As a leading car maker, BYD faces tough competition from international and local rivals. Yet, it was able to charge ahead, selling 90% more vehicles for its most recent 1QFY2023 ended March and generating sales of RMB120 billion ($22.3 million), up 80% y-o-y.
In 1QFY2023, BYD’s selling expenses were up 135% y-o-y in its bid to compete. While the top line was within expectations, BYD delivered a “pleasant surprise” with a 5.5 percentage point y-o-y increase in its gross margin to 17.9% for the quarter, although q-o-q, the margin dipped slightly.
Its 1QFY2023 earnings surged by 411% to RMB4.1 billion. “We believe better revenue mix and scale effect could have played a part in mitigating some of the margin erosion impacts,” says Rachel Miu of DBS Group Research. In contrast, Tesla suffered a 22% decline in nonGAAP earnings due to the multiple price cuts, says Miu.
“Scale advantages and a deep vertical integration in battery and semiconductor businesses contribute to BYD’s solid cost control and margin stability amid rising competition,” write Bloomberg Intelligence analysts Joanna Chen and Steve Man.
BYD was founded in 1995 as a battery maker for mobile phones and other electronic devices. Under chairman Wang Chuanfu, it moved into the car market and emerged as a strong competitor versus the incumbent players, notably the string of state-linked joint ventures with foreign car makers such as Volkswagen and General Motors. BYD parlayed its expertise in batteries into its competitive advantage when the market for electric vehicles took off with strong nudging from the regulators.
So-called plug-in hybrid electric vehicle sales by BYD doubled to 283,000 units, while battery electric vehicle sales increased by 85% y-o-y to 265,000 units, constituting the bulk of the total vehicles sold by BYD.
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Analysts see BYD pulling ahead further. It is heavily committed to R&D, spending RMB6.2 billion in 1QFY2023, up 164% y-o-y, to ensure a steady pipeline of new models and brands with better technology. “BYD could snag a higher share of China’s burgeoning new-energy vehicle market as its expanding NEV lineups woo consumers with safer, cheaper blade batteries,” according to Bloomberg analysts.
Chen and Man believe that a “prudent” push upmarket with its Han, Tang and Seal models and a new luxury Yangwang brand can strengthen product image and profitability in the long term. “Its battery unit’s aggressive capacity expansion positions BYD to lift battery sales to external clients in the next couple of years, posing a competitive threat to CATL and LG Energy Solution,” the analysts state, referring to two competitors specialising in batteries.
BYD has gone from strength to strength, observes OCBC Investment Research on July 11. “Although BYD’s share price has done well, the stock is still trading at much lower valuations of about price-to-earnings (P/E) in the mid-20s compared to about 70 times the same time a year ago,” according to OCBC, as it maintains its “buy” call and HK$324 ($55.36) target price. Based on our in-house valuation, we think BYD’s intrinsic value is around HK$297.94, roughly 15% above its current trading price of HK$254.60.
