In China, one entrepreneur seems to have found the elixir of success, though it might not be as appetizing as you might expect.
David Sokol, a partner of Warren Buffet and chairman of Berkshire Hathaway’s company MidAmerican Energy, watched recently as Wang Chuan-Fu, CEO of the Chinese company BYD, carefully poured and drank a sip of his company’s new nontoxic battery fluid. Wang hoped to show Sokol and American investors the strength of the company’s plan to make entirely green battery energy.
Sokol explained Wang’s focus to CNNMoney.com: “If we’re going to help solve environmental problems, we can’t create new environmental problems with our technology.”
Wang managed to convince Sokol of more than just the power of recyclable energy. BYD has crept up on the investment radar, as a company with incredible expansion and enviable numbers, proving a very purposeful method to Wang’s madness. In the process, American investor Warren Buffet has become one of Wang’s biggest fans.
Wang started BYD in 1995 with the plan to manufacture batteries for Sony and Sanyo imports to China. Five years later, it was one of the world’s largest battery manufacturers. Even though the company only entered the automobile industry in 2003, projections already have spoken of BYD becoming the world’s largest automaker. If the progress Wang has made in such little time is any indication, this projection may not be far off. Mere months after purchasing a failing Chinese government-owned car company, BYD transformed the wrecked business model into the producer of China’s top-selling car. The company currently employs 130,000 people in 11 countries, growing in revenue by 45 percent in five years.
The astronomical success of BYD comes in part from the company’s cash-conscious business decisions and the extreme work ethic of its founder. Not just any CEO will drink battery fluid to prove his point. Wang came from an impoverished background and was raised by his brother and sister. Striving to beat his personal odds, Wang said he works until midnight five or six days a week.
“In China, people of my generation put work first and life second,” he has said.
Although those work hours might not be everyone’s cup of tea, few can argue the profit payoff of Wang’s efforts. He started BYD hoping to push aside the Japanese stronghold on the battery industry. By using human labor instead of robotic manufacturing to produce batteries, BYD squeezed out Japanese pricing and made its stake in the industry.
In addition to changing methods production, BYD also focuses heavily on where its cash flow goes. Where does BYD put its top executives when they travel to the United States for auto conferences? Answer: not in lavish hotel rooms or on corporate jets. American companies strapped for cash could take a lesson from the frugal spending practices of BYD. Wang rented a suburban house to bring his associates to the United States, far from the gala that Ford staged at a past Paris auto show. He also flew them coach.
Wang’s business practices and personal drive have caught the eye of famed American investor Warren Buffet, perhaps leading to a more global exposure of BYD. Buffet’s style of investing usually follows a simple theory: If he cannot understand a business, he does not invest in it. The method has been tried and true for Buffet’s company Berkshire Hathaway. Buffet has made public statements about his personal aversion toward technology companies because of his own lack of knowledge within the industry.
For any personal investors, this advice is worth considering. When choosing to invest in a company, through any type of short- or long-term assets, the inner management and principles of the company matter. If you cannot understand how a company turns a profit, then perhaps look for another investment.
So what makes Buffet so excited about BYD, when he knows nothing about automobiles or batteries? He believes that no matter what the product or language, Wang’s personal drive is so noteworthy that it creates a solid basis for investment, just as long as he doesn’t try to open a juice bar in the near future.
Lauren’s column runs biweekly Thursdays. She can be reached at l.palmer@cavalierdaily.com.
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