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BYD Auto: China’s Canary in the Innovation Coal Mine

Submitted by on November 17, 2009 No Comment

6a00d8354c5f6569e20120a6abdf21970bOne magazine article does not make a trend or even represent one at that.  However, BusinessWeek’s recent article “behind all the hype” surrounding China’s economy should give China’s economic planners some cause for concern.  There is a growing sense in many Western countries that China’s industrial “brand” is becoming increasingly tarnished.  Already, consumers are becoming alert to the notion that “Made in China” is potentially a warning sign for sub-par, even dangerous, products.  Year after year, Chinese products consistently draw headlines for poor quality.  Just as with any product, it is important to remember that brand perception is not a rational science.  Yes, the Chinese milk, pet food and toy scandals all had an impact on how consumers feel about “Made in China” and, for many, Chinese products have yet to recover.

That said, Chinese manufacturers and government leaders will contend that less than 2%-3% of Chinese exports have been tainted in any meaningful.  2%-3% does not seem like a lot, yet when evaluated against the hundreds of billions of dollars in Chinese exports those figures are potentially alarming. Amid a growing chorus of China manufacturing critics ranging from BusinessWeek to author Paul Midler who explains that Chinese business culture is largely responsible for the country’s deteriorating reputation as a global manufacturer, officials in Beijing have rightly identified domestic innovation as a solution.  Merely acting as the labor in the production process is no longer a viable path to growth and long term economic stability.  China, they say, must innovate to grow.  Once again, I pose the question: can Chinese businesses power the necessary technical and creative innovation to help the country move its way up the value chain?  Regular CTP readers know that I remain skeptical though a critical test looms that may prove me wrong.

The news this week that Chinese battery and electric car producer BYD Auto is building 1.5 billion RMB testing facility to enhance the company’s R&D capacity may mark a critical milestone in the Chinese innovation debate.   This massive investment in R&D will serve as a clear demarcation between the skeptics who question China’s innovation capacity and those who see China emerging from being a BYDBMWpure-play manufacturer to a product innovator.  BYD, in so many ways, is the ideal test case for this experiment.  Its early products represent the lazy, copycat product development that has given skeptics, including myself, ammunition.  Afterall, their S6 crossover SUV was a blatant ripoff of the Lexus crossover.   Moreover, their logo (right) is painfully similar to that of BMWs.  OK, so let’s let bygones be bygones and give the company the benefit of the doubt that their early foray in to brand marketing drew on painful habits of the past.  Today, with their focus on R&D, BYD is a new company with a new innovative drive.  Afterall, Warren “The Sage from Omaha” Buffet himself 230 million dollars into BYD, so how bad can it be, right?

Well, we will soon see.  It all depends on the E6 — BYD’s flagship electric vehicle that is reportedly powered by a state of the art lithium ion battery that can travel 300 miles/400 km on a single charge.  The car is scheduled to be unveiled later this year fleet sales only.  Now, with BYD, there is reason to be skeptical.  This is a company that for a number of different reasons has failed to live up to its own hype, much less that imposed on it by others.  Projected sales figures have not materialized along with difficulties in achieving its electrical battery storage capabilities as advertised are just two of the key hurdles confronting BYD’s credibility.  If, however, the E6 does actually work as predicted, then it clearly demonstrates the potential of not only this company, but China as a whole, to break from its past an idea-copier to an idea-generator.

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