Asia’s Low-Carbon Economy

Abstract

The Asian Century cannot be realized without transforming the region’s energy systems. Economically accelerating pre-Lewis Turning Point nations like India, Indonesia, and Vietnam are pushing for energy self-sufficiency. Slowing down post-LTP nations like China, South Korea, and Japan are shifting from coal and oil to renewable energy and the low-carbon economy. The global oversupply in liquefied natural gas benefits Asia, a net energy importer, especially India and Thailand. Asia is the largest market for renewable energy – solar, wind, and hydro. China is the largest market for electric vehicles. Japan and South Korea have the highest EVs penetration. In the lithium-ion age, Asia’s energy systems will be decentralized on smart grids and for consumer, commercial, and industrial use.

Appendices

Case Study 9.1: BYD: King of China’s New Energy Vehicles

By Pongsak Hoontrakul

When the USA’s high-profile electric car producer Tesla announced a master plan to produce trucks and buses in July 2016, Chinese rival firm BYD and its chairman Wang Chuan-fu must have been flattered. Tesla had just borrowed from BYD’s old playbook since 2010.

BYD’s motto is “Build Your Dreams,” and the Shenzhen-based company has had a fast track to the global business peak. BYD was established in February 1995 and went public on the Hong Kong Stock Exchange in 2002. In 2000, it started supplying rechargeable batteries for mobile handsets and consumer electronics to multinationals like Samsung , Nokia, and Motorola. In 2002, BYD took a major turn and acquired Qinchuan Automobile to enter the car-making business. Today, BYD is the world’s leading producer of electric cars and New Energy Vehicle (NEV) batteries, in addition to its other businesses.

The keys to success have been Wang’s strategic decisions. First, he decided not to follow Apple and Amazon into lithium polymer batteries in 2008 but focused on lithium-iron phosphate technology to make NEV batteries for cars. By 2016, BYD had a team of about 7000 electronic engineers doing commercial research and development. Second, after spinning off BYD-Electronics for listing in late 2007, the company formed BYD-Automobile in May 2010 in a joint venture with Daimler to produce NEVs. BYD then agreed to make NEVs for the Pengcheng Electric Taxi Company. ¹ Third, while Tesla paired with Panasonic for batteries, BYD developed a vertically integrated model to produce batteries and other parts in-house. This allowed BYD to gain first-mover advantage, shorten production lead times and lower total costs. Last, unlike its competitors , BYD decided to focus not on the mass market but on public transportation. All public transportation vehicles have well-defined travel ranges and schedules suitable for the limited power range of NEVSs . BYD also enjoys strong government backing in the form of replacement of old and polluted buses and tax incentives to lower carbon emissions.

After selling over 70,000 electric car units during the first 8 months of 2016, representing 124 percent growth year-on-year, BYD announced its business expansion to electric monorail transportation . ² In October 2016, Shantou City signed a contract for BYD to build a 250-kilometer monorail worth 40 billion renminbi ($5.82 billion). ³ And 20 more cities have expressed interest in working with BYD. ⁴

BYD was forecast to have total sales of 95 billion renminbi ($13.85 billion) in 2016 and 104.6 billion renminbi ($15.25 billion) in 2017, with net profit of 5.18 billion renminbi ($760 million) in 2016 and 4.38 billion renminbi ($640 million) in 2017. ⁵

In fact, the legendary investor Warren Buffet had long seen BYD’s potential and bought an about 10 percent stake in the company in 2008. ⁶ And after Samsung announced in July 2016 that it would like to have a stake in BYD, the company’s shares shot sky-high.

In short, BYD is the king of NEV batteries in the world’s largest, and fastest-growing, electric vehicle market – China.

Notes

• 1. Alvin Kwock, Michael Fan, Nick Lai and Rebecca Y Wen (2014) “BYD Company Limited: Deep Dive into NEV prospects”, JP Morgan, 28 April 2014, p. 5.

• 2. Credit Suisse (2016a) “BYD Co Ltd: New monorail business provides long-term growth but increased near-term costs”, 21 September 2016, p. 11.

• 3. Credit Suisse (2016b) “BYD Co Ltd: New monorail business likely to bring notable earnings upside surprise”, 14 October 2016, p. 13.

• 4. Ibid., p. 13.

• 5. Ibid.

• 6. David Fickling and Tim Culpan (2016) “Take That, Tesla”, 21 July 2016, https://www.bloomberg.com/gadfly/articles/2016-07-21/take-that-tesla

References

• Credit Suisse. 2016a. BYD Co Ltd: New Monorail Business Provides Long-Term Growth But Increased Near-Term Costs. 21 September 2016, p. 11.

• Credit Suisse. 2016b. BYD Co Ltd: New Monorail Business Likely to Bring Notable Earnings Upside Surprise. Credit Suisse, 14 October 2016, p. 13.

• Fickling, David, and Tim Culpan. 2016. Take That, Tesla, 21 July 2016, https://www.bloomberg.com/gadfly/articles/2016-07-21/take-that-tesla

• Kwock, Alvin, Michael Fan, Nick Lai, and Rebecca Y. Wen. 2014. BYD Company Limited: Deep Dive into NEV Prospects. JP Morgan, 28 April 2014, 75 pages.