Hide Assignment Information Instructions Your assignment this week comes from Part Seven of the textbook, CASE STUDIES. Operations Strategy at BYD of China, Electrifying the World's Automotive Market (pp. 424-429) Your report must be in current APA format, with the exception of an Abstract and Table of Contents. You are allowed UNLIMITED attempts; only your final submission will be graded. Due Date Jun 5, 2022 11:59 PM Case Study Operations Strategy at BYD of China, Electrifying the World's Automotive Market The Chinese company BYD is pursuing electric cars and hopes to become the world's largest car company. With the financial support of American Warren Buffett, the company, which has been in existence since 1995 has caught the attention of not only Mr. Buffett but also many in the auto industry. This case examines the favorable conditions, technology and the operations strategy that are propelling this Chinese company to the forefront of the not so distant future of the auto industry. Many Americans and Europeans have never heard of the Chinese firm called BYD. In fact, it isn't really clear what the letters representing the company's name stand for, although some joke that recently it has meant "Bring Your Dollars." The company's latest PR message states that BYD stands for "Build Your Dreams." BYD is a public company which was started by making batteries. Although Chinese-made batteries were already available, they were of poor quality. Imports of higher quality batteries were available in China mostly from Japan, but they were quite expensive. To satisfy the need for high quality and low cost batteries, Wang Chuan-Fu started BYD. Wang, who was a graduate of the Beijing Non-Ferrous Institute, found his competitive advantage by studying Japanese batteries and finding creative ways of making similar batteries at a lower cost. Wang had been fascinated with batteries as a graduate student at the Institute and now seeks to take that passion to the global automobile market, EXHIBIT 1 Electric Gasoline No Tailpipe Emissions Greenhouse Gase Pollution 424 152 EXHIBIT 1 Electric No Tailpipe Emih. Gasoline GGP Ulity Company OPEC 150+ Mile Range 400+ Me Range How to Recharge Mine to Refl 2 cents per mile P Pussy a A P Source: www.hybridcars.com This case was prepared by Charles A. Rarick, Kasia Firlej, and Arifin Angriawan of Purdue University Calumet and was published in the Journal of the International Academy for Case Studies 17, no. 1 (January 2011), pp. 19-28. It was prepared solely to provide materials for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. It has been revised by Roger G. Schroeder, 2019, and is reprinted with permission C A ELECTRIC AND HYBRID CARS Electric cars (also known as electric vehicles or EVs) rely exclusively on battery power. With an all-electric EV there is no internal combustion engine, muffler, gasoline tank, air and fuel filters, and other parts needed to run a gasoline powered system. The vehicle itself also produces no tailpipe emissions, and by getting its power from an efficient utility company, overall it produces fewer greenhouse gases. This is especially true if the electricity is produced with nuclear power, renewable sources or natural gas. EVs are also less expensive to fuel on a per mile basis. Electric cars, however, have a shorter driving range and are difficult to operate with long distance travel (Exhibit 1). There are also some safety concerns associated with using a lithium ion battery, as lithium is a highly reactive material prone to explosion. Page 425 Hybrid vehicles run on battery power until the battery reaches exhaustion and then a gas-powered engine kicks in to power the vehicle and to recharge the battery. Given the relatively short driving range of EV vehicles, hybrid vehicles have been the logical first step towards all electric cars and the replacement of the internal combustion engine. Hybrid cars became hot selling items when the price of gasoline soared in 2008, and then fell back sharply as the price of gasoline fell Some have proposed that electric vehicles can save the US. auto industry. According to Andy Grove (of Intel fame), "batteries will become a competitive advantage for the automakers of the future." He supports a position whereby the government takes a more active role in promoting and protecting an "infant industry" in new battery technology. The Obama administration took steps in 2009 to provide significant funding of battery research and the production of environmentally friendly. automobiles. New mileage standards were also proposed that will make electric vehicles more attractive to consumers. Since about 2009 many companies have begun to think electric automobiles will have a promising future. In addition to the world's largest automakers that began to develop electrical cars, some upstarts were established. Ford, Nissan, Chevrolet, Toyota, Daimler Benz, and Volkswagen all moved into the EV or hybrid market. The success or failure of electric cars and the companies that enter this market is strongly related to the batteries that will power the vehicles. Sales growth of hybrid and all electric vehicles is slow due to the high price tags, low battery mileage on a single charge and the relatively low price of gasoline, particularly in the U.S. electric vehicles is slow due to the high price tags, low battery mileage on a single charge and the relatively low price of gasoline, particularly in the US. IT'S ALL ABOUT THE BATTERY QA Lithium ion is the current choice for batteries to power electric cars. Lithium ion batteries are lighter and more powerful than traditional batteries. Lithium, a metal compound, can be found in large quantities in South America, especially in Bolivia, Chile, and Argentina. Chile is currently the world's largest producer of lithium; however, Bolivia has the largest known deposits of lithium in the Salar de Uyuni region. It is estimated that the lithium supply in Bolivia is somewhere around 5.4 billion tons. Significant deposits of lithium can also be found in China. The Chinese government has declared the lithium battery industry to be a "strategic industry" and will likely support its development. While lithium batteries are currently the most popular option for automobiles, they are still heavy and expensive. A typical hybrid car has a battery that is six feet long and weighs around 500 pounds. The post of an electric car battery is in the range of $10,000 each. Lithium batteries can store up to three times the power of nickel-metal hydride batteries. They are clearly superior to conventional batteries. Further advances in lithium battery production may be able to produce smaller, lighter, and faster charging batteries. At least one reported research study shows this promising development. BYD's advantage in this technology is the production of ferrous lithium ion batteries, which are safer and cost about half of those of the competition, acconding to BYD's general manager of its Export Trade Division, Henry Z. L The United States is still behind Asia in battery production and research. Sanyo, NEC, BYD and LG created core competencies in batteries and achieved economies of scale that will require the Americans some time to catch up with. U.S. firms in the industry are relatively small upstarts such as EnrDel. Serious movement into electric vehicles will require investment money, long-term commitment and strategic alliances. Nissan has partnered with NEC to allocate $1B towards battery development. Toyota-controlled Panasonic EV Energy bought Sanyo for its battery making ability. Recently, promising U.S. companies have arisen to research and develop batteries needed to fuel electric cars. EnrDel already operates two factories in Indiana and one in Korea. In 2016 Tesla opened a gigifactory battery plant in Utah that can eventually supply 500,000 batteries per year. The Big Three, General Motors, Chrysler and Ford, have been considering alternative vehicles since the 70s; however, among the Big Three there is still a lack of momentum about this technology and its useful application in the US. automotive market, particularity for all electric vehicles. EXHIBIT EXHIBIT 2 Key players in the electric auto battery industry, 2009. A123 (USA) AESC (Japan) BYD (China) ENERDEL (USA) Johnson Controls/SAF (USA/France) LG (Korea) Panasonic (Japan) M.I.T. spin-off with $250M in venture capital Joint venture between Nissan and NEC Largest battery producer in China Once part of Delphi. Invested $200M in Indiana plant Joint venture with plant in France Leading producer of lithium ion batteries for cell phones Owns Sanyo Electric, the largest producer of rechargeable batteries. Source: P. Engardio, K. Hall, J. Rowley, D. Welch, and F. Balfour, "The Electric Car Battery War," BusinessWeek February 23, 2009, pp. 62-64 a AAG page 426 It seems that BYD is moving much faster and much more aggressively in the direction of introducing electric vehicles. Its all electric e model was released at the end of 2009 and is much more competitively priced than the offerings of its Western competitors. Furthermore, BYD has tapped into a cost innovation strategy by reducing manufacturing costs through reverse engineering the expensive Japanese battery models and substituting the expensive raw materials with cheaper substitutes. The e6 is a big seller in Europe with its innovative iron-phosphate battery, zero emissions and the ability to go 300 km on a single charge. QA BYD BYD captured international attention when Berkshire Hathaway bought a 10 percent interest in the company. A company known for being cost-conscious and frugal, BYD has consistently been profitable. Located in Shenzhen, a manufacturing megacity better known for electronics, the company gained a competitive advantage by finding creative and innovative ways to manufacture batteries of high quality at costs lower than rival Japanese and American brands. The founder of the firm bet on the substitution of low-cost labor for expensive machinery, and attention to detail, and these strategies have proven to be successful. By 2000, BYD had become the biggest producer of cell phone batteries. BYD raised capital through a public stock offering on the Hong Kong Stock Exchange in order to increase the size of its battery business. In 2003 company founder Wang had the opportunity to purchase a failing state-owned automobile manufacturer. He thought that the company could leverage its battery competence in the auto industry by producing electric cars. While many thought that BYD was making a mistake in moving into automobiles, others thought differently. As Joann Muller of Forbes magazine stated in 2004: "In the vast and looming Chinese automobile market now dominated by foreigners, a small Chinese company called BYD is barely noticeable... Amateur hour maybe, yet it would be foolhardy for General Motors, Volkswagen and other foreign makers to ignore Chinese companies like BYD." It appears that she was right. With the capital injection from Berkshire Hathaway and a focus on an increasing share of the auto market. BYD has positioned itself well to compete internationally. EXHIBIT 3 Revenue Breakdown by Product Categories 2017 8% 53% 39% Rechargeable Battery and Photovoltaic Handset Components and Assembly Services Automobiles and Related Products Source httpseekingalpha.com/article/4210559-can-byd-auto-become-us-150-billion-revenue-company A E BYD seeks to position itself as an innovator and to tap into the growing green business by not only producing electric automobiles, but also making its batteries environmentally friendly. BYD is producing batteries that contain nontoxic fluids and thus do less harm to the environment, if the battery is discarded instead of being recycled. In addition to being environmentally friendly, BYD believes that it has made a major breakthrough in battery technology which will produce a longer lasting charge and allow the battery to be recharged numerous times, at the same time keeping the costs significantly lower than those of its competition. The U.S. Department of Energy is studying the claim made by BYD concerning its new battery technology. In 2009 BYD operated eleven factories and employed 130,000, with most production facilities in China, but also operated factories in India, Hungary, and Romania, BYD employees, including engineers and scientists typically live on the company grounds with BYD providing housing and other living expenses. The labor cost is a fraction of the costs found in the United States or Europe. BYD has two offices in the United States, both close to important customers. BYD offices can be found in Elk Grove, Illinois, and San Francisco, California, based on the location of its two major U.S. customers, Motorola and Apple. The firm's revenue comes from cell phones, components, and batteries, but automobile sales have been playing an increasingly significant role. BYD 2019 Update Much has happened to BYD in recent years. In 2019 Warren Buffet had a 24 percent ownership in the company. BYD sales and revenue have grown dramatically. The firm's revenue continues to come from a variety of sources, with automobiles now taking the largest role (Exhibit 3). Revenue increased dramatically from 2009 to 2017 as shown in Exhibit 4. Sales of BYD in 2017 were 106 billion yuan ($16.8 billion) and profits were 4.07 billion yuan ($648 million). BYD is a large employer page 427 of 201.000 employees worldwide. EXHIBIT 4 Revenue of BYD Auto in China from 2009 to 2017 (in billion yuan) V120 V100 180 103 426 /520 > < QA F EXHIBIT 4 Revenue of BYD Auto in China from 2009 to 2017 (in billion yuan) 15 Source: https://bengalpha.com/article/4210659-can-by-auto-become-us-150-billion-venue-company In 2018 BYD sold 520,687 vehicles to become the largest manufacturer in the world of EV and hybrid vehicles. Plug-in EVs-electric only-sales were 229,338 of this total, the remainder being hybrid vehicles with a gasoline engine used to extend the range. Exhibit 5 shows the number of plug-in EVs sold worldwide with a total of 2 million vehicles. Tesla sold the most plug-in EVs, 245.240, while BYD was in second place. Tesla does not make a hybrid vehicle so its total sales are much lower than BYD's total sales of 520,687. BYD plans to sell 650,000 vehicles in 2019 and roll out several new models. These models are being designed by two famous designers who were recruited from Ferrari and Mercedes-Benz EXHIBIT 5 Worldwide Sales of Plug-in Automotive Groups Tesla BYD Renault-Nissan- Mitsubishi BAIC Group Source: https://insideevs.com/worlds-top-10-ev-automotive-group-2018/ 245,240 229.338 192.711 BMW Group SAIC Group 165,369 142,217 Geely Group Hyundai-Kia 123,451 2018 January-December 113,516 90.860 82,685 Volkswagen Group O Q a A Q A4 P In 2018 the BYD Yuan model was the number one plug-in EV sold in China. It has a range of 300 km (186 miles) and sells for $25,000, much lower than the lowest- price Tesla, which is a luxury brand. BYD also makes five other models of plug-in EVs or hybrids; Tang PHEV, Qin, Song, Song BV, and e5. These models include small crossovers, SUVs, or sedans. In the plug-in EV category BYD has three of the top ten-selling models in China (1st, 2nd and 5th). Vehicles with combustion engines are being penalized by the Chinese government through taxes, rebates, and registration privileges. Incentives in China for plug-in EV vehicles are being propelled by government efforts to reduce greenhouse gases and hazardous air pollution in Chinese cities. China is already a larger market than the US. and Europe combined and the gap is only expected to widen. BYD is aggressively building battery factories to support vehicle production. In 2019 they plan to build two new battery plants, each producing 20 GWh of battery cells for electric vehicles. Tesla owns Gigafactory 1 in Nevada, which is currently believed to be the largest single battery factory in the world with estimated output of 35 GWh per year. BYD is expected to remain one of the world leaders in battery manufacturing. They have the advantage of large internal demand through vertical integration. Worldwide battery demand is being spurred by rapidly falling battery prices. A few years ago the cost of a battery was a few thousand dollars per kilowatt-hour, but now the cost is $100 to $200 per kilowatt-hour. Battery-powered buses are becoming popular in the US. due to California's mandate of zero emissions transit systems by 2040. BYD's North American factory-the Bus & Coach Factory in Lancaster, California--has built 79 zero-emissions electric buses and another 129 orders are on the way. However, some of these buses have experienced mechanical problems and are being recalled. Despite these problems, BYD is the largest manufacturer of electric buses worldwide primarily from their Chinese and European facilities. BYD is bringing electric buses, trucks, vans, and automobiles to Europe through its European subsidiary. BYD is facing stiff competition as many of the world's largest manufacturers ramp up their plans for introducing EVs. In March of 2019 Volkswagen announced it is adding more battery-powered cars. The German manufactureriplans to introduce 22 million electric cars over the next decade with 2 to 3 million electric cars a year by 2025. To support these sales across European, U.S. and Asian markets, VW is using its market heft to lower costs and ramp up production as regulators enforce more stringent emissions requirements. But VW is not alone. GM has announced it plans to sell 1 million cars annually by 2026. Toyota expects to market 10 all-electric models around the world by the early 2020s. It plans to invest $13 billion into the development of battery technology through 2030. Going forward, BYD faces intense competition both inside and outside China. 428 152 Primerica Shareho... San Diego County.... Common mathem Define The Class Unauthorized Req Pay Someone To T a A P . CONCLUSION BYD is attempting to leverage its core competencies in battery production and development to meet the future needs of the driving public. It believes that the future of the auto industry will be in electric vehicles. In order for electric cars to replace gasoline powered ones, infrastructural changes will have to be made to quickly charge depleted batteries, much like present day gasoline stations. Another possibility would be a battery replacement station in which a depleted battery is quickly replaced with a fully charged one. Such battery changing stations are currently being developed in Japan, Denmark, the U.S., and Israel. While Mr. Buffet may agree with BYD's vision of the future, the company faces many challenges as it attempts to compete with Tesla and the world's largest automakers. BYD's business strategy is not yet fully formed. Management wonders what objectives they should adopt to be competitive in a fast-changing technology landscape. To what extent should they continue to pursue Chinese, U.S. and European markets simultaneously? What will be their competitive advantage in the marketplace going forward? How fast should they plan to grow the company? Supply chain and operations managers plan to contribute to the business strategy. What role could they play in the fast-changing global marketplace? What can they do to not only support but enhance the business strategy? Supply chain and operations managers need to develop their strategy that supports the emerging. and probably changing, business strategy. Discussion Questions 1. What do you think is the future of electric vehicles and of this company? Page 429 2. Formulate a business strategy for BYD. What will be the basis of their competitive advantage? What Chinese and global markets should they pursue in the future? What price point should they plan for vehicles? What mix of automobiles, trucks, and buses should be made? How fast should the company grow? Are there other aspects of the business strategy that should be defined? 3. What operations and supply chain strategy should they pursue given the business strategy defined in question 2? Explain this strategy in terms of a mission, objectives, distinctive competence and major decisions (process, quality, capacity, inventory, and supply chain). How will this strategy contribute to the competitive advantage of the company