BYD announced that it will end the history of fuel vehicles: it will stop the production of fuel vehicles from March and will focus on pure electric and plug-in hybrid vehicles in the future.
ATD also said that it will continue to provide perfect service and after-sales protection for existing fuel vehicle customers, as well as the supply of spare parts throughout the life cycle.
Innovationcases believes that this means that BYD has become the first car company in the world to officially stop production of fuel vehicles, and behind this move is BYD's charge in the field of new energy vehicles.
In October 2021, the State Council issued the "Carbon Peak Action Plan before 2030", which clearly stated that "by 2030, the proportion of new new energy and clean energy powered transportation will reach 40%".
Why did BYD decide to stop production of fuel vehicles?
Discontinued fuel vehicles, BYD is not a whim.
On the one hand, at the United Nations Climate Change Conference on November 14, 2021, BYD, as the only Chinese car company, signed a letter of commitment with Five car companies, Volvo, Ford, General Motors, Mercedes-Benz and Jaguar Land Rover, and BYD confirmed that it would stop selling fuel vehicles by 2040.
On the other hand, BYD's fuel car dilemma has also emerged, the car sells well, but the money is made less. From the perspective of sales, BYD's new energy vehicles exceeded 600,000 units in the whole year, which is 3 times that of 2020. This sales volume ranks first in the domestic new energy vehicle market and second in the world, second only to Tesla.
However, in 2021, BYD's operating income was 216.1 billion yuan, an increase of 38% year-on-year, but the net profit after deducting non-deductions fell by 57.53% year-on-year to 1.25 billion yuan. In 2021, Geely Automobile's annual revenue was 101.6 billion yuan and net profit was 4.35 billion yuan. As the sales champion of new energy vehicles, although BYD's overall revenue is increasing, it has fallen into the strange circle of "increasing revenue without increasing profits". However, in fact, this problem has long existed in "BYD, which is the first in market value but not the amount, will it turn against the wind or will it be exaggerated?" 》。
BYD's business is mainly divided into four segments, namely new energy vehicles, traditional fuel vehicles including automobile business, mobile phone components and assembly business, secondary rechargeable battery and photovoltaic business, and urban rail transit and other businesses. Among them, the automobile business is BYD's main revenue item, followed by mobile phone components and assembly business.
In 2021, bydir's automotive, mobile phone parts and assembly, and secondary rechargeable batteries three business gross profit margins declined. BYD's new energy vehicle business is closely related to the second-charge battery business, the second-charge battery business provides power batteries for the automobile business, and most of BYD's new energy vehicle power batteries come from its own power batteries. On the whole, new energy vehicle products have become the most important reason for the decline in gross profit margin.
Why has BYD's profit declined?
Behind the decline in BYD's net profit, there are subjective and objective factors.
On the one hand, the rise in upstream raw material prices has put some pressure on the cost side. The price increase of raw materials has also caused BYD to raise prices for two consecutive times. Last year, BYD's financial report disclosed that the raw materials required for the production of steel, plastics (mainly used in automotive products), metal raw materials such as lithium, cobalt, etc. (mainly used in power battery products), raw material price fluctuations directly affect the production costs of the group's main business.
At the same time, the take-off of new energy vehicle sales has also brought certain cost pressures. In 2021, BYD's sales of new energy vehicles exceeded 600,000 units, an increase of 218% year-on-year, accounting for nearly 82% of ATD's annual automobile sales.
On the other hand, changes in revenue structure also have a negative impact on profitability. Zhou Yalin, vice president and chief financial officer of BYD, also explained that "the main reason is that the gross profit margin has declined due to changes in product structure."
In BYD's business segment, mask production and sales, as a special business, are not classified separately, but are divided into automobile-related products and other products. In the first half of 2020 alone, masks brought more than 8.6 billion yuan in revenue to BYD, raising BYD's gross profit margin to 19.38%, the highest point in five years. Last year, with the easing of the epidemic, the national mask production capacity increased, the price of masks fell, and the profits brought by this part gradually disappeared. 《》
It is worth noting that BYD's cash flow has improved significantly. In 2021, the net cash flow was 65.467 billion yuan, an increase of 44.22% year-on-year. It has grown for four consecutive quarters and is the best in the last five years.
Of course, the obvious decline in net profit and gross profit margin does not mean that the strength of BYD's automobile business is not good. Compared with traditional car companies, SAIC Motor, the largest car company in China, has a gross profit margin of only 10.76% in 2020. In terms of horizontal comparison, the new domestic car-making forces Weilai, Xiaopeng and Ideal sold a total of 280,000 cars, less than half of BYD's new energy vehicle sales. Among them, WEILAI's net loss in 2021 was 4.02 billion yuan, Xiaopeng's net loss was 4.863 billion yuan, and the ideal net loss was 320 million yuan, still struggling in the quagmire of loss.
A very important reason why BYD's automobile sales growth in 2021 is that it is not affected by the "lack of cores" and the lack of power battery supply in the cost of raw materials, and it is stronger than Tesla in the control of key resources, such as chips, battery research and development, and production.
Can BYD soar to success?
Luo Rentong, a senior researcher at the Guangdong Innovation Strategy Research Association, believes that with the advancement of technology and the pressure of policies and regulations, the replacement of fuel vehicles by new energy vehicles will gradually increase, and after BYD's move, I believe that there will be many companies to follow up in the future, but there will be no obvious changes in the industry in a short period of time, and it is difficult to replace all fuel vehicles in the short term, and more is a competitive relationship.
In 2022, Wang Chuanfu set a sales target of 1.5 million units. If the supply chain improves, it will hit sales of 2 million cars this year.
Considering the gradual progress of technological progress, the imbalance of resources and the complexity of the regional climate, after the rapid development of new energy vehicles and the number of ownership reaches a certain scale, their growth rate will slow down. Fuel vehicles will develop in a more energy-efficient direction, and will eventually lead the market competition with new energy vehicles.
At present, how to expand the scale and production capacity will be the focus of BYD's business. With the prominence of scale effects, the cost of bicycles will decrease, and the profit margin of the automobile business will increase.
According to the existing production capacity, BYD will actually put into production 900,000 units in 2021. If the target of 1.5 million to 2 million units is to be achieved, the production capacity expansion target of at least 600,000 vehicles will be completed this year.
According to BYD's plan, from May this year, a number of automobile production bases including Changzhou, Hefei and Changsha will be put into operation, and Fudi Battery will expand production in many places. If production goes well, BYD's overall production capacity will increase to 2.2 million units this year and 3.6 million units in 2023.
While investment and production expansion need to be accelerated, brand high-end is another focus of BYD this year.
At present, BYD's products are mainly the Ocean series and the Dynasty series, of which more than 200,000 yuan of models, including Han, Tang EV, Song EV, e6 and so on. As the flagship model of the BYD brand, Han cut into the medium and large new energy sedan market, with cumulative sales of 117,000 units in 2021. However, in 2022, the medium and large pure electric sedan track will also usher in a number of models, including Weilai medium and large flagship sedan ET7, medium-sized coupe ET5, Zhiji's first model L7, etc., Han's sales will be more challenged.
At the same time, Denza Automobile Sales service Company was formally established, and may undertake the task of high-end brand. According to the plan, the price of Denza is positioned between 300,000 and 500,000 yuan, and 3 electric vehicles will be launched this year and next.
In addition, vehicle intelligence has always been a short board for BYD. For the two major areas of smart cockpit and intelligent driving that are hot on the market, BYD has more power in the former.
What really concerns BYD is intelligent driving. Driven by Tesla and the domestic Wei Lipeng, intelligent driving has gradually become the standard of car companies, but BYD intelligent driving is not enough to compete with the new car forces.
At present, BYD has invested to enhance its business capabilities, and BYD and intelligent driving company Momenta have jointly established an intelligent driving joint venture to create high-level intelligent driving solutions.
BYD's suspension of fuel vehicles does not mean that global car companies will soon stop production of fuel vehicles, this is just a decision made by BYD according to its own strategic development needs, changes in the market environment and industrial change trends. In the next few years, the competition in the domestic new energy vehicle market will be more intense, and it remains to be seen whether BYD can quickly launch high-end and intelligent products with its own capabilities, catch up with the industry level and even highlight the siege.