BYD's upward dilemma! High-end exploration and raw material price increases, will the market accept it?

A BYD after-sales service center Du Ge photographed

Wang Chuanfu, 56, is about to usher in another IPO in his life. 2002 BYD Co., Ltd. (1211. HK, hereinafter referred to as "BYD Shares"), 2007 BYD Electronics (0285. HK), 2011 BYD shares (002594. SZ) returned to A listing, BYD Semiconductor also successfully passed the meeting in recent days.

In 1995, Wang Chuanfu founded BYD after coming out of the Beijing Nonferrous Metals Research Institute. In the past 27 years, BYD has experienced the development path of closure to openness. Today, while Wang Chuanfu is accelerating the implementation of the "open" strategy, its new energy vehicles are experiencing the dilemma of "upward" brand.

Closed

At the end of the last century, Wang Chuanfu dug the first bucket of gold by producing nickel-cadmium batteries. He saw Chinese dividends and industrial development prospects, and also found a "shortcut" for manufacturing - through self-developed semi-automated equipment and cheap labor for "vertical integration", and then quickly occupy the market with cost-effective products. This model is also regarded as a "BYD manufacturing model" that is self-made and has enough food and clothing.

At the beginning, Wang Chuanfu was supporting the mobile phone industry chain. In just a few years, BYD has become an important rechargeable battery manufacturer in the mobile phone industry chain. In 2003, BYD has grown to become the world's second largest producer of rechargeable batteries.

Around 2002, Wang Chuanfu had already established his ambition to enter the automotive industry. BYD has chosen the strategy of developing electric vehicles and entering the automotive industry through the battery technology it has mastered. At the end of 2002, BYD shares were successfully listed in Hong Kong and raised HK$1.65 billion. Wang Chuanfu thus entered the top 50 of The Forbes China Rich List. After the listing, Wang Chuanfu entered the money-burning automobile industry with more confidence.

At this time, China's automobile manufacturing industry started late, and Chinese automobile companies hoped to introduce multinational car companies to achieve breakthroughs and exchange markets for technology.

After entering the car, Wang Chuanfu used the "vertical integration" model even more purely.

Luo Ruzhong, former chief engineer of BYD's automotive electronics division, once revealed that when BYD initially purchased brake systems from Bosch, the other party quoted 2,000 yuan / set. BYD felt that the price was too high, so it decided to develop itself. After the success of the self-research, Bosch immediately lowered the price of the product to 800 yuan / set.

BYD's vertical integration strategy has indeed achieved remarkable results. Taking F6 as an example, almost all of its abrasives are BYD's self-developed, and the cost has been reduced from 150 million yuan to 80 million yuan, and the price is only about half of similar products.

However, the development of the global automotive industry, the development of the supply chain in a big stride, the quality of foreign color parts has risen, and the cost has gradually declined. The automotive industry's vertically integrated model has gradually lost its advantage.

The most typical representative of this is the dispute between Toyota and Ford. In the early 1990s, Toyota achieved an annual production capacity of more than 4 million vehicles with a lean production model that reduced costs and improved efficiency, beating Ford, which is mainly vertically integrated, and ranking second in the world.

Finally, in 2000, Ford spun off its parts business and established Visteon Motors, which went public independently. At the same time, Ford's self-made parts rate is declining. After the establishment of Visteon Motors, Ford's parts self-control rate was only 38%.

In December 2007, BYD Electronics, which was spun off from BYD shares, was also listed on the Hong Kong Stock Exchange. At this time, Wang Chuanfu was full of confidence and put forward the goal of producing and selling more than 200,000 vehicles in 2008 and achieving an annual production and sales of 500,000 vehicles in 2010. With the release of the 4 trillion yuan policy and the stimulation of measures such as cars going to the countryside, the automobile market is improving. By the end of 2009, BYD had ambitiously set a target of 800,000 vehicles by 2010.

However, sales in 2010 were far less than BYD expected. In 2010, BYD sold fewer than 520,000 vehicles. Moreover, IND's net profit also fell seriously in the following years. In 2009, BYD's net profit was more than 4 billion yuan, but in 2012, its net profit fell to 210 million yuan.

In the face of business drawdown and net profit decline, Wang Chuanfu also gradually abandoned the proud vertical integration strategy, shut down BYD's peripheral businesses such as molds and rubber, and introduced external suppliers to reduce the self-control rate of parts from 80% to about 50%.

opening

In January 2013, Wang Chuanfu reviewed the detours and adjustments made at BYD's world-class technical analysis meeting. Wang Chuanfu, who has gone from closed to open, also admitted: "My personal interest is actually to discuss technology with engineers in the laboratory, but now I will take the time to communicate with the media." ”

In recent years, BYD, which is moving towards openness and paying more attention to quality and market, has implemented an open ecological strategy. Not only is the electric vehicle technology platform open, BYD's power batteries and chips are also being opened to other manufacturers in addition to supplying BYD. At the end of 2021, Wang Chuanfu said with some emotion: "These subsidiaries only earn BYD's money, that is not called skill, and it is called the skill to break out to earn the money in the market, which means that the product is competitive." ”

BYD's business, which is spearheaded in the process of marketization, is naturally its highest quality asset - power battery.

The power battery is bydy that BYD promoted the market earlier. For example, at the end of 2020, BYD invested in the establishment of Fordi Industrial Co., Ltd. Official information shows that the scope of the owner's business includes battery manufacturing and sales, new energy vehicle electrical accessories and so on. At the same time, BYD also announced to the outside world that "The Fordy company will operate independently and bear its own profits and losses, which will provide a new window for BYD to develop the auto parts market."

Wang Chuanfu also said: "Blade batteries have begun to supply the whole industry, and almost every car brand you can think of is negotiating cooperation with Fordy Battery." For example, in August 2021, there were media reports that BYD would supply blade batteries to Tesla's Model Y model in Q2 2022.

The market is really big. From January to December 2021, China's power battery production accumulated 219.7GWh, an increase of 163.4% year-on-year; cumulative sales reached 186.0GWh, an increase of 182.3% year-on-year. The NINGD era ranked first, with an installed capacity of 80.51GWH, accounting for 52.1%; BYD's battery loading volume was 25.06GWH, accounting for 16.2%.

In addition to BYD's battery market, semiconductors are also its key attack direction. In the field of IGBT, BYD Semiconductor ranked second in the world and first among domestic manufacturers in 2019 and 2020 for two consecutive years, with a market share of 19%, second only to Infineon.

In 2020, BYD announced that it would spin off its wholly-owned subsidiary, BYD Semiconductor. Subsequently, BYD Semiconductor became the darling of the capital market.

On January 27, 2022, BYD Semiconductor successfully passed the initial listing, which also means that BYD Semiconductor has entered a foot in front of the door of IPO.

However, IT batteries and BYD semiconductors are still difficult to open up to the external market.

As an upstream battery supplier, CATL has become the choice of many car companies. However, BYD is competing with many new energy companies for the market. At the same time as the marketization of its battery business, its own car brands have also begun to use blade batteries more and more. For example, in 2021, BYD Han's annual sales reached 117665 vehicles, calculated by the battery capacity of each vehicle being 76.9kWh, and only a series of Han will need 9.04GWh of batteries in 2021, accounting for 12% of YADI's annual battery production capacity.

When BYD's new energy vehicles are soaring, can BYD batteries achieve stable supply to other car companies?

When the impact of the chip famine has not been eliminated, BYD Semiconductor may not be able to meet the needs of other automotive companies in a short period of time.

BYD Semiconductor's prospectus disclosed information about its customers. Its IPM module customers are mainly refrigerator companies such as Oaks, and MCU chips are mainly home appliance companies. Although the prospectus also mentions Xiaopeng Automobile, Yutong Automobile and other car company customers, the purchase amount of these customers is very small, such as Xiaopeng Automobile only purchased 600,000 yuan of sensor chips.

When the expansion of the external market is very difficult, Wang Chuanfu also understands that after allowing BYD batteries and BYD semiconductors to open up the external market and meet the test of strict market competition, BYD batteries and semiconductors can truly develop and grow.

In addition, the growing byding BYD batteries and semiconductors have also helped BYD to a certain extent to make rapid progress on the new energy track. This makes many "missing core" enterprises sigh with excitement.

up

At the end of 2021, BYD's new energy vehicle sales have ranked first for 9 consecutive years. The confidence behind the 9-year sales championship comes largely from the accumulation of BYD's technology upwards and continuous marketization.

Just when "Wei Xiaoli" is dealing with problems such as "lack of batteries", BYD can deal with the battery gap relatively calmly. BYD officially planned that by the end of 2021, the total blade battery capacity of BYD Fudi batteries will reach 75GWh, and the production capacity will further climb to 100GWh by the end of 2022.

With the continuous increase in production capacity, BYD has increased the coverage of blade batteries on its pure electric models, and blade batteries have also embarked on a journey of supply to the entire industry.

Today, more and more of BYD's new cars are loading their own blade batteries. For example, in April 2021, BYD's newly launched 2021 Tang EV, Qin PLUS EV, Song PLUS EV and 2021 e2 are equipped with blade batteries.

And in terms of price, BYD's new car also has more advantages. Among them, the price of the Qin Plus EV 400 km version is 129,800 yuan, which is 20,000 yuan lower than the Qin Pro EV 401 km listed in 2019. The Qin plus 600 km version is priced at 166,800 yuan, which is also reduced by more than 20,000 yuan compared with the Qin Pro 520 km version.

Sufficient supply of battery capacity ensures that there are enough electric vehicles on the market. BYD's effective control of costs can make the whole vehicle highlight the cost performance after it is put on the market.

Official data show that in 2021, BYD's new energy vehicle sales exceeded 593,000 units, an increase of 231.6% year-on-year, accounting for 81% of total sales, ranking first in China's new energy vehicle market in 2021.

Entering 2022, BYD's growth trend is more obvious. Although the month-on-month increase was slight, the 367% year-on-year growth was also enviable in the automotive industry.

And the new energy market in the entire Chinese market will also maintain an upward trend in 2022. Ping An Securities predicts that the sales volume of new energy vehicles is expected to reach 5.1 million units in 2022.

Some BYD models are also difficult to find under the new energy market.

Prices

However, when BYD is growing at a high speed, it has fallen into the strange circle of "increasing profits without increasing income".

According to the financial report, in the first three quarters of 2021, BYD's revenue was 145.192 billion yuan, an increase of 38.25% year-on-year; net profit was 2.443 billion yuan, down 28.43% year-on-year.

BYD's net profit fell simultaneously, partly due to the rapid contraction of BYD's epidemic prevention product business as the epidemic was effectively controlled. According to the data, in the whole of 2020, BYD's net profit in the epidemic prevention products business was about 2.5 billion yuan.

It seems that BYD, which is good at seizing opportunities, has seized the big business opportunities of the epidemic. However, for a large car company, this kind of use of chance to obtain a high net profit is not a very normal thing in itself.

In fact, due to the soaring prices of raw materials and other materials, BYD has encountered unprecedented cost pressures. In the first three quarters of last year, according to BYD's own explanation, the decline in profits was mainly "affected by the rise in the price of raw materials such as commodities."

Relevant data show that in the first three quarters of 2021, bydir's cost of purchasing silicon materials increased significantly, and it is expected to lose about 200 million yuan, which is equivalent to affecting the gross profit margin of 1%-2%.

The rise in raw material prices is indeed a major problem encountered by new energy automobile companies in 2021. Since 2021, the price of upstream raw materials for power batteries has shown an upward trend.

For example, China's spot cobalt price has risen from about 240,000 yuan / ton in April 2020 to more than 380,000 yuan / ton in August 2021, an increase of nearly 60%. Even the price of lithium cobalt oxide, a cathode material, has risen by more than 200%. In addition, steel, tires and other companies have also raised prices. On the first day of the Chinese New Year, Michelin, Bridgestone China, Haian Group and other tire companies have raised tire prices.

In the face of rising raw materials, BYD does not have many tricks.

BYD, which is deeply involved in the automobile industry, has not achieved a high-end breakthrough at present. Without a good high-end product line, the role of low-end cheap is deeply rooted in the hearts of the people. Although BYD will move towards the high-end, when it does not really create a high-end brand, it will not have much room to digest the price increase of raw materials.

In 2020, the average bicycle price of BYD Automobile is only about 135,200 yuan, and it will only reach about 151,700 yuan in 2021. Compared with the gross profit of domestic car companies generally around 20%, Tesla's gross profit is significantly higher. In 2021, the gross profit margin of Tesla's automotive business reached 29.3%, an increase of 3.7 percentage points compared to 2020. Among them, the gross profit margin of bicycles reached 30.6%. This gross profit margin does make It a bit tricky for Chinese car companies such as BYD to face the rise in raw materials.

On January 21, 2022, BYD officially released the news that "due to the sharp rise in raw material prices and the decline of new energy car purchase subsidies", the price of BYD Dynasty Network and Ocean Network related models will be raised by 1,000 yuan to 7,000 yuan on February 1.

BYD is not alone in action. In addition to BYD's price increases, many car companies such as Xiaopeng Automobile, Volkswagen ID, Zero Run, Euler and SAIC Roewe have announced price increases. Among them, SAIC Roewe has increased the price of a number of new energy models since March 1, 2021.

In addition to the price increase, BYD is also determined to wash away the image of the middle and low end and use the wind of new energy vehicles to achieve upgrading. BYD revealed that it will launch high-end products priced at about 500,000-1 million yuan in the first half of 2022. Combined with the entire automotive industry, the road to brand upgrading from sinking brands to "up" is particularly difficult. However, in recent years, high-end models launched by new energy vehicle companies such as Weilai Automobile have gradually gained recognition in the Chinese market.

This may also explain why the stock market will be optimistic after BYD's price increase. However, whether the future can continue to be optimistic, IT needs TOD to be able to see after the launch of high-end models.

Author | Verbosity

Edit | Wan Jiali

Source | Consulting Finance (teccj6)

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