehicles as a new technology to wait for.

Partnership Strategy

1) Partnerships with companies with potential qualities for providing

infrastructure to the EV industry.

2) Partnerships with governmental organizations, business organizations, social

clubs and various automobile professional organizations for possible benchmarking of the

current market structure of the United States.

3) Partnership with entities specializing in providing payment system services for

charging batteries.

Product Development Strategy

1) Establishment of charging infrastructure and facilities in convenient stores and

other charging stations.

2) Establishment of a solar power system that can be installed in the household

for charging electric vehicles at the lowest cost.


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Conclusion

It is admitted that the foundation of the electric vehicle industry is not yet stable.Battery manufacturing, car assembly, and even establishment of charging stations and

utilities have to be completed in order to make the electric vehicle industry positive for

release in the market.

Nevertheless, we should take into consideration that the government of the United

States and China are exerting firm efforts to make sure that the electric car industry be

stable within the year 2015. That is why BYD is taking the big leap in penetrating the

market for a technologically advanced and environmental friendly product, a plug-in

hybrid vehicle and an all-electric vehicle, all with the end in view of saving the

environment and becoming the worlds No. 1 car manufacturer by 2025.

The United States is the best place to sell BYDs prod ucts. That is BYD took the

opportunity of allowing Warren Buffet to invest in its company, that is to penetrate the

U.S. market and go global.

However, we should not leave the possibility that problems that may occur.

Labor cost in the United States is more expensive than China. Let us not also forget the

involvement of the United Auto Workers Union which alleged to be responsible to the

downfall of the automobile industry in the United States from 2008-2010. Impression of

the American people about Chinese manufactured products is also a big threat for BYD.

That is why quality, not quantity, should be the primordial concern of BYD.

But on the brighter side, let us not forget the big dream of BYD in becoming the

No. 1 Car Manufacturer in the whole world. BYDs entrepreneur Wang Chuan-Fu,

having the brilliance of Thomas Edison and the management style of Jack Welch, is a

competitive advantage which will make BYD go forward.


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References

David, F. (2003), Strategic Management: Concepts and Cases, 9th edition, PearsonEducation, Inc.

Maxwell, J. (1998), The 21 Irrefutable Laws of Leadership, Thomas Nelson Publishers.

Gunther, M. (2009) , Warren Buffet Takes Charge, Fortune CNN.com.

Burgelman R. and Schifrin D. (2008), The Global Electric Car Industry in 2009:Developments in t he U.S., China and the Rest of the World, Stanford Graduate

School of Business.

case review_byd electric car company

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