Previously, I introduced the BYD company from its roots as a handphone batteries manufacturer to transform it into an EV company. Can BYD’s most innovative product so far, the blade battery, have the potential of bringing them future business both in-house and as a supplier to other EVs manufacturers? So what is this blade battery?
Blade battery Explained
All the buzz around the blade battery revolve around 1) Low cost and 2) Safety.
Blade battery does not use the costly cobalt and instead, it uses a type of lithium iron phosphate (LFP) battery. This LFP technology isn’t new as it has been around in China for a long time, where it has been used for cheaper cars or electric buses that travel over similar distances regularly. It worked in this scenario as the LFP battery has a low energy density and, hence, a lower range for EVs. Now, however, thanks to the advancements made in battery architecture improving its energy density, the LFP battery is being seen as something that can witness a wider application across automobiles. The Blade Battery has been developed by BYD over the past several years. The singular cells are arranged together in an array and then inserted into a battery pack. Due to its optimised battery pack structure, the space utilisation of the battery pack is increased by over 50% compared to conventional lithium iron phosphate block batteries. Being flat and built into the vehicle frame becoming part of the structure. BYD says the space utilisation is “50% higher than a conventional battery pack”, thereby allowing a 50% increase in range. Tesla also uses LFP batteries for its Shanghai-made Model 3 sedan sourced from Chinese maker Contemporary Amperex Technology (CATL). (More on BYD and Tesla insider story later)
“While undergoing nail penetration tests, the Blade Battery emitted neither smoke nor fire after being penetrated, and its surface temperature only reached 30 to 60°C. Under the same conditions, a ternary lithium battery exceeded 500°C and violently burned. While a conventional lithium iron phosphate block battery did not openly emit flames or smoke, its surface temperature reached dangerous temperatures of 200 to 400°C. This implies that EVs equipped with the Blade Battery would be far less susceptible to catching fire – even when they are severely damaged. This is extremely important as one of the downsides of regular lithium-ion batteries is they are prone to explosions (As in the case of Tesla being reported recently).
In a recent marketing launch in Apr 2021, showcasing a heavy truck pressure test is a BYD safety standard that is more stringent than the national standard. The test itself saw a 46-ton fully loaded heavy-duty truck drive over the Blade Battery pack. The battery successfully passed the test without leakage, deformation or smoke, coming out perfectly intact and ready to be used in their Han EV.
Blade Battery Production
The Blade Battery is produced at BYD’s ultra-modern ‘intelligent’ production facility in Chongqing, China, where the 10 billion yuan (1.3 billion EU) site delivers an annual production capacity of 20GWh (Of which. As announced in Dec 2020, BYD is planning a new factory for electric vehicle batteries with a yearly production capacity of 20 GWh in the city of Bengbu in Anhui province, China. In contrast, Tesla plans to turn the Berlin GigaFactory into the world’s largest battery cell production plant (delayed for 6 months to Jan 2022). CEO Musk said an annual production capacity of up to 100 gigawatt-hours (GWh) was possible, “and then possibly” increase to 200 or 250 GWh. A plant with an annual capacity of 100 GWh alone could produce enough batteries for 1.3 million model Y vehicles with a 75 kWh battery. Based on this, we can extrapolate that with 40GWh capacity, BYD can supply up to 500,000+ EVs with blade batteries in a year.
Making the Blade Battery Sexy
However, a battery is a battery; it is not as sexy as a car. Back in 2011, in a CNBC interview, Elon Musk, CEO of Tesla, insulted BYD when being asked about his view of BYD as its competitor. In a tongue-in-cheek manner, he replied, “Have you seen their cars?”
BYD took offence to this statement, and till today, Tesla is sourcing batteries from all the major lithium batteries manufacturer like CATL, LG Chem, Panasonic, etc., except BYD.
After almost 10 years, BYD finally took revenge in Mar 2020, they launch the blade battery together with the Han EV. Without going into a detailed car review, you can see that Han EV will give Tesla a run for their money! Therefore, it is no surprise upon further research that BYD assembled an elite design team to spearhead the Han EV project. This team comprises Wolfgang Josef Egger (former Audi Group Head Designer), Juan Manuel Lopez (former Ferrari Head of Exterior Design), and Michele Domenico Jauch ( former Daimler AG Director Interior Design). BYD learned that to market the blade battery, it needs a head-turning car to showcase it. Moreover, the specifications of the Han EV is actually on par with Tesla’s best selling Model 3 but at a cheaper price point thanks to the blade battery. (Tesla cut starting price for China-made Model 3 by 8% to USD 37k in Oct 2020 using the CATL LFP batteries to be more competitive to Han EV’s pricing.)
Did the market price in Blade?
We all knew that Tesla stock price soars 740% in 2020 and is one of the best performing stock in the market. Another high-flying stock, NIO, went up more than 1000% in 2020. Investors are betting that EV growth in China will continue and piling into these companies’ shares over the past year. In comparison, BYD price increase by less than 400% during this time.
If we look from a valuation perspective, the Motley fool uses Enterprise Value to Revenue as a matrix and compared NIO, BYD and Tesla as below:
Investors are valuing NIO at 10 times that of BYD when comparing enterprise value to revenue. That metric is also more than twice as high as Tesla’s. In short, if you look at this matrix, BYD is the lowest among the 3. (For EV to Revenues, the lower is consider better)
NIO is currently growing much more quickly than BYD, and investors are assigning value to that growth. NIO’s BEV sales doubled in 2020, while BYD experienced a drop of 11% versus 2019. Including its other products, BYD’s overall sales decreased 7.46% compared to the prior year. NIO sales are off a much smaller base, but it has some promising offerings to continue to close the volume gap.
Investors in NIO have reason to be optimistic about the company’s future. Auto deliveries have ramped up quickly, and the year-over-year comparison numbers are impressive. For the full year of 2020, NIO delivered almost 44,000 vehicles, representing 113% growth over 2019. And NIO reported a 352% increase in January 2021 deliveries compared to the prior-year period. But that still only totalled 7,225 electric cars.
That compares to about 131,000 battery-electric vehicles (BEVs) that BYD sold in 2020. And BYD is not just an EV company. In total, it sold more than 460,000 vehicles for the full year 2020, including other new energy vehicles like plug-in hybrids and commercial buses in addition to fossil fuel-powered vehicles.
In short, I am not saying that BYD is undervalued now. Still, it is relatively cheaper than NIO and Tesla, which currently does not have the revolutionary blade battery (They do have their own merits).
What is Beyond Blade?
Back in Mar 2020, BYD did something that went largely under the radar: it created Fudi. This brand gathers five companies that will sell batteries and EV components to other manufacturers.
BYD create an independent new sub-brand, FinDreams, with five subsidiaries:
- FinDreams Battery
- FinDreams Powertrain
- FinDreams Technology
- FinDreams Vision
- FinDreams Moulding
A separate report in Apr 2021 states (https://www.caixinglobal.com/2021-04-21/byd-spins-off-electric-car-battery-company-with-eye-on-future-listing-101694491.html)the potential of future listing in 2023.
This all become clear in the recent 2021 Shanghai Auto show where BYD announced an all-new e-platform 3.0. Furthermore, BYD adds that the e-platform 3.0 will continue to be open to the industry – other brands. So far, BYD’s solutions were used by Mercedes-Benz (Denza joint venture), Toyota, and Didi Chuxing.
Looking at the timeline of events, since BYD announced the blade battery and Fudi companies, they signed an agreement with Toyota in Apr 2020 to produce EV cars for the local China market. In the meantime, BYD has been preparing for the e-platform 3.0 to be used by other car manufacturers and potential new entries such as Didi (the equivalent of Grab and Uber of China).
The key highlights of the new platform are:
- BYD’s self-developed vehicle operating system (expandable, upgradeable, and fully open to developers)
- key modules are smaller, lighter, stronger, and lower energy consumption
- a new heat pump technology as standard
- cruising range is “10% longer” in winter
- a newly upgraded 8-in-1 module for the drive system
- the overall efficiency increased to over 89%
- power consumption per 100 km (62 miles) is “reduced by 10%.”
- 2.9 seconds from 0 to 60 mph (96.5 km/h) acceleration possible
- a comprehensive cruising range of up to 600 miles (965 km) possible (probably NEDC)
- 800 V battery system
- ultra-fast charging: 5 minutes to give it a range of 90 miles (145 km)
- BYD’s Blade Battery – lithium-iron-phosphate (LFP) chemistry in a cell-to-pack (CTP) system – as standard
- battery pack integrated into the vehicle’s structural design, doubling the torsional stiffness of the body
- redefined design aesthetics of vehicles: “shorter front overhangs, wider wheelbase, lower centre of gravity, more space, sense of movement and dynamics, as well as a drag coefficient (Cd) as low as 0.21.”
Toyota is a big deal in terms of collaboration with BYD, they are the number 1 car manufacturer globally, but due to their heavy focus on fuel-cell vehicles instead of EVs, they are late to the EV game. Therefore, in Apr 2021, Toyota made the following announcement:
It is unclear how much BYD involvement is in these models, but the thing to note is these models are for the global, not just china market! Besides Toyota, BYD is opening up its e-platform 3.0 to other car manufacturers. It has been confirmed by Chinese news sources that FAW and Hongqi (The once luxury automotive company that manufacture cars for high-ranking officials in the 19t) will be using BYD’s blade battery in their e-qm5 all-new EV model from March 2021.
The major draw being the industry-leading blade battery technology enabling a 0 to 100kph acceleration of 2.9s, cruising range of up to 1000km and a fast-charging pace of 5 mins to give 145km. (All Tesla’s beating specs!)
I believe BYD strategy is very different from Tesla. BYD comes from a background of being an OEM battery maker for handphone manufacturers. They are outstanding in scaling production and bringing the cost down based on their R&D abilities. They are also used to supplying to many manufacturers and established a cordial working relationship. This is their playing field, not marketing, which is Tesla’s forte. From what I can see, these are BYD’s chess pieces coming into place:
- Blade battery – industry-leading safe and low-cost EV batteries
- Showcase the blade battery with a few industry-leading models (Han EV being the first of them, four new pure electric models were also launched at the Apr 2021 Shanghai auto show, namely the 2021 Tang EV, Qin PLUS EV, Song PLUS EV, and 2021 e2, all equipped with Blade Batteries.)
- Bundle the blade battery into their e-platform 3.0 solution and offer them to other car manufacturers and partners.
- Dominate the EV market by being a top supplier to the other EV players
Step 4 is what we all need to watch out for. Collaboration in the automotive industry is complex and fluid and sometimes, secretive. However, given BYD’s track record, if any company needs to pull this off, BYD would be it.
Bonus info: As of 11th May 2021, BYD Semiconductor, owned 72.3 per cent by BYD, announced a spinoff in the Shenzhen stock exchange. At stake is the race to make so-called insulated gate bipolar transistors (IGBT), an integral silicon component in EVs power management system that’s at the core of BYD Semiconductor. The electronic switch is dubbed by industry experts the “CPU of an EV” because it reduces power loss and improves reliability. According to market research, it’s the second-most expensive part of an EV after batteries, accounting for around 7-10% of the total cost. The prospects of IGBT production are bright, as the technology not only powers a booming EV industry worldwide but is also used in other high-energy applications, such as air conditioners, refrigerators and high-speed trains. According to the Citic report, the global market for IGBTs is estimated to be near 10 billion yuan ($1.41 billion) in 2020 and quadruple to almost 40 billion yuan by 2025. In 2020, BYD’s IGBT chip wafer production capacity reached 50,000 pieces/month, and it is expected to reach 100,000 pieces/month in 2021, and it can supply 1.2 million new energy vehicles a year. In 2019, in terms of sales, Infineon ranked first in the Chinese automotive-grade IGBT chip market, with a market share of 49.3%, followed by BYD, which mainly supplied its own brand of new energy vehicles and achieved 20% market share. After the spinoff is completed, BYD will still maintain control of BYD Semiconductor, and BYD Semiconductor will remain a subsidiary within the scope of BYD’s consolidated statements. Subjected to the IPO materialising and performance, this may contribute to the balance sheet of BYD positively.