BYD's Edge in Battery Technology

WSJ's China auto reporter, Norihiko Shirouzu, recently visited BYD's factory to observe their key competitive advantage: battery technology.

As mentioned in previous posts (here, here and here), unlike every other car company in the world that is currently scrambling to offer alternative energy vehicles, BYD started, not as a car company, but as a battery company. Only in 2003 did BYD buy an auto company and begin to mesh the two technologies. In December, they stole a march on the rest of the world by releasing the world's first production plug-in hybrid, a year ahead of Toyota, and two years ahead of GM's Chevy Volt.

According to Shirouzu, BYD's advantage is its iron phosphate-based lithium ion battery.

Unlike conventional lithium-ion batteries, the type of battery BYD is now producing for its green cars is markedly safer. Conventional cobalt-based batteries, used primarily in cell phones and laptops, have shown a tendency to overheat, and have caught fire and even exploded in some rare cases. The phenomenon is known among scientists as “thermal runaway.”

By contrast, iron-phosphate batteries overheat only to the point where they might start smoking, but unlike cobalt-based batteries, even if an iron-phosphate battery overheats and reaches that smoking stage, it will not turn into thermal runaway because of its inherent chemical stability.

These iron phosphate based batteries also have greater tolerances for mistakes in the manufacturing process, an advantage for BYD which, like most Chinese manufacturers, is still very labor intensive:

There is a definite labor-intensive, low-tech feel to the way BYD, which China Journal recently visited, produces high-tech batteries and other key components for electric cars. Rows of workers in their late teens and early 20s, wearing blue company uniforms, assembled the batteries by hand. There were few robots, and little visible automation - very different from advanced battery plants you might see in the U.S., South Korea and Japan whose companies have been the world’s leaders in hybrid and electric-car batteries.

For all its recent talk about the need for a big push to develop alternative energy vehicles, China's government seems to be playing catch-up to privately-held, Hong Kong traded BYD. Yet while BYD is ostensibly private, it has also benefited from heavy support from the governments of Shenzhen and Guangdong Province.

Somewhere between the Western model of no government ownership (pre-crisis, of course), and the China model of state control (which describes 8 of China's top 10 automakers) there is a semi-public/private model wherein private firms receive heavy state support. Could this be a model for the future of innovation?