How far is the gap between overtaking Tesla and BYD

Amid Buffett's hold-up reduction,$BYD Company Limited (002594.SZ)$$BYD COMPANY (01211.HK)$Results for the first quarter of 2023 were announced.

In the first quarter of 2023, BYD's revenue increased 79.83% year on year to 120.074 billion yuan (in RMB, same below), mainly due to the 89.47% increase in automobile sales during the period.

Caihua estimates that BYD's gross margin for the first quarter may be 17.86%, up 5.46 percentage points from the previous quarter, but down 1.14 percentage points from the previous quarter; net profit after deducting non-return mothers increased 593.68% year-on-year to 3,565 million yuan; net profit margin after deducting non-return mothers was 2.97%, up 2.2 percentage points from the same period last year and down 1.68 percentage points from the previous quarter.

In contrast, Tesla's overall revenue for the first quarter of 2023 increased 24.38% year-on-year to 23.329 billion US dollars, or about 161,304 billion yuan; the overall gross margin was 19.34%, 9.77 percentage points lower than the same period last year and 4.42 percentage points lower than the previous quarter; net profit attributable to non-accounting standards shareholders was 2,931 million US dollars, about 202.066 billion yuan, a decrease of 21.55% from year to year, mainly due to increased depreciation expenses due to capacity expansion and vehicle price reductions.

In March of last year, BYD announced that it would completely stop production of fuel vehicles, and that all of its production capacity would be used to produce hybrid and pure electric vehicles. It is important to note that more than half of BYD's highest NEV sales in the world are mixed fuel. Judging from the sales volume of pure electric vehicles alone, their sales/delivery volume is still below$Tesla (TSLA.US)$。

Differences in industrial structure

BYD tends to cover and consolidate the entire industry chain of the automobile manufacturing industry, so it has relatively complete upstream and downstream processes: it is an automobile manufacturer with more experience in battery production in the industry. Even Tesla is its customer, and it also has semiconductor production capacity.

A complete industrial chain can provide them with more comprehensive production advantages. From a marketing perspective, as a new energy company transformed from traditional car manufacturers, BYD opened its own retail stores in recent years, but it still mainly relies on a distribution network. The advantage is that it can quickly arrange sales. The downside is that it is difficult to control the quality of service throughout the sales cycle.

Tesla, on the other hand, tends to start with a concept. From photovoltaics, energy storage, and automobiles to autonomous driving, the logic is to master the power generation and storage of new energy sources. Automobile production and sales are only a means to spread brand awareness, and then generate a continuous source of revenue through photovoltaics, energy storage, autonomous driving, and financial services.

This is also the reason why Tesla opened its own retail store and controlled the entire sales process from the service source to continue the sustainability of later services.

Due to these differences in business structures, the profitability of the two world's top NEV companies is also slightly different. However, looking at it as a whole, since automobile sales are still their main source of revenue and profit, overall profit performance is mainly determined by automobile sales as a business initiative.

When the share of industry chain and service revenue expands, the competition between their revenue and profit sustainability can only be seen. Currently, their gross margin may mainly reflect automobile sales performance.

BYD did not disclose the share of automobile sales in various industry structures and specific profit performance in its results for the first quarter of 2023, but was only able to analyze its overall data for the first quarter. The gross margin for the period was 17.86%.

Tesla's overall gross margin for the first quarter of 2023 was 19.34%, of which the automobile sales business accounted for 80.92% of revenue during the period, and gross margin was 18.31%, down 11.34 percentage points from the same period last year and 5.45 percentage points from the previous quarter. Beginning in the second quarter of 2022, the company's revenue from the energy storage and service division continued to rise, and gross profit turned a loss into a profit, so the decline in overall gross margin was not a significant decline in the automobile sales business.

See the chart below. Although BYD's gross margin declined during the period, the gap with Tesla is narrowing. The inflection point seems to be in the first quarter of 2022, when fuel vehicles were abandoned, and BYD's gross margin continued to rise from its low level at the time. However, Caihua believes that the advantage of scale and the fact that BYD has launched new high-priced cars one after another, or that its gross margin is gradually rising.

conclusions

In the second half of the competition, BYD may continue to improve profitability through optimal allocation of product portfolios and large-scale advantages; Tesla may increase profitability by intervening in the industrial chain — such as entering the battery industry and process optimization — such as further mechanization and standardized production to reduce human involvement to improve cost efficiency, and continue to upgrade services — such as further improving the fully autonomous driving system to achieve profit upgrading in the hardware business and the expansion of the high-profit software business.

In the next NEV race, as more and more new brands enter the market and traditional automobile giants change course to meet the new development direction of the world, the current NEV competition situation will surely change. 2023 will be a more heated year, and the tug-of-war between BYD and Tesla will also become more exciting.

Mao Ting

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