BYD's tipping points: hunger and restraint, chaos and efficiency

Pragmatism wins BYD past and present, but what about the future?

Wen 丨 Si Wenwen Li Zinan

Editor丨Song Wei

2 million, 5 million, 8 million... Never stop

The 2 millionth new energy vehicle rolling off the production line is a node that has been deliberately watered down and obscured by BYD. It did not hold a grand ceremony in public, and even left no trace on the official Weibo. A BYD source said that around March 2022, when the company realized that sales were about to rush to the first, it said not to engage in it, but to "keep a low profile", "such a speed is somewhat beyond internal expectations", "we are not ready".

It took BYD 13 years to produce its millionth new energy vehicle. It took a year to reach the second million. Six months later, it reached three million. This speed, BYD itself did not expect.

Even with this scale, BYD's growth today far exceeds that of the entire industry. According to data from the Passenger Association, in the first half of 2023, the retail sales of new energy vehicles in China were 3.08 million units, a year-on-year increase of 37%. Of these, 1.15 million were sold by BYD, and its sales growth rate was as high as 82%. Its rival Tesla sold 890,000 vehicles, up 57% year-over-year.

BYD has replaced Volkswagen as the sales champion in China's entire passenger car market, and surpassed Tesla as early as the second quarter of 2022, becoming the brand with the most new energy vehicles sold in the world, and has remained so far. This year, BYD's sales target is 3 million units, and the completion of this goal seems to be without suspense.

The term "popular" can accurately describe BYD in the past two years. In 2020, BYD's sales could not rank in the top fifteen of national car companies, when it was experiencing two consecutive years of decline, and sales reached the lowest point since 2018.

It's like a 100-meter race where the runner who was originally left behind suddenly accelerates and overtakes everyone in the sprint.

Employees began to refer to BYD as a "big factory", which used to be just "big factory" and now it is "big in all directions". They have witnessed the most violent, fastest, and largest expansion since BYD's founding: in 2022, BYD's workforce swelled to 570,000, half of which were added last year. In terms of the size of its workforce, BYD is probably the largest private company in China today, second only to Foxconn. It's even nearly 200,000 more than Toyota, the world's largest car company.

The fiercest battleground for new energy vehicles in the world is in China, where more than 100 automakers offer more than 300 new energy vehicle models, but today German automakers have a negligible share of the Chinese new energy vehicle market: Volkswagen accounts for 2.9%, BMW and Mercedes-Benz less than 1%.

According to the sales data released by BYD, its market share in May has exceeded 41%, and the last time it got more than 40% market share in a single large market was Huawei mobile phones in 2019 and early 2020.

If Tesla opened the era of electric vehicles with the ultimate product and manufacturing innovation, which ignited demand, then BYD took the largest market share by relying on its cost leadership strategy.

One analyst said BYD's success was due to the fact that it allowed Chinese to drive cheaper new energy vehicles - salaried people can spend 150,000 yuan to buy a compact plug-in SUV with a range of 110 kilometers - Song Plus. BYD's Seagull series sells for only 73,000 yuan, less than one-third the price of Tesla's cheapest model.

Compared with the state of being a little apprehensive at the beginning of 2022, today's BYD is calm enough for the victory, according to the statement of a BYD management at the Shanghai Auto Show, the 2nd half of the 5 million car off the production line, "to do it well", wait until 8 million or even 10 million vehicles off the line, "may go abroad". Wang Chuanfu said that "BYD is currently in the best period in history", even if they just experienced a big storm two months ago when Great Wall Motor publicly reported BYD's use of atmospheric pressure fuel tanks for suspected pollutant emissions that did not meet standards.

Nothing can stop BYD. No matter how many setbacks there are, this seems to have never changed. 15 years ago, 42-year-old Wang Chuanfu set off from Detroit, where BYD cars were unveiled at the North American Auto Show, and finally he arrived on the West Coast of the United States and met Buffett for the first time, Buffett asked how BYD could stay ahead, and Wang Chuanfu replied: "We'll never, never rest." (We never, never rest)

Pragmatic business philosophy, restraint and hunger

The essence of competition in the automotive industry is to make better cars at a lower cost. Cost control is the lowest capability of manufacturing companies, the physical law of manufacturing, which determines everything.

The success of Ford, GM and Toyota is due to the cost advantage brought by manufacturing efficiency leadership. Assembly line operations allowed Ford to produce more than 17 million Model T in less than two decades, accounting for more than half of the world's post-World War I car sales. It has changed not only the automotive industry, but the entire manufacturing industry. The biggest impact was that the United States would soon dominate the global economy.

BYD also relies on its total cost leadership strategy to win the competition, but not because of its higher manufacturing efficiency, but because of its pragmatic business philosophy, including hiring more but cheaper manpower, vertical industry integration brings extremely low procurement prices, etc.

The idea of using manpower and automated production line competition is a helpless move, and it is also the best choice made by BYD after combining its own resource constraints and China's unique worker and engineer dividends.

In terms of research and development, BYD had a "301" concept in the early stage of development, using 300% engineers to obtain 1% of the technology lead. In terms of manufacturing, BYD also has a concept of using a large number of labor and a small number of necessary machines to form a production line, that is, "people + machines = robots". This approach reduces BYD's equipment investment per unit of capacity.

When he founded the mobile phone battery company in 1995, Wang Chuanfu's start-up capital was only 2.5 million yuan lent to him by his cousin Lu Xiangyang, and a nickel-cadmium battery production line at that time required tens of millions of yuan.

BYD manufactures production equipment manually, breaking down the production line into processes that can be completed manually. According to the efficiency at that time, BYD's production line with a daily output of 100,000 lithium batteries required 2,000 workers and an equipment investment of 50 million yuan. Battery production lines from Sony, Sanyo and other companies with the same output only need 200 workers, but the equipment investment is as high as $100 million.

In 2003, BYD acquired Qinchuan Automobile and entered the auto industry, it did not have enough funds to trial and error, and it had no experience in building cars. The industry marvels at the manufacturing innovation brought by Tesla's integrated die-casting design, people talk more about first principles, and ignore the huge investment behind it, it can be born in Tesla is also because Musk has super financing ability, and before becoming Tesla CEO, Musk was already a billionaire.

At that time, although BYD was listed in Hong Kong, its opponent was a joint venture that was leading in technology, manufacturing, brand, and sales channels, and BYD's car manufacturing was not favored. Three days after the announcement of the acquisition of Qinchuan, BYD's share price fell from HK$18 to HK$12.

BYD raised US$210 million (about 1.73 billion yuan at the time) when it went public in 2002, and spent 270 million yuan to acquire Qinchuan Automobile, including only production qualifications and a car factory.

In order to make the car business work, BYD did not directly bet on electric vehicles like Tesla, but first made fuel vehicles without technical accumulation. Wang Chuanfu believed at the time that making electric vehicles would not bring BYD any profits within 5 years.

In order to reduce costs, Wang Chuanfu reused the way of manufacturing batteries with multiple manpower to cars, "It's all manufacturing, and experience can be copied." Wang Chuanfu was full of confidence in his methodology at the time, and also ridiculed Yang Rong, the founder of Brilliance China Automobile: "He studied finance, if he had experience like me to make batteries, he would not invest 5 billion to do Brilliance China." I could do the same thing with a tenth of his money. ”

In production, in order to ensure that the accuracy of manual operation is comparable to the accuracy of the machine. BYD has developed some equipment and fixtures suitable for manual operation, and uses fixtures to fix products and set the operating range of welding and other processes.

Customized equipment has become the beginning of BYD's vertical integration route and change the supply chain structure. This route further reduces manufacturing costs.

BYD developed its own mold for the F6 model, which shortened the development time by nearly half compared with outsourcing, and the mold cost was reduced from nearly 150 million yuan to 80 million yuan. Automotive mold development was a completely human job at the time, and engineers in China were cheaper.

BYD began to lay out the production and manufacturing of automotive electronics in 2003, and from 2005 to 2008, BYD successively added production departments such as injection molded interior parts, lamps and paints. By 2010, BYD had more than 100 parts factories. In addition to glass, tires, etc., BYD's manufacturing involves almost all automotive components. At that time, BYD was the only company other than Toyota with lithium batteries and automobile manufacturing technology.

Relying on lower-cost supply chains and manufacturing methods, BYD has created cars with great price advantages. In 2006, the BYD F3, which resembled the Toyota Corolla in appearance and performance, sold for half the price of the Corolla. According to media at the time, the F3 was built in a "crowded" semi-automated workshop.

The main hardware cost of an electric vehicle is divided into five parts, the battery accounts for 40%, the electric drive system accounts for 12%-13%, automotive electronics accounts for 13%-14%, the body and chassis account for 14%-15%, and the interior and exterior decoration is 17%. At present, the business of Verdy companies, wholly-owned by BYD, covers the R&D and manufacturing of these five core components.

This is the foundation for BYD to become the largest new energy vehicle company. These businesses also allow BYD to make most of the money on cars. For reference, LG New Energy, a battery company with the same installed capacity as Fordy batteries, had a net profit of 4.3 billion yuan last year.

Doing more on your own meant being able to decide for yourself what to make your car into something that joint venture automakers at the time couldn't do.

With more technology, more technology can be integrated. Wang Chuanfu said in 2007, "BYD DMi is not leading in single technology, but we have solved a large number of running-in problems between cars and batteries, such as low temperature, fast charging, electric steering, etc." ”

The lithium iron phosphate batteries used by BYD were considered backward technical routes before 2020 due to their low energy density, but BYD has made lithium iron phosphate batteries reach the same level of endurance as ternary lithium batteries through technical improvements, and the cost is about 15% lower than ternary lithium batteries. Now it is mounted on BYD's million-dollar model.

After more than a decade of development, BYD today has the world's most vertically integrated car company, higher than Toyota and Tesla.

The highly vertical integration model put BYD under great pressure during the decade when its growth was close to stagnation, and from 2009 to 2020, BYD's sales hovered at four and five hundred thousand vehicles. Until 2021, BYD sold 710,000 vehicles, the net profit margin was still only 1.4%, and in 2022, its sales volume increased to 2.6 times, and the net profit margin also increased to 3.9%, reaching 16.6 billion yuan. Sales volumes continue to rise, and in the first half of 2023, BYD expects net profit to increase by more than 192% to 10.5 billion.

A large number of homemade parts can be understood as a financial leverage, when the car sales are good, you can earn all the money of the parts, when the sales are not good, this is a huge burden. "People who choose this route often have a strong heart," said one person who has followed BYD for a long time.

A person who started a business with Wang Chuanfu in his early years said that Wang Chuanfu's inner thought has always been, "You can do anything yourself, as long as you dare to do it." ”

Wang Chuanfu has the ultimate ideal of energy, mixed with astute business judgment. He was the first to implement Tesla's "Master Plan 3", building electric vehicles, photovoltaic power generation and energy storage batteries to promote the energy transition.

In addition to vertical integration, BYD has also expanded horizontally, entering many large industries such as photovoltaics, semiconductors, and rail transit. Wang Chuanfu bet on an unfamiliar and competitive field - photovoltaics in 2008. He still wants to vertically integrate and continue to be involved in the manufacture of silicon ore, monocrystalline silicon and photovoltaic modules, which are usually done by three different companies.

The direct adoption of the vertical integration model at the beginning of entering the new industry has brought extremely high financial pressure to BYD. Wang Chuanfu was forced to cut investment in the automotive business, allowing the automotive business to give photovoltaic "blood transfusion", "The automotive business does not eat grain and lays eggs, but lays more eggs." Wang Chuanfu said at the time.

In 2009, BYD invested more than 5 billion yuan in the initial investment of energy storage batteries and photovoltaic business alone, and the plan at that time was to build 1 GWh of photovoltaic capacity, costing more than 10 billion yuan. In the following two years, due to the European debt crisis and the reduction of photovoltaic subsidies, BYD and the entire photovoltaic industry suffered a heavy blow. By 2012, Wang Chuanfu said, "the photovoltaic business has lost 7800 million yuan a year in recent years. ”

Even with this difficulty, BYD has hardly exited any of the big industries it has entered in a big way, including the cloud track that faces many difficulties today.

The above-mentioned people said that BYD is restrained to a certain extent, most of the private giants that started in the nineties of the last century are pursuing infinite growth, promoting the parallel of the two wings of entity and finance, but BYD does not enter finance or real estate, only manufacturing, BYD also basically does not do capital operation, all new businesses, no matter how big the loss, are loaded into listed companies, risk sharing.

But BYD is also hungry because it considers its boundaries to be "made", making everything from mobile phones, cars, batteries to masks. At the beginning of 2020, BYD quickly concentrated 100,000 employees and built 2,000 mask production lines in a 500,000-square-meter factory, with a maximum daily output of 100 million, becoming the world's largest mask manufacturer.

We once asked an executive of BYD Group, "BYD has entered so many fields, there must be some business that cannot be done, has it given up anything?" The other party looked surprised: "Why give up?" ”

Ultimate cost control, chaos and efficiency

All business owners want to be Toyota-style lean producers. Lean manufacturing is called "lean" because it requires more refined inputs than mass production – from factory personnel, production space, equipment investment to development cycles, all in half the original.

All lean producers, their tolerance for chaos is extremely low. It can be said that the life's work of a lean producer is to fight chaos and inefficiency.

But BYD is different.

BYD is already the world's largest car company, surpassing Volkswagen with 626,000 employees. With close numbers, Volkswagen produces 4 times more cars than BYD. Tesla, which has only 130,000 people, produced 1.31 million vehicles last year.

An engineer who joined BYD a few months earlier told his new colleagues that he was once confined to a guest house because of a lack of workstations. Later, they were placed in a new office area to accommodate the large number of incoming school enrollments.

At the end of 2022, each employee brought BYD an average of 740,000 yuan in revenue. At Tesla, revenue per employee last year was $4.36 million. BYD's human efficiency ratio is not as good as Foxconn, which also chooses to use intensive labor to complete manufacturing and has 1.2 million people, and Foxconn brings an average of 1.16 million yuan in revenue per person.

Because it has the longest vertical industry chain and implements the "human sea tactic", BYD has long recruited a large number of new employees, who continue to break down complex tasks so that more novices can complete the same task.

It is understood that in a certain BYD factory, the production cycle of its cars is comparable to that of ordinary car companies, but the number of workers in the production line is larger. Processes such as installing controllers and interiors are generally completed by a single worker, but BYD will use two workers, one on the left and right.

In order to adapt to the low automation rate of production, when a product upgrade is implemented, the production department needs to review the production difficulty and prepare a detailed list to regularly check whether the product design affects the manufacturing process. When landing, the engineers in the R&D department also spend about a week going to the factory to track the line and correct the operation of the workers.

The R&D process is similar. An engineer at BYD's Automotive Engineering Institute said that when developing an engine, dismantling will begin when the task is set, such as one person is responsible for putting the sensor and the other is responsible for debugging the equipment. Other car companies can do it alone in an afternoon, but BYD requires two people, and sometimes a school recruit to teach.

When there is a mistake in R&D, the engineer is generally not held accountable, only the assignee, because the assignee's responsibility is to ensure that everyone can do the assigned task well.

In BYD, some links are inefficient like a traditional enterprise, sometimes chaotic like a startup, and as a company with strong execution, when its goals are clear, efficiency and chaos often occur at the same time, and it is like a high-speed growth Internet company.

In 2019, BYD decided to develop the Han model. The above-mentioned R & D personnel recalled the sense of urgency at that time, the model and the powertrain were developed together, and the assembly had not yet come out when the test car was tested, so the old version was used first, the software and hardware of the test car were updated every day, and the system must be refreshed before each test drive.

The development process also experienced many sudden situations of suspension and revision, such as Han first planned the fuel version, but due to strategic considerations, it was directly abandoned during the research and development. BYD also considered whether to cut Han, but finally decided to "give it a try".

"It's chaotic, but it's efficient." In the end, BYD completed the development of the powertrain and model in 18 months, while it took 3-4 years for the large car companies at that time to complete the powertrain development alone.

The most important criterion for BYD to evaluate efficiency is not comparison with peers, but whether it meets BYD's most important goal at the moment, which is to move at full speed.

An automotive industry analyst said that the entire industry, especially traditional car companies, did not believe that the era of smart trams had arrived early and was caught off guard until 2020, and they all began to rush the transformation in the second half of 2020.

At this time, BYD has already brought a pure electric C-class car of more than 200,000 yuan to the market. A few months later, the three hybrid models of Qin PLUS, Song PLUS, and Tang DM-i were released intensively, and BYD pulled the price of new energy vehicles to the price of fuel vehicles of the same level. At the end of 2021, the Ocean Network was officially released and four models were announced, focusing on developing young consumer groups.

In just one year, BYD launched and released 7 new models. By December 2021, monthly sales were close to 100,000 units.

Han is BYD's first model to change its brand image, and it is also a successful case of implementing BYD's cost control concept and goal orientation.

Before Han, BYD did not have highly competitive pure electric models, let alone made pure electric vehicles with a price of more than 200,000 yuan. At that time, the top management directly set three goals: the powertrain cost should be low; The cost of the car for the owner should be low; To have at least one highlight is the industry-wide all-price model first.

A BYD source said that BYD's management has always advocated target management, not resource management, the former is to set goals first, and then find ways to achieve it.

When designing the Han DMi solution, BYD replaced the water-cooled motor with an oil-cooled motor, which improved the efficiency of the motor and reduced the number of wires required by the motor. The average car company will choose to make enough profit on the new product to compress the cost. However, BYD chose to directly cut the profit of the DMi system, reducing the cost of the entire system to about 10,000 yuan.

BYD chose to use the drag coefficient as the highlight of Han. In order to ensure wind resistance, even part of the shape design is sacrificed, but this can increase the endurance of the car. Han's battery life was the same as the Tesla Model 3 at that time, but it was 20,000 yuan cheaper.

From these aspects, BYD can be regarded as a practitioner of the "lean" concept.

BYD does not do "superfluous" things. The above-mentioned engineer of BYD's Automotive Engineering Institute said that he once asked his superiors why they did not use better parts on a certain car, and his superiors asked him, "The old version of Qin's pure electric endurance and high-speed performance have beaten the current Qin, but what does Qin's pitiful sales show before?" ”

"Car owners do not need extra performance, the core is cheap, grasp the main contradiction." Without waiting for him to answer, the superior gave the answer directly.

What is the main contradiction?

For the working-class users BYD faces, they need a cheap and adequate car, not leather seats, not streamlined shapes, but a family car that is not only cheaper, but also the lowest cost of use.

Neither Geely nor Great Wall has launched a model large enough to compete with BYD in the 100,000 yuan market. Great Wall began to move away from the mainstream wage earners in terms of product definition and naming, and launched the Ora pure electric model that favored young women, while the Wei brand hybrid model was priced at more than 200,000 yuan. Geely's Emgrand hybrid model is priced about 30,000 yuan higher than Qin, and Geely did not launch a lower-priced model, but turned to the high-end positioning of the Zeekr and Galaxy brands.

Through continuous improvement of power system technology, the price of BYD Qin series models has dropped from about 200,000 yuan in 2013 to 99,800 yuan at present. The fuel consumption of the Qin Plus DMi is 3.8 liters per 100 kilometers, and the fuel consumption of hybrid models such as Toyota Leiling and Corolla is more than 4 liters per 100 kilometers, and the price is 40,000-50,000 yuan higher.

After the launch of the fist model, BYD's logic in product design tends to use cheaper parts to achieve the same performance as competitors, rather than using better parts to achieve performance leadership.

BYD will not stop. Every year when changing models, BYD will re-evaluate all parts and reduce costs by replacing parts and choosing cheaper suppliers. The cost reduction path is determined by the product department, and the R&D department makes an assessment, draws a red line for the places that cannot be reduced, and the remaining part must give an impact report on the product after the reduction.

In this regard, BYD and Tesla are similar, they are reducing costs in various ways and making electric vehicle prices continue to fall.

BYD and Tesla both began to develop new energy vehicles in 2003, BYD's first new energy vehicle F3DM rolled off the production line in 2008, Tesla's first new car Roadster was also delivered in 2008, the time when the two cars began to develop coincided with the time when the product came off the line, but F3DM eventually became the world's first mass-produced plug-in hybrid car, while Roadster only delivered 2450 units. The following year, Wang Chuanfu became China's richest man. In the United States, Tesla was on the verge of bankruptcy because of the financial crisis, and in March 2009, Tesla launched its second car, the Model S, and no one knew whether it could actually be produced.

BYD wins through a highly vertically integrated industrial chain model, human sea tactics and car sea tactics, while Tesla wins through underlying engineering innovation and technological innovation (intelligent driving). The essence is because these two companies have different living soils and different business endowments.

"Tesla is doing products, while BYD is doing the industrial chain." So why Tesla, not BYD, started the era, auto industry commentators said.

Good products can arouse people's desires and truly change everything. Model S defines products belonging to this era, which integrates advanced manufacturing, high-performance central calculators, intelligent networking, etc., and the delivery of the lower-priced Model 3 is a moment similar to Apple's iPhone 4, smart cars begin to launch a large-scale attack on the traditional automotive front.

BYD is the only traditional car company that has been fully prepared when the big change comes. It's ready in terms of technology, products (multi-model), channels, supply chain, so it can take the lion's share of this market and leave past rivals far behind.

Manage 600,000 people, contradiction and unity

The complexity of the car is unimaginable. A new energy vehicle is generally composed of more than 10,000 parts, and traditional vehicles have more than 30,000 parts. Managing a large system of parts and suppliers is a challenge for automotive companies.

BYD has largely solved this problem: the core components are produced in-house, and almost all the work can be done in-house. But it brings an even bigger management challenge: how to manage six research institutes, five business groups, more than 20 business units, including Verdy's department, and nearly 600,000 employees?

Located at 3009 BYD Road in Shenzhen's Pingshan District, BYD's headquarters is like a "small kingdom". After leveling more than 30 hills and filling in more than 120 fish ponds, the headquarters was completed in 2007. It covers an area of 2.3 million square meters, which is 900,000 square meters larger than Huawei's Songshan Lake base, and is the first of BYD's nine factories. Employees clock in three times a day, sitting in a 100 million yuan per kilometer, driverless BYD Yunba to and from the office area and dormitory. It houses fifty or sixty production plants, several staff dormitories, and a number of canteens, as well as Wang Chuanfu's office "hexagon" (one corner more than the Pentagon in the United States).

The sprawling base is old: the hexagonal building is mottled with paint and the windows are old, sliding and pulling. But the exhibition reception venue in one corner is brand new and bright. Since the surge in revenue in 2021, BYD has renovated the reception venue on the side of the hexagon, but has not renovated its headquarters much - the alternation of old and new is a reflection of BYD's situation today.

In the past few years of BYD's rapid development, its family culture that has been implemented for more than ten years has been gradually replaced by the culture of competition.

The family culture was promoted by Wang Chuanfu, which means "take the factory as your home and love the factory as your home". In the early stage of development, BYD's recruitment was not very competitive, so it rarely recruited the best people, and it could not recruit this group of people. And family culture to form a sense of identity, is one of the ways to retain people.

BYD's salary and benefits are not considered the top in the industry. In 2022, its per capita salary is 139,100 yuan, and SAIC (181,000), Great Wall (163,900), Changan (221,000), etc. are all higher than it. But at BYD, employees will feel a kind of stability rarely found in modern private enterprises. Not only are they simply employed, their lives seem to be "managed".

There are many people who have worked for BYD for more than 15 years. They share similar life trajectories: they came to BYD for their first job after graduating from college, lived in a dormitory when they were young, bought BYD's car and had car subsidies, survived to a certain length of service and rank, and had qualifications, and could use internal prices to buy a house in the company's new village of Yadi. Of course, there are also working hours requirements to get the title deed, and one engineer said that it was more than ten years. When the child is born, it is sent to Yadi School, which includes the kindergarten, primary school and middle school, and is fully managed by Shenzhen Middle School, a key provincial middle school. Some children will join BYD after graduation and continue the trajectory of their parents.

Some veteran employees will say they feel they can work at BYD for a lifetime.

For many years, there was almost no elimination mechanism. In 2022, some business units began to implement last-place elimination, with a proportion of 5%. But employees said the impact was minimal, with one employee saying the only person he saw was laid off in two years because he was absent from work for 18 days.

Several engineers said there was an unwritten rule at BYD that it would be difficult for engineers to return from BYD unless they received "special approval." So they will be cautious when they leave.

The setting of BYD's rank system is sorted alphabetically, the "ladder" is simple and clear, and the employees are divided into nine grades of A-I, each grade is divided into three sub-levels, of which A-G is a management and technical post, and H and I are production line workers.

The difficulty of each sub-level promotion is incremental, of course, the hardest is to cross the letters. Most undergraduates enter the BYD rank for F1, and the small level is promoted twice a year, and after 3-5 years, some will be promoted to E, and in a few years, some will be promoted to D. An E-class engineer who jumped to BYD said he had seen colleagues who hadn't been able to get from E to D for five years.

With BYD's rapid expansion in recent years, the ladder has become very crowded. BYD began to adjust the promotion criteria, and after 2022, large-level promotions require patent results and technical defense. In the past, from performance to promotion, it was evaluated by the direct leader.

The keywords of corporate culture have also changed. In 2017, BYD adjusted the first point of its corporate culture of "equality, pragmatism, passion, and innovation" to "competition". By 2022, it has developed into a set of "competitive culture", including "catching up with learning and helping out", "comparing with yourself, peers, benchmarks, and time." ”

The "big pot of rice" is gone, and the performance gap between employees is rapidly widening. For example, an engineer is also in the E grade, someone gets 200,000 a year, and the high performance can get 500,000.

It is understood that the models of BYD's marine net series are selected by multi-team PK, which is the product of competitive culture.

No matter how it changes, one thing remains unchanged in BYD, that is, the absolute authority of founder and CEO Wang Chuanfu.

BYD has six research institutes and five business groups, including the Verdy Department, a total of more than 20 business units, all of which report directly to Wang Chuanfu. According to media statistics in 2022, there are more than 30 executives who report directly to Wang Chuanfu.

Wang Chuanfu once said in an interview with the media that BYD "has only one voice, there is no second" and believes that its decisions are "98% correct", even if it is wrong, "wrong is wrong to do". He believes that "the market is like a battlefield", so to make extreme decisions, "in some cases as fast as 2 seconds".

BYD's core management is solid, including Wang Chuanfu and Lian Yubo, who has just stepped down as vice president, with a total of 13 people. Three of them (Li Ke, Wang Jie, Wang Chuanfang) joined BYD in 1996, and Yang Dongsheng, the latest, has also spent eighteen years at BYD, and four of them took their first job at BYD. BYD tends to cultivate school enrollment internally, believing that ability can be cultivated, but values are difficult to transform. In 2023, BYD recruited 30,000 fresh graduates.

The intelligent driving business, which is increasing its efforts, is also being launched in this atmosphere. It is understood that within BYD, many departments are involved in the self-research business of intelligent driving, the Planning Institute is mainly responsible for high-end intelligent driving development tasks, the fifth business department is responsible for relatively low-level solutions, and Verdy Technology is also involved in some technology research and development. A Fordy technology engineer said that the R&D focus of each department is different. But the competition is not only between departments, an engineer related to the intelligent driving business said that in the same department, different teams must also compete with each other and catch up with the progress, and the party that makes the first or better solution has a chance to be applied.

The setting of BYD's planning institute and engineering institute itself is a horse race. The latter was established in 2015 and overlaps with the research and development of the Academy of Engineering.

The family culture and competition culture are contradictory on the surface, but the essence is highly unified, and it is a means for BYD to realize the company's strategy at different stages and in different competitive environments.

To ensure growth, BYD hired 280,000 employees within a year. With just over 200,000 employees, inefficiency in some areas is tolerable. When the number of people increases to more than 500,000, or even more than 700,000, efficiency will threaten the realization of growth.

The tipping point has come, past and future

Compared with how BYD became the dominant force in the industry, people today are more willing to discuss how long BYD's growth momentum can continue, and will it first draw a beautiful curve of extreme speed upward and then slowly decline, as it experienced a decade ago.

Under the highly vertically integrated and low-automation production method, BYD's automobile production capacity soared from about 900,000 vehicles to more than 3 million vehicles in a year and a half, which can be said to be a production miracle.

Because it needs to expand factory production and recruit workers non-stop, it also needs to coordinate internal and external supply chains, complete the synchronous expansion of vertically integrated businesses, and control the impact of the epidemic on production. At the same time, the crazy price war came, and BYD had to strengthen cost control and let a number of popular models cut prices to meet the battle.

This expansion model will bring a degree of chaos and quality problems.

A number of BYD engineers and automotive industry insiders believe that the above problems reflect the challenges to BYD's production capacity and quality management system when production capacity is expanding rapidly.

Due to the intensification of competition, car companies are transmitting pressure to the supply chain, asking the supply chain for technology and price. For BYD, more pressure can only be transmitted inward.

A person close to Verdy said that the price of Fordy batteries purchased by BYD last year was about 10% lower than the market price. He said that as a wholly-owned subsidiary of BYD, Fudi still earns money even if it is highly priced, but BYD believes that only by starting from itself can the entire group unconditionally complete the target of cost reduction.

Verdy Battery is already the world's second power battery company, but it is still lagging behind the first place in many aspects, CATL. For example, Fordy's power battery factory in Changsha produces 13,000-14,000 batteries per day in a single production line, while CATL's single production line can produce 24,000 batteries per day.

This reflects the biggest challenge of the vertical integration model - that is, whether self-developed and self-produced products can continue to outperform suppliers in technology and cost.

And the only way to solve this problem is to bet on the most difficult technology and master the right to define the technical route. And only by defining the technical route can we truly define the rules of the game in the business world.

Musk has said that Tesla's real core competency is manufacturing capabilities. "Any other technology that Tesla can provide, other car companies will also conquer, only the factories that produce cars will not." At the Mexican plant that will be put into production in 2025, Tesla will apply the next-generation model platform, and Musk said that the production cost of the next-generation model is only half of the Model Y (the lowest price is 260,000 yuan). The mass production of models at this price will impact BYD's basic plate - last year, 70% of BYD's orders came from models below 200,000 yuan.

This is not enough for BYD in the past to be pragmatic, and it tends to choose technologies that have been verified by theory and mature in some universities and laboratories in technology research and development to do engineering landing, rather than directly studying the underlying technology, such as BYD's Yi Sifang technology. This stems from Wang Chuanfu's early philosophy, he believes that the development of a product, 60% from open literature, 30% from ready-made samples, the real innovation is actually only 5%, BYD to do is to avoid patents, with non-patented technology to do portfolio innovation.

When integrating automotive chips, Tesla self-developed self-driving chips that are more important for technological breakthroughs, while BYD starts from IGBT (power semiconductor), IGBT technology threshold is low but accounts for nearly 50% of the cost of electric drive systems, which is more helpful for cost control. Tesla began to develop its own self-driving technology when the Model S was delivered in 2012, and BYD only accelerated its pace in the second half of last year, it is catching up aggressively, and believes that it can overtake through BEV (bird's-eye-view) large model algorithm corners.

BYD needs to be wary of whether it will catch up or continue to lag behind in intelligent technologies that have not yet had a decisive impact on market competition but will determine long-term competition.

Another challenge for BYD comes from internationalization.

Today, 4 out of every 10 new energy vehicles produced in China come from BYD. BYD took 40% of the world's largest auto market, but its market share will reach a ceiling in the future, and it needs to open up new markets.

At present, BYD has entered 53 countries and regions such as Japan, Germany, Australia, and Singapore. In the first half of 2023, BYD Auto sold 74,300 units overseas, surpassing the whole of last year. BYD is already the sales champion of pure electric vehicles in Israel, Singapore and New Zealand, and ATTO 3 (yuan PLUS) has become the sales champion of new energy vehicles in Thailand.

In order to obtain the same subsidy incentives as local production companies and maintain a low-price strategy, BYD hopes to produce and sell locally, rather than making cars in China and loading them on 8 ro-ro ships - each with a capacity of 7,700 vehicles, which BYD bought at a cost of 5 billion yuan in 2022 - and shipped them around the world.

BYD's manufacturing system relies on cheap manpower, and capacity replication is much more difficult than that of competitors with highly automated production. The hourly wage of auto workers in Europe and the United States is 17 euros (about 136 yuan) and 28 US dollars (about 200 yuan), respectively, and in China it is 4.5 US dollars (about 32 yuan).

At the same time, as a Chinese champion, BYD faces greater pressure and a more difficult situation than other independent brands.

In August last year, Berkshire Hathaway reduced its stake in BYD for the first time in 14 years and has since reduced its holdings 12 times, a move that some analysts pointed out to be consistent with Berkshire's apparent risk aversion on East Asia.

BYD may risk missing out on the U.S. market. Affected by Sino-US relations, BYD passenger cars have not yet been able to enter the world's second largest auto market. And fierce EV competition in China has squeezed many weaker Chinese competitors in the domestic market, forcing them to aggressively turn to export markets to boost sales. Geely's Polestar, for example, sold nearly 10,000 Chinese-made cars in the United States last year despite import tariffs as high as 27.5 percent. Starting next year, the Polestar will be produced at Volvo's Charleston plant.

This will be one of the obstacles to BYD's vision of becoming the number one in the world.

The company has never hidden its ambitions. In 2007, Wang Chuanfu announced that he would lead BYD to become the first in China in 2015 and the number one in the world in 2025.

The former goal has been achieved, but from China's first to the world's first, it needs to cross the three battles of intelligence, internationalization and high-end, and there is still a long way to go. In 2022, Toyota, the number one in sales, sold 10.5 million vehicles, 5.6 times more than BYD.

The distance in between is not just sales. Ford, Toyota, Volkswagen, and other great companies in the auto industry in the past have improved the car manufacturing technology itself, which is the root of their success, allowing people to buy better cars for less, and workers living better lives in the process. Ford invented the assembly line and Toyota brought lean production, but it was not the more advanced manufacturing methods that brought BYD to the first place, but China's hardworking and cheap workers and college students, and the founder's strategic determination.

To become the number one in the world, BYD must compete in all market segments, all countries and all opponents, not only new and old car companies, battery, motor and even chip companies, but also its past self.

Source of title picture: BYD official website