Charlie Munger on Price-War Strategy

Wang opened the 2023 annual results briefing against the backdrop of a year in which BYD had sold approximately 3.02 million new energy vehicles, including 1.6 million pure electric vehicles and 1.4 million plug-in hybrids, and had become the largest manufacturer of new energy vehicles globally for the second consecutive year. Management told analysts that net profit had grown to approximately RMB 30.0 billion on revenue of approximately RMB 602 billion, with the automotive business contributing the majority of both revenue and operating profit and the mobile phone components and assembly business providing a stable second leg. Wang walked analysts through the international expansion trajectory, indicating that the overseas new energy passenger vehicle sales had reached approximately 242,000 units during the year, with the Atto 3, the Dolphin and the Seal having been positioned across the European, the Southeast Asian, the Australian and the South American markets. He flagged that the local manufacturing footprint in Thailand, in Brazil and in the planned Hungarian site was being built as the long-term structural anchor of the international expansion and that the export of vehicles from the Chinese manufacturing base continued to provide the near-term volume. On the Q&A, analysts pressed on whether the price reductions taken during the year, especially in the Chinese market where the broader industry had engaged in a sharp price war, would compress the long-term unit economics of the franchise. Wang responded that the price reductions had been executed from a position of cost leadership, that the captive battery supply chain and the scale of the manufacturing footprint provided the unit cost discipline required to maintain the margin trajectory through the price war and that the long-term competitive position of the franchise had actually strengthened during the year as the lower-cost competitors took share from the weaker players. He also defended the choice to continue to invest aggressively in research and development through the price war, arguing that the technology trajectory of the franchise was the central long-term advantage. The briefing closed with management reiterating the long-term ambition of being the world's largest manufacturer of new energy vehicles, the leading manufacturer of new energy solutions and the leading manufacturer of new energy commercial vehicles, anchored on the captive battery supply chain, the DM-i hybrid platform, the international expansion and the technology trajectory of the blade battery and the cell-to-pack architecture.