When it comes to car manufacturing, profits are essential for progress.
Recently, the 2024 H1 Profit per Vehicle Rankings for Chinese brands were released, with the top spots going to Great Wall, Geely, and Li Auto. Despite being the top-selling car brand in China for the past two years, BYD ranked fourth with a profit per vehicle of 8.500 yuan in the first half of 2024. having sold 1.607.145 vehicles during the same period.
Cost Reduction and Efficiency: Leading the Charge Towards Higher Value
"Profit per vehicle" refers to the money left after subtracting costs from the vehicle's price.
In recent years, supported by national policies and China's industrial advantages, the supply chain for Chinese new energy vehicles (NEVs) has been fully established.
In July, the penetration rate of NEVs in China exceeded 50% for the first time, reaching 53.9% in August, according to the China Passenger Car Association (CPCA). From January to August 2024. sales of NEV passenger cars in China reached 6.009 million, a 35.1% year-on-year growth.
At this growth rate, China's NEV market is expected to surpass 10 million units by 2024. while the price of raw materials for NEVs continues to fall. For instance, the price of battery-grade lithium carbonate in China fell by 15.17% in July, lithium hydroxide by 16.05%, and lithium hexafluorophosphate by 9.70%—all key materials for lithium batteries.
All these factors have laid the foundation for the Chinese NEV industry to begin reducing costs and increasing efficiency.
Over the past two years, BYD has used its influence to drive down NEV prices. For example, at the start of the Year of the Dragon, BYD lowered the prices of the Qin PLUS and the Destroyer 05 Honor Edition to as low as 79.800 yuan. Flagship models such as the Han and Tang series also followed suit in this "EVs cheaper than gasoline" movement.
For consumers with a real need for cars, this price reduction allows them to save money. Winning widespread customer approval is BYD’s primary goal.
In essence, most of BYD's product lineup follows a "small profits but quick turnover" strategy. Rather than prioritizing profit, BYD focuses on giving back to its customers as soon as its performance improves.
As the saying goes, "without breaking, there is no establishment." The competition in China's NEV market has reached a threshold without any major breakthroughs. Companies like BYD, which "dare to think and act," are needed to break this low-level "involution." Once the threshold is broken, automakers will need to rely on innovation to bring in new growth. BYD is leading the way in lowering prices and raising the value of Chinese cars.
R&D Investment Exceeds Profit for Many Years: Achieving Technological Inclusivity
According to BYD's financial report, the company achieved revenue of 301.127 billion yuan in the first half of 2024. a 15.76% year-on-year increase, surpassing SAIC Group to become the largest car manufacturer in China by revenue.
BYD's net profit for H1 2024 reached 13.631 billion yuan, a 24.44% year-on-year increase.
Building cars is no small endeavor. Aside from material costs, operating a large enterprise with 900.000 employees requires substantial expenses. On top of this, branding, product promotion, manufacturing, and other aspects all need funding.
Moreover, BYD has continued to increase its R&D investments in recent years.
A recent ranking of R&D spending by A-share listed companies for the first half of 2024 placed BYD first among over 5.300 companies, with 19.62 billion yuan in R&D expenses. Globally, BYD's R&D spending places it among the leading car manufacturers.
From 2011 until now, BYD has spent more on R&D than it earned in net profit for 13 of the past 14 years, sometimes even by several multiples. As of now, BYD's cumulative R&D investment is close to 150 billion yuan.
This continuous growth in R&D has led to impressive technological advancements.
For example, in late May this year, the BYD Qin L DM-i amazed the market. Aside from being priced below 100.000 yuan, it features the debut of the fifth-generation DM technology, bringing fuel consumption for plug-in hybrid cars down to 2.9 liters per 100 kilometers. It also boasts a real-world range of up to 2.547 km on a full tank and charge.
The fifth-generation DM technology has also been implemented in flagship models such as the Song, Seal, and Han families.
For example, the latest Han model now features technologies like the DiPilot 300 "God's Eye" navigation and the Cloud Chariot-C intelligent damping system, which were previously only available in high-end brands like Denza and Yangwang.
The massive R&D investment has allowed BYD to maintain its technological lead, and since it controls core technologies, BYD is well-positioned to make technology more accessible to the public.
With the latest iterations of the Dynasty and Ocean series, BYD's products are offering more value without raising prices. For instance, all BYD plug-in hybrid models now come standard with 12V lithium iron phosphate batteries, increasing costs but enhancing user experience.
Disrupting the Traditional System: Success in the High-End Market and Overseas
Due to its rising prominence, even foreigners are taking an interest in BYD.
At major international auto shows, from Munich to Beijing, foreign guests are frequently seen visiting BYD’s booth. Some overseas research institutions are also studying BYD’s products closely. Last year, Japan's Nikkei BP took apart the BYD Seal and published a book on it, priced at 110.000 yen. Reports suggest they plan to dismantle the ATTO 3 this year.
UBS previously analyzed BYD from a cost perspective and concluded that over 70% of BYD's core components are developed and manufactured in-house. This includes batteries, where BYD remains one of the world's largest suppliers. Brands like Tesla, Toyota, and NIO all use BYD's FinDreams batteries.
BYD's ability to self-develop and self-manufacture is one of the key factors behind its strong cost control.
In essence, BYD's "technology inclusivity" has effectively ended the era of high-margin joint venture brands.
A few years ago, while many companies touted "ending joint venture premiums" and aimed to launch high-end products, joint venture brands still sold well due to their brand influence. In fact, "markups" on certain models were still common.
Today, with BYD leading the charge, China has fostered a "giant" in its NEV industry. BYD’s technology and brand influence are genuinely shaking the dominance of joint venture brands. While part of this shift is due to the industry's changing times and the struggles of joint venture brands to adapt, BYD's "small profits but quick turnover" model has undeniably impacted them.
In August of this year, sales of Chinese brand passenger cars reached 1.46 million units, a 13% year-on-year increase, with a market share of 66.9%. Before 2022. joint venture brands typically held the higher market share.
Moreover, many joint venture brands have been forced to cut prices and adjust their smart features and configurations to compete with BYD.
BYD has essentially reshaped the profit distribution landscape in China's auto market.
Furthermore, BYD is challenging the dominance of foreign brands in the high-end market.
For years, the Buick GL8 was considered the benchmark for high-end MPVs, but now the Denza D9 has held the top spot for two consecutive years, becoming the new benchmark.
In the past, luxury cars worth a million yuan were typically associated with brands like BMW, Mercedes-Benz, Audi, Porsche, and Maserati. However, the Yangwang U8 is now the best-selling million-yuan luxury car, with over 5.000 units sold in 2024. surpassing the Porsche Cayenne.
In Europe, the birthplace of the automobile, countries like Hungary, France, Spain, and Germany are reportedly working to attract BYD to set up factories locally.
It’s clear that BYD's strength has convinced even those who once viewed Chinese manufacturing with skepticism to reconsider.
Conclusion: Strong Cost Control and Technology Inclusivity
With its strong cost control, BYD is returning value to its customers through "small profits but quick turnover." At the same time, its significant R&D investment has enabled "technology inclusivity." BYD is not just another Chinese NEV giant; its growing influence is reshaping the market, breaking up the past dominance of joint venture brands, and revitalizing a market that was previously stagnating. Overseas, BYD is helping to improve the global perception of China's automotive industry and taking steps toward building a world-class Chinese brand.
