BYD Reports Over 10 Billion in Half-Year Profit

Six years ago, the chairman of BYD, Wang Chuanfu, boldly proclaimed that the company would achieve one trillion yuan in revenue by 2025. As this ambitious goal approaches, many are beginning to see it transform from a lofty dream into a tangible reality.

R&D Investment Reaches 14.246 Billion Yuan

On August 28, BYD unveiled its semi-annual performance report. The positive financial results reinforced BYD's position as a leader in China's new energy sector.

The report revealed that BYD's revenue for the first half of the year reached 260.1 billion yuan, marking a year-on-year increase of 72.72%. This growth rate, compared to 65.71% in the same period last year, has significantly improved. The company also achieved a net profit attributable to shareholders of 10.954 billion yuan, an astounding 204.68% higher than the previous year.

This remarkable increase can be largely attributed to the rapid expansion of its automotive business. In the first half of the year, BYD's automotive segment generated revenue of 208.824 billion yuan, accounting for 80.28% of total sales. Last year, this segment only contributed 109.067 billion yuan, showcasing a growth of over 90%.

In terms of sales figures, BYD sold a total of 1.2556 million vehicles, which equates to a year-on-year growth of 94.25%, and solidified its market share of new energy vehicles by increasing it by 6.5 percentage points to 33.5%. However, this number still lags behind Wang Chuanfu's stated target of 3.6 million vehicles for the year, achieving only 35% of that goal midway through. Even with an acceleration in vehicle launches in the latter half of the year, meeting the annual target may be a formidable challenge.

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Industry insiders have suggested that BYD’s increase in revenue is also tied to adjustments in its product structure. Previously, BYD’s main sales focused on lower-end models in the price range of 70,000 to 200,000 yuan. However, since last year, the company has made inroads into the mid- to high-end market with models like the Yangwang, Fangchengbao, and Tengshi, all priced over 300,000 yuan. Reports indicate that the Tengshi D9 alone sold 56,000 units in the first half of the year, with an average selling price of 420,000 yuan.

Profitability for BYD has also seen improvement, as the gross margin for the automotive business increased by over four percentage points to 20.67%. Analysts have pointed out that a drop in raw material prices has significantly contributed to this rise in margin. In the manufacturing of new energy vehicles, battery costs make up around 70% of the total cost. BYD primarily utilizes lithium carbonate batteries, and the recent significant drop in the price of battery-grade lithium has lowered overall manufacturing costs. The average price for battery-grade lithium in the first half of this year was around 254,600 yuan per ton, a decrease of 36.8% compared to the same period last year.

The increase in sales in the high-end market, combined with lower production costs, has led to a significant rise in profit per vehicle. In the first half of the year, BYD's profit per vehicle was estimated at 7,560 yuan, a more than 60% increase compared to approximately 4,616 yuan in the same period last year.

Interestingly, while BYD's profitability soared, other automotive companies faced challenges. Many enterprises, including BYD's long-time rival Tesla, reported declines in gross margins in the first half of the year, with Tesla’s automotive gross margin sitting at only 17.9%. BYD’s automotive gross margin successfully surpassed Tesla’s for the first time in two years.

In tandem with these financial successes, BYD's investment in research and development reached an impressive 14.246 billion yuan in the first half of the year, showing a staggering year-on-year increase of 120.2%—even surpassing its net profit. To put this into perspective, BYD's total R&D expenditure for the entire year last year was only 20.2 billion yuan, and market estimates suggest that R&D spending could hit 30 billion yuan for the current year.

The company explains that the increase in R&D expenses is predominantly due to rising employee compensation and material costs during this period.

Gong Tao, chairman of Zhongjin Huachuang Fund in Shenzhen, remarked that BYD’s investment in R&D is likely to continue increasing. The company has already accumulated over 100 billion yuan for R&D, and its entire team has grown to over 90,000 employees. He emphasized that while current technologies are indeed financed by hefty investments, such expenditures are expected to yield corresponding gains in profitability.

Historic Acquisition

Alongside the impressive performance in the electric vehicle market, BYD's electronic division has also achieved significant breakthroughs.

The financial report disclosed that the company's electronic business generated revenue of 51.09 billion yuan in the first half of the year, representing a 24.4% increase year-on-year, with gross profit margins rising to 8.77%, improving by 2.7 percentage points.

BYD attributed the profit enhancement largely to an increase in market share from major clients, coupled with growth in emerging businesses related to new energy vehicles and smart products, along with improved capacity utilization and a more optimized business structure, leading to a significant increase in profitability.

It should be noted that BYD Electronics, a subsidiary of BYD, is engaged in diverse markets, with a business portfolio that includes smartphones, tablets, new energy vehicles, smart home devices, communication equipment, and medical health devices.

In conjunction with rising revenues and profit margins, BYD Electronics announced a framework agreement for a merger and acquisition deal. Prior to this, BYD had seen its largest acquisition at around 3.5 billion yuan, but this new deal is set to exceed 15.8 billion yuan, making it more than four times larger and earning the title of "the largest acquisition in history."

The agreement reveals that BYD Electronics and Jabil Singapore are engaging in a deal to acquire manufacturing operations located in Chengdu and Wuxi for approximately 15.8 billion yuan (about 2.2 billion USD), which includes the existing production operations for parts and components for customers.

The seller has established a new legal entity in Singapore intending to restructure target businesses into this new company. BYD Electronics and its subsidiaries will acquire 100% of this target company’s shares. Both parties finalized the signing of the framework agreement on the same day.

BYD claims that this acquisition will expand the client and product boundaries for BYD Electronics, broaden its components business for smartphones, and substantially enhance product and client structure, which will promote the strategic upgrade of BYD Electronics and propel it into a new high-growth cycle. "While increasing the market share of products, it will also synergize effectively with existing BYD electronics products."