BYD's 2023: Selling cars is easy, but making money is the real skill | Jianzhi Research

On the evening of March 26, the new energy vehicle giant BYD announced its annual performance for 2023. With 3 million units sold, it achieved a profit of 30 billion RMB, allowing BYD to break through in the price war.

In the full year of 2023, BYD achieved operating income of 602.3 billion RMB, a year-on-year increase of 42%; net profit attributable to shareholders was 30.04 billion RMB, a year-on-year increase of 80.7%; the gross profit margin increased by 3.17 percentage points to 20.21% year-on-year, successfully surpassing its old rival Tesla (18.2%).

However, the impact of industry price wars affected BYD in the fourth quarter, with a year-on-year decline in net profit for the first time in the year. The net profit attributable to shareholders in Q4 2023 was 8.674 billion RMB, an 18.6% increase year-on-year, but a 16.7% decrease quarter-on-quarter. The gross profit margin for the quarter was 21.22%, an increase of 2.22 percentage points year-on-year, but also a decrease of 0.9 percentage points quarter-on-quarter.

In 2023, BYD achieved a record high in sales volume and profit, but with some minor flaws. The annual sales volume of new energy vehicles reached 3.024 million units, achieving the annual sales target of 3 million units, a 62.3% year-on-year increase. BYD not only successfully won the crown of global electric vehicle sales, but also surpassed Tesla (1.81 million units).

Specifically, BYD's pure electric vehicle models continued to grow rapidly, with an annual sales volume of 1.575 million units, a 72.8% year-on-year increase. However, the previously rapidly growing plug-in hybrid models cooled down in 2023, with an annual sales volume of 1.438 million units, a decrease in growth rate from nearly 250% to 52%, and a decrease in market share from 51% to 47%.

Currently, BYD's market share of plug-in hybrids has dropped to around 35%, nearly halving from its peak in 2022. It can be seen that in 2023, many new energy vehicle companies such as Geely, Changan, and Leapmotor simultaneously entered the plug-in hybrid and extended-range market, which had an impact on BYD's dominant position in the plug-in hybrid market.

As for profits, BYD's net profit attributable to shareholders in 2023 was 30.04 billion RMB, an 80.7% year-on-year increase, reaching a historical high.

However, in the fourth quarter, the peak season for the auto market, BYD experienced a quarter-on-quarter profit decline for the first time in the yearWall Street News·Jianzhi Research believes that the main reasons are twofold:

On the one hand, in order to achieve the annual sales target of 3 million vehicles, BYD implemented a larger price discount in Q4. BYD offered price discounts ranging from 0.3 to 1.5 million RMB for its Dynasty series models, leading to a decline in per-vehicle profit in the fourth quarter.

On the other hand, BYD distributed an additional 2 billion RMB in rewards to its major car dealers at the end of the year. If this reward amount is added back, the difference is not significant compared to the 10.4 billion RMB in the third quarter.

However, the price war in the car market became more intense in 2024. At the beginning of 2024, BYD once again raised the price butcher's knife for plug-in hybrids, significantly reducing prices for models below 100,000 RMB. The Qin PLUS Honor Edition, for example, was directly reduced by 20,000 RMB to 79,800 RMB. Although the price discounts to some extent boosted BYD's early-year sales, the profit margin in the first quarter is likely to continue to decline.

2. Analysis of Two Major Businesses

BYD's two major businesses are the mobile phone business (including mobile phone components, assembly, and other consumer electronics businesses) and the automotive business (including new energy vehicles, urban rail transportation, secondary rechargeable batteries, etc.).

(1) Mobile Phone Business

In 2023, the global consumer electronics market was in a downturn, with shipments of smartphones, PCs, and tablets reaching 1.17 billion units (the lowest level in a decade), 260 million units, and 129 million units, respectively, with year-on-year declines of 3.2%, 13.9%, and 20.5%.

This also led to a noticeable lack of growth in BYD's mobile phone business, which is primarily focused on consumer electronics, with a decreasing share in BYD's revenue.

In 2023, BYD's mobile phone business revenue was 118.6 billion RMB, a 20% year-on-year increase, with a gross profit margin of only 8.78%. The revenue share of the mobile phone business also dropped below 20% for the first time, decreasing from 23.2% to 19.68% in BYD's total revenue.

(2) Automotive Business

As BYD's core business, the automotive business benefited from a significant increase in the scale of car sales and the addition of mid-to-high-end car models such as Tang, Song Pro, and Yuanwang, leading to increased revenue and profit.

Specifically, BYD's annual sales of new energy vehicles reached a high of 3.024 million units, a 62.3% year-on-year increase. Among them, the Yuanwang U8, Tang N8, and Song Pro 5 were officially delivered only at the end of the third quarter of 2023, accounting for only about 4% of total sales, but generating nearly 12% of the overall revenueIn 2023, BYD's automotive business achieved operating income of 483.5 billion RMB, a year-on-year increase of 48.9%, with a revenue share as high as 80.27% and a gross profit margin increasing by 2.63 percentage points to 23.02%.

The reason why the growth rate of BYD's automotive business revenue (48.9%) is lower than the sales volume growth rate (62.3%) lies in BYD's year-long price promotion activities, which mainly drove the sales of low-end models with limited growth in high-end models.

3. Accelerated Expansion of Overseas Business

Since mid-2021, after BYD made a high-profile statement to vigorously expand into overseas markets, its overseas business has entered a period of rapid growth.

In 2023, BYD has expanded its market presence in over 70 countries and regions across six continents globally, covering more than 400 cities through passenger car exports, pure electric bus and taxi operations, etc. Not only did it secure the sales champion of pure electric models in multiple countries such as Thailand and Brazil through exports, but it also started to establish factories in countries like Hungary, Brazil, and Thailand to expand local markets.

In terms of export volume, in 2023, BYD's export volume reached 243,000 vehicles, a year-on-year increase of 337%. The overseas sales growth rate not only far exceeded BYD's domestic sales growth rate (61%), but also surpassed the overall electric vehicle export growth rate domestically (80.9%).

This has led to BYD's overseas business revenue in 2023 reaching 160.22 billion RMB, a year-on-year increase of 75.2%, significantly higher than the 32.9% growth rate of domestic business; at the same time, the revenue share also increased by 5 percentage points to 26.6%.

With the domestic market share of new energy vehicles approaching its ceiling, the overseas market is expected to become a key driver for BYD's continued growth in sales and profits.

4. Intelligent Driving Solutions Becomes BYD's Next Focus

In 2023, BYD's R&D expenses amounted to 39.57 billion RMB, a year-on-year increase of 112.15%. In addition to the development and launch of new vehicle models and the upgrading of battery technology, the active layout in the field of intelligent driving is a key reason for the sudden triple-digit growth in R&D investment. In 2023, the number of BYD's R&D personnel increased by a significant 47.6% to 102,844 peopleByd has achieved self-developed "Tianshenzhiyan" advanced intelligent driving assistance system in the field of intelligent driving.

Currently, Byd's intelligent driving system has been installed in high-end models such as Tang N7 and Yuanwang U8, and will be available as an optional package for models priced above 200,000 RMB, and as a standard configuration for models priced above 300,000 RMB.

In the future, Byd will continue to invest 100 billion RMB in the field of intelligence, aiming to gain a certain advantage in the second half of the new energy vehicle battlefield - the intelligence battlefield, and to narrow the gap with first-tier companies such as Tesla and Huawei.

After reaching a near-ceiling market share domestically, Byd's next growth point will rely on overseas markets