VZCZCXRO2283
RR RUEHCN RUEHGH
DE RUEHGZ #0013/01 0070911
ZNR UUUUU ZZH
R 070911Z JAN 10
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 1271
INFO RUEHOO/CHINA POSTS COLLECTIVE 0426
RUEHBJ/AMEMBASSY BEIJING 1030
RUEHGH/AMCONSUL SHANGHAI 0351
RUEHCN/AMCONSUL CHENGDU 0352
RUEHSH/AMCONSUL SHENYANG 0361
RUEHHK/AMCONSUL HONG KONG 0415
RUEHIN/AIT TAIPEI 0308
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMFISS/DEPT OF ENERGY WASHINGTON DC 0052
RULSDMK/DEPT OF TRANSPORTATION WASHINGTON DC 0030
RUEATRS/DEPT OF TREASURY WASH DC
RUEAIIA/CIA WASHDC 0396
RUEKJCS/DIA WASHDC 0392

UNCLAS SECTION 01 OF 03 GUANGZHOU 000013 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/CM, EB/ESC, OES/ENV, INR/EAP 
STATE PASS EPA 
BEIJING FOR FCS, ESTH AND DOE 
 
E.O. 12958: N/A 
TAGS: ENRG SENV PREL ETRD KIPR PGOV CH HK
SUBJECT: "Fe" vs. Climate Change: China's BYD Bets on Batteries in 
Fight Against Global Greenhouse Gas Emissions 
 
REF: GUANGZHOU 612 
 
GUANGZHOU 00000013  001.2 OF 003 
 
 
¶1. (SBU) Summary and Comment:  The answer to climate change may be 
as simple as the chemical formula of a lithium iron phosphate 
battery, according to one ambitious south China company.  Referred 
to simply as "Fe" and already the key component of the world's first 
mass produced plug-in hybrid electric vehicle, top managers at 
Shenzhen-based battery and car manufacturer BYD envision this 
battery technology will have applications that go beyond use in 
electric vehicles (EVs).  Backed by U.S. investor Warren Buffet and 
with annual revenue last year over US$4 billion, BYD not only has 
plans to launch an all-electric vehicle in the near future but is 
also engaged in R&D related to the deployment of "Fe" batteries as 
energy storage devices for use alongside solar panels and wind 
turbines.  In order to achieve its objective to lead the world in 
the production of EVs and EV batteries, BYD will first need to bring 
down battery cost and size, tackle the challenge of weak charging 
infrastructure, and address consumer safety concerns.  BYD 
tentatively plans to offer its e6 all-electric vehicle in the U.S. 
in late 2010 but safety concerns and accusations that the company's 
conventional vehicle designs infringe on foreign copyrights (reftel) 
could result in legal challenges and complicate entry into the U.S. 
market.  End Summary and Comment. 
 
------------------------- ------------------------------ 
PLANS TO BECOME WORLD'S #1 CONVENTIONAL CARMAKER BY 2025 
------------------------- ------------------------------ 
 
¶2. (SBU) BYD's seemingly boundless ambition may be at least 
partially rooted in the company's remarkable achievements in less 
than 15 years of operation.  The list of BYD's accomplishments 
includes becoming the world's largest cell-phone battery 
manufacturers and growing its gasoline-powered vehicle business from 
25,000 vehicles sold in 2005 to 450,000 sold in 2009.  According to 
recent comments made by BYD Chairman Wang Canfu at a gathering of 
consular representatives in Guangzhou, BYD plans to propel itself to 
first position in China's conventional vehicle market by 2015 and 
become the world's largest producer of gasoline-powered vehicles by 
¶2025.  (Comment: One pillar of BYD's success in China's conventional 
car market is a business model that relies on copying with minor 
modifications the designs of foreign carmakers (reftel). End 
Comment.) 
 
--------------------------------------------- ---- 
BYD RACING TO DEVELOP AFFORDABLE ELECTRIC VEHICLE 
--------------------------------------------- ---- 
 
¶3.  (SBU) Adding to its list of accomplishments, BYD became the 
first auto manufacturer in the world to mass produce a plug-in 
hybrid electric vehicle when it launched its F3 dual-mode (F3DM) in 
December 2008.  The company claims the F3DM travels further with a 
single charge, about 68 miles, and costs less, around US$22,000, 
than the plug-in hybrid Toyota Prius and Chevy Volt that are 
expected to hit the U.S. market in late 2010.  During a recent visit 
to BYD headquarters in Shenzhen, a top manager told Congenoff that 
sales of the F3DM had been slow, with only around 100 vehicles sold 
to date, mostly to the municipal government.  (Comment: Media 
reports speculate that slow sales may also be an indication that the 
F3DM's battery performance falls considerably short of expectations. 
 End Comment.)  At the same time, the manager asserted that a recent 
central government initiative to offer subsidies to fleet purchasers 
of plug-in hybrids in 13 cities, including Beijing, Shanghai, and 
Shenzhen, would likely provide a boost to sales.  The manager added 
that the extension of subsidies beyond fleet purchasers, i.e. 
government bureaus and taxi companies, to individual consumers would 
also increase demand, although he conjectured that most 
environmentally aware individuals interested in electric vehicles 
earn incomes that would disqualify them from receiving subsidies. 
 
¶4. (SBU) Not deterred by slow sales of its plug-in hybrid, BYD has 
aggressive plans to move into and dominate the electric vehicle 
market.  Company officials claim that the e6 all-electric vehicle, 
to be initially launched in Shenzhen, will be able to traverse 249 
miles on a single charge, further than any other electric vehicle on 
 
GUANGZHOU 00000013  002.2 OF 003 
 
 
the market or in production.  Although company representatives did 
not specify the price of the e6, published reports place it at 
around US$40,000.  As with the F3DM, the core technology used in the 
e6 will be the "Fe" battery, which uses lithium iron phosphate 
(LiFePO4).  BYD managers claim the "Fe" battery can be charged at 
special "fast-charge" stations to 50% in ten minutes and fully 
charged in about 90 minutes. 
 
¶5. (SBU) The company expects to sell 100 e6 vehicles in the months 
following the initial launch to local taxi companies, with a portion 
of the purchase price to be defrayed by subsidies from the Shenzhen 
municipal government.  A recent Wall Street Journal article 
questioned BYD's ability to launch the e6 anytime soon, claiming it 
had not yet passed Chinese safety tests.  BYD refuted this claim, 
noting that the e6 had passed all safety tests but the firm was 
still waiting for the results to be announced by the National 
Development and Reform Commission (NDRC).  Our contact at BYD 
acknowledged that the e6 launch had been postponed from its original 
date in December 2009, citing a request by the Shenzhen municipal 
government that the e6 vehicle color match that of city taxicabs as 
the reason for the delay. 
 
----------------------------------------- 
CATCH 22: MUST REACH SCALE TO LOWER PRICE 
----------------------------------------- 
 
¶6. (SBU) BYD managers are optimistic about the launch of the e6 and 
the long-term prospects for electric vehicles (EVs).  At the same 
time, company representatives point out that EV manufacturers in 
China still face significant obstacles; namely, achieving scale to 
bring down battery size and costs, the lack of battery charging 
stations, and consumer safety concerns.  The principal challenge, 
according to a high-level BYD manager, is bringing down the size and 
cost of the battery to lower the price.  However, EV manufacturers 
like BYD need to sell more vehicles in order to achieve the scale of 
production that would lower the price. 
 
¶7.  (SBU) Whereas company representatives are confident that 
purchases of EVs by celebrities and environmentally-aware young 
professionals will provide an early boost to sales, BYD is not 
certain these initial sales will be sufficient to reach the scale 
necessary to bring down battery price and attract more buyers.  One 
company manager advocated government subsidies targeted at 
individual EV purchasers and public education to increase 
environmental awareness as the most effective methods for increasing 
sales to achieve scale. 
 
------------------------------------- --------------- 
WEAK BATTERY CHARGING INFRASTRUCTURE, SAFETY CONCERNS 
------------------------------------- --------------- 
 
¶8. (SBU) The lack of battery recharging stations is another 
challenge to the growth of the EV market.  Many urban dwellers in 
China live in apartment buildings and do not have access to an 
outlet where an EV could be charged.  Moreover, in order to charge 
up quickly, EVs like the e6 would need to be charged at special 
"fast-charge" stations, which currently exist only as demonstration 
projects.  An additional challenge relates to consumer perception 
that batteries are unsafe.  This perception stems from reports that 
lithium ion batteries used in consumer electronics like laptops -- 
which have chemical properties similar to the battery used in the 
Chevy Volt and other EVs -- may rupture and explode under high 
temperatures.  BYD representatives contend that the "Fe" battery is 
much safer than traditional lithium ion batteries and that its 
chemical compounds are stable up to 700 degrees Celsius.  They also 
claim that the LiFePO4 battery is more energy efficient and is made 
up of compounds that can be easily sourced locally and recycled. 
 
------------------------------------- ------------------- 
INCREASE VIABILITY OF SOLAR AND WIND, ADDRESS PEAK DEMAND 
------------------------------------- ------------------- 
 
¶9.  (SBU) Given that the transportation sector generates 6% of 
China's total greenhouse gas (GHG) emissions, a large-scale 
 
GUANGZHOU 00000013  003.2 OF 003 
 
 
transition to electric vehicles would represent a significant 
reduction in the country's total emissions.  BYD, however, claims 
that using its "Fe" battery technology to develop energy storage 
devices for use alongside solar panels and wind turbines will make 
an even greater contribution to emissions reduction.  The company 
envisions its batteries could be used as anchors in a smart grid 
network in which solar and wind power are primary sources of energy 
at the neighborhood level.  By storing surplus energy produced 
during high output intervals, batteries could stabilize power 
supplies from renewable energy sources.  According to Chairman Wang, 
BYD is working with China Southern Power Grid to demonstrate the 
energy storage potential of its batteries at a 1 megawatt (MW) 
energy storage station in Shenzhen, and has plans for a similar 
station in Beijing. 
 
¶10. (SBU) Managers at BYD also cite the potential for using stored 
energy in batteries to meet peak electricity demand, which is 
currently supplied by expensive and inefficient supplementary power 
plants that rely on fossil fuels.  Batteries could be recharged 
during off-peak periods, when base load power generation is often 
higher than demand.  As a result, power companies would be able to 
reduce total electricity production, resulting in a substantial 
decline in total emissions. 
 
--------------------------------- --------------------- 
BYD LOOKING TO ENTER U.S. IN 2011, IPR ISSUES A CONCERN 
--------------------------------- --------------------- 
 
¶11. (SBU) BYD intends to offer its e6 model in the U.S. market in 
late 2010 after a one-year trial period in China.  The company also 
has plans to become a battery supplier for U.S. electric vehicle 
makers including GM.  A top manager at BYD told Congenoff that the 
company does not consider itself a Chinese company but instead a 
"dual national" company because of Buffet's large stake.  The same 
manager said that once demand for EVs picks up in the U.S. market, 
BYD has plans to set up a manufacturing plant that will "not only 
create job opportunities but also incorporate local design 
features."  Comment:  Although the e6 will likely compete in terms 
of cost with U.S.-made EVs, widely held concerns that BYD's success 
in the gasoline-powered car market in China is rooted in the 
replication of other carmaker's designs may complicate the company's 
entry into the U.S. electric vehicle market. End Comment. 
 
JACOBSEN