BYD’s Battery Technology May Face Challenges

Published on February 1, 2011

One benefit of reading The Economist on a regular basis is the breadth of articles spanning topics ranging far from what one typically reads in the financial media.  An excellent example appears in this week’s Science and Technology section  and covers fascinating advances in solid-state rechargeable battery technology.  Planar Energy, a Florida based company, is planning to complete a pilot production line that will print lithium-ion batteries onto sheets of metal or plastic in a process similar to producing newsprint.

As the article concludes, the applicability of Planar’s technology to electric vehicles is potentially game-changing:

If the pilot production line is successful, the company hopes to begin operations in earnest in about 18 months. To start with it will make small cells for portable devices. It will then scale up to larger cells and, in around six years’ time, it hopes to be producing batteries powerful enough for carmakers. If, by then, anyone needs a replacement battery for a Chevy Volt, such technology may offer a solid-state alternative that could increase that car’s all-electric range from about 65km (40 miles) to some 200km. Lack of range is reckoned one of the main obstacles to the widespread use of electric cars. If solid-state batteries could overcome such range anxiety that would, indeed, be a revolution on a par with the silicon chip.

We have often written about BYD on The Rational Walk, primarily because of Berkshire Hathaway’s large equity investment but also because electric vehicles with a decent range could have enormous impacts on energy consumption in the decades to come.  BYD already claims a range in excess of 200 miles for the company’s e6 all-electric model.  However, the company has delayed entry into the United States several times and has faced production problems and land use controversies at home in China.

Warren Buffett recently affirmed his continued support for BYD while on a trip to China.  Mr. Buffett has characterized Berkshire’s investment in BYD as a bet on Chairman and CEO Wang Chuan-Fu.  Charlie Munger believes that 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.”  It is hard to imagine higher praise for BYD or the company’s leadership.

We will not pretend to have any insight into battery technology, BYD’s capabilities in particular, or The Economist’s characterization of Planar Energy’s technology.  However, we offer the following observations:

  1. BYD is primarily a technology company and its core competitive advantage is the ground breaking battery technology that has resulted in the e6 having a range of over 200 miles, far in excess of any other electric-only vehicle on the market.
  2. The fact that Warren Buffett and Charlie Munger have made such high profile statements supporting BYD indicates that they believe BYD’s technology is superior and has durable competitive advantages.
  3. While Warren Buffett and Charlie Munger have public personas that lead people to believe they are not technologically sophisticated, Mr. Munger in particular is known to read widely on scientific topics and it is likely that he has a working understanding of the technology in question — otherwise, he would not have compared Wang Chuan-Fu to Thomas Edison.
  4. David Sokol, who is on BYD’s Board of Directors, has a long background in energy as Chairman of MidAmerican and has a scientific background with a degree in civil engineering.  It is nearly certain that he has a working understanding of BYD’s technology and the competitive threats facing the company.

The fact that Berkshire Hathaway made a large investment in a company heavily dependent on proprietary technology in a quickly changing field was surprising to many observers.  While we cannot hazard a guess regarding whether BYD’s advantage in battery technology will be enduring, it is at the very least “interesting” to see how much financial capital Berkshire has committed and even more interesting to note the strong public statements Warren Buffett, Charlie Munger, and David Sokol have made regarding the company.

Disclosure:  The author of this article owns shares of Berkshire Hathaway.  No direct position in BYD.

BYD’s Battery Technology May Face Challenges
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