Daimler, BYD Team Up to Develop Electric Cars in China

BYD, the China-based battery giant turned electric car developer, has just struck a deal with Germany’s Daimler (s DAI) to form a 50-50 joint venture focused on researching and developing an electric vehicle for the Chinese market, and launching it “as soon as possible.” The two companies will invest 600 million yuan (about $87.9 million) in the venture under an agreement finalized and announced Thursday morning.

The idea behind this pairing is that the joint venture — dubbed Shenzhen BYD Daimler New Technology Co. — will be able to “capitalize on Daimler’s know-how in electric vehicle architecture and safety,” as well as BYD’s battery technology and electric drive systems. As J.D. Power and Associates analyst Mike Omotoso told us last year, BYD boasts, “a large research capability — they have 3,000 engineers in Shanghai and plan to employ 10,000 more engineers in Shenzhen.” So an automotive partner stands to “get a head start by using BYD’s engineers instead of starting from scratch themselves.”

The vehicle expected to result from this collaboration will be marketed under a new brand jointly created and owned by the German-Chinese duo. Already BYD, which counts Warren Buffett among its backers, has launched a plug-in hybrid model called the F3DM and an electric car named the e6. The F3DM initially rolled out for fleet customers in late 2008, and came in well below the company’s ambitious sales targets for 2009. But BYD started selling it to consumers in March of this year and hopes to launch its electric e6 in the U.S. by the end of 2010.

Daimler has previously touted its registration of more than 600 patents related to battery-powered vehicles over the last three decades, but the company has over the last year or two shown a heightened sense of urgency when it comes to carving out a piece of the nascent plug-in vehicle and battery market — a potentially multibillion-dollar opportunity by the company’s estimates.

The German automaker has set up joint ventures with Evonik Industries to produce lithium-ion battery cells and packs, and last spring took a 10 percent stake in electric car startup Tesla Motors (Daimler later sold a portion of its stake to Abu Dhabi’s Aabar Investments). Just last month Daimler announced a comprehensive partnership with the Renault-Nissan Alliance to share powertrains and architecture for compact cars and light commercial vehicles. Among other projects, the companies plan to cooperate on electric versions of Daimler’s Smart Fortwo (pictured) and explore “opportunities to co-develop technologies related to electric vehicles and batteries.”

Amid all of these alliances taking shape across the electric vehicle spectrum, China holds particular interest. Today’s Daimler-BYD deal comes at a time when China has only recently overtaken the U.S. as the world’s largest auto market, and when the country’s car companies are jockeying to leapfrog legacy automakers that haven’t yet mastered the technology. The Chinese government has put some policies in place supporting greener cars, and it is widely anticipated (according to multiple reports in Chinese media and comments from global automakers) that Beijing will soon establish new subsidies for electric vehicle buyers, possibly by the end of this month.

Daimler Chairman Dieter Zetsche emphasized in a statement Thursday, “the vast potential of electric mobility in China” and said the partnership with BYD, “adds another dimension to our growing presence in this important market.”

Other companies seeking a foothold in the country’s nascent EV market include charging infrastructure startup Better Place, which announced an agreement with China’s Chery Automobile last month to jointly develop electric vehicle prototypes that can have their batteries switched out (as shown in this video demo of a Better Place battery switch station), with the stated goal of securing one of the government’s regional pilot projects for electric vehicles.

Still, hurdles remain for electric vehicles in China, as in markets around the world. Honda’s chief executive Takanobu Ito told Reuters earlier this week, “There needs to be a major breakthrough in battery technology,” adding the forecast that it will take a decade or two before all-electric vehicles become a mainstream choice. At the same time, Ito said, “If there is a suitable chance, we hope to work with China to (develop) batteries.”

Images courtesy of the North American International Auto Show, Daimler and BYD

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