Not producing fuel vehicles, BYD still has a traditional taste

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Text / Yan Zhangpan

Source/DataVision (ID: ycsypl)

The market is definitely divided on BYD.

On August 29, BYD announced a mid-year report with the highest profit since its listing. On August 30, the Hong Kong Stock Exchange reported that Buffett had reduced his holdings of BYD for a total of about 18 million shares for the first time after holding it for 14 years. information.

In contrast, at the end of the first quarter, only 473 funds held BYD. At the end of the second quarter, including a group of star fund managers, held 1,523 public funds, holding a total of 9.94% of the outstanding shares. And the Economic Daily issued an article saying that “there is no need to over-interpret Buffett’s reduction in BYD.”

So how did the differences arise?

Focusing on BYD’s mid-year report, Wang Chuanfu has high hopes for the car-making business. With its sales hitting record highs, it has taken the banner of profitability. The auto-related business contributes more than 80% of the net profit attributable to the parent, and its sales volume ranks first in the world. , but the gross profit margin is not only lower than the ideal of one of the new car-making forces that have not yet made a profit, but also far lower than Tesla.

Although it is the only one that makes money among the domestic new energy car companies, the net profit rate attributable to the parent is only 2.4%, and Tesla next door may have 16%.

Why can BYD stand out from the battle of new energy car companies? And why are gross profit margins and net profit margins so low? This article will try to give the answer.

first half victory

After the announcement of this interim report, I wonder if Wang Chuanfu’s waist straightened a little bit.

In the first half of 2022, BYD’s net profit attributable to its parent was 3.595 billion yuan, which is the peak of profitability since its listing. Especially in the second quarter of this year due to the impact of the epidemic on the supply chain and delivery, BYD was able to reverse the profit. increased momentum.

The core reason may be one: BYD, which completely ditched the fuel car, went into battle with light equipment, and improved profitability through the scale effect brought by the “sea of ​​vehicles” tactics.

BYD’s core business is divided into two parts, namely the mobile phone business related to consumer electronics, and various automobile-related businesses including complete vehicles and batteries.

In the past few years, BYD’s profits have mainly come from the former, while the latter has been highly expected by BYD, but its contribution to profits has not been obvious. Earn money”; “Selling a car only earns running water, not money”.

However, in this financial report, the auto business finally took the lead, and the auto-related business contributed a net profit of 3.18 billion attributable to the parent, accounting for about 88.4%. According to estimates, in the first half of the year, BYD’s net profit per bicycle reached about 4,600 yuan, far exceeding the level of about 800 yuan in the same period last year. Wang Chuanfu finally ushered in BYD, which has a car to sell and makes money.

During this period, BYD’s biggest change was to completely stop production of fuel vehicles and become a pure new energy vehicle company.

In terms of monthly sales, BYD’s new energy vehicles have exceeded 100,000 units for 6 consecutive months, and the sales in August exceeded 170,000 units, which is a lot higher than the sales of some “new forces” in one year. cut.

In terms of total sales, BYD’s sales of new energy passenger vehicles from January to August exceeded 940,000 units, a year-on-year increase of 274%; it has successfully defeated Tesla to sit on the throne of global sales of new energy vehicles. BYD’s sales of nearly one million are 13.6 times, 10.8 times, and 12.9 times that of Wei Xiaoli, respectively.

And, limited by production capacity, BYD has more than 700,000 orders in hand.

As we all know, under the support of multiple factors such as “carbon neutrality”, “high oil prices” and government preferential policies, new energy vehicles have gradually become the preferred choice of consumers, and China has the highest penetration rate of new energy vehicles in the world. nation.

So now the cake is there, but why is BYD getting the biggest piece?

Because he has the most forks. In other words, BYD’s product line layout is the most complete, relying on the tactics of the sea to win.

In the low-end market, if you like a mature and stable style, BYD has the Dynasty series to match, and if you like sports fashion, BYD has the Ocean series to match. In the mid-to-high-end market, BYD also has a Denza that can match with Daimler, with a price range of 350,000-660,000; and the upcoming ultra-high-end brands, with a price range of 800,000-1.5 million.

In short, only if you don’t need it, you can’t give it without BYD.

The current electric vehicle market is in a period of growth dividends. BYD’s car sea tactics have maximized coverage of consumers at all levels, and can maximize the enjoyment of growth dividends. The mid-year report also proves this.

Of course, having a car to choose from is just an entry. The key is that every BYD car must be good enough to sell.

Basics of Sea of ​​Vehicles Tactics

The key comes to the vertical integration model.

In the automotive industry, vertical integration is vertical integration, which is roughly equivalent to self-sufficiency of components. The most representative is the first-generation car king of the last century – Ford.

Vertical integration brings strong manufacturing capabilities to Ford. The Rouge River assembly line can produce a Model A in an average of 49 seconds. The great success of Ford’s efficient production method has become the first generation of automobile kings, and now Wang Chuanfu has carried it forward.

At present, BYD has achieved a vertically integrated self-developed structure from vehicle manufacturing to battery, motor, and electronic control technologies, to automotive power chips and components, and even to the frame, air conditioner, airbag, door handle, etc. , steering wheel, etc., can be self-sufficient. [4]

Vertical integration not only brings BYD the above-mentioned hard-core three-electrical strength and platform-based manufacturing capabilities, but also brings supply chain security and ensures the stable implementation of the vehicle sea tactics.

The best example is the sudden outbreak of the epidemic in Shanghai in March this year, and the automotive supply chain ushered in a big test.

According to incomplete statistics, there are more than 600 auto parts companies above designated size in Shanghai. If small and micro enterprises are added, there are more than 20,000 auto parts companies in Shanghai. The sudden epidemic has brought Shanghai, the second largest automobile production base in the country, to a standstill.

On April 9, NIO announced the suspension of production of the whole vehicle, forcing the founder to complain in his own app; Xiaopeng, the new car that was originally scheduled to be released in April, began to delay the release; on April 20, Ideal was also in its own app. It issued a notice that due to supply chain problems, the production in April was greatly affected, resulting in delays in the delivery of new cars to some users.

Car production involves tens of thousands of parts. The process of producing a car by an OEM is like riding a Lego. Without any of them, a car cannot be completely assembled.

As a result, supply chain issues quickly spill over to vehicle deliveries. In April, Xpeng, NIO, and Ideal deliveries dropped by nearly 40%, 50%, and 60% month-on-month, respectively.

On the other hand, BYD, benefiting from the vertical integration model, not only achieved a month-on-month growth in sales, but also took the lead in market share in April with the assistance of major manufacturers.

To put it simply, BYD’s vertical integration model enables it to build an electric vehicle, which not only realizes that most of the components are almost self-developed and self-produced, but also enables it to have super-strong manufacturing capabilities, which can be easily dealt with. Different parts requirements for different models.

The current electric vehicle market is in a period of growth and dividends, and expansion of production is inevitable. And BYD’s vertical integration model requires more capital when expanding.

First of all, the vertical integration model covers the whole industry chain. When the production capacity is expanded, the whole industry chain needs to be expanded.

With the growth of BYD’s sales in the past two years, its production capacity has expanded rapidly. In recent years, it has cost tens of billions to buy land, build factories and buy equipment. Last year and the first half of this year, BYD’s investment in production expansion was 37.34 billion and 36.13 billion respectively. The pace of production expansion has accelerated significantly.

Secondly, the plant equipment is available, and the staffing needs to keep up immediately. As labor becomes more and more expensive, the expansion of recruitment brought about by the expansion of production is bound to increase the cost of employees.

By the end of 2021, BYD had 288,000 employees, and the salary of employees for half a year was 13.21 billion. With the expansion of production capacity this year, BYD’s labor cost in the first half of this year was 23.14 billion, spending nearly 10 billion more.

Now BYD has benefited from vertical integration and has seized the No. 1 position among new energy vehicle companies, but this is not a panacea, especially when it comes to how to make more money.

BYD’s second half

Compared with other new energy vehicle companies, BYD’s gross profit margin is relatively low. The lowest is only 16%. Even if it is not yet profitable, the gross profit margin exceeds 20%, and it is said that Tesla’s gross profit margin is nearly 30%.

According to common sense, BYD’s vertical integration model will lead other car companies in terms of cost, and BYD’s low gross profit has always caused a lot of speculation in the market. For example, “upstream lithium resources are too expensive, and all the money is earned by mine sellers”; “BYD’s pricing strategy is more aggressive in order to grab the market”; “BYD’s intelligence is low, and consumers’ willingness to pay is low”, etc.

The above speculation of low gross profit is basically in line with the facts, but with the advancement of the “new four modernizations” of automobiles, the degree of intelligence of automobiles is one of the most important reasons for automobiles to obtain premiums.

BYD’s auto-related business includes batteries and other businesses, and the gross profit margin of pure auto business will be slightly higher than this

The reason why intelligence can get a premium is also very simple, that is, it is easy to be perceived by consumers.

For example, the automatic parking technology makes “side parking” and “reversing into the garage” no longer a problem; the car-machine entertainment system makes the interaction between people and cars more interesting; and the hottest automatic driving technology in the city The road can also liberate the hands of drivers, and the degree of perception by consumers is significantly higher than the previous cruise control.

And compared to paying for car sunroofs, intelligence is obviously more worthwhile.

Inside BYD, Wang Chuanfu also divides the transformation of the auto industry into the second half, the first half is electrification, and the second half is intelligent.

In the first half of the competition, BYD was in the first echelon with its self-developed three-electric system (battery, motor and electronic control), and seized market share by virtue of its cost-effectiveness.

But in terms of intelligence, Tesla has taken the lead with its super chip + visual algorithm + operating system, and the name of Apple in the car industry is also ready to come out.

In short, electrification tests the hardware and manufacturing capabilities of vehicles, while intelligence tests software capabilities. In the development process of the automobile industry, the competition is basically based on manufacturing capabilities. For traditional car companies, software capabilities are indeed a shortcoming. And this has also attracted many new forces to enter the game, shouting the slogan of software-defined cars, and thinking that they can achieve corner overtaking.

For BYD, even if it throws away the burden of the production line of fuel vehicles, it is still transformed from a traditional car company after all, and it is helpless to prioritize hardware development and “neglect” software.

In order to make up for the shortcomings, go well in the second half. BYD launched the D++ platform as early as 2018, claiming to open up 341 sensors and 66 control rights, allowing autonomous driving companies, Internet manufacturers, online car-hailing platforms and individual developers to have room to play. In order to expand the influence, Wang Chuanfu invited Zhou Hongyi, the founder of 360, and Zhang Yaqin, the former president of Baidu, to be their platforms.

Simply put, it is to claim that everyone can easily make a software that adapts to BYD.

However, three years after D++ was launched, its voice gradually disappeared, and 360, which once chose to invest in “Nezha” for its platform, Baidu even went out to build cars in person, and the partner became Geely.

For BYD, the embarrassment of the D++ platform is that it is both an athlete and a referee at the same time. Both BYD and Internet companies want to sell components and technologies through the D++ platform; both sides want to use this platform to become the Bosch of the next era, but under this platform, the effect of intelligent applications will ultimately depend on BYD’s own “compatibility” is not strong. [5]

In the era of smart electric vehicles, electricity is equivalent to the body, and intelligence is equivalent to the soul, and the game between the two will always exist. With the continuous appearance of products with “Huawei Inside” and the exposure of self-driving road test videos, Huawei has always insisted that it has no plans to build a car, so as not to let the OEM lose its soul and body at the same time.

The embarrassment of dual identities also makes BYD’s intelligent process relatively backward.

The seal launched by BYD this year is comparable to Tesla in both shape and price band, but the highlights emphasized at the press conference are still more focused on hardware, and there is not much mention in intelligence.

In order to promote its own intelligent capabilities, although the D++ platform has failed, BYD has always been catching up. In addition to its own research and development, BYD is also exploring cooperation models with Bosch and Huawei.

The electric vehicle market, which is in a period of growth and dividends, is still in the first half, but the second half will eventually come.

Although the intelligence is slightly behind, the final outcome is unknown. As long as the story continues, everything has a chance.

What’s more, BYD, which has already won the first half, is still suffering from production capacity problems.

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