After experiencing the "enclosure" of the past few years, BYD has become the first leader in China's new energy vehicle industry.
A year ago, Barron's Chinese edition published an article titled "Copying byBYD? After a nearly 200% rise in the previous year and a retracement of the stock price, our byd prospects are judged: BYD is a very good company, with the increase in sales of new energy vehicles and batteries, BYD's valuation still has room to rise in the short term, but the era of buying BYD with closed eyes to make money has passed. Similar to the sharp rise in stock prices in the past year, it is difficult to reproduce.
At that time, which was the close of the market on March 16, 2021, BYD (0002594. SZ) closed at $176.47. A full year later, at the close of trading on March 15, 2022, BYD was quoted at 212.8 yuan, up about 20%, which is basically in line with our trend judgment a year ago.
However, value judgments always change from time to place due to changes in their own intrinsic value and market price. At this time a year later, the Chinese edition of Barron's magazine believes that BYD's market advantage is more obvious, and after experiencing the "enclosure" of the past few years, BYD has become the first leader in China's new energy vehicle industry.
According to the latest data, BYD's new energy vehicle sales have exceeded 100,000 units in March, significantly outperforming several new car-making forces, with a market share of more than 17% in the Chinese market, and it still looks full of power.
In March 2022, BYD announced the suspension of production and sales of fuel vehicles, becoming the first traditional car company in the world to announce its withdrawal from the fuel vehicle market.
In the context of the stock price has been falling for half a year, has BYD's upside been opened?
1
The faucet is out of the line
In March 2022, BYD's new energy production and sales exceeded 100,000 units, an increase of 333% year-on-year, a record high.
This figure is significantly higher than the sales of about 10,000 new Chinese car-making forces, including Xiaopeng and Ideal, in a single month. Even BYD is quietly approaching Tesla, the global leader in electric vehicles.
In the first quarter of 2022, BYD Automobiles produced and sold 287,500 units and 286,300 units, respectively; Tesla produced 305,000 units and delivered 310,000 units worldwide during the same period.
From a 2021 perspective, BYD's new energy vehicle sales are 555,000 units, while Tesla's sales in China are 484,100 units.
From the perspective of the market share of the Chinese market, the market share of BYD new energy vehicles will reach 17.1% in 2021.
At a time when BYD's new energy vehicles have grown significantly, BYD has also decided to completely stop the production of fuel vehicles.
On April 3, BYD announced that it will stop production of fuel vehicles from March 2022 and will focus on pure electric and plug-in hybrid vehicles in the future. At this point, BYD became the first traditional car company in the world to announce the complete cessation of fuel vehicle production. According to public information reports, other leading global car companies plan to stop the production of fuel vehicles as early as 2025.
In fact, in 2021, the proportion of fuel vehicles in by-one cars produced by BYD is very low. In 2021, BYD's new energy vehicle sales were 603,780 units, but only 136,340 fuel vehicles, down 42.54%. From this point of view, BYD's suspension of fuel vehicles is not sudden, but a natural success.
After BYD stopped the production of fuel vehicles, some market analysts believe that this will lead to a significant increase in the average price of BYD vehicles, because the average price of BYD pure electric vehicles and plug-in hybrid vehicles is higher than that of its fuel vehicles.
As an automotive industry with extremely complex upstream and downstream industrial chains, the supply chain system is one of the important factors affecting the development of the company.
One of the reasons Tesla has been able to maintain its leading position lies in its strong supply chain.
BYD is one of the most complete companies in China's industrial chain in the new energy automobile industry. Founded in 1995, BYD started as a cadmium-nickel battery business and later expanded to lithium-ion batteries. Entering the automotive industry in 2003, BYD has become a company spanning automotive, battery, IT, semiconductor and other fields, with core technologies such as batteries, motors, electronic controls and vehicles. BYD is able to complete almost all of the production chain from battery to car manufacturing on its own. This is bydy's unique moat.
In addition to new energy vehicles, BYD has also made remarkable achievements in the field of energy storage. After ten years of development, BYD has completed the installation of 160,000 sets of household energy storage products in 56 countries around the world, and its market share in the German market is at the top of the list. According to the "Energy Storage Industry Research White Paper 2021" report released by the Energy Storage International Summit and Exhibition, IND has become the number one Energy Storage Technology Provider in China in the overseas electrochemical energy storage (excluding household energy storage) market in 2020. At the same time, under the background of "carbon peaking and carbon neutrality", China's energy storage industry is bound to usher in the development of the wind, and BYD as a leading company will also benefit.
In March, BYD's total installed capacity of new energy vehicle power batteries and energy storage batteries was 5.4GWh, an increase of 149% year-on-year; the cumulative installed capacity from January to March was 14.7GWh, an increase of 180% year-on-year.
2
BYD Triple Treasures
"DM-i Super Hybrid", "Blade Battery" and "e Platform 3.0" are the three major footholds that BYD relies on for its future development.
BYD's accelerated growth in new energy vehicles began with its blade batteries launched in March 2020. In the current stage of development of new energy vehicles, batteries are the main constraints of the industry. At present, the power battery field is dominated by ternary (NCM) and lithium iron phosphate (LFP). BYD's blade battery is mainly based on lithium iron phosphate system, which can increase the volume utilization rate by more than 50%, reduce manufacturing costs by 30%, and focus on "high energy density and safety". BYD's top brass particularly emphasized its safety as a comparative advantage to distinguish it from the Ningde era.
In July 2020, BYD launched the "Han", a mid-to-high-end model equipped with blade batteries, and was recognized by the market. In addition, BYD's blade batteries have also begun to supply to the whole industry, and at present, the domestic market has been supported by Changan, Xiaokang, BAIC, FAW Hongqi and other car companies, and overseas is expected to supply Toyota, Mercedes-Benz and so on.
In 2021, BYD launched the DM-i super hybrid system to accelerate the replacement of traditional fuel vehicles. BYD already has four models equipped with the DM-i Super Hybrid system. First, in January 2021, the three models of "Qin PLUS DM-i", "Song PLUS DM-i" and "Tang DM-i" were launched. BYD said in its 2021 annual report that although sales are rising month by month, the cumulative undelivered orders continue to hit new highs. In December 2021, the "Song Pro DM-i" was launched.
Sales data show that the growth of plug-in hybrid vehicles is faster than that of pure electric vehicles. In March 2022, 51,000 units were sold, up 615% year-on-year. Qin Plus, Song Plus and Tang sold about 14,000 units, 22,000 units and 0.9 million units respectively in March.
"e-platform 3.0" is a key layout for BYD to shift from electrification to intelligence. In August 2021, BYD has launched the first mass production model "Dolphin" based on the "e-platform 3.0" and has been recognized by the market. In February 2022, BYD launched the first SUV model based on the platform, the "Yuan plus".
In March, BYD sold 54,000 electric vehicles, up 229% year-on-year. So far, "Han" is still BYD's flagship product, priced at more than 200,000, and since its listing in July 2020, sales have repeatedly reached new highs, with annual sales exceeding 100,000. In March 2022, the sales volume of "Han" reached 12,300 vehicles, of which "Han" sold about 10,100 pure electric vehicles and about 2,200 "Han" plug-in models; Dolphin was priced at 96,800-12.48 million, with sales of more than 10,501 vehicles in March; and Yuan Plus sold more than 10,023 vehicles, which continued to double from the previous month.
After the suspension of fuel vehicle sales, the e-platform 3.0 and DM-i super hybrid represent BYD's pure electric and plug-and-mix two major platform technologies.
BYD executives said in investor exchanges that BYD's two types of cars are aimed at two different consumer groups, pure electric vehicles focus on solving the demand for additional purchases, plug-in hybrid can effectively solve the needs of more families to buy first and exchange, and form a significant substitution effect on the huge stock of fuel vehicle market.
In terms of marketing, in November 2021, BYD officially launched "Ocean Network" as a comprehensive sales network. Starting from the consumption habits of young people, "Ocean Network" has added supermarket stores and urban exhibition halls to the traditional 4S store sales model. In this network, the products include two major sequences, the "Marine Life Series" equipped with the latest technology of the pure electric "e Platform 3.0" and the "Warship Series" equipped with the "DM-i Super Hybrid" technology. The "dolphins" currently on sale belong to the pure electric marine life series.
At the same time, BYD said in its recent communication with investors that it will cooperate with foreign companies to increase the development of automobile intelligence, and explore from the three aspects of perception, decision-making and execution.
In 2021, BYD's R&D expenditure was 8 billion yuan, an increase of 7% year-on-year; the total investment in research and development was 10.6 billion yuan, an increase of 24% year-on-year, and the capitalization rate of R&D investment in 2019, 2020 and 2021 was 33%, 13% and 25% respectively.
3
The dilemma of profitability
According to BYD's financial report released on March 29, BYD achieved revenue of 216.1 billion yuan in 2021, an increase of 38% year-on-year; but the net profit attributable to the mother was 3.05 billion yuan, down 28% year-on-year, and the net profit rate attributable to the mother was 1.4%. In 2021, the company's gross profit margin was 13.1%, down 3.5 percentage points year-on-year.
BYD's low profit margins have worried the market.
BYD's main businesses include: automotive business, mobile phone components and assembly business, rechargeable battery and photovoltaic business, and others.
Specifically, in 2021, BYD's auto business is BYD's largest source of revenue, accounting for 52%, and in 2021, the auto business revenue increased by 34% year-on-year, with a gross profit margin of 17.4%. BYD's popularity in the capital market in recent years also mainly comes from this.
Secondary rechargeable batteries and photovoltaic business accounted for the lowest proportion, at 7.6%. Revenue in 2021 was 16.5 billion yuan, an increase of 36% year-on-year.
Mobile phone components and assembly business accounted for 40% of revenue. Revenue in 2021 was RMB86.5 billion, up 44% year-on-year, and gross margin was 7.6% relatively low.
In 2021, the automotive business/mobile phone components and assembly business/rechargeable battery and photovoltaic business achieved profits of 3.16/18.4/410 million yuan respectively.
BYD executives said in a communication with investors that the decline in profit margins was mainly affected by factors such as rising raw materials and commodity prices.
The price of lithium carbonate has risen sharply since 2021. At the beginning of 2021, the price of lithium carbonate was about 60,000/ton, and by March 2022, it had reached nearly 500,000/ton. Rising raw material prices are challenges for the industry to overcome. The industry generally expects that lithium carbonate is likely to return to a complete supply and demand balance after 2-3 years.
In a recent investor briefing, BYD said that in the future, it will take battery cost as one of the research and development priorities, create a more competitive blade battery, and promote the growth of new energy vehicles. BYD executives said: "Although some things may be a little more expensive when they first start to be done, as long as they are done more, the cost will come down." ”
In addition, in the fourth quarter of 2021, BYD recorded 990 million yuan of asset and credit impairment losses, significantly higher than the 350 million yuan raised in the previous three quarters.
BYD's profit margin declined, also affected by its holding subsidiary BYD Electronics (holding 65.76%), due to the repeated epidemic and lack of core, BYD Electronics' net profit attributable to the mother fell by 58% to 2.32 billion yuan.
In 2021, commodity prices, blade battery production technology, credit impairment, and declining profits of holding companies have jointly pulled down BYD's profit margins.
When communicating with investors, BYD said that with the launch of new models and the expansion of production capacity, sales will be further expanded in the future. In the context of rising volume and price, profits are expected to improve.
However, from BYD's business structure, it can be seen that the mobile phone parts and assembly business, which accounts for 40% of BYD's revenue, has a gross profit margin of only about 7%, which is the reason for the long-term drag on BYD's profit margin. And this industry is a very mature industry, there is not much room for improvement. From this perspective, bysati's profit margin needs to continuously improve the proportion of new energy vehicle business with higher profit margins in revenue.
4
Valuation space opens?
As mentioned above, BYD's position advantages in China's new energy vehicle industry have been clearly defined. So with the improvement of market position, will BYD's valuation increase significantly?
In fact, after the release of the results, BYD's stock price has not changed significantly. The decline in profits has pushed up BYD's price-to-earnings ratio. As of the close of trading on April 8, BYD's price-to-earnings ratio has reached 235 times. That's more than 150 times a year ago.
From the perspective of price-earnings ratio, BYD's valuation is very high, but the valuation of new energy vehicles cannot be evaluated by the price-to-earnings ratio alone, but more is the future car delivery volume.
BYD's production target for 2022 is 1 million new energy vehicles, almost double the 600,000 vehicles in 2021 and more than the 936,000 tesla deliveries in 2021.
New energy vehicles in China and even around the world are experiencing rapid development. In 2021, China's automobile production and sales ended three consecutive years of decline since 2018, with a slight increase of 3.4% and 3.8% year-on-year. Among them, the new energy vehicle market showed explosive growth, with annual production and sales of 354.5% respectively. 50,000 units and 3.521 million units, both up about 1.6 times year-on-year, the annual penetration rate rose sharply by 8 percentage points to 13.4%, and the monthly penetration rate in December was as high as 19.1%. At the same time, China's new energy automobile industry has shifted from policy-driven to a new stage of market-driven.
In 2021, the Chinese government's subsidy policy for new energy vehicles will continue to be reduced. On December 31, 2020, the Ministry of Finance, the Ministry of Industry and Information Technology, the Ministry of Science and Technology and the National Development and Reform Commission jointly issued the Notice on Further Improving the Financial Subsidy Policy for the Promotion and Application of New Energy Vehicles, and the subsidy for new energy vehicles in 2021 continued to decline by 20% on the basis of 2020.
In fact, for automobile manufacturers, in the case of cars not rising prices, the decline in subsidies also means a decline in profits.
Recently, new energy vehicle manufacturers are raising prices.
On April 5, it was reported that a new round of price increase information for BYD manufacturers would be announced that night, with a minimum price increase of 3,000. Since then, Li Yunfei, general manager of BYD's automobile brand and public relations business department, has posted on Weibo that this is false news.
However, public information shows that in 2022, BYD has raised prices twice, the first time on February 1, the increase range is 1000-7000 yuan, due to the sharp rise in raw material prices and the decline of new energy car purchase subsidies; the second time is on March 16, the increase range is 3000-6000 yuan, due to the impact of the continuous sharp rise in raw material prices.
It is not difficult to see that BYD will improve from volume to price in the future, especially in terms of volume, which will help BYD's performance.
CITIC Securities said that the optimization of the model structure and the improvement of brand positioning have opened up valuation space for BYD.
On December 24 last year, BYD announced that it would increase its capital by 1 billion yuan for the Denza brand. On the same day, Daimler AG transferred a 40% stake in Denza to BYD. After the completion of the transfer, BYD is expected to hold a 90% stake in the Denza brand. Denza is a new energy vehicle brand established in Shenzhen by BYD and Daimler in 2010, covering 300,000-500,000 mid-to-high-end markets.
After this transaction, BYD will cover the mid-to-high-end market through Denza + independent high-end brands.
On April 7, CITIC Securities forecasts BYD's profit for 2022/2023 to be about 6.7 billion yuan and 11.7 billion yuan, giving BYD A shares a target price of 375.6 yuan and H shares 462.9 Hong Kong dollars under the segment valuation framework.
As of the close of trading on April 8, BYD A shares were quoted at 243.89 yuan and H shares (01211.HK) were quoted at 238.4 Hong Kong dollars. According to CITIC's forecast, there are still 54% and 94% increases, respectively.
"Barron's Weekly" Chinese edition believes that BYD's current leading position in China's new energy vehicle market has emerged, with the development of battery supply and the launch of more models, BYD's market position and profitability are expected to continue to improve. However, in the past six months ended April 8, IND's A-share shares fell by 2.22% in the overall market environment, especially the downward trend of the industry. With the improvement of the market environment and the improvement of BYD's own business, BYD's stock price is expected to reverse the downward trend of the past six months and turn upwards.
The Chinese edition of Barron's magazine agrees with CITIC Securities' evaluation of BYD, but it is not so optimistic about valuation. The second half of new energy vehicles is intelligent, which is already the consensus of the market. BYD, which has turned from a traditional car, is not good at this. Until BYD releases more clear information about intelligence, BYD's valuation has limited upside. Some UBS analysts pointed out that almost half of Tesla's valuation by 2025 will come from its software.
As of the close of the US stock market on April 7, Tesla's valuation was $1,092.686 billion, with a price-earnings ratio of 197.986 times; as of the close of trading on April 8, the total valuation of BYD A shares was 710.261 billion yuan, with a price-earnings ratio of 233.2 times.
Wen | writer for the Chinese edition of Barron's Magazine, Wu Haishan
Edit | Kang Juan
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Original barronschina articles, not reproduced without permission.
(This article is for your informational purposes only and does not constitute the provision or reliance of investment, accounting, legal or tax advice.) ）
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