Controversy over the hidden route of new energy vehicles

If it is said that BYD has carried the banner of "integration" by itself, then Huawei is the representative of "enabling car companies with an open ecosystem".

Vertical integration or open external supply, this "problem" that was not a problem in the era of traditional automobiles, in the era of electric vehicles, has become two diametrically opposed or even opposing path choices.

Despite its efforts to promote the external supply of its products, Trillion BYD is still caught in the profit dilemma of vertical integration. Its sales have continued to explode, and the explosive growth has attracted much attention - but if government subsidies are excluded, the profit figures of BYD's auto business will be greatly reduced.

Huawei, on the other hand, empowers car companies through technology, channels, and brands, trying to adopt an industrial model that is completely different from BYD. The positive side of this model is that there are jewels from Bosch and other companies ahead, but the problem is that so far this path has not been fully proven and is still in the early stage of its development.

As the executive chairman of Shenzhen New Energy Automobile Industry Association, Liu Hua has conducted in-depth research on the two modes of the automobile industry. He bluntly said that the root cause of BYD's current increase in revenue but not profit is "the disconnect between a company and the entire industry chain". But at the same time, he also said that in the early stage of industrial development, we should not be too entangled in the battle of models. New energy vehicles, new businesses and new formats are constantly spewing, and it will also follow the underlying laws of the automobile manufacturing industry. "Let's go and see."

01 BYD, the integration dilemma?
Once BYD's opening strategy fails to meet expectations, it will become more difficult to reduce the cost of its important accessories such as batteries and chips.

"Are we supporting an enterprise or an industrial chain?" In the face of BYD's vertical integration model, this is the most important question to ask.

In 2021, the government's "reward" to BYD's subsidy "big red envelope" is as high as 2.263 billion yuan. If it is excluded, BYD's net profit will be less than 800 million yuan. Combined with the gross profit margin of 13% and the net profit margin of 1.84%, we will find that:

For the world's second-largest new energy vehicle company with an annual sales volume of 600,000, profitability has always been a key point of concern for the outside world.

In the whole year of 2021, BYD's new energy vehicle sales reached 603,783 units, a year-on-year increase of 218.3%; in the first five months of this year, BYD's new energy vehicles sold 507,314 units, a year-on-year increase of nearly 3.5 times, and continued to make great progress. At the end of March, Wang Chuanfu pointed out: "It is conservatively estimated that BYD's orders this year will reach 1.5 million vehicles. If the supply chain is well done, it may hit 2 million vehicles."

The 2 million units are 3.3 times BYD's new energy vehicle sales last year, and more than twice Tesla's global sales (936,000 units).

But the other side of the coin is that BYD's profitability has yet to rise. The gross profit margin of the automotive business dropped from 25.24% in 2020 to 17.39% last year; the company's overall net profit margin also dropped from 3.84% in 2020 to 1.84% in 2021, and to 1.36% in the first quarter of 2022.