How Manufacturing's Mockingbird Sings

Growing Pains
   
There's no doubt BYD's market share and sales are increasing. However, there are still debates about the sustainability of the company's magic, low-cost wand.

The debates haven't affected BYD's bank credit rating. A high-ranking official at the Shenzhen branch of China Development Bank said the bank isn't worried about BYD, noting other businesses such as telecom equipment giants ZTE and Huawei had shaky starts.

The bank has confidence in BYD because it gets substantial financial subsidies from the government for environmental protection programs. In addition, the company's Li-Ion battery business is profitable.

But Wu Jinghui, a senior manager at market analyst A.C. Kearney, notes that automation offers uniformity in output and quality, while manpower poses risks for manufacturers. And a strictly manpower strategy is considered untenable for electric cars and new energy markets.
   
BYD officials understand Wu's point. Eventually, the company may be heading down the road to automation, especially in the electric car and new energy arenas. By then, holding down costs will have become an even bigger challenge for BYD.

Yet, as of last year, most of BYD's 5 billion yuan in automated production facilities were self-built.

Intellectual property right is another sticky issue, since most BYD cars pay homage to other manufacturers' products.

BYD booths at car shows have been frequented by Toyota employees taking photos and collecting data. "It appears they're building a case," said an individual familiar with the international car market.

In the past, other Chinese automakers such as Chery and Great Wall have had to confront IPR charges and lost lawsuits in the United States and Europe, leading to export restrictions.

Wang has often stressed that his company imitates but does not plagiarize, arguing that South Korean and Japanese car manufacturers got their starts the same way.

In hopes of skirting patent issues, BYD has a team with hundreds of people who study global patent intricacies. At the same time, BYD has begun applying for large numbers of patents; it was the biggest applicant after Huawei and ZTC in Shenzhen last year.

BYD Sales Vice President Wang Jianjun says every automaker has to find its own path slowly. He notes that BYD is coming out with six, new models in 2010, all mid-range cars costing more than 100,000 yuan.

"You'll discover that these new makes don't resemble anyone else's models," he said. "We made them ourselves."

1 yuan = 14 U.S. cents