SHANGHAI -- BYD Co. did fabulously well in 2009. The Chinese automaker more than doubled the sales it made the year before. Net income was up 2.7 times over the same period. And its F3 compact was the top selling car in China.
Riding high on this remarkable achievement, the company recently raised its aim and now wants to "become the world's largest automaker before 2025." Navigate to BYD's Web site and you won't miss this mission statement.
As a Chinese, I would love to see an indigenous brand at the top of the world's car industry. Nonetheless, I suspect that BYD has underestimated the challenges ahead of it.
True, many things are now working in BYD's favor. Like other private automotive companies, its labor costs are low and its products have strong price competitiveness. Supported by its proprietary battery technology, the company is well ahead of domestic competitors in electric vehicle development. But BYD faces some daunting hurdles; even if its only goal is to become a truly competitive player on the domestic market, let alone globally.
First, its brand is weak even inside China. Its strategy now seems to be to crank out lookalikes of Toyota models such as the Corolla, and then sell them at less than half the price of the real thing.
That is no way to enter the premier league. To gain a strong foothold on the domestic market, BYD must move upscale. Only then can it crack open the markets of major Chinese cities like Beijing and Shanghai, where it is still comparatively weak. If it wants to do that, the first thing it must do is stop copying the styling of global brands.
Secound, BYD must achieve volume. With production now at 450,000 cars a year, its output is tiny compared to the big international players. And to get there, it will have to deal with a whole host of new challenges.
For one, BYD believes its ability to keep costs down stems from sourcing the majority of components from subsidiaries. But the history of global brands such as General Motors and Ford Motor Co. has shown that doing everything in house only makes sense when a company is small. Once it reaches a certain size, an automaker has to source parts from outside suppliers.
Finally, if BYD wants to become one of the world's leading automakers, it must build a global presence. This is an area where the company still has almost no experience. Last year BYD exported barely 10,000 vehicles, and none of them to mature markets.
BYD has proved itself a fast starter by becoming a leading brand at home only seven years after entering the market. But it still has much to learn.
The massive recalls Toyota is now bogged down in show that excessive ambition and reckless expansion will do more harm than good, even to an experienced automaker.