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Why Volkswagen Wants BYD in Its Battery Mix

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When it comes to potential battery partners for plug-in vehicles, Volkswagen is now a triple-timer: The German automaker has a year-old partnership with Sanyo Electric to develop batteries for plug-in vehicles, and a three-month-old arrangement with Toshiba for an upcoming electric concept — and as of this week, it’s flirting with BYD Auto for a third battery deal. What did VW see in BYD that helped the China-based, Warren Buffett-backed company snag a tentative deal to supply lithium-ion battery technology for upcoming VW cars (the two companies have committed only to exploring options for collaboration)?

According to powertrain analyst Mike Omotoso with J.D. Power and Associates, BYD has a few things that U.S.-based battery startups like A123Systems, Sakti3, Imara and ActaCell simply can’t offer at this point: a major presence in China and significant R&D resources. Omotoso told us in an email today:

China is a very important market for VW (and all other major car manufacturers), so getting their foot in the door for the EV market is crucial. BYD also has a large research capability — they have 3,000 engineers in Shanghai and plan to employ 10,000 more engineers in Shenzhen. So VW can get a head start by using BYD’s engineers instead of starting from scratch themselves.

VW isn’t the only would-be player in the nascent electric vehicle market with an eye on China. As we noted earlier this month, Frost & Sullivan analysts expect cars in China to go mostly electric within a decade — a trend driven partly by government incentives and Chinese automakers jockeying to leapfrog legacy car companies in North America, Europe and Japan that haven’t yet mastered the technology.

VW isn’t ready to give up the chase just yet, but it may need help from a local player to establish itself quickly enough in the race for a piece of the Chinese market. VW’s Ulrich Hackenberg said in a release about the BYD agreement earlier this week, “Particularly for the Chinese market, potential partners such as BYD could support us in quickly expanding our activities.”

The deal is not without possible pitfalls. “There could be quality issues, as there are with conventional Chinese vehicles,” Omotoso said. Then there’s the question of “loss of identity from VW’s point of view,” as Omotoso put it. If VW produces a successful electric vehicle using BYD batteries, the piece that represents the biggest cost and one of the highest hurdles for automakers hoping to launch plug-in cars for the mass market, do the tech kudos and EV cred go to VW?

5 Responses to “Why Volkswagen Wants BYD in Its Battery Mix”

  1. gsdali

    Labour is not important for batteries. I was at the Electricity Stoage Association conference last week and BYD presented their technology. They presented their cost breakdown and labour makes up 4.1% of the cost which is fairly typical for any Lithium Ion production process (and the Fe Technology is still a Li-Ion chemistry).

    A123 and BYD are taking different approaches. A123 are really pushing power and energy density, BYD is going for low cost, whilst still achieving an respectable energy density (not sure about power density but it doesn’t look too hot). Both technologies have their place. A123 and others are definitely going to have the premium product. I’m also sure that BYD will be advancing and refining their technology, they are their own in house customer as well which enables them to build scale relatively easily.

  2. Josie Garthwaite

    @sushil A123 may ramp up its production capacity relatively quickly, but it’s not there yet (still waiting on federal funds). GM ended up tapping LG Chem for the Chevy Volt battery cell deal in part because it’s more established. BYD may encounter some hurdles as it grows, but at this point I wouldn’t rule out the possibility that it continues expanding production capacity.

  3. Sushil Jethwani

    Josie – Do you think BYD has the capacity to churn out the Fe batteries in substantial numbers, since the batteries are mostly hand-made? How do they compare to A123, which supplies to GM’s Volt?

  4. That BYD has a strong presence in China and the country offers relatively inexpensive labour are established facts. I guess the real icing on the cake is that the company offers a ready market and a ready technology that works well for the market. Unlike the astronomically expensive silicon valley startups which are yet to develop a working model of their cutting edge technology, BYD is where the action is with not so high end offerings. But at the end of the day it’s the economic sense that prevails after the glam dust settles down.