Charlie Munger on R&D and Innovation

Wang opened the 2020 annual results briefing against the backdrop of a year in which the Chinese passenger vehicle market had been disrupted by the COVID pandemic and in which the Chinese government had accelerated the new energy vehicle policy support. Management told analysts that net profit had grown to approximately RMB 4.28 billion on revenue of approximately RMB 156.6 billion, with the new energy vehicle business contributing the majority of revenue growth and the medical mask and the consumer electronics businesses providing incremental support during the pandemic response. Wang walked analysts through the blade battery technology launch, indicating that the new cell format had been validated through extensive safety testing, that the technology was being deployed across the BYD passenger model range and that the structural advantage of the blade battery was the inherent safety of the lithium iron phosphate chemistry combined with the space efficiency of the long blade format. He flagged that the Han EV, the first model to deploy the blade battery, had been launched during the year and that the early demand response had positioned the model as a credible competitor to the global premium EV brands in the Chinese market. On the Q&A, analysts pressed on whether BYD would spin off the battery business as a separate listed entity. Wang responded that the captive battery supply chain remained a structural advantage of the BYD franchise and that the Company intended to continue to deploy the battery technology across the captive model range while exploring selective external supply opportunities. He also defended the strategy of being an integrated manufacturer rather than a specialist EV player, arguing that the vertical integration provided the cost discipline and the technology validation that were the central advantages of the BYD franchise. The briefing closed with management reiterating the long-term ambition of being the world's largest manufacturer of new energy vehicles and the leading manufacturer of new energy solutions, and with the Company committing to invest aggressively in the blade battery technology, the DM-i hybrid platform and the new energy commercial vehicle franchises through the cycle.

Wang opened the 2014 annual results briefing against the backdrop of a year in which BYD had sold approximately 19,000 pure electric passenger vehicles, the largest pure-EV volume of any Chinese manufacturer, and in which the Qin plug-in hybrid had launched successfully. Management told analysts that net profit had grown to approximately RMB 2.28 billion on revenue of approximately RMB 58.2 billion, with the automotive business contributing the majority of both revenue growth and operating profit and the secondary battery business continuing to provide a stable earnings baseline. Wang walked analysts through the strategic positioning, indicating that the Company had moved from being a rechargeable battery manufacturer that had entered the automotive market to being an integrated new energy vehicle manufacturer that used the captive battery supply chain as a structural advantage. He flagged that the new energy vehicle, the new energy passenger vehicle and the energy storage product lines were being positioned as the long-term growth engines of the Company, while the traditional internal combustion engine passenger vehicle business was being managed for cash and market share rather than for aggressive growth. On the Q&A, analysts pressed on whether the new energy vehicle business was earning an adequate return on the invested capital given the early stage of the market. Wang responded that the unit economics of the Qin and the e6 were tracking within the long-term target range, that the scale being achieved through the captive battery supply chain was driving the unit cost down faster than the industry had projected and that the regulatory environment in China, including the purchase tax exemption and the license plate preference in the major cities, was supporting the volume trajectory. He also defended the vertical integration, arguing that the captive battery supply was the central structural advantage of the BYD franchise. The briefing closed with management reiterating the long-term ambition of being the world's largest manufacturer of new energy vehicles, anchored on the vertically integrated battery, automotive and energy storage franchises, and with the Company committing to invest aggressively in research and development through the cycle.

Chairman Wang Chuanfu opened the 2008 annual results briefing against the backdrop of the September 2008 announcement that Berkshire Hathaway's MidAmerican Energy subsidiary had subscribed for 225 million new BYD H-shares at HK$8 each, raising approximately HK$1.8 billion and giving MidAmerican a 9.9 percent stake in the Company. Wang told analysts that the transaction was structured as a long-term strategic partnership rather than as a financial investment, that MidAmerican's interest in BYD's battery and electric vehicle technology had been the strategic motivation and that the Berkshire relationship would provide BYD with access to global capital markets, technology validation and the standing to recruit international senior management. Wang walked analysts through the 2008 results, indicating that net profit had grown to approximately RMB 1.02 billion on revenue of approximately RMB 26.7 billion, with the rechargeable battery business contributing the majority of operating profit and the automotive business contributing the majority of revenue growth. He flagged that the F3 sedan had become one of the best-selling single models in the Chinese market, that the battery technology had been validated through the supplier relationship with Nokia and other global handset manufacturers and that the Company was preparing to launch the F3DM, the world's first mass-produced plug-in hybrid electric vehicle, during 2009. On the Q&A, analysts pressed on whether the electric vehicle ambition was a credible near-term business or a long-term option. Wang responded that the underlying battery technology had been developed over a decade of consumer electronics scale, that the iron-phosphate battery chemistry being deployed in the F3DM was inherently safer than the cobalt-based chemistry used in many competitor products and that the Company intended to deploy the technology across the full model range within the next several years. He also defended the choice of the iron-phosphate chemistry as reflecting the long-term safety and cost trajectory rather than the short-term energy density. The briefing closed with management reiterating the long-term ambition of being the world's largest manufacturer of rechargeable batteries, the largest manufacturer of electric vehicles in China and the leading manufacturer of new energy solutions for the global market, anchored on the vertically integrated battery, automotive and energy storage franchises.