If the American car manufacturers make it through the downturn without going bankrupt, the fight for survival will only have just begun. China is set to turn out the next wave of electric vehicles and sell them cheaper than anyone else.

Started in 1995 by Wang Chuan-Fu in Shenzhen, BYD (the letters are the initials of the company’s Chinese name and stand for Build Your Dreams in English) is using cheap and plentiful Chinese labor, new technology, and hard work to enter and most likely shake-up the automobile industry. The story begins when Wang, a chemist and government researcher, raised money from relatives and rented out some space to domestically produce batteries to compete with expensive imports from Japan. Five years later, BYD had become one of the world’s largest manufacturers of cellphone batteries. From that point, it was only logical to expand into the burgeoning electric car market given the company’s battery background. But instead of paying hundreds of thousands of dollars for sophisticated Japanese robots and machines, Wang took advantage of the enormous Chinese labor pool and hired migrants to do the same tasks inexpensively. According to a cover story in Fortune magazine,

BYD has now begun selling a plug-in electric car with a backup gasoline engine, a move putting it ahead of GM, Nissan, and Toyota. BYD’s plug-in, called the F3DM (for “dual mode”), goes farther on a single charge – 62 miles – than other electric vehicles and sells for about $22,000, less than the plug-in Prius and much-hyped Chevy Volt are expected to cost when they hit the market in late 2010. Put simply, this little-known upstart has accelerated ahead of its much bigger rivals in the race to build an affordable electric car. Today BYD employs 130,000 people in 11 factories, eight in China and one each in India, Hungary, and Romania.

Wang doesn’t hesitate in showing off the environmental credentials of his company. As the Fortune article explains, “…BYD wants to make its batteries 100% recyclable. To that end, the company has developed a nontoxic electrolyte fluid. To underscore the point, Wang poured battery fluid into a glass and drank it. ‘Doesn’t taste good,’ he said, making a face and offering a sip to Sokol [chairman of a Berkshire-owned utility company called MidAmerican Energy and investor in BYD]. Sokol declined politely. But he got the message. ‘His focus there was that if we’re going to help solve environmental problems, we can’t create new environmental problems with our technology,’ Sokol says.”

For China, the electric car market represents not only a way to enter a market long dominated by the U.S., Japan, and Europe but a way to ween itself off imported oil. An already coal hungry China switching to electric cars will only increase the pollution from power plants in the short term as the country continues its breakneck growth. The grid, however, gets greener over time as more and more renewable sources of power come on line. With China aggressively growing its solar, hydro, wind and even nuclear industries, pollution should eventually start to decrease. In fact, China’s push into green technologies should help them become more affordable and practical and competition brings down costs and spurs innovation. One thing is for certain, however. The American car manufacturers have their work cut out for them.

- Justin Manger