Spoiling "The Soul of Engineers of BYD", The Triple Destiny of Wang Chuanfu

Written by Han Yongchang and Wang Zhaopu

Edited by Zhang Bowen

Few people know that BYD almost became the second SMIC.

In 2001, Wang Chuanfu intended to acquire a 6-inch chip factory in Madrid, Spain. However, due to the "9/11" terrorist attack, the acquisition process was forced to be interrupted.

In the following year, a semiconductor wafer factory in Silicon Valley caught BYD's attention. Led by Li Ke (now BYD's vice president), a team including Xia Zhibing (former BYD vice president), Luo Ruzhong (chief engineer of BYD Automotive Electronics Division), and others went to the United States for negotiations.

The house was rented, and the cooking utensils were bought, ready to settle down and make a great effort. However, at that time, a new industry policy was introduced in the United States, and the acquisition failed again.

Wang Chuanfu's two attempts to enter the chip manufacturing industry were unsuccessful, while the automotive track that was simultaneously laid out made new progress. It only took BYD three months from contacting Qinchuan Automobile to completing the acquisition.

When BYD acquired Xi'an Qinchuan Automobile, no one was optimistic about BYD's entry into the automotive manufacturing industry. Even Munger raised objections, and some fund managers even threatened: "If BYD insists on the acquisition, we will sell the stocks until it collapses!"

However, Wang Chuanfu was firm, "I will be engaged in the automotive industry for the rest of my life."

From taking over Qinchuan Automobile, introducing shareholder Buffett, to assisting in mask production during the COVID-19 pandemic, Wang Chuanfu's fate has been full of twists and turns. But BYD has not let Wang Chuanfu down.

BYD F3, the world's first plug-in hybrid vehicle F3 DM, Qin PLUS, Han EV, Tang DM-i, Yangwang U9, Fangchengbao Bao 8, Denza Z9GT, generations of vehicle models have been rolled off the production line by BYD's engineering team. BYD has experienced its darkest moments and also ushered in its current glorious era.

The offline ceremony of BYD's 10 millionth new energy vehicle was held in Shenshan Xiaomo Port. The car roll-on/roll-off ships here can load nearly 2,000 vehicles each time and are transported to Southeast Asian countries such as Singapore, Vietnam, and Indonesia. After becoming the leader of new energy vehicles in China, BYD is embarking on an overseas expansion.

BYD's success lies in its engineer culture and its fullest utilization of China's population resources.

In 2021, BYD had more than 280,000 employees. In 2022, the number doubled to approximately 570,000. In 2024, BYD's employee count is nearly one million. The large number of production and R&D personnel gives this company an unparalleled manufacturing capability.

BYD's production and R&D team can manufacture vehicles, batteries, production lines, and even light industrial products. During the epidemic, BYD became the world's largest mask manufacturer in just 24 days.

In the past three years, BYD's annual sales have increased from 730,000, 1.86 million, and 3.02 million to possibly exceeding 4 million this year. In the midst of crazy expansion, BYD's manufacturing capability has been repeatedly verified.

The biggest competitive barrier in the manufacturing industry is scale. BYD sells millions of vehicles every year. If even a single screw is difficult to supply, it will affect the overall situation. Of course, if a component can save a few yuan, it is also a profit of tens of millions.

On the occasion of its 30th anniversary, BYD officially launched the only officially authorized book, "The Soul of Engineers".

"The Soul of Engineers" Cover

This book is published by CITIC Press, documenting the various aspects of BYD from its establishment to the present, as well as Wang Chuanfu's management philosophy. 36Kr has pre-selected some key chapters from the book, attempting to unveil the mystery of this company.

1. Important Moments of Destiny

The Attempt to Acquire a Chip Factory

Few people know that before entering the automotive industry, BYD almost entered the chip manufacturing field.

Wang Chuanfu paid attention to the chip industry in the early 21st century. Because BYD was engaged in the electronics industry and clearly understood the value of chips, he found some papers on the technical principles of chips to figure out how they were made. He believed that chips were extremely important components in mobile phones, with high technical barriers, high value, a large market space, and few Chinese enterprises capable of manufacturing them. It was a good industry choice.

On September 11, 2001, Wang Chuanfu appeared in Madrid, Spain, with the intention of acquiring a local 6-inch chip factory. While retrieving his luggage at the airport, he heard everyone discussing the "9/11" terrorist attack. Instantly, people were in a state of panic, and the acquisition process was thus forced to be interrupted.

In 2002, Shu Xixing of BYD's US branch received a task. The company asked him to see if they could acquire a chip manufacturing factory in the United States. At that time, the US Internet bubble had burst, and the semiconductor industry was in a crisis due to insufficient demand.

Most semiconductor companies in the United States are in Arizona, Silicon Valley, and cities such as Seattle and Portland. After screening in these places, Shu Xixing found that a semiconductor wafer factory of ADT (an American security company) in Silicon Valley was more suitable. After reporting to the company, he began renting houses and buying cars in Silicon Valley to prepare for the subsequent matters.

Xia Zhibing and Luo Ruzhong in Shenzhen were also sent to the United States. The entire team was led by Li Ke, and they went to Silicon Valley every day to negotiate with two or three representatives of the other party. The house was rented, and the cooking utensils were bought, ready to settle down and make a great effort.

Unfortunately, due to a new industry policy introduced in the United States, the acquisition failed.

Taking Over Qinchuan Automobile

In the second half of 2002, Wang Chuanfu's business trips increased, especially to Beijing. Every weekend, he visited automotive mold factories, automotive design institutes, automotive engine factories, etc., and communicated with professionals, sometimes chatting until midnight. Ji Xiaoping of BYD's Beijing Office said, "He is obsessed with automotive technology. When talking about cars, his eyes shine."

After gaining some understanding, he believed that the essence of the manufacturing industry is cost and quality. BYD can meet the strict requirements of Motorola and Nokia, reaching the level of Six Sigma. Manufacturing cars is not a problem.

Wang Chuanfu also visited automotive factories in the United States and Japan. He calculated an account: To manufacture 1 ton of molds, it costs 80,000 yuan in Japan, but only 20,000 yuan in China. The cost is 1/4 of that in Japan, and China has a 400% cost advantage in mold manufacturing.

On October 7, 2002, Wang Chuanfu met Ji Yongzhao, the then director of Qinchuan Machinery Factory. When he learned that Wang Chuanfu intended to manufacture cars, he introduced the situation of Qinchuan Automobile, which was jointly held by Qinchuan Machinery Factory and Shaanxi Investment Group, and invited him to Xi'an for an inspection.

Ten days later, Wang Chuanfu, along with Wu Jingsheng, the then CFO of BYD, and Fang Fang, the person in charge of procurement, came to Xi'an. Li Yongzhao took them to Qinchuan Automobile for on-site inspection and introduction, and they met Yang Youzhuang, the then chairman of Qinchuan Automobile.

When discussing the acquisition, Yang Youzhuang felt very surprised. Although Qinchuan Automobile had discussed cooperation with internationally renowned enterprises such as Mercedes-Benz, Fiat, and Suzuki, and had in-depth contacts with domestic automotive enterprises such as Brilliance and Haima in recent years, he never thought that BYD, which was unknown in the automotive industry, would come to discuss the acquisition.

Yang Youzhuang did not know how to respond, but just smiled and said, "Young man, I have been in the automotive industry for a long time. To manufacture cars, new technologies and large investments are required. It is not an easy task." Wang Chuanfu said, "I can be engaged in the automotive industry until I am 80 years old. Give me several decades, and I will definitely make a name for myself! If I can't do it well, it means I really have no ability."

Not long after, Wang Chuanfu went to Xi'an many times to understand the situation. Liu Zhenyu, the then general manager of Qinchuan Automobile Company, had received many people who came to discuss the acquisition, "Fake, real, and middlemen, all kinds of people." In the end, he found that Wang Chuanfu, who had no manufacturing experience, came to the factory the most times and loved to ask questions about the cars themselves.

Seeing his sincerity, Liu Zhenyu opened his heart to him. He also told Wang Chuanfu: Qinchuan Automobile has some debts, but there are no bad debts. The net profit in 2002 was more than 700,000 yuan; it has an annual comprehensive production capacity of 50,000 sedans; at the end of 2000, the "four major processes" production line was completed, with nearly 1,000 employees, including nearly 100 intermediate or above engineers and technicians. Many people participated in the development of Fuleir, and Fuleir was designed by Qinchuan Automobile itself without using other people's vehicle models. Wang Chuanfu highly agreed with this independent approach.

On January 22, 2003, BYD signed acquisition agreements with Shaanxi Investment Group and Qinchuan Machinery Factory respectively to establish BYD Automobile. After signing the contract, BYD immediately paid the 269.5 million yuan investment as agreed.

It only took three months from the initial contact to the completion of the acquisition. After the acquisition, the staff of Qinchuan Automobile remained unchanged. Liu Zhenyu remained as the general manager, and Li Yongzhao later served as an independent supervisor of BYD for many years and was elected as the chairman of the eighth监事会 in 2023. He recalled, "In the eyes of the shareholders at that time, Qinchuan Automobile was a hot potato, but no one expected that he (Wang Chuanfu) could do so well."

Just before the signing of the agreement, when the two sides met, Xia Zhibing was still persuading Wang Chuanfu: "Should we try to reduce the price by another 20 million yuan?" He evaluated the assets of Qinchuan Automobile and believed that the acquisition price was too high. Later, he reflected: "If I were to make the decision, we wouldn't be able to enter the automotive industry. Mr. Wang is very clear that what we are buying is the qualification to enter this industry.

Buffett's Investment

In 2002, BYD shares were listed. Li Lu, the founder of Himalaya Capital, met Wang Chuanfu for the first time through Ji Ke in the United States. In a hotel next to Chicago Airport, the two peers had a simple meal and talked for several hours.

Wang Chuanfu answered the questions that Li Lu cared about, including how to conduct reverse innovation, how to use a different method from Japan to produce batteries of the same quality, and so on. Li Lu was extremely shocked. He felt that no one dared to think like Wang Chuanfu, let alone be able to achieve it.

After the conversation, Li Lu purchased some BYD shares. Soon, the investor Charlie Munger entrusted a portion of his family funds to Li Lu for management. The funds of the Munger family were also invested in BYD through the Himalaya Capital fund. Thus, Wang Chuanfu got to know Munger.

"When BYD acquired Xi'an Qinchuan Automobile, Munger raised objections. He advised Wang Chuanfu, 'Don't do stupid things. Continue with the good business you already have.' However, 'He (Wang Chuanfu) ignored us and just went ahead and did it.' Later, Wang Chuanfu really made cars, which made Munger highly appreciate him.

In 2008, Munger called Warren Buffett, the founder of Berkshire Hathaway, to persuade him to invest in BYD. Munger said, "We must invest in BYD. Wang Chuanfu is even more powerful than Edison!"

Buffett said, "Just this alone is not enough for me to invest."

Later, Munger also said that Wang Chuanfu was like Jack Welch, with a strong sense of purpose and the ability to turn ideas into reality. He even said, "If you don't invest in him, you will miss a Henry Ford, a Thomas Edison, a Bill Gates, and a Jack Welch."

Under Munger's recommendation, Buffett decided to invest 500 million US dollars in BYD. This amount of money could buy 20% of BYD's shares at that time. However, Wang Chuanfu believed that the investment scale was too large and there was no need to dilute the equity of the management team for this reason, so he rejected Buffett.

In August 2008, when Buffett was interviewed by CNBC's "Squawk Box" about his investments in China, he mentioned that a Chinese company had recently rejected his investment. However, he did not disclose which company it was, only stating that "It is a very good sunrise industry."

Shortly after, BYD proposed a new plan to issue approximately 10% of its shares to Berkshire Hathaway's MidAmerican Energy Company.

At around 4 or 5 p.m. on September 25, 2008, Li Qian, the then manager of BYD's Investor Relations Department, received a call from Wang Chuanfu, saying that there would be a conference call with the Buffett team at night. On BYD's side in Shenzhen were Wang Chuanfu, Wu Jingsheng, Xia Zhibing, and Li Qian, and on the US side was Li Ke.

The conference call started punctually at 9 p.m. BYD presented its proposal, and the Buffett team said, "OK, we respect your opinion." The acquisition price was set at 8 Hong Kong dollars, taking the integer based on the previous day's closing price of 8.04 Hong Kong dollars. That was the decision.

This day was Thursday. Li Qian and the lawyers from both sides drafted the agreement, staying up all night. They had to keep it strictly confidential because if the news leaked and caused the stock price to rise on Friday, the transaction might fail.

Throughout Friday, Li Qian was in a highly tense state. At 10 a.m., he received more than 20 fund managers organized by Hong Yuan Securities and accompanied them for half an hour. On this day, the stock price of BYD shares remained stable as usual. After the market closed at 3 p.m., Li Qian felt relieved.

On September 26, 2008, the two sides reached an agreement. MidAmerican Energy subscribed for 225 million shares of BYD Company Limited at 1.8 billion Hong Kong dollars (approximately 230 million US dollars), accounting for 9.89%.

At the 2024 shareholders' meeting, when Buffett talked about the past with his old friend Munger, he said, "When making investment decisions, Munger only slapped the table with me twice and told me to 'Buy, buy, buy'. One was to invest in BYD, and the other was to invest in Costco. At these important moments of investing in these two companies, Munger was right."

2. The Secret of Success - Manufacturing

We Must Produce Masks!

At 0:27 a.m. on January 31, 2020, Wang Chuanfu issued an order in the WeChat direct management group: BYD must quickly produce masks! We should solve the urgent needs of the government and enterprises. "Please have each business division carefully study whether the mask production can be completed within two weeks. Those who complete the task will be awarded the President's Award!"

On February 8, BYD officially announced that in order to better cope with the critical period of epidemic control, the company would allocate resources to support the production of masks and disinfectants.

At that time, Gong Qing, the then general manager of the New Materials Division, had led the team to complete the research and development of medical-grade hand sanitizer gel. One week later, the product was mass-produced and delivered.