july 24, 2024tesla（NASQA：TSLA) released its 2024q2 financial report showing:

444,000 vehicles were delivered in the second quarter, a year-on-year decrease of 4.7%; the gross profit margin of automobile sales fell to 12.9%; the net profit in the first half of the year was us$2.64 billion, a year-on-year decrease of 48.8%.

after the poor results were announced, tesla's stock price fell 12.3% that day, closing at $216; after falling to $200 on august 5, it stabilized and rebounded; on september 6, it closed at $210.7, with a market value of $673.2 billion and a dynamic price-to-earnings ratio of 54 times.

august 29,byd（SZ：002594the 2024 interim report released by the china securities regulatory commission shows:

in the first half of the year, 983,000 vehicles were delivered, a year-on-year increase of 39.7%; the gross profit margin of automobile sales in the first half of the year reached 23.9%; the net profit in the first half of the year was 13.63 billion, a year-on-year increase of 24.4%.

in the week when the impressive business was announced, byd's stock price rose 4.2% and closed at 249.2 yuan; the closing price on september 6 corresponded to a market value of 732 billion yuan and a dynamic price-earnings ratio of 22.4 times.

tesla's valuation is much higher than byd's, mainly due to three reasons: good brand image, little impact from various barriers, and high technological content.

with a good brand image and products marketed globally, it is reasonable to have higher sales volume; technological content means high premium and high gross profit margin.

but tesla's sales volume is only half of byd's, and its gross profit margin is 9.1 percentage points lower.

scale advantage has been established

byd's sales of new energy passenger vehicles did not surpass tesla until 2022, and reached 194% of tesla's by the first half of 2024. looking only at pure electric vehicles, byd's sales also reached 90% of tesla's.

2021

in 2021, byd's pure electric and plug-in hybrid sales were 321,000 and 273,000 respectively, totaling 594,000 vehicles (new energy passenger vehicles). in addition, 136,000 fuel vehicles were sold.

this year, byd's new energy vehicle sales were equivalent to 63.4% of tesla's, of which pure electric vehicle sales were only 34.3% of tesla's (tesla sales reached 936,000 vehicles）。

2022

in 2022, byd's pure electric and plug-in hybrid sales will be 911,000 and 946,000 respectively, totaling 1.857 million (new energy passenger vehiclesthe sales volume of fuel vehicles was only 5,049 units (discontinued since march）。

this year, byd's new energy vehicle sales reached 141.4% of tesla's, but its pure electric vehicle sales were 69.3% of tesla's (tesla sales reached 1.314 million vehicles）。

2023

in 2023, byd's sales of pure electric and plug-in hybrid vehicles will be 1.575 million and 1.438 million respectively, totaling 3.013 million vehicles (new energy passenger vehicles）。

this year, byd's new energy vehicle sales reached 166.6% of tesla's. among them, pure electric vehicle sales accounted for 87.1% of tesla's (tesla sales reached 1.809 million vehicles）。

h1 2024

in the first half of 2024, byd's pure electric and plug-in hybrid sales were 726,000 and 881,000 respectively, totaling 1.607 million vehicles (new energy passenger vehiclestotal sales and pure electric vehicle sales are equivalent to 193.4% and 87.4% of tesla respectively (tesla sales reached 831,000 vehicles）。

from january to august 2024, byd's total sales volume reached 2.328 million vehicles, a year-on-year increase of 29.9%.

in the automotive industry, economies of scale are extremely prominent, from fixed assets (production line) from increased utilization, sharing of r&d investment, supply chain optimization to increased market influence.

byd's total sales volume is about twice that of tesla, and its scale advantage is unshakable.

three possible outcomes of a price war

at the beginning of the year of the dragon, byd fired the first shot in the price war. entering the second quarter, joint venture brands adjusted their strategies: volkswagen,toyota、honda、volvobrands such as the united states have reduced their terminal discounts.bmw、benz、audistart raising prices.

however, because the automobile industry is a typical example of economies of scale, price war participants may not necessarily suffer losses of 800 themselves, and there may be three possible outcomes:

above: sales volume increased, cost reduction was greater than price reduction, revenue and gross profit margin increased simultaneously, and gross profit amount increased (davis double）；

chinese: sales volume increased, gross profit margin decreased, and gross profit amount increased (small profits but quick turnover）；

next: price cuts failed to increase sales, and gross profit margin and gross profit amount both fell (stealing a chicken but losing the rice）。

international brands’ withdrawal from price wars has nothing to do with morality, but rather with concerns about a third outcome.

what is the ending of byd?

1) 490 yuan less profit per vehicle

in 2021, byd's average vehicle sales price was 179,000 yuan per vehicle (ex-factory price), the cost of a bicycle is 149,000 yuan/vehicle, and the gross profit of a bicycle is about 30,000 yuan;

in 2022, byd's average sales price will reach 180,000 yuan per vehicle, with a gross profit of 37,000 yuan per vehicle;

in 2023, byd's average sales price fell back to 160,000 yuan per vehicle, and the gross profit per vehicle remained almost unchanged;

in the first half of 2024, byd launched a number of "people-friendly models" and reduced the prices of existing models as much as possible. the average sales price in the first half of the year was 142,000 yuan, a year-on-year decrease of 25,000 yuan. since the cost of each vehicle was also reduced by 24,000 yuan, the profit per vehicle was only 490 yuan less!

2) gross profit margin increased instead of decreased

in 2021, byd's automotive business had a gross profit of 19.6 billion yuan, with a gross profit margin of 17.4%; in 2022, the gross profit soared to 66.2 billion yuan, with a gross profit margin of 20.4%; in 2023, the gross profit margin exceeded 111.3 billion yuan, and the gross profit margin further increased to 23%;

in the first half of 2024, byd's automotive business had a gross profit of 54.7 billion yuan, a year-on-year increase of 26.6%; the gross profit margin was 23.9%, an increase of 3.3 percentage points from the first half of 2023.

in the first half of 2024, tesla was helpless in demonstrating "stealing a chicken but losing the rice": sales fell by 6.6% and gross profit fell by 27.1% (equivalent to rmb 36.5 billion), gross profit margin decreased by 3.1 percentage points to 14.8% (the gross profit margin in q2 was only 12.9%）。

in the first half of 2024, automobile sales revenue increased by 9.3%, gross profit margin increased by 3.3 percentage points, and gross profit amount reached a new high. byd achieved the first outcome (davis double）。

3) gross profit and expenses

the blue line represents gross profit. for example, in 2023, byd's gross profit reached 121.8 billion, with a gross profit margin of 20.2%;

colored stacked columns represent expenses. for example, in 2023, r&d expenses are 39.5 billion, with an expense rate of 6.6%; sales expenses are 25.2 billion, with an expense rate of 4.2%; administrative expenses are 13.5 billion, with an expense rate of 2.2%;

the higher the blue is, the purer the blue-chip stock is.

in 2023, byd's three expenses totaled 78.2 billion yuan, and the total expense rate was 13%, 7.2 percentage points lower than the gross profit margin.

in q2 2024, although tesla's gross profit margin was only 18% (car sales 12.9%), but the total expense ratio is only 9.2%. the gross profit margin is 8.7 percentage points higher than the total expense ratio, and its profitability is better than byd.

r&d efforts surpass tesla

in the first half of 2024, byd's r&d investment reached 20.18 billion (ranked first among more than 5,300 a-share listed companiesof this, rmb 19.6 billion was expensed, with a capitalization rate of less than 2.8% (byd's consistent style）。

in 2023, byd's r&d expenses will be 11.6 billion higher than tesla's, a 41% increase (the average exchange rate in 2023 is 7.0467）。

since 2014 (containsby 2023, byd and tesla's cumulative r&d investment will be 114.4 billion and 117 billion respectively; by the end of june 2024, byd's cumulative r&d investment will reach 134.6 billion (since 2014）。

looking at the r&d investment of automakers in the first half of 2024, the first place is more than 20 billion, and the second place is less than 9 billion (saic), a difference of 11.2 billion.

between byd and saic, there is room for "gac+ dongfeng + seres + xiaopeng" or "geely +great wall". those who complain about byd's "competitive prices" should complain about its "competitive r&d".

expansion peak has passed

1) aggressive depreciation

as of the end of june 2024, byd's fixed assets had an original value of 348.6 billion yuan, with a cumulative depreciation of 118.5 billion yuan, and a book value of 230 billion yuan at the end of the year, down 900 million yuan from the end of 2023. although the increase is small, it shows that the peak of capacity expansion has passed.

among fixed assets, machinery and equipment account for nearly two-thirds and the depreciation period is much lower than that of land/buildings. the huge depreciation brings a heavy burden to enterprises.

in areas where technology is advancing rapidly, it is common for technology to lag behind before the depreciation period has expired. for example, photovoltaic cells have entered the era of monocrystalline silicon, and polycrystalline silicon cell production lines (no matter how new) lose competitiveness, and the related machinery and equipment can only be sold or scrapped. for new energy vehicle companies, this is a potential risk that cannot be ignored.

byd's response strategy is to accelerate depreciation and eliminate less advanced equipment through disposal/scrapping. although this will increase the current period's costs, it will allow the company to lighten its load in the future and reduce the risk of asset impairment (forced to be eliminated due to outdated equipment）。

take 2023 as an example:

early 2018also at the end of 2022) the book value of machinery and equipment is 83 billion (original value: 128.6 billionduring the year, 30 billion yuan was depreciated for fixed assets and 6.2 billion yuan was depreciated/scrapped, totaling 36.2 billion yuan, equivalent to 43.6% of the book value of machinery and equipment at the beginning of the year (in 2021 and 2022, the proportions are 46.1% and 41.2% respectively.）。

the additional items in 2023 are: purchase of 48.1 billion, transfer of 33.54 billion from construction in progress, totaling 81.7 billion (in 2022, this figure will be 61 billion）。

in the first half of 2024, the book value of machinery and equipment increased (purchase/transfer) is 16.7 billion, and the reduction item (depreciation/scrapthe book value of machinery and equipment at the end of the period fell back to 132.3 billion.

for three consecutive years, byd has "cleared" more than 40% of its machinery and equipment on its books every year.

2) the completion rate of projects under construction is relatively high

at the end of june 2024, the book value of construction in progress was rmb 43.3 billion (including 4.3 billion engineering materials), a net increase of 8.55 billion from the end of 2023.

the interim report shows that byd's completion rate of projects under construction (investment as a percentage of budget) is relatively high, and the top four are southwest industrial park (78%）、northwest industrial park（64%）、east china industrial park（59.6%）、central china industrial park（59.5%）。

according to rough estimates, the existing projects under construction can be completed with an additional investment of 32.6 billion yuan.

3) reduced financial pressure

byd's interim report is not perfect, the most obvious "defect" is that the net cash flow from operating activities fell 82.7% year-on-year. but this is not necessarily a bad thing.

in the first half of 2024, the cost of revenue increased by 28.4 billion yuan year-on-year, but the cash paid for purchasing goods/receiving services increased by 92.4 billion yuan, indicating that byd settled a large amount of accounts payable to suppliers to reduce the financial pressure of upstream suppliers and improve the "supply chain ecology". therefore, the net cash flow from operating activities dropped to 14.2 billion yuan (a year-on-year decrease of 67.7 billion），

in addition, the net cash flow from financing activities in h1 2024 was negative 12.36 billion (4.05 billion in h1 2023), mainly because cash paid for debt repayment increased by 12 billion year-on-year, while borrowings decreased by 3.85 billion year-on-year.

the net cash flow from operating activities has dropped significantly and the net cash flow from financing activities is negative. the common reason is that byd's financial pressure has been reduced.

*the above analysis is for reference only and does not constitute any investment advice