Wang Chuanfu's midfield battle

Author | Zhou Zhiyu

After 20 years of cultivation in the field of new energy vehicles, BYD Chairman Wang Chuanfu finally ushered in his highlight moment.

In the first half of the year, the gross profit margin surpassed Tesla, and the first new energy vehicle company in the world to enter the top ten in terms of sales, BYD not only became China's "independent brother", but also had a place on the global stage. Wang Chuanfu's dream of "being the first in the world" 16 years ago no longer seems far away.

The vigorous development of new energy has created Wang Chuanfu, allowing BYD to have a lot of space to show its strength over the years. However, through the report, it still reflects that BYD is a manufacturing company closely related to profit and cost.

In the past two years, Wang Chuanfu hopes that BYD will make achievements in high-end and technological innovation, so as to bring brand premium and form its own moat at the operating end. In the face of the fierce price war in the market in the first half of the year, it could not transcend the world, but relied on the ultimate cost control to participate in it.

So much so that when Wang Chuanfu hopes to call on Chinese auto brands to go to the world as a "leading big brother" in the new energy industry, car companies such as Great Wall and Geely are not convinced.

BYD needs to truly establish its own technical barriers and form brand premium capabilities. This is Wang Chuanfu's midfield battle, and it is also the direction that China's new energy industry needs to work hard in the process of moving from electrification to intelligence. How to break the century-old industry pattern of automobiles and lead the development of the industry with Chinese technology. As pioneers in the industry, car companies and entrepreneurs, BYD and Wang Chuanfu also need to take on more responsibilities and missions.

Counterattack

In the financial reports of a number of car companies, BYD Zhongbao is quite prominent.

Its financial report released on the evening of August 28 showed that its revenue in the first half of the year was 260.124 billion yuan, a year-on-year increase of 72.72%; The net profit attributable to the parent was 10.954 billion yuan, a year-on-year increase of 204.68%.

The soaring profit benefited from the profitability of BYD's automobile-related, mobile phone parts and assembly-related businesses, and achieved good growth in the first half of the year.

Among them, the revenue of mobile phone parts and assembly related business increased by 24.4% year-on-year to 51.09 billion yuan, and the gross profit margin also increased from 6.1% in the same period last year to 8.8% in the first half of this year. The revenue of automobile-related business increased by 91.1% to 208.824 billion yuan, and the gross profit margin also increased from 16.3% in the first half of last year to 20.7%, surpassing Tesla (automobile sales gross margin of 17.9%) in one fell swoop, achieving a counterattack.

Strangely, BYD's bicycle prices fell in the first half of the year. In the first half of the year, the average sales price of BYD's bicycles was 166,300 yuan, down 1.62% year-on-year; Especially in the second quarter, the price of BYD's bicycle further fell to 157,000 yuan.

Since the launch of the Qin PLUS DM-i Champion Edition in early February, BYD has reduced prices in disguise in a new way to participate in the price war in the Chinese car market, and will continue in Tang and other mid-to-high-end models.

How did BYD achieve an increase in profit levels while the price of bicycles decreased?

The decline in battery costs is the main factor. BYD's self-developed and self-supplied battery gives it enough room for cost control in the battery that accounts for the highest proportion of the cost of the whole vehicle.

In the second quarter, battery-grade lithium carbonate fell to around 250,000 yuan / ton. Battery manufacturers such as CATL and Guoxuan Hi-Tech also achieved good revenue and profit growth in the second quarter. With an installed capacity of 45.4GWh, BYD Verdi batteries, which ranks first in China's lithium iron phosphate power battery installation, can also benefit from the price reduction of raw materials.

BYD's proud vertically integrated supply chain allows BYD to have strong control capabilities in the "three electricity", which accounts for the majority of vehicle costs, and production costs are also reduced. Under the scale effect, this advantage is also magnified.

Some BYD employees believe that BYD has taken the cost concept to the extreme, and will consider the most cost-effective solution in this price range in each model, so that the cost of the whole vehicle is lower.

The Qin PLUS DM-i and Song PLUS DM-i models that were reported by Great Wall Motor as possible emission problems also follow this logic. In the more price-sensitive A-class car market, cost is the first priority without affecting the daily car experience.

However, with the rapid increase in BYD's car ownership, there have been many more complaints about BYD products in the past two or three years.

The price is that BYD needs to spend more money on product after-sales. In the first half of this year, BYD's after-sales service expenses were 4.476 billion yuan, a year-on-year increase of 187.66%, accounting for about 40% of BYD's sales expenses, up from 30% in the first half of last year.

From BYD's report, it can be seen that the profit in the first half of the year exceeded expectations, not obtained by technology leadership and brand premium, but achieved through extreme cost control, which came from raw materials, demographic dividends and so on.

As a result, investors are concerned about BYD's high gross profit surpassing Tesla, believing that it is not sustainable. Industry chain people expect that the price of lithium carbonate will remain low in the next 6-12 months, and other players in the industry can also benefit from obtaining lower-cost batteries, and the price war will intensify.

BYD's management is still confident in BYD's next profitability. Management said first-half earnings were affected by inventory vehicles. Under the circumstances of the decline in lithium carbonate prices, the company's procurement capacity becoming stronger, and the depreciation time of fixed assets shortened, as BYD's scale further increases in the second half of the year, the profit situation in the second half of the year will be better.

BYD expects that China's new energy vehicle penetration rate will be 34%-35%. In the second half of the year, the penetration rate of new energy vehicles will be further improved.

bottleneck

21 days ago, when BYD's 5 millionth new energy vehicle rolled off the production line, Wang Chuanfu burst into tears on the spot and called on Chinese brands to unite and go to the world together. Some people praise Wang Chuanfu's pattern, while others think that he is "crocodile tears". Great Wall Motor executives also sent several Weibo messages questioning BYD.

This is completely different from the industry's attitude towards Tesla, another new energy car company. Various car companies have launched new products, flaunting that they want to compete with the Model 3/Y; Tesla is also a recognized leader in the industry.

Tesla's innovations, whether it is a super factory or integrated die-casting, have inspired the industry, reshaping the traditional automobile manufacturing industry in terms of production processes and processes. Tesla also relies on its own continuous innovation in technology to reduce costs and achieve high gross profits. It can also use technological advantages to set off round after round of price wars.

BYD has formed competitiveness in terminal prices through cost control. This is BYD's most powerful weapon for jumping in scale. Wang Chuanfu also said that in the price range of 100,000-200,000, BYD has pricing power. He also hopes to further expand the advantages of BYD's product portfolio with the launch of models such as Denza , Equation Leopard and Yangwang.

It's just that in the face of the increasingly fierce price war, BYD's high-end brand is also taking a high-value route. For example, in the case of Denza N7, the gross profit margin will be controlled below 10% in the short term; The equation of the blind price range announced at the Chengdu Auto Show Leopard 5 is also about 100,000 lower than the previous blowing price.

BYD is eager to get more market and scale, even if it has to give in on the profit side.

As for the target of 3 million vehicles and 3.6 million vehicles for the whole year, which was proposed at the results meeting in April this year, it also raised a question mark as market competition further intensified.

With the launch of hybrid models such as Geely L7 and Great Wall Haval Thunder Dragon in the past two months, the market pattern of about 150,000 has gradually undergone subtle changes, and the market of BYD Song Plus DMi has also been divided a lot, and sales have been weak.

In August, CATL launched the lithium iron phosphate 4C supercharged battery, which also announced that CATL, the leading power battery manufacturer, will make efforts in the mass market and cut into the hinterland of BYD. Including GAC, Geely, Great Wall and other car companies, they are all potential customers of CATL. The pure electric model market of 200,000 yuan or even less than 150,000 yuan will also set off a bloody storm in terms of technology and price.

The intensification of competition in the hybrid and pure electric markets is testing BYD. The decline in raw materials for batteries and other parts provides BYD with a lot of space to reduce costs and further participate in the price war. With the efforts of car companies such as Geely and GAC, BYD has further formed scale effects in new energy vehicle products, and relied on cooperation with key suppliers such as CATL, BYD's cost advantage has shrunk. In the second half of the year, BYD still faces a vicious battle.

As for overseas markets, which are considered to be new growth points, can the low-cost model made in China be replicated in Europe and North America? Will there still be a dilemma in the Indian market? Localized production and sales test BYD, challenging BYD's ultimate cost strategy.

Tesla has led the new energy era with its products, and BYD has fully prepared for the new energy era by relying on its own layout of the entire industry chain. Through different paths, the two have the same path, forming their own competitiveness in products and prices, and mastering the pricing power of their respective markets. It has also enjoyed the dividends of the market in the three years of the most vigorous development of new energy vehicles in China.

As Tesla also further reduces costs and enters the 150,000 yuan market, it will also penetrate into BYD's hinterland. In two years' time, the competition in the market will only become more intense. BYD management expects that the price war will continue in the next 3-5 years, and the price war in the market segment will further begin. BYD can rely on technology to maintain its lead.

In the century-old history of the automobile industry, there are many brands that have risen rapidly and suddenly collapsed. The automotive industry in the new energy era is constantly reshaping, and any flaw may crush a car company.

After three years of rapid growth, BYD's employees surged from 227,000 at the end of 2020 to 570,000 at the end of 2022, while sales of new energy vehicles increased from 194,100 units to 1,868,500 units at the end of last year. BYD has also become the world's largest new energy vehicle company.

To fully gain a foothold on the global stage, BYD needs to make a further leap in scale. Judging from the world's top five rankings expected by Lei Jun, Yu Chengdong and other bigwigs, the threshold for entering this ladder last year was 6.34 million vehicles. BYD needs to double the size again this year to achieve it, which is a severe test for BYD's current manufacturing system.

16 years ago, Wang Chuanfu wanted to make BYD the world's number one, and this ambition gradually became a reality with the advent of the new energy era. It's just that the road is dangerous and difficult, and Wang Chuanfu and his BYD who are in the middle of the field also have to fight fiercely in the second half in questioning and supporting.