「Core Tips」
Brands are really not so easy to build, symbols, categories, stories are indispensable.
Author | Li Xin
Edited by | Gokuno
As for how the name of BYD came about, founder Wang Chuanfu answered very realistically, saying in a video program:
"There are many enterprises in Shenzhen, and it is not easy to pass the name of two words, so I think of the name of five words, and the last check is all there, then you can only take three words, the name 'BYD' is more strange, but it is also more strange, that is, it is easy to pass."
In fact, BYD did not have a clear meaning at that time, that is, it was easy to register through the business name, and byD's so-called Build Your Dream was completely added.
According to Wang Chuanfu, "At that time, it was difficult to start a business, and it was not known whether it could survive or not, so it was first established through registration." ”
In 1995, the 29-year-old Wang Chuanfu borrowed 2.5 million yuan from his cousin who did real estate, founded BYD, and plunged into the mobile phone battery industry. From nickel batteries to lithium batteries, BYD has taken it step by step, which once frightened Industry leaders such as Sony and Sanyo.
Subsequently, BYD cut into the fields of mobile phone OEM and car manufacturing, and did a good job.
In the past 27 years, BYD has grown into a giant with annual revenue of more than 200 billion yuan and a market value of 670 billion yuan.
Big, not necessarily strong.
I don't know if the name was too arbitrary, even if it is so large, BYD's brand in the automotive field has been difficult to improve, and can only rely on scale effect to maintain a certain competitive advantage.
This phenomenon has been obvious in this year's quarterly report, and the growth rate of BYD's high-end models is much lower than that of low-end models.
Why is it so hard to develop high-end brands? If we look at the earnings report and BYD's brand building, we see that everything seems to have signs.
1. There are worries in a season of good news
On April 27, BYD released its first-quarter financial report, with operating income of 66.825 billion yuan, an increase of 63.02% year-on-year. Among them, the net profit attributable to the mother was 808 million yuan, an increase of 240.59% year-on-year.
Previously, BYD's prompt in the first quarter performance forecast was 650-950 million yuan, and overall, the profit data of 808 million yuan fell in the upper middle position.
Joy and sorrow.
Despite the triple-digit growth in net profit, BYD's consolidated gross margin slid from 13.12% in the fourth quarter of 2021 to 12.4%, down 0.72% sequentially.
This is already two consecutive quarters of decline since the third quarter of 2021.
Generally speaking, there are three reasons for the decline in gross profit margin: the decline in the profitability of the core business, the increase in products with low gross profit margin in the core business, and the increase in the proportion of low gross margin business.
So what kind of BYD belongs to?
The answer is the first two.
From the public perception, BYD is an electric vehicle company. In fact, as a listed company, BYD, automobile is only one of its important business segments, and the other business segments are: mobile phone components and assembly business, rechargeable batteries and photovoltaic business.
Among them, the mobile phone components and assembly business is operated by BYD Electronics, a subsidiary listed in Hong Kong.
Since BYD did not give a detailed business revenue distribution in the first quarter, the following is the annual distribution of business revenue for the three years from 2019 to 2021.
Overall, the automobile and mobile phone business are BYD's two core businesses, accounting for more than 90%.
So, who is pulling down the gross margin? The answer is that both businesses are responsible, but the core drag comes from the car.
Judging from the independent financial report of BYD Electronics in the first quarter, its gross profit margin in the first quarter of 2022 was 5.47%, down 0.69% from 6.16% in the fourth quarter of last year, and the reason why the drag is not serious is because this data is lower than the overall gross profit margin of 0.72%.
In addition, if you look at the revenue structure, compared with the fourth quarter of last year, the proportion of BYD electronic revenue with low gross profit margin has dropped from 32.59% to 31.33%. The decrease in the proportion of low gross margin items means that BYD Electronics' drag on the overall gross profit has weakened.
So, the items that are really dragging down gross margins come from cars. Excluding BYD Electronics, the company achieved a gross profit margin of 15.6%, down 2.8% year-on-year, down 0.9% sequentially, and more than BYD's overall gross margin down 0.72%.
Why is the gross profit margin of the auto sector declining? Drawing on the above ideas, we can consider it from the perspective of product structure and profitability.
The first is the product structure.
According to the data of the Association, in the first quarter of this year, BYD's new energy vehicle sales were 283,000 units, an increase of 421.5% year-on-year.
However, compared with 421.5%, BYD's highest price band model- BYD Han's sales growth rate from January to March this year was only 25.3%.
Low-cost models such as qin plus sold well, and sales in the first quarter increased by 882.8% year-on-year.
High-end is blocked, and the number of auto products with low gross profit margin increases, then the gross profit margin of the car will decline.
In addition, this low and high also made the average unit price (ASP) of cars sold by BYD in the first quarter drop to 158,000 yuan, down 47,000 yuan year-on-year, and down 10,000 yuan from the fourth quarter of last year.
Therefore, in the first quarter, compared with the siege of low-cost models, BYD's high-end is still difficult to make a breakthrough.
Looking at the profitability of automotive products, for BYD, the upstream impact is more real, excluding BYD Electronics, the cost growth rate is higher than the revenue growth rate. Taking lithium carbonate as an example, the increase in the year is as high as 65%, and the follow-up will still be too high for BYD's costs, dragging down BYD's gross profit.
However, while the upstream price increase, BYD itself is also adjusting the price to cope.
In January and March this year, BYD launched price adjustments, with a total increase of about 4.7%-6.7%.
According to Huaxi Securities' calculations, BYD's overall delivery period is about 2-3 months, which means that the effect of price adjustment in January-March to hedge against the decline in gross profit is expected to appear in the second quarter of 2022.
However, will this price increase based on cost pressure suppress market demand? Further observation is required.
2, the scale effect has risen, but the brand has not yet risen
Although BYD's bicycle price (ASP) fell and gross profit margin declined, BYD's expense side was well controlled.
An intuitive manifestation is that BYD's "net profit per bicycle" is rising. If you deduct the impact of BYD Electronics, BYD's net profit for bicycles in the first quarter of this year is about 2400 yuan, an increase of 700 yuan from the previous quarter.
ASP declined, but the net profit of bicycles rose, and the logic behind this is that BYD has, to some extent, already has a moat of scale effect.
The logic of the moat of scale effect is that if the expected sales volume is large enough, then the fixed cost (such as production line input) that each vehicle is finally apportioned is low, and the car company dares to quote a lower price and harvest users.
And cost-effective, naturally has a certain advertising effect, can help enterprises spend less money.
Specifically, BYD's period expense ratio in the first quarter was 8.9%, down 1.4% year-on-year. This data is already lower than Tesla's 9.9%
Among them, the sales expense ratio was 3%, down 0.1% year-on-year; The management expense ratio was 2.5%, down 0.3% year-over-year; The finance expense ratio was -0.1%, down 1.6% year-on-year; The R&D expense ratio is also improving at 3.5%, an increase of 0.6% year-on-year.
It can be seen that for manufacturing enterprises, the scale advantage is a sharp weapon to block competition.
So, for BYD, the next step is to walk on two legs.
The first is to continue to use the scale advantage to deter the low-price market and seize the share.
Even, BYD can consider continuing to drive prices down, lock in more users, and lay the groundwork for automotive software charges in the coming years.
Second, and more critically, BYD wants to learn from Tesla and dig a brand moat.
Regarding the brand moat, Chaoyuanli said in the previous analysis of Tesla's quarterly report that the reason why the brand is called a moat is because the brand reduces the transaction costs of consumers (such as comparison, testing and other troubles). Therefore, consumers pay a brand premium for the brand side. This is also the root of the increase in the gross profit margin of enterprises.
The process of building a brand is a process of "understanding, trusting, and preferring" for consumers.
According to modern mainstream marketing theory, in order to achieve this process, there are three parts to consider when building a brand:
Brand symbols, category building, brand stories.
So how does BYD do in these three dimensions?
Let's start with the brand symbol.
The strategic marketing company "Hua & Hua" once put forward a point of view: to build a brand, is to build a symbol, consumers through the symbol to identify your products. In addition, good brand symbols should be parasitic in a strong cultural matrix, so that it is easy to remember and easy to spread.
If you look at it according to the above standards, BYD seems to have done a good job in the construction of brand symbols. Qin, Han, Tang and other dynastic series models borrow the cultural matrix of the dynasty, which will leave people with a sense of familiarity and intimacy.
Let's look at BYD's category construction.
The so-called category construction, the essence is to hope to achieve the first of a certain subdivision category, the purpose is to compete for the consumer's mind. The most typical is "afraid of fire, drink Wang Laoji". We will see that Wang Laoji continues to use advertising and variety shows to plant this sentence into the hearts of consumers.
Looking back at the category construction of high-end models such as "BYD Han", we will find that BYD is taking the strategy of dislocation competition, but it is difficult to say that it is the first in these dislocation segments.
BYD Han's pricing is benchmarked against xiaopeng P7 and Tesla Model 3 in the new energy vehicle market, and in the fuel vehicle market, it is benchmarked against luxury brand intermediate cars such as Audi A4L, BMW 3 Series, Mercedes-Benz C-Class and so on.
It is generally believed that compared with the independent brands of new energy vehicles, Han's characteristics are: more balanced in terms of endurance and comfort; compared with Model 3, Han's design is more localized and the space is more abundant.
Compared with fuel vehicles, Hanergy offers the best performance and the largest space at the same price. At the same time, blade battery technology solves the shortcomings of battery life.
Overall, these advantages are correct, but it is difficult to say that they are the first.
As for the brand story, there is only sporadic information about product development in the network, lack of characters and related conflicts.
The essence of the brand story is to accumulate the trust value and emotional value of the user.
From this point of view, BYD's shareholders should perhaps strongly ask Wang Chuanfu to make a microblog, like Musk, to speak out more and bring the style of their own products.
3. Conclusion
How will the BYD brand evolve? At least Wang Chuanfu was full of confidence.
At the previous 2021 performance briefing, Wang Chuanfu said that BYD's brand is not what it used to be, and it will push more high-end brands in October, "probably released in October, using BYD's more high-end technology, the company's promotion of a brand must be based on a good technology platform, technology should be different, bringing products different, coupled with excellent after-sales, in order to be a good experience." ”
BYD has revealed that the first model of the new high-end brand is a hardcore off-road vehicle, priced at 500,000 to 1 million yuan, and the brand, product, sales service network, and operation are all new and independent teams.
Whether it is not the same as before, it is not clear for the time being. However, BYD's insistence on doing high-end routes is worth encouraging.
As mentioned above, the essence of the brand is to create a brand premium, which is the source of profit.
When the high-end brand value is established, it is easier to promote the people-friendly version. Just like Tesla, after the establishment of the model S of high-end image, civilian models such as model3/Y can be quickly increased.
Compared with Tesla's top-down penetration, BYD is a "face up" upward attack this time, and the posture is generally a bit awkward, but as a domestic leader with the same sales volume as Tesla, we still expect BYD to bring surprises to the market.
Let's see how BYD makes a fuss from brand symbols, category building, and brand stories.