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BYD: Plug-in Hybrids "To the Rescue," Behind the Price War Lies a "Davis Double-Click" in Profitability

Tech 2024-11-12 10:49:05 Source: Network
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BYD: Plug-in Hybrids "To the Rescue," Behind the Price War Lies a "Davis Double-Click" in ProfitabilityOn October 31, 2024, BYD (SZ: 002594) released its "2024 Third Quarter Report": Deliveries totaled 2.748 million units in the first nine months, up 32

BYD: Plug-in Hybrids "To the Rescue," Behind the Price War Lies a "Davis Double-Click" in Profitability

On October 31, 2024, BYD (SZ: 002594) released its "2024 Third Quarter Report": Deliveries totaled 2.748 million units in the first nine months, up 32.1% year-over-year; revenue for the first three quarters reached 502.25 billion yuan, rising 18.9% year-over-year; net profit excluding non-recurring items reached 23.19 billion yuan, up 19.9% year-over-year. While squeezing out market share from gasoline vehicles, BYD has opted for a two-pronged strategy of both pure electric and plug-in hybrid vehicles, with the latter demonstrating strong competitive power in recent years and emerging as a pivotal factor in BYD's sales growth.

Why are plug-in hybrid vehicles coming to the rescue?

BYD: Plug-in Hybrids "To the Rescue," Behind the Price War Lies a "Davis Double-Click" in Profitability

BYD's success is not accidental. The rise of its plug-in hybrid models has a profound internal logic. Growth in new energy vehicle sales is primarily driven by first-time car buyers and owners of gasoline vehicles. First-time buyers typically opt for pure electric vehicles, while those accustomed to gasoline vehicles often fall prey to "range anxiety." The advent of plug-in hybrid models has bridged this gap. Their exceptional driving experience, fuel consumption equivalent to a 1.0L engine, price comparable to a 1.5L, and power surpassing a 3.0V6, enables consumers to enjoy the convenience of new energy vehicles without fretting about range.

As China's new energy vehicle market enters a "deep water zone," pure electric vehicles are slowing down, and plug-in hybrids are poised to become the mainstay of the future market. Furthermore, the problem of charging station installation exists across the globe, acting as another obstacle to rapid growth in pure electric vehicle ownership. Automakers like BYD, capable of providing plug-in hybrid products, have broader market potential compared to new forces like Tesla.

BYD: Plug-in Hybrids "To the Rescue," Behind the Price War Lies a "Davis Double-Click" in Profitability

The Truth Behind the "Price War": A "Davis Double-Click" in Profitability

BYD launched the "first shot" in the price war at the beginning of 2024, and it has yielded impressive results. Sales for the first nine months reached 90% of the full year 2023 volume, but BYD hasn't sacrificed profits for salesits profitability has actually climbed higher.

BYD: Plug-in Hybrids "To the Rescue," Behind the Price War Lies a "Davis Double-Click" in Profitability

1. Steady Improvement in Gross Profit Margin

BYD's gross profit figure has surged, increasing from 28.1 billion yuan in 2021 to 104.3 billion yuan in the first three quarters of 2024, a year-over-year growth of 125%. Its gross profit margin has also risen from 13% in 2021 to 20.8% in the first three quarters of 2024, surpassing Tesla's 18.4%. This indicates that BYD, while engaged in a price war, has prioritized cost control, effectively enhancing its profitability.

BYD: Plug-in Hybrids "To the Rescue," Behind the Price War Lies a "Davis Double-Click" in Profitability

2. Refined Expense Management

BYD's management expense ratio remains stable below 3%, reaching only 2.5% in the first three quarters of 2024, demonstrating rigorous control over expenses. The market expense ratio, however, has been steadily rising, primarily due to the increase in "after-sales service expenses" with the growth in vehicle ownership. Notably, BYD has invested a substantial 33.3 billion yuan in research and development, surpassing Tesla's 23.2 billion yuan, showcasing the company's commitment and investment in technological innovation.

BYD: Plug-in Hybrids "To the Rescue," Behind the Price War Lies a "Davis Double-Click" in Profitability

3. Exponential Growth in Net Profit

With simultaneous growth in revenue and gross profit margin, BYD has achieved a "Davis Double-Click," resulting in exponential growth in net profit. In the first three quarters of 2024, BYD's net profit reached 23.19 billion yuan, exceeding Tesla's 34.2 billion yuan for the same period, not to mention Tesla's $2.07 billion in carbon emission allowance revenue. This demonstrates that BYD has not only achieved breakthroughs in sales but also achieved a qualitative leap in profitability.

BYD: Plug-in Hybrids "To the Rescue," Behind the Price War Lies a "Davis Double-Click" in Profitability

Analysis of Asset Quality and Operating Cash Flow

Beyond sales, revenue, and profit, investors need to consider BYD's asset quality and operating cash flow.

BYD: Plug-in Hybrids "To the Rescue," Behind the Price War Lies a "Davis Double-Click" in Profitability

1. Impact of Aggressive Depreciation Strategy

BYD adopts an aggressive depreciation strategy, disposing of or scrapping outdated equipment, increasing current costs, and reducing future asset impairment risks. While this strategy may temporarily affect profits, it will help the company shed unnecessary burdens in the future and maintain technological advancement.

2. Decline in Net Operating Cash Flow

In the first three quarters of 2024, BYD's net operating cash flow declined by 42.5% year-over-year due to the company's shortening of payment terms with suppliers, reducing tied-up capital. While this may have a short-term impact on operating cash flow, the move will help BYD secure more favorable prices and generate greater returns in the long run.

3. Analysis of High Debt Ratio in Automakers

The automotive industry generally has high debt levels due to heavy asset investments and its position at the top of the supply chain. BYD's interest-bearing debt reached a peak of 62.2 billion yuan in 2019, but through proactive financial management, it has successfully reduced it to 30.4 billion yuan in the first three quarters of 2024 and has achieved sustained positive net interest income. This indicates that BYD has successfully overcome the challenges of high debt and boasts a more robust financial position.

Conclusion

BYD's success is not only reflected in its growth in sales and profits but also in its commitment to technological innovation, refined expense management, and a healthy financial condition. Plug-in hybrids have come to the rescue, and the "Davis Double-Click" in profitability behind the price war highlights BYD's formidable competitiveness and development potential. BYD is expected to continue leading the new energy vehicle market in the future, transforming the global automotive industry with its exceptional innovation capabilities.


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