BYD releases earnings forecast after “oil shortage”: Relying on core technology, moving forward with ease?

BYD recently released its first quarter earnings forecast, showing that the net profit attributable to shareholders of the listed company is expected to be 650 million to 950 million yuan, a year-on-year increase of 174% to 300%; basic earnings per share are expected to be 0.22 yuan per share to 0.33 yuan per share. At the same time, BYD announced the "oil cut" at the beginning of the month.

So, what is BYD's strategic consideration for "cutting off oil"? Does "cutting off oil" mean getting rid of the burden and moving forward lightly on the road of intelligence and high-end development?

Data: Three automakers account for half of the market

Looking at the passenger car market in March, according to the data from the China Passenger Car Association, domestic brands sold 750,000 vehicles in March, a year-on-year increase of 17% and a month-on-month increase of 37%. In March, the domestic retail share of domestic brands was 48.2%, a year-on-year increase of 11.5 percentage points; the cumulative share from January to March was 48%, an increase of 9.7 percentage points compared with the same period in 2021.

In March, the wholesale market share of domestic brands was 48.4%, an increase of 9 percentage points from the same period last year; the cumulative share of domestic brands from January to March was 46%, an increase of 5.1 percentage points from the same period in 2021. Domestic brands have gained significant growth in the new energy market, and the performance of leading companies is differentiated. Traditional car brands such as BYD and Changan have all shown high year-on-year growth.

Data is the most intuitive form of verifying the development trend of a company. In March, BYD sold 104,338 new energy passenger vehicles, the fastest growing among China's mainstream automakers. In the first three months, BYD's cumulative sales of new energy passenger vehicles in Q1 soared 433.4% year-on-year to 284,737 units.

Another set of data comes from the number of insurance claims. The data shows that the top three automakers in March are: BYD, Tesla and SAIC-GM-Wuling. The three automakers occupy half of the market, with a combined market share of 48.7%.

In addition, in terms of vehicle models, BYD Qin PLUS and Song PLUS both exceeded 20,000 units, ranking fourth and fifth on the vehicle model list; Han and Dolphin sales exceeded 10,000, ranking sixth and ninth.

Earlier, the media visited BYD's offline sales and found that in some areas, it took three months from ordering to picking up the car, which indirectly confirmed its hot sales situation.

According to BYD's investor meeting minutes, BYD conservatively estimates that sales in 2022 will be 1.5 million vehicles; if the supply chain improves, the sales target of 2 million vehicles will be reached. Industry insiders analyzed that the optimistic target expectations also became BYD's confidence in "cutting off oil".

Layout: Before the oil outage, the layout of the core three-electric industry chain had been completed

It is worth noting that BYD's production and sales of fuel vehicles in March were zero. BYD officials said that it has stopped the production of fuel vehicles and focused on EV pure electric and DM plug-in hybrid vehicle business; at the same time, it will continue to provide comprehensive after-sales maintenance services and spare parts supply throughout the life cycle to ensure that fuel vehicle customers can travel worry-free. This is the first among global automobile brands.

Data is the best proof. According to the China Passenger Car Association, the sales volume of passenger cars in the Chinese market in March was 1.814 million, a year-on-year decrease of 1.6%; among them, the sales volume of new energy passenger cars was 455,000, a year-on-year increase of 122.4% - it is not difficult to see that the fuel vehicle market is still in a state of shrinking and downward trend, and the replacement of new energy vehicles for fuel vehicles is accelerating. In March, the penetration rate of new energy passenger cars reached 25.1%, a historical high, and achieved explosive growth compared with 11.1% in the same period last year.

In response to this trend, BYD Chairman and President Wang Chuanfu made an objective analysis and judgment in the form of a video at this year's "China Electric Vehicle Hundred People Forum". He pointed out that more than 60% of Chinese families are still car-free, but the penetration rate of new energy vehicles has increased from 6% in January last year to 22% in December at the end of the year, an average increase of 1.3 percentage points per month, and the penetration rate will exceed 28% in March this year.

This also fully demonstrates that the development prospects of my country's new energy vehicle market are very broad, and the people are supporting new energy vehicles with practical actions. It is foreseeable that China's new energy vehicle production and sales will always maintain a steady and obvious upward trend.

In fact, unlike other independent brands and joint venture brands, BYD founder Wang Chuanfu has been sketching out the blueprint for new energy vehicles since it bought Qinchuan Automobile in 2003. As early as the BYD F6 rollout ceremony in 2007, Wang Chuanfu bluntly stated: The future world belongs to hybrid and electric vehicles, not gasoline vehicles.

To date, BYD has completed the industrial chain layout of the three core electrics of new energy vehicles, including independent core technologies such as blade batteries, DM-i super hybrids, and IGBT chips. In addition, after years of growth, the new energy vehicle industry has reached a stage where market demand is rapidly rising. BYD urgently needs to seize the opportunity to release the huge initial investment.

Interpretation: The three major logics behind "oil outage"

After completing the core layout of the "three electrics" and other new energy industry chains, BYD's "oil cut" has its own logical support.

The first is the positioning of fuel vehicles within BYD. Some media have previously likened "cutting off oil" to "cutting off one's arm". But according to industry insiders, BYD's fuel vehicle production and sales are continuing to decline in 2022. In the first two months of this year, BYD sold only more than 5,000 traditional fuel vehicles. By March of this year, sales and production had returned to zero.

Comparing the completely different market conditions of the new energy business and the fuel vehicle business, it is not difficult to find that it is a natural choice for BYD to give up its production capacity resources to the more popular new energy vehicle models, which is far from being a heroic act.

On the other hand, BYD has been seeking to transform its brand into a high-end brand, and it must also abandon fuel vehicles as soon as possible. In many people's impressions, BYD's fuel vehicles have a mediocre reputation, and low-end fuel vehicles like the F3 are not conducive to the future development of the BYD brand.

From this perspective, BYD's decision to stop selling its fuel-powered vehicles, which were already "dragging its feet", is more like "removing its appendix" and is an inevitable choice.

Finally, what is more important is the view of the capital market.

In line with its outstanding sales performance, BYD has also taken the lead in the capital market. Recently, its market value has reached nearly 700 billion yuan, exceeding the combined value of SAIC, Great Wall Motors and Geely Automobile.

According to a report by China Securities Journal, in recent days, global asset management giant BlackRock has appeared at BYD's investor relations activities. According to the investor relations activity record sheet disclosed by BYD, BlackRock conducted research on BYD through a conference call.

In this survey, BlackRock was particularly interested in BYD's DM-i super hybrid related products. Two of the five questions and answers disclosed in the investor relations activity record were related to DM-i super hybrid.

Analysts believe that hybrid vehicles will be the main development direction of the future market, so BYD's super hybrid technology does have its own market advantages. As long as this market advantage can be developed, it is very likely to promote the further development of the entire market. In fact, this super hybrid technology is more cost-effective under large-scale development, which will undoubtedly further promote the development of BYD's own business.

Therefore, for BYD, the business logic of super hybrid is in line with the current market needs. As long as BYD can do well and continuously upgrade its technological reserves, it is very likely to make further achievements in the market and gain more differentiated market competitive advantages.