BYD: Making money while throwing, who else except "Cars King"?

$BYD COMPANY(01211.HK) released its Q4 2024 performance after the Hong Kong stock market closed on March 24, Beijing time. The key points are as follows:

1. Revenue performance is good, core automotive business (including battery business) revenue exceeds market expectations: This quarter's revenue performance is good, with total revenue of 274.9 billion, exceeding market expectations of 259.5 billion. Both BYD Auto and BYD Electronics' revenues exceeded expectations.

However, in the core automotive business (including battery business), the market originally believed that BYD would experience a decline in revenue in Q4 due to price cuts starting at the end of the year. Instead, the average price of cars showed a quarter-on-quarter increase, rising from 139,000 yuan in the previous quarter to 144,000 yuan this quarter, driving automotive revenue above expectations. Dolphin Research believes this may be driven by a shift towards high-end models, especially with an increase in the proportion of high-end hybrids.

2. Automotive business gross margin is below expectations, but not a major issue: This quarter, the automotive gross margin (including estimated battery business) decreased by 0.2 percentage points quarter-on-quarter despite the increase in high-end model proportion and the release of scale effects. Dolphin Research believes this is mainly due to the significant transfer of construction projects to fixed assets in Q3, leading to a high increase in fixed assets. The depreciation impact of this high increase in fixed assets will be fully reflected in Q4, causing the per-vehicle depreciation cost to potentially rise quarter-on-quarter, which somewhat dragged down the gross margin.

3. Operating expenses continue to grow significantly: This quarter, operating expenses continued to show a high growth trend, especially in R&D expenses, which increased by 6.2 billion quarter-on-quarter to nearly 20 billion, reaching a historical high! Dolphin Research believes that BYD's high increase in R&D investment in Q4 is mainly used for: ① The launch of high-end models in Q4, increasing investment in high-end model technology; ② Preparing for equal rights in intelligent driving by 2025; ③ Researching the next generation of pure electric super e-platform, which can be relatively understood by the market.

4. Capital expenditure began to increase this quarter, coupled with BYD's placement financing behavior, expected to increase investment in overseas capacity: This quarter's capital expenditure was 27.8 billion, an increase of 5.6 billion from 22.3 billion in the previous quarter, expected to prepare for the capacity needed for this year's high growth in domestic sales + investment in overseas capacity.

5. Net profit per vehicle is flat quarter-on-quarter, slightly exceeding market expectations: For investors also concerned about net profit per vehicle, this quarter's net profit per vehicle was 9,300 yuan, basically flat quarter-on-quarter, but exceeding the market expectation of 9,000 yuan.

Despite the high growth in operating expenses, the net profit per vehicle remained flat quarter-on-quarter, which is partly due to the leverage effect released from the quarter-on-quarter increase in sales, and partly due to approximately 5 billion in other income this quarter.

Dolphin Research's Overall View:

Overall, BYD's performance in the fourth quarter is quite good, with total revenue exceeding market expectations. In the core automotive business, the average selling price of cars finally began to rise quarter-on-quarter this quarter. Dolphin Research expects this may be driven by the push for high-end products in the fourth quarter, which is a positive sign, but sustainability remains questionable, especially since BYD is still focusing on equalizing intelligent driving this year, with strategic emphasis primarily on maintaining sales volume.

Regarding the gross margin from car sales (including estimated battery business), this quarter may have seen an increase in depreciation costs due to the substantial fixed assets from large construction projects in the third quarter being fully recognized in the fourth quarter. This could lead to an increase in per-vehicle depreciation costs compared to the previous quarter, but the overall gross margin from car sales reached 25.4%, which is not a major issue.

This quarter's R&D expenses indeed aligned with Dolphin Research's previous expectations. As car sales generated a significant increase in cash flow quarter-on-quarter, there was a rapid need to catch up on preparations for the competition around intelligent driving in the second half, especially in preparation for the equalization of intelligent driving in 2025. This high increase in R&D investment can be relatively understood by the market.

BYD's dividend this time is HKD 3.97 per share, slightly exceeding the market expectation of HKD 3.7 per share, with a dividend yield of 1.1% for 2024, accounting for 31% of BYD's net profit attributable to shareholders in 2024. Since there is still a need to invest in overseas production capacity (capital expenditures began to increase in the fourth quarter), BYD still possesses relatively certain growth potential for 2025, making this dividend yield quite decent.

Looking ahead to 2025, BYD remains a relatively high-certainty target, especially since at the beginning of this year, BYD once again used the "equalization of intelligent driving" + "pure electric e-platform" technology to create a phase-leading time difference to further defend and expand market share, essentially similar to last year's DMI 5.0 technological advantage.

In the article "Can 'Equalization of Intelligent Driving' Really Create Another BYD?," Dolphin Research also mentioned that the main market divergence regarding BYD currently lies in the impact of standard intelligent driving on car sales gross margin. However, Dolphin Research believes that the negative impact of adding intelligent driving features without increasing prices is likely to be offset by supply chain price reductions and economies of scale, and during the period when peers' lower-tier intelligent driving has not yet been mass-produced, BYD's sales still possess high certainty Therefore, although the current stock price has priced in the impact of "intelligent driving equality" under neutral expectations, there is still the possibility of the stock price evolving towards optimistic expectations. Especially once we see that the order volume for the first batch of 21 models from BYD, which will be launched in March-April 2025, exceeds expectations, leading to delivery volumes that continue to surpass expectations, and the automotive business's gross profit margin being offset by supply chain price reductions and economies of scale after the negative impact of intelligent driving enhancements without price increases, BYD's stock price still has the potential to evolve towards an optimistic valuation.

PS: BYD is a company with a complex business structure, covering automotive, mobile phone components and assembly, secondary rechargeable batteries, and photovoltaics, among other businesses. However, the in-depth articles on BYD completed by Dolphin Research last July, "BYD: The Best Battery Manufacturer Among Automakers" and "BYD: After the Surge, Seeking Stability in Wealth," have already identified the core. The business is too diverse and complicated, but the focus remains on the automotive business. Those who want to understand this company can first review our above two analyses.

Here is the detailed analysis:

I. The gross profit margin of the automotive business is slightly lower than market expectations, but the selling price per vehicle significantly exceeds market expectations.

1.1. The gross profit margin of the automotive business (including battery business) has slightly declined this quarter, but the issue is not significant.

Every time performance results are announced, the market is most concerned about BYD's automotive business gross profit margin. Although BYD has started to lower prices towards the end of the year, the overall decline is not large, so the market expects a quarter-on-quarter decrease in single-vehicle revenue of 0.12 million yuan to 138,000 yuan in the fourth quarter.

In the context of the market's expectation of a relatively small decline in single-vehicle revenue, the market's expectation for this quarter's automotive business gross profit margin has instead increased by 0.3 percentage points quarter-on-quarter to 25.9% due to economies of scale.

However, from the actual situation this quarter, the market's predictions are completely contrary; the single-vehicle price has shown a quarter-on-quarter upward trend, increasing from 139,000 yuan in the previous quarter to 144,000 yuan this quarter, exceeding the market expectation of 138,000 yuan.

The gross profit margin of the automotive business (including a rough estimate of the battery business) has slightly declined quarter-on-quarter due to economies of scale. The gross profit margin for the automotive business (including a rough estimate of the battery business) in this fourth quarter reached 25.4%, a quarter-on-quarter decline of 0.2 percentage points, slightly lower than the market expectation of 25.9%, but the decline is not significant and falls within a reasonable margin of error.

Dolphin Research will analyze BYD's vehicle sales from the perspective of single-vehicle economics:

a) Single-vehicle price: The automotive single-vehicle price in the fourth quarter is 144,000 yuan (including a rough estimate of the battery business), which has increased by 5,000 yuan to 144,000 yuan this quarter. Dolphin Research believes that the reason for the quarter-on-quarter rebound in the automotive single-vehicle price may be due to the increase in the proportion of high-end models, which has driven up the single-vehicle price.

This quarter, high-end models (Denza + Yangwang + Fangchengbao) accounted for 4.2% of the model structure, an increase of 0.3 percentage points from the previous quarter, mainly driven by the increased sales proportion of the newly launched Fangchengbao B8 and Denza Z9 The proportion of BYD's hybrid models priced above 200,000 yuan has also increased sequentially, rising from 9.7% in the previous quarter to 11.1% in the current quarter, an increase of 1.4 percentage points.

b) In the fourth quarter, BYD reduced prices for some models, but the overall sequential decline was not significant, with most models experiencing a sequential decline of less than 3%, so the negative impact on the selling price of cars was also minimal.

2) Per vehicle cost: Per vehicle cost continues to rise under the release of scale effects

In the fourth quarter, the per vehicle cost was 107,000 yuan, an increase of 4,000 yuan sequentially. Dolphin Research believes that under the release of scale effects, the per-vehicle cost did not continue to decline but rather continued to rise, possibly driven by two factors:

① The proportion of high-end models has increased, and the cost of high-end models is higher;

② In the third quarter, the significant transfer of construction projects to fixed assets led to a sequential increase in fixed assets of 33.9 billion yuan to 263 billion yuan in the current quarter, and the depreciation impact of this high increase in fixed assets will be fully reflected in the fourth quarter, which may lead to a sequential increase in per-vehicle depreciation costs compared to the previous quarter;

1. Per vehicle gross profit: The per-vehicle price increased by 5,000 yuan sequentially, and the per-vehicle cost increased by 4,000 yuan sequentially. In the end, BYD made a gross profit of 37,000 yuan per vehicle in the fourth quarter, which is an increase of 1,000 yuan sequentially. However, the overall gross profit margin from selling cars (including the battery business) slightly decreased by 0.2 percentage points from 25.6% in the previous quarter to 25.4% in the current quarter.

2. Net profit per vehicle has rebounded under the pull of automotive gross profit margins, but the increase in three expenses is lower than market expectations

Regarding the net profit per vehicle, which is also of concern to investors, the net profit per vehicle in the current quarter was 9,300 yuan, basically flat compared to the previous quarter but exceeding market expectations of 9,000 yuan.

In the current quarter, despite the high increase in three expenses, the net profit per vehicle was still flat compared to the previous quarter, which was partly due to the leverage effect released by the sequential increase in sales and partly due to approximately 5 billion yuan in other income in the current quarter.

Specifically:

1) R&D Expenses: Investment in high-end and intelligent technology continues to grow significantly, reaching a historical high!

In the fourth quarter, R&D expenses approached 20 billion, significantly higher than the market expectation of 17.6 billion, an increase of about 2.5 billion quarter-on-quarter, reaching a historical high!

Dolphin Research estimates that the reasons for BYD's significant increase in R&D expenses this quarter are:

① New high-end models were successively launched in the fourth quarter, and BYD increased its technical investment in high-end models: such as the Tengshi debuting on the Easy Three platform;

② BYD continues to increase its investment in intelligence: Historically, the shortcomings of BYD's mid-to-high-end models have been in the area of intelligence, and BYD is preparing for the 2025 "intelligent driving equality" initiative. The algorithms on the Tian Shen Zhi Yan C are mainly self-developed, while also accelerating the catch-up on urban NOA algorithms, gradually forming a self-developed replacement. Therefore, the significant increase in R&D investment can also be understood, especially as BYD begins to engage in a competition for "intelligent driving equality" in 2025, marking the transition of the new energy vehicle industry from the first half of electrification to the second half of intelligent competition.

③ The development of the new generation pure electric super e-platform, BYD launched super fast charging (1000V) + second-generation blade battery (improving charging multiplier), focusing on upgrading fast charging capabilities.

2) Sales Expenses: Fourth quarter sales expenses also increased significantly, exceeding market expectations of 11.1 billion

In the fourth quarter, sales expenses were 12.5 billion, exceeding market expectations of 11.1 billion, with a quarter-on-quarter increase of 2.9 billion, also reaching a historical high.

Dolphin Research estimates that the reasons for the significant increase in sales expenses are:

① BYD mainly adopts a dealership model for mid-to-low-end models, and the commission paid to dealers increases significantly with the increase in sales volume.

② Increased marketing expenses due to the intensive launch of high-end models in the fourth quarter: models such as the Fangcheng Leopard 9, BYD Xia, and Tengshi Z9 were launched intensively in the fourth quarter.

3) Management Expenses: Fourth quarter management expenses were 6.2 billion, also reaching a historical high, slightly exceeding market expectations of 5.3 billion

In the fourth quarter, management expenses were 6.2 billion, an increase of about 1.5 billion quarter-on-quarter, slightly exceeding market expectations of 5.3 billion, also reaching a historical high, likely mainly due to the increase in employee compensation.

Therefore, in the end, while the overall gross profit margin was slightly below expectations, although the significant increase in sales volume brought a certain leverage effect, the investment in the three expense categories this quarter increased significantly, reaching a historical high. Ultimately, the overall core operating profit margin in the fourth quarter was 5.5%, a quarter-on-quarter decline of 0.4 percentage points, but lower than the market expectation of 6.8%.

Having discussed the aspects of BYD's automotive business financial report that investors are most concerned about this quarter, let's look at BYD's automotive business progress from several other indicators:

4) BYD's sales continue to rebound quarter-on-quarter driven by DMI 5.0, with overall market share remaining stable in the fourth quarter. The company's fourth-quarter automobile sales reached 1.52 million units, a quarter-on-quarter increase of 34%. The quarter-on-quarter sales growth in the fourth quarter is still driven by the peak sales season and the leading advantage of DMI 5.0, while the market share of plug-in hybrid passenger vehicles has also increased by 2 percentage points quarter-on-quarter.

However, in terms of pure electric vehicles, due to BYD's pure electric models still using the previous generation electrification platform in the fourth quarter of 2024, the competitiveness of pure electric models is declining, leading to a downward trend in the market share of pure electric vehicles in the fourth quarter.

From the monthly data perspective, after reaching a peak market share in October, BYD's subsequent market share has continued to decline. Dolphin Research believes this is mainly due to competitors like Geely, which will start releasing similar technologies in the second half of 2024 and begin large-scale production by the end of 2024 (Galaxy Starship 7 EMI), successfully creating popular models. The first-mover advantage of BYD's hybrid technology has been largely caught up by competitors, and coupled with the minimal price reduction of existing models in the fourth quarter, this has led to BYD's sales in December 2024 and January 2025 falling short of market expectations.

Therefore, at the beginning of this year, BYD once again used "Intelligent Driving Equality" + "Pure Electric e-Platform" technology to create a phased leading time difference to further defend and expand market share, which is essentially similar to last year's leading advantage of DMI 5.0. BYD still has strong certainty in 2025.

5) The overseas expansion process slowed in the fourth quarter, but overseas production capacity has begun to be released

BYD's two directions for improving gross profit margin are high-end positioning and overseas expansion. The high-end positioning performed well this quarter (the proportion of Tengshi + Yangwang + Fangchengbao increased by 0.3 percentage points quarter-on-quarter), especially for high-end plug-in hybrids, which increased by 1.4 percentage points compared to the previous quarter for plug-in hybrids priced above 200,000.

However, in terms of overseas expansion, the performance in the fourth quarter was relatively weak, with the proportion of overseas sales in the fourth quarter declining by 0.4 percentage points compared to the third quarter, but this may mainly be due to mismatched export timing, which is not a significant issue.

BYD began to push for exports in December last year and contributed a considerable increment through overseas expansion during the domestic sales off-season in January and February this year, allowing BYD to maintain its market share even during the sales off-season and model transition period. This is mainly because BYD's overseas factories have begun production (especially since December last year, the ramp-up of overseas factories has been very rapid, shifting from relying on domestic exports to mainly self-production from overseas factories).

Having discussed BYD's core automotive business performance, let's take a look at BYD's other business performances:

II. Energy business growth begins to slow down

BYD's installed capacity for power batteries and energy storage (including self-supply and external supply) reached 67 GWh in the fourth quarter, a quarter-on-quarter increase of 21%, but the growth of the energy business continues to slow down.

Breaking it down, the growth of the energy business this quarter differs from the previous quarter, which was mainly driven by energy storage batteries. This quarter, the performance of energy storage batteries was average, and there was even a trend of quarter-on-quarter decline (similar to the quarter-on-quarter decline in energy storage battery shipments from CATL).

This quarter, the installed capacity of power batteries was 50.2 GWh, a quarter-on-quarter increase of 46%, even surpassing BYD's new energy vehicle sales growth rate of 34%. With the proportion of pure electric models and high-end models remaining unchanged this quarter (the average energy capacity of pure electric models and high-end models is higher), Dolphin Research believes this may be due to an increase in the proportion of external supply batteries.

In contrast, energy storage batteries this quarter amounted to 16.8 GWh, a quarter-on-quarter decline of 19% compared to the previous quarter's shipment volume. Similar to the issues faced by CATL, Dolphin Research believes this may be due to short-term fluctuations in domestic large storage demand caused by the cancellation of mandatory storage policies, as well as potential impacts from export tax rebate policies overseas.

III. BYD's electronics business revenue exceeds expectations, but gross margin falls short of expectations

In the fourth quarter, BYD Electronics, as the operating entity, achieved revenue of 55.18 billion yuan from the mobile phone components and assembly business, significantly exceeding market expectations of 50.7 billion yuan. However, the gross margin was 5.9%, a quarter-on-quarter decline of 2.6 percentage points, falling short of the market expectation of 8.7%, likely due to the drag from the consumer electronics business on gross margins. However, with BYD's automotive sales expected to maintain a certain high growth trend in 2025, BYD Electronics is still expected to benefit from the high growth of the automotive electronics business.

Dolphin Research's historical articles:

Earnings Season

August 28, 2024 earnings commentary “BYD: Is High-End Transformation Difficult, Is the King Becoming Mediocre?” April 29, 2024, Financial Report Review: BYD: Automotive Business Gross Margin "Slaughters All", Successfully Crossing the Low Valley?

March 27, 2024 Financial Report Review: “Price Butcher” BYD: Blood Battle Bright Killing Weapon, Dawn is Not Far Away

March 29, 2024 Conference Call: 24-Year Sales Target Increased by 20% Based on 23-Year Foundation

October 30, 2023, Financial Report Review: BYD, Racing Towards "Money", Is That Enough?

August 28, 2023, Financial Report Review: BYD: The Embarrassment After "Excessive Profits", What Bombs are Left?

August 29, 2023 Conference Call: Under Price War, Company Profitability is Not a Problem, Profits in Q3 and Q4 Will Be Better (BYD Minutes)

April 28, 2023 Financial Report Review: BYD: Electric Vehicle Price War, Making Money is the Real Skill March 29, 2023 Conference Call: BYD Minutes: High-end supports profits, mid-to-low-end spreads costs, internationalization recreates BYD

March 29, 2023 Financial Report Commentary: BYD: "Excessive Profits" Counterattack against Buffett's Selling Pressure

October 29, 2022 Financial Report Commentary: Abandoned by Buffett? BYD Hands in a Dominant Performance

August 31, 2022, Conference Call: BYD: Using Procurement to Pressure Prices to Digest Subsidy Reductions, Annual Production Target to Reach 4 Million Units Next Year (Conference Call Minutes)

August 30, 2022 Financial Report Commentary: Label Ripping Moment: Is BYD About to Welcome a Glamorous Transformation into a "Money-Making Machine"?

April 28, 2022 Financial Report Commentary: BYD: Sales Guaranteed, Steady Through the Year Start Assessment

March 30, 2022 Conference Call: Black Technology Boosts Product Upgrades, BYD's 2022 Sales Remain Strong (Meeting Minutes)

March 30, 2022 Financial Report Commentary: The "Torn" BYD: Selling Cars is Easy, Making Money is Hard

October 28, 2021 Financial Report Commentary: Beyond Sales, Everything is Illusory, BYD is Almost There

August 28, 2021 Financial Report Commentary: BYD: Performance Did Not Live Up to Expectations, Investment Logic Discounted Hot Topics

July 12, 2022: "Did Buffett Sell BYD? The Case is Solved"

In-Depth

September 4, 2024: "BYD: Don't Be Fooled by Its 'Mask'!"

July 11, 2024: "BYD: The Final Battle!"

July 4, 2024: "How Can the Price Butcher Still Make Big Profits? What Gives BYD the Edge in the Fierce Competition?"

August 10, 2021: "BYD Company (Part 2): After the Surge, Seeking Stability in Wealth?"

July 23, 2021: "BYD Company: The Best Battery Manufacturer Among Automakers | Dolphin Research"

Risk Disclosure and Statement of This Article: Dolphin Research Disclaimer and General Disclosure