BYD spent 11.2 billion yuan more on R&D than Tesla in 2023

Net profit increased significantly, but solvency continued to decline.

Text丨Zhao Yu

Editor丨Mao Shiyang

On the evening of March 26, BYD's 2023 performance report showed that the company's annual revenue was 602.32 billion yuan, a year-on-year increase of 42.0%, and the gross profit margin of automobile sales was 23.6%, 2.1 percentage points higher than Li Auto's 21.5%.

BYD's R&D expenses in 2023 will be 39.57 billion yuan, 4.7 times that of R&D investment in 2019 and 11.18 billion yuan more than Tesla. This is another important data surpass after BYD's annual sales of new energy vehicles surpassed Tesla's for the first time in 2022. BYD's R&D expenses in 2022 will be 18.65 billion yuan, 2.56 billion yuan less than Tesla.

In addition, BYD's non-net profit was 28.46 billion yuan, an increase of 82.0% year-on-year, and if the non-recurring gains and losses unrelated to the company's main business, such as bank interest, investment income, and government subsidies, are added back, BYD's net profit in 2023 will reach 30.04 billion yuan, a year-on-year increase of 80.7%.

BYD did not separately announce the profit level of the auto business, but referring to BYD's electronics business, it can be roughly estimated that five years ago, BYD could earn an average net profit of about 1,100 yuan per car sold, and in 2023, this figure has increased to about 8,600 yuan.

The net profit of more than 30 billion yuan was obtained under the condition that BYD deliberately tightened the financial recognition method. In March 2023, BYD announced that from January 1, 2023, the long-term asset depreciation/amortization period of power battery production equipment in the financial statements will be shortened to 3 years. The resulting reduction in net profit for the full year of 2023 is expected to be $2.8 billion.

In October last year, on the same day as the release of the third quarter report of 2023, BYD announced that it would provide for credit and asset impairment losses of 2.4 billion yuan, specifically covering four aspects: accounts receivable, financial guarantee contract, contract asset reversal and inventory decline provision.

For the whole of 2023, BYD sold a total of 3.024 million vehicles, of which 243,000 were sold in overseas markets. The sales performance has attracted the attention of practitioners in the automotive industry at home and abroad.

It can be said that BYD is fully enjoying the dividends brought by the rapid growth of production and sales scale. At the same time, it should also be noted that there are challenges behind BYD's brilliant performance.

First of all, under the aggressive expansion of production capacity, BYD's asset-liability ratio has reached a high level. By the end of 2023, BYD's asset-liability ratio had reached 77.9%, an increase of 2.4 percentage points from the end of 2022. Among the top NEV manufacturers, Tesla's gearing ratio decreased from 44.3% at the end of 2022 to 40.3% at the end of 2023, and the ideal gearing ratio increased from 47.8% at the end of 2022 to 57.8% at the end of 2023.

Secondly, whether it is to expand the factory or buy a ship to go to sea, it needs to borrow from outside, which makes BYD's cash flow tight and its ability to repay debts reduced. As of the end of 2023, the current ratio, which measures BYD's short-term solvency, was 0.67, down 0.05 from the end of 2022, which means that BYD's current liabilities are already higher than current assets. In addition, the quick ratio, which measures the ability of its current assets to be immediately realised to repay its current liabilities, was 0.47, down 0.02 from the end of 2022. Both figures are below the international reasonable level.

The financial report also shows that in 2023, the average price of BYD's bicycles will be about 156,000 yuan, a decrease of 14,000 yuan from the previous year, but BYD's average sales expenses for selling a car will be 8,100 yuan, an increase of 300 yuan from the previous year. This led to a 0.6 percentage point quarter-on-quarter increase in BYD's 2023 single-vehicle sales expense ratio.

In January and February 2024, BYD's monthly sales were surpassed by old rivals Geely and Changan. Since February 18, BYD has intensively released 15 Honor Edition models. Compared with the Champion Edition, the Honor Edition has a maximum drop of more than 30,000 yuan in terminal pricing when the configuration is not adjusted much. The price reduction of a similar magnitude runs through almost the entire product line of BYD. Many industry insiders believe that in 2024, BYD's average bicycle price and sales expenses will continue to be under pressure.

BYD's capacity expansion is also aggressive. In 2023, BYD's cash outflow for investment activities such as building new factories and purchasing equipment totaled 148.77 billion yuan. This figure represents an increase of 11.1% from 2022 and is 2.6 times that of 58.13 billion yuan in 2021.

Image source: Visual China.