Why did Wang Chuanfu "abandon" the fuel vehicle?

Source| Radar Finance

ID|leidacj

Wen | Zhang Kaijing

| the deep sea

BYD became the first car company in the world to announce a "fuel cut".

On April 3, BYD announced that it will stop the production of fuel vehicles from March this year and will focus on pure electric and plug-in hybrid vehicles in the future. The production and sales report released by the follow-up company shows that the production and sales of BYD fuel vehicles in March have been cleared to zero.

In the eyes of the outside world, BYD's courage to "dump" fuel vehicles lies in the fact that its strategy of new energy vehicles has been verified by the market. In 2021, BYD sold more than 600,000 new energy vehicles, an increase of 218.30% year-on-year, second only to SAIC Motor and ranking second in China's new energy vehicle sales.

Unlike SAIC, which relies more on joint venture brands such as Volkswagen and GM, BYD's sales are based on its own brand, and the company has been pursuing a "two-legged" strategy of pure electric and plug-in hybrid, which has made its valuation go all the way up. In 2021, BYD's market value once exceeded 900 billion yuan, and to this day it is still one of the top fifteen stocks in Buffett's Berkshire. Compared with the US stock price of HK$8 at the time of purchase, Buffett's indirect return on HOLDING BYD exceeded 26 times.

However, in the highly competitive new energy vehicle market, BYD is also facing many challenges. It is weak in the progress of intelligent driving and high-end. In addition, BYD's profit fell by 30% last year, 2 billion yuan lower than in 2015, and the company needs to balance profitability with sales.

BYD "abandons" the undertone of fuel vehicles

According to the data, Wang Chuanfu graduated from the Department of Metallurgical Physical Chemistry of Central South University and spent a master's degree in the Beijing General Institute of Nonferrous Metals Research of the Chinese Academy of Sciences. In 1995, Wang Chuanfu went to the sea to found BYD, which is mainly engaged in the development and production of nickel-cadmium and nickel-metal hydride batteries.

In 2002, BYD shares landed on the Hong Kong Stock Exchange, and soon after the listing, the company became the world's second largest rechargeable battery manufacturer, but Wang Chuanfu was not satisfied with this.

At the beginning of 2003, Wang Chuanfu, who was known as the "battery king" at that time, ignored the opposition of entrepreneurial elders and shareholders, and pushed BYD to spend 254 million Hong Kong dollars to acquire Qinchuan Automobile, which was on the verge of bankruptcy, in order to enter the automobile industry. At that time, the market was not optimistic about this, and BYD shares plunged 30% in 2 days.

But Wang Chuanfu stressed that the acquisition is to prepare for profitability in 5 to 10 years, and for BYD, the real significance of the acquisition of Qinchuan Automobile is to establish a platform for the industrialization of automotive batteries, and the automotive power battery project will determine the future of BYD. Since this year, BYD has begun to invest a lot of manpower and material resources in the development of plug-in hybrid systems.

Later facts proved that the foresight and emphasis on technology research and development at this stage is the biggest confidence of BYD to cut off fuel vehicles.

Two years later, BYD launched its first production model, the F3, which sold 100,000 units the following year. But for Wang Chuanfu, fuel vehicles are always like "transitional products". In August 2007, Wang Chuanfu made it clear at the byd-F6 off-line ceremony: "The future of the automotive industry is electric vehicles. ”

In 2008, BYD's first-generation plug-in hybrid technology, the DM1.0 (DUAL MODE1.0), was born with the F3 DM, which was the world's first mass-produced plug-in hybrid car. By the time BYD hybrid technology was iterated to DM 3.0 10 years later, its cumulative sales of new energy vehicles had reached 500,000 units.

On this basis, in January 2021, BYD further launched a new hybrid solution - DM-i super hybrid platform. It is understood that DM-i creatively changed the traditional hybrid technology mainly relies on the engine, oil-based design architecture, which mainly relies on high-power and high-efficiency motors for driving, with large-capacity power batteries for energy, the engine only plays an auxiliary role.

This means that when the power is sufficient, the DM-i Super Hybrid is a pure electric vehicle. When the power is low, the DM-i Super Hybrid is a low fuel consumption hybrid. More importantly, BYD has reduced the overall cost of batteries and motors. In 2021, BYD's three models equipped with DM-i alone will sell 180,000 in the whole year.

In addition to the hybrid system, BYD also holds high the banner of self-supplied blade batteries, and has laid out its own IGBT chips, silicon carbide, and other automotive chip businesses.

The early determination of the technical route in the field of new energy has also greatly reduced the difficulty of BYD's choice between fuel vehicles and new energy vehicles.

In December 2021, the penetration rate of new energy vehicles in the mainland has reached 22.6%, and at the Song Pro DM-i conference in the same month, BYD also mentioned that the penetration rate of more than 20% often indicates that the development of the industry will usher in the "main rising wave".

However, before the domestic independent brands expected to stop selling fuel vehicles in 2025, such as Changan Automobile and BAIC have plans to fully stop selling traditional fuel vehicles before 2025, and some overseas car companies will not be after 2030.

Zhang Xiang, dean of the New Energy Vehicle Technology Research Institute of Jiangxi New Energy Technology Vocational College, told Radar Finance that compared with BYD, many traditional car companies now have heavy burdens and cannot quickly complete the transformation.

"For example, GAC is now ready to list Aean New Energy independently, but at least it can be implemented next year; like Volkswagen and Toyota, the sales and factories of fuel vehicles under these brands are too many, and it is impossible to transform at once." On the contrary, BYD's fuel vehicle itself is not high in technology, lacks economies of scale, and just because new energy is the outlet, this is not too difficult for the company to decide. ”

The data shows that BYD began to reduce the production of fuel vehicles on a large scale in 2021. Radar financial statistics found that from 2018 to 2021, the proportion of fuel vehicles in BYD's total sales was 52.41%, 50.26%, 55.57%, and 18.42%. Specific to 2021, the share of fuel vehicles in total sales has fallen sharply: Q1 broke 50%, Q2 fell to 30%, Q3 approached 10%, and Q4 only 7.4%.

In the first two months of 2022, BYD sold more than 180,000 new energy vehicles, but only sold more than 5,000 fuel vehicles. On this basis, fuel vehicles also have the problem of lack of chips, collinear grabbing production capacity with DM series, and negative integrals for each additional production.

"Fuel cars are a burden, and after getting rid of it, BYD can go light on the road." Zhang Xiang said.

Earnings are not as good as they were five years ago

Completing the transformation at the earliest does not mean that BYD can sit back and relax.

At present, bydir's problem of "increasing revenue and not increasing profits" has been criticized by the outside world for a long time. In 2021, BYD achieved revenue of 216.142 billion yuan, an increase of 28.02% year-on-year, net profit attributable to the mother of 3.045 billion yuan, down 28.08% year-on-year, and deduction of non-net profit was 57.53% year-on-year. In terms of gross margin, BYD also fell by 6.36 percentage points year-on-year, a new low since 2013.

In 2015, BYD's net profit was 5.052 billion yuan. According to this calculation, BYD's profits are far less than five years ago.

From the perspective of revenue structure, BYD's main business includes batteries, mobile phone foundry, and automobile-related products, and the three businesses account for 7.62%, 40.00% and 52.04% of revenue, respectively. The gross profit margin of the mobile phone business and the automotive business fell by 3.62% and 7.81% year-on-year, respectively.

In the online briefing meeting after the financial report, Zhou Yalin, chief financial officer, said: "The increase in operating costs during the period was mainly affected by factors such as rising raw material and commodity prices. ”

In the past two years, under the disturbance of subsidies, chip shortages and soaring prices of key raw materials upstream, the cost of new energy vehicles has risen sharply.

Take BYD's blade battery as an example, its essence is lithium iron phosphate battery, and the main raw material for the production of lithium iron phosphate is lithium carbonate. The data shows that from 2021 to March 30, 2022, the price of lithium carbonate has soared from about 50,000 yuan / ton to about 500,000 yuan / ton, and the overall increase is more than 850%.

However, there are also views that the gross profit margin reduction of BYD's automobile business is more of an "initiative", and the company intends to exchange price for the market. After all, the new energy automobile industry is far from the time to make money lying down, and the investment at this time is a means of exchange for the future.

In this regard, Zhang Xiang said that BYD's current price policy in the market is the result of a multi-faceted comprehensive role, not only to ensure that sales increase, but also to stabilize the bottom line of no loss.

"BYD's sales of 600,000 new energy vehicles have been able to achieve economies of scale, and it also has its own batteries and chips, which should be better in terms of cost control." In this case, its current price policy does have to consider making its product more competitive. ”

But in the changing environment, BYD clearly needs to constantly find a new balance between profitability and sales. In 2022, the cost of raw materials will continue to rise, and government subsidies will continue to decline, in this context, BYD has made two price increases during the year.

On January 21, BYD announced that due to factors such as the sharp rise in raw material prices and the decline in subsidies for new energy vehicles, it will raise the official guidance prices of its "Dynasty Network" and "Ocean Network" related new energy models by 1,000-7,000 yuan; on March 15, BYD once again announced that due to the continuous sharp rise in raw material prices, the official guidance prices of "Dynasty Network" and "Ocean Network" related new energy models will be raised by 3,000-6,000 yuan, and will take effect from 00:00 on March 16.

Successive price increases have caused consumer dissatisfaction to a certain extent. In the Weibo comment area where BYD announced the price increase, the comment with the most likes said: "Notice on the 15th, the zero point on the 16th will take effect immediately?" People who want to buy it simply don't have time to see it. I thought about buying a car on Saturday on the 19th, forget it, don't buy BYD. ”

On April 5, it was reported that BYD will carry out a new round of price increases, with a range of at least 3,000 yuan. At present, this news has been officially debunked by BYD.

High-end and intelligent driving are short boards

In addition to price increases, high-end is also one of the ways to make up for the low gross profit margin of BYD vehicles.

Radar Finance noted that in 2021, Tesla, Weilai, the ideal vehicle gross profit margin are more than 20%, in terms of sales and price, these three car companies to a certain extent is the representative of the domestic new energy vehicle high-end market.

But the high-end market has never been an area where BYD is good at. In recent years, although BYD has laid out and listed a number of models in the two major fields of pure electricity and hybrid, the price of these models is basically between 100,000 and 200,000 yuan. Data monitored by international data company Wilson shows that from January to July 2021, BYD's average bicycle price was 151,800 yuan; compared with Weilai's average bicycle price of 432,900 yuan.

Coupled with the fact that BYD's new energy models are used as ride-hailing vehicles in many cities, BYD's low-end brand image has penetrated into the hearts of consumers.

However, BYD is not without ideas about the high-end market.

As early as 2010, BYD and Daimler jointly established Shenzhen Denza New Energy Automobile Co., Ltd., each holding 50% of the shares, and launched denza brand and pure electric vehicle products, with a pricing range of 300,000-400,000 yuan.

But Denza's sales are relatively dismal. According to the data of the Association, the annual sales of Denza's brand products in 2018 were only 1974 vehicles; in 2019, Denza launched a new Denza X, despite the help of Mercedes-Benz channels, its annual sales in 2021 are still only 4783 vehicles.

At the end of 2021, BYD and Daimler announced that they would increase their capital in Denza by 1 billion yuan in monetary terms; at the same time, Daimler transferred the equity of Denza to BYD, and THE shareholding ratio of BYD will reach 90% after the transfer is completed. The transfer is subject to regulatory approval and is scheduled to be completed by mid-2022.

According to BYD's official information, from 2022 to 2023, it will rely on the Denza brand to launch three new models of pure electric utility vehicles in the price range of 300,000 to 500,000 yuan, including MPVs and SUVs. In the price range of 50-1 million yuan, BYD will launch a new high-end brand of new energy in 2022, and the first hardcore off-road vehicle will also be released in the fourth quarter of this year.

Can BYD's new high-end brand bring consumers a bright experience? Before exploring this issue, the company may have to deal with the technical issues in the field of smart cockpits and autonomous driving.

Different from traditional fuel vehicles, the intelligent experience of new energy vehicles is an important part of the road to high-end. Whether it is Tesla or "Wei Xiaoli", it has achieved good research and development results in this field.

In contrast, BYD's intelligent driving is not enough to compare with the above companies. BYD's intelligent driving system is named "DiPilot", which is mainly used for BYD Han models, but according to the evaluation done by 42 Garage, in terms of automatic auxiliary driving ability, BYD Han has a large gap with new energy vehicle companies such as "Wei Xiaoli".

A BYD employee also revealed that the internal has realized that it is relatively backward in the intelligent aspect of the car, and is currently investing a lot of energy in the development of intelligent cockpit and intelligent driving, and the number of related teams has reached 2,000 people.

In order to improve its intelligent capabilities, BYD has also continuously increased its investment field. Since November 2021, BYD has established a joint venture with intelligent driving company Momenta to invest in lidar company Sagitar Juchuang, and Baidu and NVIDIA have also been rumored to have reached a cooperative relationship with BYD.

Industry insiders believe that as the first "All in" new energy traditional car company, BYD's more challenges are still on the road.

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