BYD 2020 earnings report: double bumper harvest of revenue and profit

2020 will be a magical year for the electric car industry. In the raging wave of electrification, the share prices of electric car leaders such as Tesla, BYD and Weilai soared as quickly as they sat on a rocket. Since the beginning of this year, with the changes in the external environment and many adverse expected effects, the share price of the head electric car leader has begun to experience wave after wave of tragic valuation, and the stock price has plunged rapidly.

BYD, as the leader of electric cars in China, has also rapidly dropped to 160 yuan per share from a peak of 270 yuan per share in January this year, quickly returning to the level of December last year. This embarrassing situation has not been fundamentally reversed after the release of its New year's report.

A bumper harvest of both revenue and profit

On March 29, BYD shares and BYD Electronics released their annual financial results for 2020. According to the financial report, BYD achieved total operating income of 156.6 billion in 2020, an increase of 22.59% over the same period last year, and a net profit of 4.23 billion, an increase of 162.27% over the same period last year.

From the perspective of financial data, BYD's share revenue in 2020 got out of the doldrums, and its revenue growth was positive compared with 2019. BYD's electronic revenue continued to maintain the high growth trend of 2019, and the net profit growth rate was somewhat higher than that in 2019. However, after the release of the results, BYD's listed company system instead ushered in a decline across the board. So, behind the decline in BYD's share price, what are the "joys and sorrows" in its share price?

At present, BYD's revenue is mainly composed of three parts. One is automobile and related products, the other is mobile phone parts and assembly business, and the third is rechargeable battery and other business. In the three major businesses, automobiles and related products are the core contributors to revenue, but profits mainly come from mobile phone components and assembly business.

Since the break-up of BYD Electronics, BYD's main business has been the automobile business. Benefiting from the warming of the automobile industry in the second half of 2020, BYD's revenue growth in 2020 was positive compared with 2019, with revenue reaching 156.6 billion, a year-on-year positive growth.

However, judging from the financial results, the positive growth in revenue did not lead to an increase in BYD's net profit. If you take a closer look at the net profit of 4.23 billion of BYD's shares, the vast majority of profits come from the mobile phone business, and the car business has not made a positive contribution to it. In other words, BYD's auto business does not increase profits.

Automobile business pressure

In reality, the dilemma faced by BYD's auto business is mostly closely related to the situation of the industry. Since last year, with the listing of new energy vehicles produced by many new energy vehicle manufacturers, the competition between head car companies has begun to intensify. In this context, the price war in the automotive industry is also becoming more and more fierce. BYD, as a manufacturer of new energy vehicles, is naturally unable to escape the impact of the "subsidy + price reduction" price war commonly carried out in the industry. as a result, losses are inevitable.

Of course, compared with the losses of the top three automakers, such as Weilai, Xiaopeng and ideal, the loss of BYD's auto business is mainly affected by its own low gross profit margin. Although BYD Song and Tang, which were revamped one after another in the second half of last year, together with the newly launched BYD Han, have made important contributions to pushing BYD towards high-end cars, and have indeed well raised BYD's overall gross profit margin, but this still fails to change the status quo of the low gross margin of its auto business itself.

In addition, BYD has increased its R & D investment over the past year, which has also had an impact on its losses. In recent years, BYD's spending on R & D has been on the rise. According to the financial report, the cost of research and development of BYD shares reached 7.465 billion yuan in 2020, an increase of 32.62% over the same period last year. The continued loss is bound to be a drag on the overall development of its auto business, which is part of the reason why BYD increased the amount of money raised last year.

In terms of car sales, BYD's vehicle sales also declined last year. According to the financial report, BYD's production and sales of new energy vehicles both declined in 2020 compared with the previous year. Among them, the annual output of new energy vehicles was 194100, down 14.73% from the same period last year; sales were 162900, down 12.52% from the same period last year.

In the list of new energy vehicles released by the China Automobile Association in February, BYD has slipped from the top two to third place. According to the list, SAIC GM Wuling topped the list, Tesla in second place and BYD in third place. Among them, although Tesla ranked second, he was only 3000 sets behind the first Wuling. On the contrary, BYD, which ranked third, opened the gap to 8000 sets.

It can be seen that in the face of the new car-building forces represented by Tesla, BYD, which has always been full of confidence, still needs to bear greater pressure.

There are also hidden worries in the contract manufacturing business.

In addition to the automobile business, BYD's second largest business-contract manufacturing business also has a lot of hidden worries. According to the financial data, BYD's revenue in 2020 reached 73.121 billion yuan, an increase of 37.89 percent over the same period last year. Judging from the data alone, BYD Electronics performed well last year.

The rapid growth of its mobile phone assembly and contract manufacturing business is mainly due to the recovery of the mobile phone manufacturing industry in the second half of 2020, which brings high economic growth to the contract manufacturers. In addition, BYD Electronics has formed a deep binding relationship with the top mobile phone brands in the industry, such as Huawei, Xiaomi and Apple, whose rapid growth in shipments has also led to the high growth of its contract manufacturing business.

At the same time of the rapid growth of revenue, its net profit has also achieved rapid growth. According to the financial report, BYD's net profit in 2020 reached 5.441 billion yuan, an increase of 240.49% over the same period last year. Despite encouraging growth in revenue and net profit, BYD's contract manufacturing business still faces many challenges.

In BYD's contract manufacturing business, mobile phone contract manufacturing business is its core business, and this part of the business is currently facing great external challenges. One is that as an important mobile phone brand partner of BYD, Huawei's mobile phone sales have continued to decline because of sanctions, so it may be very difficult to maintain last year's production and sales this year, which is bound to give BYD mobile phone OEM some negative effects.

In addition, the general environment of the upstream mobile phone industry also has an impact on YD's electronic mobile phone assembly business. At the end of January, China Information and Communication Institute released an analysis report on the operation of the domestic mobile phone market in 2020, which showed that the total shipments of the domestic mobile phone market in 2020 totaled 308 million units, down 20.8% from the same period last year.

With the weakening of overall smartphone shipments, many mobile phone manufacturers have gradually reduced the demand of large contract manufacturers, and some manufacturers have chosen to reduce mobile phone shipments and reduce their reliance on BYD Electronics. In addition, in the vertical industry, BYD Electronics also faces competition from contract manufacturers such as Lixun Precision and Foxconn, which undoubtedly brings many challenges to its contract manufacturing business.

Where is the break point for BYD's future?

Automobile business, contract manufacturing business are facing many external challenges, does this mean that BYD has no way to achieve a breakthrough? In reality, this is not the case.

First of all, BYD doesn't face all the bad news when it comes to smart cars. For example, the "Blade Battery", which was newly released last year, is already accelerating mass production and is now being assembled in many of BYD's best-selling new models (such as BYD Han, Tang, Song, etc.).

It is expected that with the mass production of "blade batteries" known as redefining automobile safety, BYD will also make a comeback in the automotive energy market, becoming a key point for BYD to expand the new energy market. In addition, the spin-off listing of BYD Semiconductor may become the next revenue growth point for BYD Automobile, when BYD Automobile is expected to reverse the unfavorable situation of increasing revenue without increasing profits.

Second, BYD has good contract manufacturing experience and can be reused to other contract manufacturing areas such as automobiles. At present, mobile phone OEM does have a lot of uncertainty, but BYD itself has a strong automotive OEM capability because of the relevant manufacturing foundation of the automobile industry chain. BYD can achieve OEM by cooperating with other car manufacturing forces, thus forming effective support for its OEM business.

Generally speaking, although there are many problems in BYD's two major businesses, relying on its strong technical strength, it can still find a way to break the situation. In the long run, as an excellent contract manufacturing enterprise that occupies many dominant runways, BYD still has good potential for development.