Charlie Munger on Vertical Integration

Wang opened the 2022 annual results briefing against the backdrop of a year in which BYD had sold approximately 1.86 million new energy vehicles, exceeding Tesla's global deliveries and becoming the world's largest manufacturer of new energy vehicles by volume. Management told analysts that net profit had grown to approximately RMB 16.6 billion on revenue of approximately RMB 424 billion, with the automotive business contributing the majority of both revenue and operating profit, the rechargeable battery and the photovoltaic businesses contributing a stable second-leg earnings stream and the mobile phone components and assembly business providing the third leg. Wang walked analysts through the cessation of the pure internal combustion engine passenger vehicle production in March 2022, indicating that the Company had moved to an exclusively new energy vehicle model range ahead of the regulatory schedule and that the transition had been driven by the unit economics of the captive battery supply chain, the regulatory environment and the consumer demand for new energy vehicles. He flagged that the DM-i hybrid platform had become the dominant growth driver of the passenger model range, that the Han, the Seal and the Atto 3 had been positioned as the flagship pure EV models and that the Company had launched the international expansion with the Atto 3 entering the Australian, the Thai and the European markets during the back half of the year. On the Q&A, analysts pressed on whether the international expansion would dilute the near-term earnings given the cost of establishing the overseas distribution and the manufacturing footprint. Wang responded that the international expansion was being executed gradually, that the local manufacturing footprint in Thailand and in the planned European sites would be the long-term structural anchor and that the underlying unit economics of the captive battery supply chain provided the cost advantage required to compete in the international markets. He also defended the company's vertical integration strategy as the central advantage of the franchise in the international expansion. 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, anchored on the captive battery supply chain, the DM-i hybrid platform and the international expansion.

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.