BYD's "Old World" and "New Life" of Discontinued Fuel Vehicles

The automotive industry has turned a historic page.

On April 3, BYD announced two major events: First, it will completely stop production of fuel vehicles from March this year, becoming the first person in the world to eat crabs. Second, sales exceeded 10,000 vehicles in March, an increase of more than 160% year-on-year, continuing to lead the new energy market.

This will become a milestone event in the history of the automotive industry, not only for the TO B-end automotive industry, but also for to C-end consumers, all of whom will personally perceive the advent of the era of new energy vehicles.

For BYD's "oil cut", the industry has mixed reviews; but there is no doubt that this is a courageous strategic decision.

Stock price movements may be the best response to judging whether a decision is right or wrong. On April 4, BYD shares (1211. HONG Kong stocks opened higher by more than 5 percentage points, more than the broader-cap index gains, and that was not unrelated to a major decision the company had announced the night before.

BYD's "innings"

According to the announcement, in March this year, BYD's production and sales were 106,700 units and 104,900 units, respectively, of which the production and sales of fuel vehicles were "0".

This means that BYD can fully announce the suspension of fuel vehicles in advance. So why is it delayed until now to officially announce it?

It is worth looking at clues from the financial report, which shows that in 2021, BYD's annual sales were 730,000 units, of which new energy vehicles exceeded 604,000 units, accounting for 81.58%; while the sales of fuel vehicles were 136,300 units, accounting for 18.4%.

From January to March this year, BYD's cumulative sales of fuel vehicles were only 5,049 units, down 89.78% year-on-year, and accounted for only 1.7% of total sales.

The fact that fuel vehicles cannot be sold is the core factor of BYD's suspension of fuel vehicles.

In fact, BYD's new energy vehicle business is also facing a dilemma. According to financial report data, BYD's automotive business revenue last year was 112.49 billion yuan, an increase of 34% year-on-year, while gross profit fell 7.59% to 19.562 billion yuan.

BYD's new energy vehicles are obviously selling so well, why increase revenue but reduce profits?

The first reason for this is the soaring price of upstream raw materials, and at the end of last year, the average price of lithium carbonate in East China rose 5 times compared with the beginning of the year.

In addition, in order to seize the new energy vehicle market, BYD expanded production last year, which directly led to rising costs. According to the company's disclosure, the company's annual production capacity has increased from 600,000 vehicles in 2020 to 900,000 vehicles in 2021, and it is expected to rise to 1.9 million units and 3.3 million vehicles in the next two years!

The rapid expansion of the business has forced personnel to be replenished, and the company also vigorously recruited last year, and the total number of employees increased by 63,906 last year to 288186. Among them, the production personnel and technical personnel increased by 68206 and 8542 respectively, while the administrative staff decreased by 18486 people.

Like the rhythm of a fast-growing Internet startup, Wang Chuanfu should be well versed in the fission of Internet companies.

Finally, BYD has always attached great importance to research and development, last year, BYD invested 10.627 billion yuan in research and development, while the capitalization investment (not included in the cost of investment) was only 2.637 billion, accounting for 24.8% of the total, far lower than the average level of domestic brand car manufacturers such as Geely, that is, about 50%.

What needs to be paid attention to is that the current BYD price-to-earnings ratio (TTM) is as high as 226 times, which has exceeded the 203 times price-earnings ratio of Tesla, the global leader of new energy, and how to digest such a high valuation, investors still need to continue to observe.

Overall, BYD has completed its strategic layout in the eastern, southern, central and western parts of China, and has also vigorously entered overseas markets, and in the past decade or so, BYD's electric bus and taxi footprint has spread across six continents, more than 50 countries and regions, and more than 300 cities around the world. Among them, all kinds of pure electric buses have delivered more than 68,000 units worldwide.

In addition, BYD is also facing the challenge of improving the competitiveness of its main models and controlling costs. Non-main model sales do not go up, costing labor costs, of course, if these models can get government procurement at the TO G end, it is another matter.

BYD's discontinued fuel vehicles are just a "microcosm"

New energy is the trend of the times.

According to data from the Association, in February, the retail penetration rate of domestic new energy vehicles reached 21.8%. Wang Chuanfu, chairman of BYD, also said that the penetration rate of new energy vehicles in China will exceed 28% in March this year, and the proportion of the whole year is expected to reach about 35%.

With core technologies such as blade batteries, DM-i super hybrids and e-platform 3.0, BYD's products have also been recognized by consumers. Sales in March this year were 104338 units, up 160.% year-on-year. Among them, EV pure electric vehicles sold 53664 vehicles, DM plug-in hybrid sales of 50674 vehicles.

In addition to the continuous development of existing products, BYD has many new vehicles on the road and will continue to bring more increments to the brand. It is understood that Han DM-i, Han DM-p, 2022 Jintang, Dasong MAX DM-i, Destroyer 05, BYD SEAL, Frigate 07 and other new cars will also be listed this year.

From the minutes of the BYD investor meeting, it was learned that BYD has not yet delivered orders for 40,000 cars, and it is increasing month by month; conservative forecasts for 2022 sales of 150,000 vehicles, from the sales and growth rate in the first quarter of this year, it is expected to hit 1.5 million.

As the leader of domestic new energy vehicles, BYD officially announced the suspension of fuel vehicles, in addition to becoming the first person to eat crabs, it has also played a good role in promoting China's automobile industry, which is expected to force the rapid development of the entire industry.

At present, many large car companies around the world have announced plans to stop selling fuel vehicles.

In June last year, Volkswagen announced plans to stop producing gasoline and diesel-engined cars in Europe as early as 2033 to accelerate the development of electric vehicles;

Audi also said that in 2025, Audi will put into production the last new fuel model and launch more than 20 pure electric vehicles; from 2026, the new models launched by Audi will all be electric models; by 2033, it will stop selling old fuel vehicles;

Ford plans to sell only electric vehicles in Europe by 2030 and expects to spend $1 billion to convert its factory in Cologne, Germany, into an electric vehicle production line;

Honda plans to phase out gasoline-powered vehicles by 2040;

GM plans to abandon internal combustion engine vehicles by 2035, including brands such as Cadillac, Buick and Chevrolet, and fully switch to the manufacture of electric vehicles;

……

It is true that BYD's suspension of fuel vehicles is only a beginning, and new energy vehicles are a historical necessity.

In the first quarter of this year, sales of new electric vehicles in France surpassed those of gasoline-powered vehicles for the first time, which is an important milestone for low-emission vehicles. According to industry data provided by Plateforme Automotive (PFA), sales of all-electric and hybrid models account for nearly 40% of new car sales, compared with 38.3% of traditional gasoline models.

Under the current high oil price situation caused by the continuous turmoil of the international geopolitical situation, energy security and energy independence have become the points that all countries must pursue, and the continuous acceleration of the global new energy process, the rise in oil prices is not a danger, but provides a huge opportunity.

Chip shortage is also the number one problem encountered by various car companies in the past two years, the Great Wall stopped production Weipai and Euler, but also in order to ensure large profits, promising models. BYD cut off the fuel vehicle, give priority to the protection of the Dynasty and the Ocean series of new energy vehicles, and follow the trend.

Write at the end

In just 4 years, BYD has transformed from a traditional fuel vehicle company into a new energy vehicle company.

For traditional fuel vehicle companies, the biggest resistance to the transformation of new energy actually comes from within the team, and several major old car companies have announced transformation, but the progress is extremely slow.

The reason why BYD has transformed quickly is not only that it has formulated the strategic route of new energy vehicle companies very early, but also because of the rapid internal adjustment. It is reported that BYD has made a lot of adjustments to the fuel vehicle department very early, breaking up the fuel vehicle department, and then merging with several new energy vehicle departments, the fuel vehicle business department cannot be grouped, and the internal restructuring is almost no resistance.

Bydir abandons the original value network and fully embraces the new value network, which helps to promote internal reform and avoid the fate of giants such as Kodak Nokia.

Under the downturn of the entire market, BYD resolutely cut off fuel vehicles, but the sales of new energy vehicles soared, proving that this road is right. AI Business Review predicts that in the next few years, BYD will have a larger volume of growth, and under the impact of BYD, the transformation of traditional car companies will be more resolute.

After all, the era of new energy vehicles is really coming!