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INFO RUEHBJ/AMEMBASSY BEIJING 0831
RUEHSH/AMCONSUL SHENYANG 0251
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RUEHBR/AMEMBASSY BRASILIA 0001
RUEHGV/USMISSION GENEVA 0017
RUEHNAG/AMCONSUL NAGOYA 0001
RUEAUSA/DEPT OF HHS WASHINGTON DC 0035
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC 0102
RHMFIUU/DEPT OF HOMELAND SECURITY WASHINGTON DC 0038
RUEATRS/DEPT OF TREASURY WASHINGTON DC 0168
RHMFIUU/DEPT OF JUSTICE WASHINGTON DC 0032
RUCNFB/FBI WASHINGTON DC 0027
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RHHMUNA/HQ USPACOM HONOLULU HI
UNCLAS SECTION 01 OF 07 GUANGZHOU 000612
SENSITIVE
SIPDIS
STATE FOR EAP/CM, EEB/IPE; EEP/TPP; EEB/CIP
STATE FOR INL
STATE ALSO PASS USTR FOR CHINA OFFICE; IPR OFFICE; AND
OCG
STATE PASS White House OSTP Ambassador Richard Russell
STATE PASS FTC for Blumenthal]
STATE PASS CPSC for International Office O'BRIEN
COMMERCE FOR MAC AND MAS
Commerce for National Coordinator for IPR Enforcement
USPTO FOR INT'L AFFAIRS
FBI for LBryant
DHS/ICE for IPR Center - THipelius, TRandazzo
DHS/CBP for IPR Rights Branch - GMcCray, PPizzeck
ITC for LLevine, LSchlitt
NSC for JBader, JLoi
E.O. 12958: N/A
TAGS: ETRD KIPR ECON PGOV CH
SUBJECT: CHINA IPR: CARMAKER BYD SEEKS TO "BUILD YOUR
DREAMS" BASED ON SOMEONE ELSE'S DESIGNS
REF: Guangzhou 314
(U) This document is sensitive but unclassified.
Please protect accordingly. Not for release outside
U.S. government channels. Not for internet publication.
1. (SBU) Summary and comment. Boosted by a major
investment from Warren Buffet and poised to apply its
world-class battery technology to automobiles, Chinese
automaker BYD has been heralded as one of the most
promising carmakers of the future. However, even a
cursory look at the BYD product line reveals that most
of its models draw heavily on the designs of other
carmakers. The letters, BYD, come from the phrase
"Build Your Dreams." With a focus on price
competitiveness, BYD makes it possible for Chinese
consumers to realize dreams of car ownership at
significantly lower cost than similar foreign brand
models. BYD dealers can even help consumers who have
their hearts set on ownership of a foreign brand car.
Right at the dealership, buyers can arrange to have
the BYD brand marks removed from their new BYD cars
and replaced with the brand marks of the similar model
foreign brand.
2. (SBU) Comment continued: While BYD has certainly
achieved a measure of success based on a business
approach of copying and then modifying car designs
just enough to convince Chinese courts that the
company has not infringed on patents, it is far less
certain that foreign courts will be as sympathetic.
Especially as the company eyes overseas markets and
gears up to export its models, including electric cars,
to the United States, the likelihood of legal
challenges related to intellectual property and safety
or liability issues would appear to loom larger and
larger on the horizon. End summary and comment.
The Midas Touch
---------------
3. (U) Chinese carmaker BYD's dealerships in China
prominently display enlarged pictures of a smiling,
elderly foreigner shaking hands with BYD's 43 year-old
Chairman Wang Chuanfu. So there is no mistaking the
identity of the pictured foreigner, beneath the
picture is a caption explaining that the foreigner is
none other than billionaire investor Warren Buffet.
Buffet's decision to buy a 10 percent share in BYD,
GUANGZHOU 00000612 002 OF 007
based on expectations that the company is poised to
parlay it's expertise in making cell phone batteries
into becoming a world-wide leader in electric cars,
sparked massive interest and investment in the company.
BYD share prices increased by five-fold making
Chairman Wang, with assets estimated in excess of 35
billion RMB (or over US$5.1 billion), the "richest"
person in China according to the Hurun business report.
4. (U) If there is anything to the investment frenzy
and the media hype, Shenzhen-based BYD is poised to
become the world's leading manufacturer of electric
cars and a major manufacturer of conventional cars
(see reftel). Headquartered in Shenzhen, the
company's car manufacturing facilities are located in
Xian. With sales increasing rapidly in China, the
company is beginning to focus on overseas sales. This
year the company launched its first major advertising
drive in the U.S. The ads feature California Governor
Arnold Schwarzenegger test driving a BYD e6 electric
model. BYD also hopes to export the hybrid model of
its F6 to the United States. Domestically, BYD is set
to launch a Chinese version of the low-cost Indian
TATA's Nano with a projected retail price of less that
RMB 20,000 (just under US$3,000). BYD claims it will
be the "cheapest car on earth" and expects it to gain
exceptional popularity in rural China. Chairman Wang
claims his company will surpass Toyota in terms of
turnover and net assets by the year 2025.
Darker Side to the BYD Story
----------------------------
5. (SBU) Like many of China's homegrown automobile
manufacturers, the BYD conventional car manufacturing
model is based on closely copying successful foreign
car models - thus eliminating the need for costly
spending on design and functional testing. BYD's
current line up includes gasoline-engine models that
very closely resemble the Toyota Aygo, Toyota Corolla
EX, Toyota Camry, the Toyota Previa, and the Mercedes
CLK240 convertible. One model incorporates the rear
design from the Buick Excelle HRV hatchback, while
other models incorporate, separately, a Peugeot 206CC
tail design or a Honda Civic tail design. In many
instances, the interiors, as well, match the cars from
which they were copied. BYD has made some minor
modifications in some of the car designs and, in other
cases, as noted above, has combined the design
features of a several foreign models into one car
GUANGZHOU 00000612 003 OF 007
(BYD's F3 model has a Toyota Corolla front, a Buick
HRV hatchback rear, and a Mitsubishi engine). Still,
many of the BYD cars bear a remarkable resemblance to
the foreign models on which they were patterned, with
almost identical size specifications for copied parts.
Where BYD models differ - and differ significantly -
is in price. BYD models are at least 30% cheaper
than the foreign brand model on which they are based,
while some models are two or three times less
expensive.
6. (SBU) Comment: The copied designs are modified
just enough that BYD apparently feels confident that
they can withstand intellectual property infringement
cases in Chinese courts. For a young company, BYD has
considerable experience in the area of intellectual
property rights violations. In 2008, Taiwan-based
Foxconn filed a lawsuit against BYD alleging that the
company had stolen thousands of classified technical
documents that BYD claims "accidentally" ended up on
BYD's development plan. BYD also lured 400 of
Foxconn's highly-trained technicians to switch
employers. Foxconn claimed damages in excess of 10
billion NTD (US$307 million) and says BYD's actions
have inflicted revenue losses of 85%. End comment.
The Costs and Risks of Price-Cutting
------------------------------------
7. (U) Price competitiveness stands as BYD's primary
selling point. Industry analysts say the company
sells cars at exceptionally low profit margins. One
online marketing source claims that BYD is currently
selling their F0 model at a profit of less that RMB
1,000 (US$146) per car. The pressure to keep costs low
apparently applies throughout the production process.
Another online source reports that the average monthly
salary for a BYD employee is RMB 4,000 (US$586) -
lower than the average salary of other automobile
manufacturers in China. Others note that the BYD
models generally have older-style motors. BYD's F3
and F6 come equipped with an older Mitsubishi 4G15S
engine manufactured by Dong'an, a company in Shenyang.
Mitsubishi no longer uses the 4G15S engine model in
its own cars. Some analysts claim that BYD saves
money by eliminating spending on safety testing.
According to online sources, BYD claims that the F0
received a China Consumer Association (C-NCAP) five-
star (highest) rating were rebuffed by the C-NCAP,
which told reporters that it had not yet tested the
GUANGZHOU 00000612 004 OF 007
BYD F0 at that time.
8. (SBU) A rough inspection of the finished BYD car
interior and exterior features - even to the
unseasoned eye - suggests that there are differences
in the quality and workmanship of the BYD cars and the
models that they imitate. The BYD models tend to have
larger gaps and less-refined fits between different
parts of the cars, and some of the interior fittings
appeared rougher and less finished. Because most of
the BYD models weigh significantly less than their
competing models, some analysts suggest that it is
likely that BYD utilizes more plastic instead of steel
parts or utilizes a lighter grade steel in order to
cut costs, increase fuel efficiency, and reduce the
cost of repair parts. Comment: While some of these
cost-cutting measures may work in the Chinese market,
it is unlikely that they will receive a similar
welcome in more safety-conscious and litigious
countries. Even in China, some purchasers have
complained of sub-standard workmanship in their BYD
cars, and several news reports cite fatal mechanical
failures and air bags that have failed to inflate in
BYD cars. End comment.
Building Your Dream Q BYD Style
-------------------------------
9. (SBU) Like car buyers everywhere, Chinese consumers
are very price conscious. This appears to be
especially true for the growing number of first-time
car buyers. Notwithstanding the marketing onslaught
of foreign car brands, many buyers simply want the
best deal. For buyers who had their hearts set on
buying one of the foreign brand automobiles but find
them too pricey, BYD has a "convenient" solution.
It's possible to arrange, right at the dealership, to
have all of the BYD markings on your look-alike BYD
model removed and replaced with the foreign brand
markings. At several dealerships in Fujian Province,
ConGenOff was told that for only 600 RMB (US$88), all
of the BYD marks, symbols, and model plates on a BYD
F3 could be replaced with Toyota symbols. It costs
slightly more - up to 800 RMB (US$117) - to have the
markings replaced on BYD's more expensive models. One
enthusiastic sales person proudly directed ConGenOff
to a wall display in the sales office that was filled
with snapshots of new BYD owners standing in front of
their new BYD cars Q a number of which the brand
markings had already been changed. Another
GUANGZHOU 00000612 005 OF 007
salesperson showed ConGenOff a just-sold car parked in
front of the BYD show room on which the brand markings
had just been changed. For all appearances, in style,
form, shapeQand brand markingsQthe BYD car looked like
a Toyota.
How Many Fake Toyotas are on the Road?
--------------------------------------
10. (U) According to online media reports, BYD has
over-reported F0 and F3 sales in order to mislead
consumers as to the popularity of BYD vehicles.
According to information provided by BYD to the China
Automobile Association, the company sold over 51,000
F3 cars in the first half of 2007. However, according
to the Public Security Bureau's Traffic Administration
Authority (the agency responsible for registration and
licensing of automobiles in China), only 30,000 F3
models were licensed during the same period. Comment:
Since the registration paperwork clearly indicates
that the vehicle make is BYD, it is unlikely that re-
branded BYD models were registered as some other make.
End comment.
The BYD Line-up
---------------
11. (U) BYD F0 - The BYD model F0 closely resembles
the Toyota Aygo, except for slight modifications in
the design of the headlights, rear lights, and rear
fender. The basic package of the car, excluding sales
taxes, retails for RMB 36,900 (US$5,400). Although
the Toyota Aygo is not currently available in China,
in Britain, it retails for the equivalent of RMB
69,600 (US$10,192). BYD expects to sell over 100,000
of the F0 in 2009 and claims the design has been
sufficiently modified to preclude IPR-related
challenges if and when the car is exported to Europe.
12. (U) BYD F3 and F3-R Q Except for its Honda Civic-
like tail design, the BYD F-3 looks almost identical
to the Toyota Corolla EX. The BYD's basic package
price of RMB 59,800 (US$8,757) compares very favorably
with the Corolla's basic package price of RMB 99,800
(US$14,614). The People's Daily online statistics on
car sales suggest that the sharp growth in the sales
of the BYD F3 has undercut sales of the Toyota Corolla
EX in China. Sales of the Toyota Corolla EX model
peaked at 80,100 units in 2006 and fell to 52,247 in
2008. On the other hand, BYD claims to have sold
42,000 of its F3 models in 2006, but this number
GUANGZHOU 00000612 006 OF 007
jumped to 136,782 in 2008. In the first half of 2009,
BYD sold almost five times more F3 model cars than
Toyota sold of the Corolla EX. The F3R model retains
the Corolla-like front but utilizes a Buick Excelle
HRV hatchback-like rear design. Whereas the Buick
Excelle HRV basic package costs RMB 112,800
(US$16,518), the F3R basic package costs only 59,800
(US$8,757).
13. (U) BYD F6 Q Built to appeal to higher-end buyers,
the F6 combines a Lexus LS460 (2006 model) front with
a Mercedes S300 tail and has sides, doors, and overall
dimensions that are almost identical to the Toyota
Camry. The car comes with a DVD player/GPS, Bluetooth
telephone port, extra-large sunroof, leather seats and
rear radar for backing up. Analysts say that F6 sales
have doubled in 2009, with BYD hoping to sell 50,000
by the end of the year. The BYD F6 basic package is
set at RMB 79,800 (US$11,685). By comparison, the
Toyota Camry is priced at RMB 189,800 (US$27,793).
14. (U) BYD M6 Q BYD's only multi-purpose vehicle, the
M6 was apparently copied, almost in entirety, from the
Toyota Previa. The design of the M6 and the Previa is
so close, that without seeing the brand markings, it
is hard to tell the two models apart. Whereas the
basic package price for the imported Previa is 469,800
RMB (US$68,794), the BYD M6 sells for approximately
200,000 RMB (US$29,287).
15. (U) BYD S8 Q With a price tag averaging RMB
200,000 (US$29,287), the BYD S8 convertible is one of
BYD's most expensive products. From the front, the
car bears a remarkable resemblance to a Mercedes
CLK240 convertible. From the back, however, the car
looks a lot like a Peugeot 206CC. Compared the
Mercedes' basic package 598,000 RMB (US$87,568) price
tag, the BYD basic package appears to be quite a
bargain at 165,800 (US$24,279). Dealerships visited
by ConGenOff did not have the car in stock; sales
representatives noted that the car had to be ordered
from the factory.
16. (U) BYD G3 Q Officially launched on October 26 of
this year, the G3 front and interior appear to be
based on the newer model Corolla design, while the
tail resembles the Lexus ES350. Although the newer
model Corolla retails for RMB 127,800 (US$18,714), the
new G3 sells for only RMB 76,900 (US$11,261).
According to online analysts, BYD has a number of new
models in development including two SUVs: BYD's S6 is
reportedly based on the Toyota RAV4 and the Lexus RX,
GUANGZHOU 00000612 007 OF 007
while the BYD T6 is based on the Porsche Cayenne. For
the visually oriented, Consulate Guangzhou has posted
on its blog, South China SEZ, pictures of the BYD cars
along with the foreign brand cars on which the BYD
cars are modeled. Please see QBYD Picture Report
link on the blog at
http://www.intelink.gov/communities/state/sou thchinase
z/
GOLDBECK