BYD goes to sea, no longer takes the bus?

Nearly 10 days after Tesla’s financial report was released, BYD, another global new energy vehicle giant, also released its third-quarter financial report.

The financial report for the third quarter of 2022 released on October 28 shows that BYD achieved revenue of 117.081 billion yuan, a year-on-year increase of 115.59%; net profit was 5.716 billion yuan, a year-on-year increase of 350.26%. Institutions generally believe that according to its current growth rate, BYD is expected to hit 2 million sales this year, that is, the average monthly sales volume in the fourth quarter needs to reach nearly 280,000.

Tesla’s third-quarter results were slightly lower than analysts’ expectations, and BYD delivered a better-than-expected answer as stated in its earlier earnings forecast. In the three-quarter test of the two giants, BYD’s situation seems to be very good. However, Tesla’s next move has added uncertainty to the next competition.

On October 24, Tesla announced that its popular models, Model 3 and Model Y, will cut prices in the Chinese market, with a maximum price drop of 37,000 yuan. This move may be to boost Tesla’s presence in China after the Shanghai factory’s production capacity and delivery capacity have been improved. The sales volume in the market will impact the annual sales target of 1.5 million units. But at the same time, this move was also interpreted by the market as a counterattack against other new energy vehicle companies, especially BYD. After all, Tesla, which has advantages in brand reputation and gross profit, will be the upper hand in the price war.

In addition, during the third-quarter earnings call, Tesla CEO Elon Musk revealed that the company is currently focusing on developing new models with lower costs, which means that Tesla’s price threshold in the global market may be further lowered.

This is not good news for domestic car companies, especially BYD. Although it has been the top global new energy vehicle sales champion for several months, the outside world does not fully recognize BYD’s achievements, mainly because of its unsatisfactory overseas performance.

Around 2013, BYD entered the overseas market with electric buses, but nearly ten years after going overseas, its overseas sales in 2021 will still account for less than 2%.

After turning to new energy sources this year and shutting down the production of fuel vehicles, BYD has also begun to accelerate its efforts to go overseas. In September, BYD announced plans to build two overseas factories in Thailand and India. From July this year, BYD began to list overseas passenger car sales separately in the monthly production and sales express report. From July to September, BYD’s overseas sales were 4,026 units, 5,092 units and 7,736 units respectively.

Judging from the growth rate in the past three months alone, BYD has also begun to increase its volume overseas, just like in China. But behind the seemingly gratifying results, BYD’s determination to go overseas is ahead of the results, and its overseas sales have not increased the proportion of total sales. In September this year, overseas sales only accounted for 3% of total sales.

In June of this year, BYD’s market value briefly exceeded one trillion yuan, but due to factors such as Buffett’s reduction in holdings, its stock price began to fall. As of the close on October 28, BYD’s market value was 698.354 billion yuan, down 33.1% from the high point. To make a breakthrough in market value again, BYD needs to prove itself in overseas markets.

Wang Chuanfu believes in “fast fish eat slow fish”. When going out to sea, BYD seized the gap of Toyota, Volkswagen and other car companies to respond slowly to the trend of electrification, and quickly opened up the market by virtue of speed and cost-effectiveness. However, with the gradual transformation of local car companies in Haiti, and under the pressure of Tesla step by step, it is unknown how long this advantage can be maintained.

A

In the third quarter, overseas sales of BYD passenger vehicles nearly doubled. If this growth rate can be maintained, BYD’s overseas monthly sales will soon exceed 10,000 units, which is close to the monthly sales level of new domestic first-line car manufacturers.

Such a growth rate is naturally inseparable from BYD’s strong investment. Since the beginning of this year, BYD has made frequent overseas moves, with new news every month.

From the perspective of the second half of this year alone, on July 21, BYD announced its entry into the Japanese passenger car market. Models such as Yuan PLUS, Dolphin, and Seal were unveiled at the Tokyo conference in Japan, and are expected to be released in 2023. On August 1, BYD announced a partnership with European dealer group Hedin Mobility to provide new energy vehicle products for the Swedish and German markets. At the Paris Auto Show in October, BYD Yuan PLUS, Han and Tang models were unveiled, and the first batch of vehicles is expected to be delivered in the fourth quarter of 2022.

BYD Han on display at the Paris Motor Show

In the overseas model, BYD adopted a model similar to Tesla and Volkswagen, and built factories directly overseas.

On September 8, BYD signed a land purchase agreement with Thailand’s WHA Group to build its first electric vehicle factory in Southeast Asia. The factory is located in an industrial area south of Bangkok, covering an area of ​​960,000 square meters. It is scheduled to be put into operation in 2024. The annual production capacity is expected to reach 150,000 units, and the products will be sold to Southeast Asia and Europe.

On October 12, according to the Financial Associated Press, BYD has considered building a second factory in India and will announce relevant news in due course. Earlier, it was reported that BYD is seeking to occupy a leading position in the Indian electric vehicle market, hoping to gain a 40% market share in this market by 2030.

With the continuous development of new markets and the landing of new factories, it is expected that BYD’s overseas sales will continue to rise, and its proportion will also increase.

In terms of strategy, BYD chose to bloom more and attack at the same time. BYD divides the huge overseas market into four parts: Americas, Europe, Asia-Pacific, Middle East and Africa, and four senior executives, Li Ke, He Yipeng, Liu Xueliang and Huang Zhixue, are responsible respectively. Overseas operational flexibility.

As a result, BYD has formed a two-pronged overseas combat system. The senior executives in the front led the team to explore the market and build a sales and service system, while the rear built a large number of factories to expand production capacity. In terms of rear security, BYD has invested heavily. In addition to investing in the construction of factories, it was recently reported that BYD will order up to 8 7700 CEU LNG dual-fuel vehicle carriers (PCTC) to meet the transportation needs brought about by rapid overseas expansion. .

But correspondingly, if the front is too long and too deep, it will also bring more new problems to BYD.

In Europe and the United States and other markets where the penetration rate of new energy vehicles is relatively high and the auto industry is relatively developed, BYD has to face fierce competition with local local competitors, such as Volkswagen, BMW and other brands.

In Southeast Asia, South America, and even the Middle East, Africa and other places, the penetration rate of new energy vehicles is still in its infancy. Although there is less competition from local powerful brands, the overall sales space is not large, and it is still in the cultivation period of the market.

For example, in the Japanese market that BYD has just entered, according to data from the Japan Automobile Dealers Association, Japan sold 34,244 new energy vehicles in the first half of 2022, a year-on-year increase of 58.2%, but the penetration rate of new energy vehicles is still low at 3.08%. In Thailand, where BYD’s first overseas factory is located, according to the Ministry of Land Transport of Thailand, from January to July 2022, the number of private new energy vehicles with nuclear capacity of 7 people or less in Thailand is only 10,281 units, with a penetration rate of 2.6%.

The single-digit penetration rate of new energy vehicles means that these markets are still a certain distance from explosive growth. At the same time, it also means that the relevant supporting infrastructure is weak, and it is difficult to contribute considerable revenue to BYD in the short term.

B

Although there are still many problems and challenges, in terms of speed and sales, BYD is already one of the relatively bright players among many domestic car companies.

In August last year, the BYD Tang EV was officially launched in Norway, with a price of nearly NOK 600,000 (about 440,000 yuan), which is much higher than the domestic price (279,500-314,800 yuan). By the end of 2021, in less than half a year of testing the water, Tang EV has sold a total of 1,045 units in Norway.

After only one year of testing the waters in Norway, BYD’s passenger car overseas layout began to run wild, which has a lot to do with the resources and experience accumulated in the past ten years of long-term exploration of commercial vehicles. At that time, Chinese car brands could not compete with European, American, Japanese and Korean car companies in terms of technology and brand influence. BYD, who realized this, chose to cut in from the commercial vehicle field.

In fact, BYD has entered the overseas market since 1998, when BYD’s European branch was established in the Netherlands, and in 1999, BYD established its Hong Kong branch and the US branch. But at this stage, BYD’s products exported overseas are mainly rechargeable batteries, and the whole vehicle will not go to sea until around 2013.

The first stop for BYD’s whole vehicle to go to sea was also the Netherlands. At that time, in order to reduce environmental pollution, Simonek Island in the Netherlands decided to replace all the buses on the island with electric buses with zero emissions. In June 2012, BYD successfully won the bid and won the first order in Europe, and 6 electric buses were delivered and put into operation in April 2013. In July, Amsterdam Schiphol International Airport in the Netherlands purchased 35 pure electric buses from BYD.

It has been working for nearly ten years since the Netherlands. Currently, in the field of pure electric commercial vehicles, BYD has sold a total of 85,000 units worldwide, covering more than 400 cities in more than 70 countries and regions around the world. According to BYD’s official data, BYD’s pure electric buses have a market share of 20% in Europe and 70% in Japan.

Commercial vehicles going to sea not only brought BYD experience and reputation, but also became a training ground and test field, and trained a senior management team that understands overseas markets for BYD. At present, Li Ke, head of BYD’s Americas market, once built the company’s sales system, led the establishment of overseas offices, and helped BYD’s pure electric buses to capture more than 80% of the US market share. The other three overseas market leaders have also experienced several years of experience.

With the experience in the commercial vehicle field, BYD’s passenger car sales speed has been significantly accelerated, and the sales system has also been quickly established. At present, BYD has more than 50 stores in Norway alone. Recently, BYD and Brazil’s largest distributor group Saga jointly opened the first store in Brasilia, the capital, and the tenth store in Brazil.

Just a few days after the Paris Auto Show, German car rental company SIXT announced that it had signed an order for 100,000 cars with BYD, with deliveries starting in the fourth quarter of this year. Although this order does not come from C-end users, it can also ensure the growth of BYD’s next overseas deliveries and increase brand awareness.

C

Under the wave of electrification and intelligence, BYD’s overseas path is somewhat similar to that of Japanese car companies in the past, both of which are assisted by the external environment. In the 1970s, when the oil crisis broke out, the economy was sluggish and oil prices soared. Japanese cars were favored by American consumers for their high quality, low prices and fuel economy, and became an important pole in the world of automobiles.

However, in order to replicate the miracle of Japanese cars, BYD faced the problem of insufficient production capacity. In order to compete overseas with a number of car companies such as Tesla, it is the only way to build local factories to shorten the delivery time of cars and reduce the cost of the industry chain.

Although BYD’s two overseas factories have been put on the agenda, it will take time for the factories to start and operate at full capacity. The planned annual production capacity of the Thailand factory, which has been officially announced, is 150,000 vehicles. The details of the Indian factory have not yet been announced. From the current point of view, if BYD’s overseas sales continue the current growth trend, overseas production capacity may be difficult to meet the follow-up demand. For BYD, which has already reached the top of new energy sales, the hot sales in short supply is a double-edged sword, and production capacity will become a shackle for its growth.

In addition, during the rapid expansion of BYD, other car companies were not idle. Tesla has cut prices in China and is developing low-cost models. Veteran car companies such as Volkswagen and Toyota are also promoting electrification strategies. These car companies have been cultivating the market overseas for many years and have a huge sales network and loyal customers.

According to data released by the China Automobile Association, in the first three quarters of this year, my country’s auto companies exported 2.117 million vehicles, a year-on-year increase of 55.5%, surpassing Germany to become the world’s second largest auto exporter. Among them, 389,000 new energy vehicles were exported, doubling the year-on-year growth and accounting for 18.4% of the total export volume.

But it is worth noting that in the first half of this year, Tesla exported 97,000 vehicles, accounting for 48% of China’s total exports of new energy vehicles in the same period, and other companies barely surpassed Tesla alone, saying that domestic new energy vehicles It is not an exaggeration to divide car exports into Tesla and others. At present, the gap between Chinese car companies in terms of overseas sales and brands is very obvious.

At present, BYD’s focus on going overseas is in Europe, and there are also considerations in this regard. Winning Europe means the high-end brand positioning and image, and also means stronger pricing power and premium power in the industry chain.

But in order to maintain the current overseas growth momentum and even make breakthroughs in Europe, BYD is bound to continue to increase investment overseas.

In the third quarter of this year, BYD’s net profit was 5.716 billion yuan, which exceeded outside expectations. After deducting the net profit of BYD Electronics’ 603 million yuan, a rough calculation shows that BYD’s bicycle profit is close to 10,000 yuan. Soochow Securities also raised BYD’s 2022 net profit forecast from 11.785 billion yuan to 16.251 billion yuan, an increase of over 4 billion yuan.

The scale effect formed by the rapid growth of sales has eased the meager profit situation that BYD has been criticized for. However, Soochow Securities also believes that due to the decline of subsidies next year, BYD’s bicycle profit may still be able to maintain a level of about 10,000 yuan, but there is not much room for growth. At the same time, the construction of factories, stores, transportation, etc. are not small expenses, which may put some pressure on BYD’s just improved profitability.

The cost of developing overseas markets is high, but the price of the same models in markets such as Europe is also higher. Whether high costs can be exchanged for high returns depends on whether BYD’s overseas markets can have a “good start” early next year.

References:

“For every car sold for nearly 10,000 yuan, BYD’s net profit in the third quarter soared by 350%” The Paper

“BYD expects to launch and deliver domestic new energy vehicles in Europe in the fourth quarter to accelerate “going overseas”” Securities Daily

“BYD accelerates to sea! The three cars are going to Europe, and they are actively building a sales network.

“BYD went to sea to counterattack and dispatched four generals” 21st Century Business Herald

“”Selling Champion” BYD, go out to sea to eat slow fish” Bohu Finance