BYD: Unveiling the Hidden Crisis Behind Impressive Financial Figures

Automotive Author: Boying Ji Apr 10, 2023 05:14 PM (GMT+8)

BYD's sales scale continues to hit new highs, but its profits are meager, and there is still a big gap compared with Tesla.


On March 29, 2023, BYD (002594.SZ) announced its 2022 annual report, with revenue of CNY 424 billion, a year-on-year increase of 96%; net profit attributable to the parent company of CNY 16.6 billion, a year-on-year increase of 445.9%; net cash flow from operating activities of CNY 140.8 billion, an increase of 115% year-on-year.

In the field of global new energy vehicles, BYD and Tesla are recognized leaders. Compared with Tesla, BYD currently leads in terms of sales volume and cash flow, with a large gap in revenue and net profit.

According to the closing price on March 31, BYD's market value was CNY 745.3 billion, and Tesla's market value was equivalent to CNY 4.5 trillion. BYD's profit is about one-fifth of Tesla's and its market value is one-sixth of Tesla's.

In 2022, relying on the "two-wheel drive" strategy of the E platform and the DM-i platform, BYD will make a huge breakthrough in the mainstream market of new energy vehicles, and become the world's top new energy vehicle sales with an annual sales volume of more than 1.86 million vehicles. The release of Denza and the new high-end brand Yangwang fully demonstrated BYD's cutting-edge technological advantages, and is expected to strengthen the company's voice in the luxury market and high-end market and enhance the brand's tonality. Beginning in 2023, BYD's "Dynasty + Ocean + Tengshi + Looking Up" product matrix has been officially completed, which will fully match the needs of various consumer levels and continue to strengthen the brand's influence.

Operating strength analysis

In October 2022, the company's single-month production and sales volumes were 220,100/217,800 units, respectively +169.8%/+168.8% year-on-year; from January to October, BYD's production and sales volume reached 141.2 units and 139.8 units, respectively, an increase of 233.5% year-on-year % and 233.9%, write the "acceleration" of new energy vehicles.

In terms of safety, the lithium iron carbonate material takes into account both safety and battery life to bring material safety; the puncture test reflects the safety of the monomer; the rolling test proves the safety of the package body; Black technology" technology will bring users ultimate security.

In the future, BYD will form a new brand matrix of Dynasty, Ocean, Tenza, Look Up, and Professional Personalization, covering from home to luxury, from mass to personalization, to meet the diverse needs of users. The delivery of the D9 started in the fourth quarter, and the Destroyer 07 was launched at the same time. Denza D9 currently has more than 30,000 orders. The continuous increase in the volume of high-end brands has brought about an increase in average price, which will help improve the company's brand power.

The company further develops the global market and promotes the internationalization of business, talents, passenger vehicles, and industries. The company exported 32,000 new energy passenger vehicles from January to October this year. On October 17, three electric models Tang, Han, and ATTO3 were unveiled at the Paris Motor Show. Its seal will be launched in Germany and Sweden through the European dealer group HedinMobility in 22Q4. It is estimated that overseas sales of passenger cars will account for 10% of its sales in 2023.

Potential Risks: low current ratio and profitability

BYD has opened a new chapter of investment in the new energy vehicle and battery industries, purchasing a large amount of land, building factories, and purchasing equipment and raw materials. In 2022, the total assets of Q3 will be 426.2 billion yuan, an increase of 117% over 2019, and a compound growth rate of nearly 30% in the past four years, an increase of 44.1% over the end of 2021.

However, while investing heavily in fixed assets, the downward trend of asset liquidity is also more obvious.


The risk also comes from weaker profitability.

BYD's sales scale continues to hit new highs, but its profits are meager, and there is still a big gap compared with Tesla. From 2019 to 2022, the Q3 gross profit margins are 16.3%, 19.4%, 13.0%, and 15.9%, respectively, and the net profit margins are 1.7%, 3.8%, 1.8%, and 3.7%, respectively, with large fluctuations. Tesla's gross profit margins were 16.6%, 21.0%, 25.3%, and 26.4% in the same period, and its net profit margins were -3.15%, 2.7%, 10.5%, and 15.3%.

From 2019 to 2021, the national and local government subsidies BYD received were 1.72 billion, 1.7 billion, and 2.27 billion yuan respectively. After excluding government subsidies, the net profit was minimal. Compared with Tesla, expensive has never been a feature of BYD. The gap in profitability is reflected in all aspects of design, technology, management, and branding. New energy vehicles, batteries, and other industries are facing fierce market competition in domestic and foreign markets. If they cannot continue to maintain or improve product competitiveness and brand premium capabilities, they may be at a disadvantage.

That's not finished.

The result of the rapid expansion of production capacity, reflected in the financial report, is that the asset-liability ratio has risen sharply from 68% in 2019 to 73.6% in Q3 of 2022, crossing the red line of 70% in the manufacturing industry; however, BYD's financing balance (long-term and short-term loans and bonds payable) fell from 71 billion yuan in 2019 to 24 billion yuan. Shareholders did not increase their investments.