Under the price war, the company's profitability is not a problem, and the profit in the third and fourth quarters will be even better (BYD Summary).

Below is the summary of the conference call for BYD.CN. For an interpretation of the earnings report, please refer to the article "BYD: What's Left After the "Windfall"?"

I. Management Discussion

• Financial Overview:

Revenue for the first half of the year was CNY 260.1 billion, a YoY increase of 72.72%. Gross profit was CNY 47.6 billion, a YoY increase of 134%. Net profit attributable to shareholders was CNY 10.954 billion, a YoY increase of 204%. Basic earnings per share were CNY 3.77.

Net assets were CNY 130.4 billion, total assets were CNY 591.1 billion. The net debt-to-equity ratio improved to -43% (compared to -26% in the same period last year). Accounts receivable turnover days decreased. The company has over CNY 80 billion in cash. The company's payment terms to suppliers are around 60 days, while accounts receivable for the electronics business are 40-50 days and accounts payable are 60 days.

Automotive revenue grew by 91%, accounting for 80% of H1 23 revenue, up from 73% YoY. Mobile phones, energy storage, and rail transit accounted for the remaining 20%.

By the first half of 2023, the company's market share in the NEV sector increased to 33.5%, a growth of 6.5%, consolidating its leading position in the NEV market.

• Vehicle Models:

Facing subsidy reductions and intensified competition, the group's passenger vehicles continued to maintain good profitability. The Yung and Qin Pro models continue to expand in the high-end market. With a multi-brand strategy covering everything from household to luxury, from mass market to individual preferences, and with prices ranging from CNY 70,000 to CNY 1 million, the multi-brand strategy is starting to show results.

Off-road Vehicles:

BYD is entering the trend of electrification, as it can solve the problems of high fuel consumption, noise, and poor comfort in urban driving conditions. Solving these issues will promote the breakthrough of off-road vehicles in urban environments. Electric off-road vehicles can greatly enhance off-road performance.

Dynasty/Ocean Series:

After the launch of the Champion Edition, both the Dynasty and Ocean models have seen significant increases in sales and market position. The Dolphin and Seagull models are selling very well. The Dolphin model has started selling overseas and is popular in Europe.

High-end Passenger Vehicles:

The collaboration with Mercedes-Benz for the Tang EV did not perform well when sold in Mercedes-Benz stores. The Tang EV D9 has very low fuel consumption and is very quiet.

The Yung model represents the company's exploration of the high-end brand market. The company is becoming increasingly confident in its success. As long as there are good products and technologies, consumer recognition can be achieved. Electric luxury cars provide a good opportunity to break through social barriers and brand limitations, focusing solely on technology. The Yung model will be available for sale in September and will be delivered in large quantities in October, with orders exceeding expectations. Equation Leopard has been well received since its launch, with a high level of pre-orders and a significant increase in market expansion, entering the circle of urban SUVs.

• Overseas Expansion Strategy:

The group relies on technological innovation to accelerate its overseas layout. The scale and cost advantages have been achieved in overseas expansion. The products for overseas markets are mature. The company believes that it has stood out in the highly competitive market, demonstrating its leading capabilities. In Southeast Asia, Japanese brands previously held a 90% market share, but now they have fallen behind. The company has achieved good development in Thailand and Israel, and with the accelerated establishment of 4S stores overseas, BYD's competitiveness will also grow in Europe and South America.

• Core Technology: A series of leading technologies such as EasySquare and Cloud Chariot (C, A, P) have enhanced overall competitiveness. The company believes that Cloud Chariot can greatly increase comfort. There will be Cloud Chariot X in the future, which will feature disruptive design and smooth motor adjustment. Continuous innovation will follow.
• Concept Car: The concept car with four independent motors, without a steering wheel and brake discs, will be launched at the end of September.
• Rail Transit: Continuous expansion. In May, the Happy Yunba in Dawangshan, Hunan, was officially opened.

[Automotive Industry Analysis]

• Demand was suppressed at the beginning of 2023, but it is currently recovering. In the first half of the year, production reached 13.24 million vehicles, a year-on-year increase of 9.3%. The overall automotive market is growing.
• New energy vehicles are growing at a faster pace, and the structure is improving. In the first half of the year, sales of new energy vehicles reached 3.74 million units, a year-on-year increase of 44%. The average penetration rate of NEVs is 28.3% (affected by subsidy reduction). In July, the NEV penetration rate reached 36%, showing improvement. The company believes that the monthly NEV penetration rate can reach over 40% in the second half of 2023. The annual average is expected to be around 32-35%. The penetration rate in Europe is 20%, and in the United States, it is 7%.
• The company continues to feel the increasing competitiveness of Chinese brands from the Chengdu Auto Show. The auto show can serve as a barometer for customers planning to buy cars in the next 12 months. The company believes that the phase-out of internal combustion engine vehicles is already visible.
• According to data from the China Association of Automobile Manufacturers and customs, China exported 2.34 million vehicles in 2023, a year-on-year increase of 76%, surpassing Japan to become the world's largest automobile exporter. NEV exports reached 796,000 units, a year-on-year increase of 120%. Exports have entered a stage of high-quality development.

【Outlook】

In July, the company will release a high-level intelligent driving system, realizing full-scene companionship and assistance, opening a new chapter in intelligence. The future focus will be on ADAS, which will bring more convenience.

The company believes that sales this year will exceed 3 million vehicles.

Both mainstream and high-end models are covered—BYD's stage is high-end. Core battery, motor, and electronic control technologies are the foundation of a true high-end brand, rather than the battery, motor, and electronic control technologies of the era of internal combustion engine vehicles. High-end vehicles have high profits and can bring more upward profit potential. The trend of export development is determined. The company will export 60,000 units in 2022, 200,000 units this year, 400,000 units in 2024, and continue to increase in 2025. The next 3-5 years are a window of opportunity.

II. Q&A

Q1: How do you view domestic competition from peer companies? What measures will be taken?

A1: In the next 3-5 years, the automotive industry will definitely be filled with price wars, with price wars in different market segments, which will lead to the elimination of small brands. BYD is well-prepared for this.

Under the price war, the company's profitability is not a problem. BYD will replenish inventory in the first and second quarters, and profits will be even better in the third and fourth quarters.

(1) Scale: After achieving economies of scale, high-end products can support the development of low-end products. Moreover, costs are different under economies of scale.

(2) High-end: The profit of the BYD Tang D9 is dozens of times higher than that of the entry-level models.

(3) Technology: Leading technology brings excess returns, while homogeneous technology wins through price wars.

(4) Export: It will also be a direction with good profitability, helping BYD overcome fierce competition. Profitability will not be a problem in the coming years.

(5) The company's research and development is not capitalized, it is all expensed. Depreciation has been changed from 5 years to 3 years.

The company is very satisfied with the breakthrough in the off-road vehicle market. The company believes that players in the urban SUV market can be attracted to the off-road industry, which can expand the market and drive consumption upgrades.

Long-term strategy: Focus on technology, talent development, and research and development.

Global perspective: The era of internal combustion engines is coming to an end, and the space for the comprehensive deployment of NEVs belongs to those with technology and dreams.

Q2: What are the motives and plans for the acquisition of JETCO by BYD Electronics?

A2: We believe that the structural components for smartphones are a very good business. We acquired the Chengdu and Wuxi factories, which are characterized by their large scale and complete configuration with thousands of engineers. The industry is relatively specialized, and the customers are also professional. They have achieved a high level of precision and quality in structural components. They also have development capabilities, which can complement and enhance our business, and have a positive impact on revenue, profit, and sustainable development.

Huawei has relatively less volume due to various other reasons, but it has always been our largest customer. We hope Huawei will continue to thrive.

Q3: What are your preparations and views on fast charging?

A3: Fast charging technology has matured. For example, fast charging for plug-in hybrids is at 10C discharge, or at least 6C. The battery is never the bottleneck for fast charging, the bottleneck lies in the standard of charging stations. With so many vehicles now, it is not feasible to replace a large charging compartment. Therefore, dual-compartment charging is needed, along with water cooling to accelerate the cooling process.

On the other hand, refueling for conventional vehicles is a problem when there is no fuel at home, but in the era of electric vehicles, everyone can charge at home. Fast charging may not be a real demand, it is more of a story and concept. The same goes for solid-state batteries, they are more of a concept. The bottleneck of electric vehicle batteries has already been solved, and now the focus is on cost-effectiveness. Affordability is the true path for electric vehicles. Risk Disclosure and Statement for this Article: