BYD-"Build Your Dreams" in America THE CHINESE COMPANY BYD, an acronym for "Build Your Dreams," began life as a manufacturer of rechargeable batteries in 1995. It is now leveraging this expertise into electric vehicles. But why would a battery manufacturer diversify into car manufacturing? Unlike complex gasoline engines, electric cars are powered by simple motors and gearboxes that have very few parts. Electric vehicles are therefore much cheaper and more straightforward to build. BYD's claim to fame is a lithium iron phosphate battery on which cars can run 250 miles on a single three-hour charge. BYD sells plug-in hybrids and all-electric vehicles in China, Africa, the Middle East, and South America. In 2013, it entered the U.S. market. Given the problems carmakers faced in the aftermath of the global financial crisis, which witnessed the bankruptcies of GM and Chrysler, for a new firm to expand into the auto manufacturing industry doesn't seem advisable. Yet BYD is joining the fray. How can it sidestep such insurmountable entry barriers? The answer: Technology is leveling the playing field. Mr. Wang, founder and chairman of BYD, explains his strategic intent: "It's almost hopeless for a latecomer like us to compete with GM and other established automakers with a century of experience in gasoline engines. With electric vehicles, we're all at the same starting line." Actually, BYD may even have a head start because of its deep experience in batteries, selling them to technology companies such as Motorola, Nokia, and Samsung, total revenue ( Exhibit MC16.1 ). Even legendary investor Warren Buffett was so impressed with the company and Wang's entrepreneurial spirit that a subsidiary of Mr. Buffett's Berkshire Hathaway bought a 10 percent equity stake in BYD for $232 million. Leveraging the company's know-how in making rechargeable batteries, BYD developed an all electric model, the e6. In 2009, BYD introduced this new model at the North American International Auto Show. The debut generated buzz in the car industry and fueled the company's ambition to promote its brand in America. BYD indicated its plan to start selling the five-seat sedan to fleet customers in the Los Angeles area by 2010. After almost a year of delay, BYD opened its North American headquarters in Los Angeles in 2011. However, the commercialization of the e6 never occurred in the U.S. for a number of reasons: The e6 needed further development; Los Angeles lacked the adequate infrastructure of charging stations required for electric vehicles; and the city did not provide an incentive scheme for green car buyers at the time. In addition, already well-established auto manufacturers launched electric models, such as Nissan's Leaf and General Motor's Volt (a plug-in hybrid), not to mention the popular Toyota Prius (also a plug-in hybrid launched in 2000 in the U.S.). All this has made it much more difficult for BYD to enter the U.S. market successfully. Given these challenges, BYD is now focusing on making all-electric buses. The primary target market is metropolitan transport authorities, and BYD seems to be gaining momentum. Its all-electric buses are built on the production platform of a Chinese coach manufacturer acquired in 2009. The first all-electric bus model, the K9, rolled off BYD's production line and supplying more than 50 percent of the world's global handset batteries. Now it is leveraging its corecompetencies in batteries, the most critical component of electric vehicles, into car manufacturing. In 2003, Mr. Wang, who was trained as a chemist, decided to make cars. BYD acquired a state-owned, near-defunct car manufacturer and launched its first self-developed sedan model two years later. The model soon became a national bestseller, and BYD a top-ten auto manufacturer in China. By 2009, BYD's auto division made up more than 50 percent of the company's in 2010. K9's debut generated immediate commercial interest. In 2012, BYD sold more than 1,200 buses priced at $300,000 each to countries such as Israel, Uruguay, Columbia, Canada, and the Netherlands. Mr. Wang hasn't given up on his dream of making it big in America, though. To meet the requirements of the "Buy America Act" (which specifies that U.S government agencies must procure products where U.S.-made parts account for more than 60 percent of total component costs), BYD announced in 2012 its plan to open an electric-bus assembly plant in Lancaster, California. This announcement came right after BYD received a 10-bus order worth $12.1 million from Long Beach Transit, a transport agency serving the communities south of Los Angeles. BYD is now building its buses in the California plant using local labor, and has benefitted from the ability of transport agencies and other public entities in the U.S. to tap federal subsidies that cover up to 80 percent of the cost of buying electric buses. BYD is eyeing other lucrative California markets, also, such as the Los Angeles County Metropolitan Transportation Authority and BART (Bay Area Rapid Transit). BYD plans to deliver between 200 and 300 electric buses to customers in the U.S. by the end of 2014. So, the question remains . . . Will BYD be able to continue building its dream in America? 1. What type of company is BYD? Is it a battery manufacturer or a car and bus manufacturer? Or is it something else entirely? What is BYD's core competency? How does it leverage its core competency to diversify? (You may want to refer to Exhibit 8.8, "The Core Competence-Market Matrix.")