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buy early and enjoy early, buy late and enjoy discounts; this is a true reflection of the automobile consumer market in the past year.

the price of a-class family cars has dropped to 60,000 or 70,000 yuan; the mainstream b-class cars that once started at 200,000 yuan can now be purchased for only 120,000 yuan; even luxury brands such as bba have begun to cut prices to promote sales. buying a car is cheaper, which is the consensus in the current car market. statistics show that compared with the same period in 2022, the average transaction price of fuel vehicles has dropped by 10,200 yuan, the average transaction price of new energy vehicles has dropped by nearly 8,900 yuan, and the average transaction price of hybrid models has dropped by 25,100 yuan.

as terminal prices drop, have the profitability of automakers been affected? have automakers maintained their profits in the game between r&d investment, product prices, and market share?

car prices are "really good", but car companies' profits have increased

as cars become cheaper and cheaper, can car companies still make money? the answer to this question is obviously yes.

according to the first half reports of 2024 recently released by major listed automakers, except for a few, most chinese automakers have achieved profitability.

take byd as an example. in the past two years, byd has launched champion edition and glory edition of various models. while improving the configuration, it lowered the starting price of the models and received a large number of orders.

byd's revenue also increased significantly with its sales. in the first half of 2024, its revenue was 301.127 billion yuan, a year-on-year increase of 15.8%; at the same time, byd's net profit did not shrink due to price cuts, but continued to grow, with a year-on-year increase of 24.4%, even exceeding the revenue growth.

compared with the total profit, the profit per vehicle is more indicative of the profitability of car companies. according to the 2024 semi-annual report data of domestic mainstream car companies, in the first half of this year, the top five domestic car companies in terms of profit per vehicle were great wall, geely, ideal, byd, and seres, with the highest profit per vehicle being 12,800 yuan.

it is not difficult to see from this chart that the overall profit level of a company is not directly related to the profit per vehicle, but also depends on the scale effect. take byd as an example. although byd is the most profitable automaker in the first half of 2024, its profit per vehicle is average and ranks in the middle.

the overall profit increased, but the profit per vehicle did not change significantly. byd is likely to be intentionally "controlling" its own profits.

byd "lowered" its own profits

an counterintuitive fact is that car companies can control their own profits within a certain range.

as we all know, profit = revenue - cost. for car companies, increasing r&d investment and accumulating technical reserves means increasing costs; lowering prices and passing on benefits to consumers means reducing revenue. both will reduce profits to a certain extent.

take byd as an example. it is still increasing its r&d investment. according to the semi-annual report of mainstream listed automakers in 2024, byd has become the "r&d king" of china's auto industry. its r&d investment is higher than tesla (about rmb 16.1 billion), more than three times that of great wall, more than four times that of geely, and almost equal to the sum of great wall, ideal, geely and changan.

since byd went public on the a-share market in 2011, its r&d investment has been higher than its net profit for 14 of the past 14 years, and even several times higher than its net profit in the same period. as of now, byd's cumulative r&d investment has reached nearly 150 billion yuan. this means that byd has invested a considerable part of its income in technology research and development, and used it to hone its product strength.

recently, li yunfei, general manager of byd group's brand and public relations department, said that the total number of byd employees has exceeded 900,000, of which nearly 110,000 are technical r&d personnel; byd has now become the automaker with the largest number of r&d personnel in the world.

at the same time, byd is also controlling the prices of its products. at the china automotive chongqing forum in june this year, li yunfei said that due to the rise in lithium battery raw materials and the shortage of the upstream automotive supply chain, new energy vehicles have increased in price in 2022, and byd has also raised prices twice. however, as the prices of batteries and raw materials fall, automakers should also lower prices. not lowering prices is "immoral to consumers."

it is precisely because of brands like byd that have controlled profits at a reasonable level, ending the era of huge profits in joint venture cars, that chinese consumers are finally able to buy high-quality and low-priced products.

where is the boundary of “reasonable profit” for car companies?

there is no doubt that the pursuit of profit is the instinct of enterprises. however, for the sake of long-term development, excellent enterprises need to pursue reasonable profits to achieve win-win results for customers, employees, shareholders, society and partners.

on the one hand, enterprises cannot only pursue immediate benefits and ignore long-term development. for example, for an innovative enterprise, giving up investment in research and development often means the beginning of decline.

on the other hand, only sufficient profits can support the company to move forward steadily and create more value for employees, shareholders, partners and the entire society.

how should a company control its profit level to achieve a balance between the two?

in the automotive industry, we can turn our attention to those "century-old stores" and see how they pursue "reasonable profits."

according to the list of global automakers' per-vehicle profits in the first half of 2024 compiled by yiche, the top ten are still occupied by international brands, especially luxury and super luxury brands such as ferrari, lamborghini, porsche, etc., whose per-vehicle profits far exceed those of mainstream automakers.

at the same time, the profit level per vehicle of international mainstream brands such as general motors, stellantis, volkswagen, and renault is around 10,000 to 15,000 yuan.

due to different fiscal year statistics, yiche's 2024 first half per vehicle profit list does not include japanese automakers. however, according to 2023 data, japanese automakers' per vehicle profits are still not low. for example, toyota's per vehicle profit reached 21,000 yuan.

in other words, after excluding luxury and super luxury car brands, the profit level per vehicle of international mainstream car brands is roughly around 10,000 to 20,000 yuan.

considering that the main r&d resources of these brands are mostly located in developed countries, the cost-effectiveness of their r&d investment is not high. therefore, if chinese automakers control the profit per vehicle at around 10,000 yuan, keeping it close to the level of international mainstream automakers, they can maintain strong product and cost competitiveness in the global market and earn enough benefits for their shareholders, employees and partners.

in fact, compared with international brands, chinese car companies have this unique advantage. today, china has the most complete automotive industry chain in the world, especially in the field of new energy vehicles. china's supply chain has achieved a high degree of scale and vertical integration. for the same new energy vehicle, china's production cost can even be the lowest in the world.

this is also the biggest competitive advantage of byd and other chinese automakers in the chinese market, and also their biggest potential to expand into the global market. after years of continuous investment in the core technology of new energy vehicles, domestic brands have now established a technological moat in domestic and foreign markets with these advantages, impacting the market pricing power of joint venture brands. in the future, this model may also be replicated overseas to benefit global consumers.