Global automakers have officially entered a cold winter. How can they be saved?

"Car companies' battle royale"

In November 2018, General Motors announced that it would close five auto plants in North America and two plants outside North America.

In December 2018, Fiat Chrysler Automobiles told its union that it would temporarily lay off 3,245 blue-collar and white-collar workers at the plant, more than half of the total workforce.

In January 2019, British automaker Jaguar Land Rover announced that it would lay off 4,500 employees to promote the company's strategic transformation.

In February 2019, Honda announced that it would close its only car factory in Europe, the Winston car factory in the UK.

In March 2019, Germany's Volkswagen Group announced that its automotive industry would lay off between 5,000 and 7,000 employees.

In April 2019, Daimler announced plans to lay off 10,000 employees and cut costs by $6.75 billion over the next few years.

In May 2019, Ford Motor Company announced that it would lay off 7,000 employees worldwide, accounting for about 10% of its total employees, of which about 2,300 employees would be laid off in the United States.

In June 2019, Ford Motor Company announced that it would close six automobile manufacturing plants in Europe.

In July 2019, Nissan announced that it would lay off 12,500 employees worldwide.

In August 2019, China's Dongfeng Peugeot Citroen Automobile announced that it would close two of its automobile factories, namely Wuhan Plant 1 and Wuhan Plant 2.

In September 2019, Ford Motor Company reached a preliminary agreement with Brazilian automaker CAOA on the sale of its Sao Bernardo do Campo plant in Brazil. The workers' association of the plant said that 1,300 jobs may be laid off.

Some people say: "Automakers have officially entered a cold winter."

Unlike major global automakers that are closing factories and laying off large numbers of employees, BYD is planning to expand against the trend.

 “BYD’s Madness”

On August 21, 2019, BYD released its interim financial report, recording revenue of 62.18 billion yuan in the first half of the year, a year-on-year increase of 14.84%, and net profit of 1.455 billion yuan, a year-on-year increase of 203.61%. The net profit attributable to shareholders of the listed company after deducting non-recurring gains and losses was 740 million yuan.

However, in the first half of 2019, BYD's government subsidies included in current profit and loss reached 709 million yuan, accounting for 48.76% of the current net profit.

Similarly, according to the 2018 financial report, BYD received government subsidies of 2.073 billion yuan, accounting for about three-quarters of its net profit.

After removing subsidies, BYD's net profit continued to decline in 2017 and 2018, reaching 4.066 billion yuan and 2.780 billion yuan respectively, down 19.51% and 31.63% year-on-year.

In sharp contrast to the financial report is BYD's investment data:

In the first half of 2019, BYD's investment in capacity construction reached 13.78 billion yuan, compared with only 9.66 billion yuan in the same period last year, a year-on-year increase of 42.65%.

According to data from Wind and Huachuang Securities, investment in the automotive business accounted for 56% of BYD's Capex expenditure.

In terms of R&D expenses, BYD's R&D investment was 3.99 billion yuan, a year-on-year increase of 7.28%. Including capitalized investment, BYD's R&D expenditure in the first half of 2019 reached 7.39 billion yuan.

In terms of administrative expenses, BYD adopted a counter-cyclical growth approach, increasing from 1.757 billion yuan in the first half of 2018 to 2.071 billion yuan in the first half of 2019, a year-on-year increase of 17.84%.

In terms of staff increases and decreases, BYD recruited 3,200 fresh graduates in August alone, rivaling the total number of employees of some new car-making forces.

Some people commented that Wang Chuanfu was trying out Buffett-style investment: "I am fearful when others are crazy, and I am crazy when others are fearful." But there are also voices saying that this is like a moth flying into a flame, and that in the cold winter, he should preserve his strength and be ready to go, and BYD will also be put in a passive position.

Recent developments in the new energy vehicle industry at home and abroad

international market

EV Sales, a US new energy vehicle sales statistics website, released sales data for new energy vehicles in various regions around the world in the first half of 2019. In the first half of the year, the total global new energy vehicle delivery volume reached 1,117,484 units, a year-on-year increase of 47.4%, accounting for 2.4% of the total global vehicle sales in the first half of the year, an increase of 0.8 percentage points compared with the same period last year. Among them, there were 113,000 plug-in hybrid vehicles, with sales increasing by 46% year-on-year. In terms of sales volume, including pure electric and plug-in hybrid vehicles, the increase was 358,000 units, equivalent to the total delivery volume of the entire US plug-in vehicle market in 2018.

Source: EV VOLUMES

However, the data results for July show that the industry growth is significantly lower than that in the first half of the year, with global sales growth of only 4%. There are two main reasons for this:

First, in July, a revised subsidy program took full effect in China, narrowing the scope of subsidies to exclude electric vehicles with a range of less than 250 kilometers and cutting subsidies for longer-range new energy vehicles in half. After growing 79% and 66% in 2018 and the first half of 2019, respectively, new energy vehicle sales in China fell 2% in July for the first time.

Second, sales of new energy vehicles in the US market increased by 89% last year, with most of the growth coming from the large backlog of Tesla  Model-3 orders. At the same time, given that sales of most brands in the US except Tesla are lower than in 2018, there will not be 2018-style growth in 2019.

Judging from the transaction market in the first half of 2019, China is still the largest contributor to growth, with an increase of 257,000 units in sales, a growth rate of 66%; Europe's sales increased by more than 67,000 units in the first half of the year, a growth rate of 34%; plug-in car sales in the United States increased by 27,500 units, a growth rate of 23%, but the increase in Tesla Model-3 was 45,000 units, which means that sales of other brands declined; in addition, the Southeast Asian market also showed a triple-digit growth trend.

Source: EV VOLUMES

Domestic market

According to data from January to August 2019 released by EV Sales, a US website that provides statistics on new energy vehicle sales, the Chinese auto market has been declining for 14 consecutive months. From January to June, compared with the first half of 2018, the sales of internal combustion engine vehicles decreased by nearly 2 million (-15%), while the sales of new energy vehicles increased by 260,000 (+66%) during the same period. In other words, the sales of new energy vehicles continued to grow rapidly despite the overall decline in the auto market, but this growth only lasted until June 2019. Affected by the substantial reduction in subsidies for new energy vehicles, including imports and the domestic market, sales of new energy vehicles fell by -2% in July; preliminary results for August showed a year-on-year decrease of 13%.

Source: EV VOLUMES

A new round of subsidies for new energy vehicles worth 22 billion yuan has been issued

On October 11, the Ministry of Industry and Information Technology issued the "Notice on the Liquidation and Audit of Subsidy Funds for the Promotion and Application of New Energy Vehicles in 2017", which showed that a total of 207,409 new energy vehicles passed the audit and will receive a total of 22.027 billion yuan in new energy subsidies. Among them, Yutong Motor, BYD and Zhongtong Motor will receive the most subsidies, 4.59 billion yuan, 3.461 billion yuan and 1.12 billion yuan respectively.

History of national subsidies for new energy vehicles

In 2009, the new energy subsidy policy was proposed.

2010~2018: Policy promotion period.

2019 Transitional Policy (March 26, 2019 to June 25, 2019):

During the transition period, vehicles that meet the 2018 technical indicators but do not meet the 2019 technical indicators will be subsidized at 0.1 times the 2018 subsidy standard, and vehicles that meet the 2019 technical indicators will be subsidized at 0.6 times the 2018 standard.

During the transition period, sales and registration of fuel cell vehicles will be subsidized at 0.8 times the corresponding standard in 2018.

The impact of the decline in new energy vehicle subsidies on the industry

Source: EV VOLUMES

Short-term pain

According to the statistical analysis of the China Association of Automobile Manufacturers from January to September 2019, my country's automobile production and sales have been declining year-on-year for 15 consecutive months, among which new energy vehicles have also declined for 3 consecutive months, and consumption momentum is still insufficient. The specific data are as follows:

The production and sales of new energy vehicles reached 888,000 and 872,000 respectively, up 20.9% and 20.8% year-on-year. Among them, the production and sales of pure electric vehicles reached 717,000 and 692,000 respectively, up 29.2% and 27.8% year-on-year; the production and sales of plug-in hybrid vehicles reached 170,000 and 179,000 respectively, down 5.4% and 0.8% year-on-year; the production and sales of fuel cell vehicles reached 1,315 and 1,251 respectively, up 7.7 times and 7.6 times year-on-year.

Industry insiders analyzed that the rapid development of my country's new energy vehicle industry is inseparable from subsidies, and the recent decline in the production and sales of new energy vehicles is closely related to the "Notice on Further Improving the Financial Subsidy Policy for the Promotion and Application of New Energy Vehicles" issued in March 2019 and the "Parallel Management Measures for Passenger Vehicle Enterprises' Average Fuel Consumption and New Energy Vehicle Credits" officially implemented in 2018. Due to the decline in subsidies, the entire new energy vehicle market faces severe challenges, and it is difficult for various companies to effectively cope with cost pressures, so short-term pain is inevitable.