Source: Snow Leopard Finance and Economics (ID: xuebaocaijingshe) Author: Wang Yajun
At the end of last year, Huang Cheng (pseudonym), a researcher at the institution, began to think about how to succinctly describe the intensity of the domestic auto price war to foreign investors. "The price war has been going on for a year, and investors are used to it, and they have to say something new and impactful. ”
By the end of February of this year, the problem was resolved.
"You can buy a 4.7-meter-long sedan with almost everything for $10,000. Whenever an overseas investor asks about the intensity of the price war this year, Huang will answer like this, "And in Europe, the 4.2-meter-long Volkswagen ID.3 will be sold for about 30,000 euros (about 230,000 yuan)." ”
The sedan that costs about $10,000 in his mouth is the BYD Qin PLUS Glory Edition. From February 23rd to 29th, BYD successively launched the glory models of Han, Tang, Song, Seal and Destroyer 05, and the price dropped by 4,000 ~ 60,000 yuan compared with last year.
Today, BYD's low-price spiral is enough to become the epitome of the price war in the eyes of industry insiders.
The principle of this spiral is not mysterious: reduce costs, lower prices, and then spread more costs through the sales volume brought by low prices, and so on. This is no secret to manufacturing companies. But even the simplest principle can be complicated when it comes to intersecting with a car with 30,000 parts.
In order to create this low-price spiral, Wang Chuanfu, whom Buffett called "a hybrid of Edison and Jack Welch", took 20 years.
In the past 20 years, Wang Chuanfu has been comparing, from the battery that accounts for the largest cost of new energy vehicles to the diode that costs less than 5 yuan, almost every auto part, BYD has to include it.
Wang Chuanfu revealed at the ceremony of the 5 million new energy vehicles off the assembly line in August last year that BYD began to develop hybrid technology from the beginning of its entry into the automotive industry, which can make the battery used in new energy vehicles smaller, and then make the price of the whole vehicle cheaper than pure electric models. Although until 15 years after the company was founded, there were still internal voices abandoning the technical route.
In a 2011 interview, Musk did not hide his disdain when talking about BYD, not only believing that BYD did not have good products and powerful technology, but even claimed that "their focus is on how not to collapse in China." Twelve years later, when Musk saw the video again, he changed his tune and said that BYD's cars were very competitive, "how many years have passed since this (2011 interview)."
When a sufficiently large low-priced spiral turns on, it generates enough power to make BYD a fierce rival to Tesla.
01
Break down price expectations again
Before the Lunar New Year, Zhang Nan (pseudonym), the head of the sales department of a car company, expected that the price of the Qin PLUS Glory Edition would continue to fall, "but in the end it was cheaper than expected, and I originally expected it to drop by about 15,000 yuan."
This is not the first time BYD has broken down his price expectations.
In 2023, when BYD launched the Qin PLUS DM-i Champion Edition with the same price of oil and electricity, he felt that the battery in the car was "like a free gift". Since its launch in March 2021, the starting price of the Qin PLUS has dropped by 34,000 yuan. In 2023, the BYD Qin family sold a total of 482,000 vehicles, nearly 2.5 times that of 2021.
Qin PLUS is just the beginning of BYD's low-price combination punch. From February 23rd to 29th, BYD successively launched the glory models of Han, Tang, Song, Seal and Destroyer 05, and the price dropped by 4,000 ~ 60,000 yuan compared with last year.
In the first quarter of last year, BYD only lowered the prices of the three versions of the Qin PLUS DM-i, Han EV and Tang DM-i in the Dynasty series. In the first quarter of this year, BYD's price reduction models covered the two major sales bases of Dynasty and Ocean, which sold a total of 2.874 million vehicles last year, contributing 95% of the company's sales.
In Zhang Nan's eyes, this is a more aggressive manifestation of BYD's price war strategy.
The price offensive brought immediate results. In the first two months of this year, BYD sold 324,000 vehicles, down 6.1% year-on-year. But in March, BYD sold 303,000 vehicles, which helped the company achieve a 13.4 percent year-on-year increase in sales in the first quarter.
In addition to the selling price, what impressed Zhang Nan and Huang Liang was the promotional slogan of Qin PLUS this year: electricity is lower than oil.
"In past exchanges with BYD, they have often said that they want to roll out more shares from the fuel vehicle market. Huang Liang told Snow Leopard Finance Agency, "But in the public product promotion, it is the first time I have seen such a straightforward slogan that electricity is lower than oil." ”
Huang Cheng believes that the most affected by BYD's price reduction will be the traditional joint venture brand of fuel vehicles, "the starting price of less than 80,000 yuan of Qin PLUS, in terms of space, configuration, can benchmark the joint venture brand to sell 100,000 yuan of models."
According to the estimation of Jielanlu, an automotive consulting service agency, compared with 2021, the Qin PLUS DM-i version brought BYD a profit increase of 2.6 billion yuan last year. The competing joint venture brand Nissan Sylphy has seen its profits fall by 11.5 billion yuan in the past two years.
More than a month after the listing of Qin PLUS Glory Edition, Wang Chuanfu made a war letter to the joint venture brand at BYD's 2023 financial report investor communication meeting. He said that in the next 3~5 years, the share of joint venture brands will drop from 40% to 10%.
"In any case, after Boss Wang (Wang Chuanfu) fired this shot, it may be difficult for the joint venture brand to do it in its own core price band. Huang Liang told Snow Leopard Finance Agency.
02
Even the glue has to be made by yourself
Wang Chuanfu's carefully laid out low-price spiral was earlier than his entry into the automotive industry.
BYD was founded in 1995, and its main business was to manufacture mobile phone batteries at the beginning. At that time, the industry practice was to purchase parts and components and manufacture finished products through automated production lines. In order to reduce costs, Wang Chuanfu built his own production line and achieved self-research and self-production in all links.
According to a report by China Business News in the early years, a mobile phone battery production line built by BYD itself requires 40~50 workers to operate, while the automated production line only requires one-tenth of manpower. But it takes tens of millions of yuan to purchase an automated production line, while BYD's cost of each production line is only about 1 million yuan.
Due to the lower cost, BYD's battery price is 40% lower than Nissan's. Li Yunfei, general manager of BYD's brand and public relations department, once said in a program that in 2002, BYD's mobile phone battery business became the world's first.
The same vertical integration style was applied to the automotive industry by Wang Chuanfu.
In 2003, BYD acquired Qinchuan Automobile and began to build cars across borders. Four years later, Wang Chuanfu made a bold statement: by 2025, it will become the world's largest passenger car production and sales enterprise.
But at that time, due to the small scale of BYD, "no one is willing to give you supporting industries", "no one is optimistic about electric vehicles, and they dare not accompany you to adventure". Wang Chuanfu's choice is to produce "everything" except glass, tires, and steel plates by himself.
In terms of core components, BYD has integrated its related manufacturing divisions into a "Fodi series" company, which covers the R&D and manufacturing of battery, electric drive and chassis components. At present, the battery is the most expensive component of a new energy vehicle, accounting for about 20%~30%.
Small parts for a few dollars are also within the scope of BYD's integration. Gao Fan (pseudonym), a supply chain person, told Snow Leopard Finance that BYD should also include the glue that accounts for less than 5/10,000 of the cost of the whole vehicle, and "there are diodes with a price of less than 5 yuan and a triode of about 10 yuan on the market."
China Post Securities believes that BYD's price reduction space for new cars this year comes more from the integrated layout that can reduce costs and parts outside the battery cell.
In addition, BYD has started the research and development of hybrid technology from the beginning. Hybrid vehicles are equipped with smaller batteries, and the cost and price of the vehicle are usually lower than those of pure electric vehicles in the same class.
Huang Liang once calculated the cost of hybrid models on the market a few years ago, and the result was that the cost of BYD's hybrid models was only 20,000 yuan more expensive than that of fuel vehicles of the same level, and the hybrid models of other brands were 4~50,000 yuan more expensive. By this year, "direct electricity is lower than oil".
Since 2021, BYD's hybrid model sales have entered the fast lane, driving BYD to become the global new energy vehicle sales champion for the next two consecutive years.
With the expansion of sales scale, Wang Chuanfu once again turned the low-price spiral.
Suppliers who were reluctant to accompany him on "adventures" in the early years also had to be part of this spiral. A number of supply chain sources told Snow Leopard Finance that the price is low enough to be an important factor in being able to shortlist BYD's bid.
03
Can the low-price spiral continue?
When bidding for BYD this year, Gao Fan faced more and more competitors. "There are at least 30 companies, ranging from listed companies to small businesses, and in previous years there were 8 to 10. ”
In his view, the core reason why suppliers want to bid for BYD at each other's prices is because of its sales scale. "Auto suppliers are also playing a knockout game, and the deeper they are tied to leading OEMs, the greater the chance of survival. ”
BYD's scale is not only the hope of suppliers to stay at the table, but also the most important moat of its own low-price spiral.
Huaan Securities said in a research report that compared with the vertical supply chain system and technology, BYD's scale advantage is more important in reducing costs. The agency believes that the company's current sales scale is on the left side of the minimum effective scale of the Maxi-Silberstone curve, and the cost of a single vehicle is expected to continue to decline in the process of increasing the scale of production and sales in the future. (Editor's note: The Maxi Silberstone curve is the result of the British economist G. Silberstone. Maxcy & A. Silber-ston's theory in the book "The Automobile Industry" is used to show the relationship between automobile production and average production costs. ）
In 2024, BYD's scale moat will continue to deepen. Wang Chuanfu revealed at the financial report investor communication meeting that this year's sales are expected to increase by more than 20% (from 3.629 million units) on the basis of last year. Although the expected growth rate is not as high as last year, it is higher than that of car companies such as Geely, GAC and Changan.
Zhang Nan, who is in charge of sales at a car company, does not see any player in China who can challenge BYD's scale, and Tesla, which plans to launch the Model Q, is no exception. "Tesla's self-driving function is not as effective in China as in foreign countries, and compared with BYD's car sea, Model Q is likely to lack a scale advantage, and it is difficult to form a price advantage. ”
The Model Q is an affordable model of Tesla's next-generation vehicle platform, priced under $25,000. Analysts at venture capital firm Loup Ventures had predicted that the model would be launched in 2024.
Huang Liang, who focuses on the study of the domestic automobile market, also made the same judgment.
At the beginning of 2023, he thought Geely was the most likely player to challenge BYD's sales because "management gave analysts the expectation that prices would come down." But after the Qin PLUS Glory Edition was launched, he couldn't think of anyone who could threaten BYD in the short term, "the current BYD is racing against itself."
In the short term, BYD's scale moat is difficult to be breached by opponents, but this does not mean that the war is nearing its end.
Since 2022, Gao Fan, who is doing supply chains, has found that more and more OEMs have proposed to benchmark BYD's needs in terms of cost reduction, "from traditional car companies to new forces, they regard BYD as a benchmark and are also the biggest opponents." To borrow Wang Chuanfu's judgment, 2024-2026 is a decisive battle of scale, cost and technology.
The key to determining the outcome is whether BYD's low-price spiral can continue to spin and devour more opponents.
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