Taxi Fire Details Released by BYD

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BYD, the top manufacturer of electric vehicles in China, have released the details of the crash and fire that destroyed an electric taxi, killing its three occupants in southern China last Sunday. According to the press release, any vehicle, even a gasoline powered vehicle, would have met the same fate because of the impact of the crash.

The Chinese media reported that the fire had caused shockwaves throughout the Internet in China as well as financial markets on electric cars as it revived fire safety controls for this vehicle platform.

The crash had involved a BYD e6 battery powered electric car, which was hit from the rear by a Nissan GT-R sports car. According to police reports obtained by BYD, the sports car was racing at the speed of 180 kilometers or 112 miles per hour when it rear ended the electric car from behind. As a result, the e6 spun across three lanes of traffic and then slammed into a tree, slicing the vehicle into two, from the rear bumper to the rear seats.

This theory of the crash was supported by police photos released by BYD and it supported the company’s version of the crash. The photo of the crash site showed fifteen cms or six inches in diameter without any sign of a guard rail. The Nissan for its part, hit another car on the road, causing the hit car to roll over and stopping the sports car by the side of the road.

Other reports said that driver of the Nissan was drunk and was with three women at the time. The occupants of the Nissan fled and were unhurt. The driver eventually surrendered to police authorities, admitting responsibility for the accident. There was some doubt as to the identity of the individual, as he did not seem to have been involved in the crash and may just be a fall guy for the real culprit.

According to Paul Lin, Marketing Director and Chief Spokesperson of BYD, the battery packs of the e6 are located under the rear seats and added, “We don’t know what happened – the battery pack burned or the high voltage gear burned or the fabric was lit or maybe some other reason.”

As of the moment, the police authorities have not yet handed the crash vehicle over to the company’s inspectors, thus there is still no determination as to the cause of the fire. It is also not been confirmed if the three occupants of the electric taxi had perished in the fire or died in the crash. China has been known not to be a seat belt safety advocate, thus leading many to conclude that the occupants have died in the crash.

Lin further added that no car could have withstood the impact and quipped, “Maybe a tank, maybe a truck could survive it.”

As a result of the statement, BYD’s shares went up 5.5 percent in the Hong Kong Index, closing at HK$16.08 or nearly US$2.07 after a slump of 5.9 percent last Monday following reports of the incident in Chinese media.

Why did Warren Buffett Invest in Battery Manufacturer BYD?

When renowned investment sage Warren Buffett decided to invest in little-known Chinese battery producer BYD there were many eyebrows raised and much scratching of heads. While there is no doubt that Warren Buffett, via his Berkshire Hathaway Inc investment vehicle, has a nose for successful investing this is certainly not his normal style of business. So what did Warren Buffett see that few others were able to recognise?

Some background on Warren Buffett

Warren Buffett is a 78-year-old investment guru who is estimated to be worth in the region of $37 billion and is often referred to as the "Oracle of Omaha" or "Sage of Omaha". He has a history, via his Berkshire Hathaway investment vehicle, or investing in traditional businesses which have long-term value and a strong brand name. He famously avoided the 1990s dot-com bubble which saw technology shares multiply in a very short space of time only to collapse, leaving many investors destitute and penniless.

This is a man who believes in investing in long-term viable businesses which ultimately "a fool could run" because ultimately "one day a fool will run the business". Warren Buffett is a private man who rarely gives interviews even though his name is regularly splashed across the worldwide financial press. So what did he see in the electric vehicle market and why did he invest in BYD?

Background on BYD

BYD is in operation which is run by a Chinese entrepreneur by the name of Wang Chuan-Fu who has been described by Buffet’s close friend and colleague Charlie Munger as a cross between Thomas Ellis and Jack Welch, serious names in the world of business and investment. So what exactly is the BYD operation and what are the prospects for the future?

The BYD (a shortened version of the company's full Chinese name) is predominantly a manufacturer and retailer of rechargeable batteries, handset components and of late automobile products. The company has specialist knowledge of nickel cadmium batteries and lithium ion batteries as well as emerging battery technologies. The company, which few people have heard, is actually the second largest manufacturer of mobile phone rechargeable batteries in the world. While this particular business has done very well in the past it is the potential for the electric car subsidiary which appears to have caught the eye of Warren Buffett.

The BYD F3DM

While something of a rather bizarre name the BYD F3DM is the world's first mass production plug-in hybrid sedan (retailing at around $22,000) which actually went on sale on 15 December 2008 to Chinese government agencies and various corporations. Originally unveiled at the 2008 Geneva motor show the vehicle is set to go on sale in Europe in 2010 and the USA in 2011. The company produced 170,000 vehicles in 2008 rising to 350,000 in 2009 and expects to increase output significantly in 2010 and 2011 when new markets are brought online.

So what is so special about the BYD F3DM?

In simple terms, the vehicle uses the latest lithium iron phosphate batteries which are said to be the safest in the world because of their chemical make-up, even though they contain slightly less energy than more traditional lithium ion batteries. The most recent version of the BYD F3DM is said to have an all electric journey range of 62 miles (100 km) although there is a gasoline fuelled power supply inbuilt enabling the driver to switch between electric and traditional fuel power.

One of the most amazing aspects about the BYD F3DM is the fact that the running costs for the vehicle are between $1.44 and $2.72 per hundred kilometres based upon an electric price range of between 9c and 17c per kilowatt. This type of efficiency is something which few companies can match and is perhaps one of the reasons why Warren Buffett sees so much potential in the group.

Warren Buffett’s investment in BYD

In September 2008 Warren Buffett invested $230 million for a 10% stake in BYD which surprised many who follow the so-called "Sage of Omaha". He appears to have broken one of his core investment rules by investing in a business which he does not fully understand, however, on the flipside of the coin his trusted colleagues appear to be more up-to-date with the various attractions of BYD.

Having started back in 1995 as a rechargeable battery manufacturer BYD has expanded quickly and now employs around 130,000 people via 11 factories around the world, 8 of which are in China. The US operation is fairly small at the moment although there are plans to increase this as and when the BYD F3DM is introduced to the US market. There are many aspects of the business which seem to have attracted Warren Buffett, including the electric vehicle division, the man behind the business and ultimately the fact that he refused Buffett's initial request of a 25% stake!

There are few people in the world who would readily turned down an investment in their company from Warren Buffett and manage to negotiate him down to a much lower equity stake. This appears to have been taken as a reflection of the confidence that Wang Chuan-Fu has in his own ability and in his company. The revenue split for BYD in 2008 of was $1.7 billion cellphones and components, $900,000 batteries, $1.3 billion automobile and others accounted for $300,000 although it is fully expected that the automobile operation, which is fundamentally electric cars and hybrid vehicles, will significantly surpass all other areas of the business in the future.

Conclusion

While BYD may not be one of the electric vehicle companies that is grabbing the headlines of late it is an operation which is very focused, has a proven track record in rechargeable battery technology and is run by an entrepreneur who had the confidence to turn down a 25% equity investment from Warren Buffett, ultimately agreeing upon a 10% equity stake.

Even though in many ways the Far East has been left behind in the electric vehicle market in recent times, when Warren Buffett invests in a company which is relatively unknown it may well be time to sit up and take notice. The launch of the BYD F3DM hybrid vehicle in Europe and the USA is expected to increase the profile of BYD and could ultimately catapult the operation into a total different stratosphere. This is certainly one company and one investment to keep an eye on!