BYD has been thrust into the limelight.

Recently, BYD made headlines by requesting a 10% price reduction from its suppliers. BYD swiftly responded, clarifying that the request was not mandatory and that negotiations were possible.

According to Kanjian Finance, requesting "price reductions" from suppliers is indeed an industry practice. Carmakers routinely aim to reduce costs at the beginning of each year. Apart from BYD, other automakers also demand price reductions from their suppliers, though these reductions typically range between 3% and 5%.

In fact, BYD's performance has significantly improved this year, setting new highs in both delivery volumes and financial reports.

Financial reports indicate that in the first three quarters of this year, BYD accumulated a net profit of 25.24 billion yuan, a record high and an 18.12% year-on-year increase. Compared to other emerging automakers, BYD holds a substantial lead. Therefore, from this perspective, BYD should indeed "nurture" its supply chain enterprises for mutual benefit.

Price as a Moat

Currently, BYD stands out in the new energy vehicle market.

In terms of sales, BYD sold 2.7478 million vehicles in the first three quarters of this year. In September, sales increased by 45.6% year-on-year to 419,400 vehicles, and in October, sales surpassed 500,000 vehicles, making BYD the first Chinese automaker to exceed the 500,000-vehicle mark in a single month and setting a new global monthly sales record for new energy vehicles.

It is reported that in the first three quarters of this year, domestic sales of new energy vehicles totaled 7.03 million, with BYD accounting for 39% of the market.

In other words, out of every three new energy vehicles sold domestically, one is a BYD.

BYD's success is attributed not only to its long-term technological accumulation in the new energy sector but also to its price advantage achieved through scale.

This year, BYD has discounted several of its models. In the first half of the year, the average sales price per vehicle was 142,000 yuan, a decrease of 25,000 yuan year-on-year. However, due to economies of scale, BYD's per-vehicle cost also decreased by 24,000 yuan during the same period. A simple calculation shows that despite the significant price reduction, BYD's profit per vehicle only decreased by about 1,000 yuan.

From a profitability perspective, although BYD has continued its "price for volume" strategy this year, its profit margin has increased rather than decreased due to economies of scale.

Specifically, in the first three quarters of this year, BYD's gross and net profit margins were 20.77% and 5.23%, respectively. In contrast, from 2021 to 2023, BYD's gross profit margins were 12.97%, 15.89%, and 19.79%, while its net profit margins were 2.27%, 3.73%, and 5.29%, respectively, showing a trend of increasing profitability year by year.

Currently, the price advantage has become BYD's core competitive edge.

As prices decrease, sales increase, enhancing economies of scale and further increasing BYD's profitability. Understanding BYD's "price for volume" model makes it easier to comprehend why the company would request a 10% price reduction from suppliers despite significant profit growth.

How Long Can the Low-Price Strategy Last?

From the suppliers' perspective, there is limited room for further price reductions under BYD's low-price strategy.

Taking BYD supplier Wanshun New Materials as an example, the company primarily supplies battery aluminum foil to BYD. Financial reports show that in the first three quarters of this year, Wanshun New Materials' gross profit margin was only 5.12%, and its net profit margin was -0.86%. If BYD's 10% price reduction request is applied, Wanshun New Materials' profit margins will further decline.

From the automakers' perspective, following BYD's success with its low-price strategy, more automakers are adopting similar approaches, increasing the pressure on BYD.

According to Kanjian Finance, multiple automakers have offered significant discounts to boost sales in the fourth quarter, with Tesla garnering the most attention.

It was reported that Tesla officially announced on November 25th that from that day until December 31st, customers could receive an immediate discount of 10,000 yuan upon delivery of a Model Y, with prices starting at 239,900 yuan. Additionally, customers could take advantage of a five-year interest-free policy. For example, for the Model Y Rear-Wheel Drive version, the down payment is 79,900 yuan, with zero annual interest and a monthly installment of 2,667 yuan.

In terms of model mix, the majority of BYD's sales are currently driven by lower-priced models.

Financial reports show that the sales proportion of BYD models priced above 200,000 yuan has been on the rise since the second half of 2023 but declined sharply from a peak of 27.6% in February to 18.7% in July. Furthermore, BYD's market share in the mid-to-high-end segment has dropped from 8.4% in February 2024 to 6.7% in July 2024. Specifically, sales of the Tang DMI and Han DMI models have fallen from peaks of 17,000 and 18,000 units per month to just 10,000 units in July.

Looking at premium brands, take Denza's main model, the Denza N7, as an example. Statistics show that from August to December 2023, Denza N7 sales peaked at 1,810 units per month and troughed at 1,033 units, with a cumulative sales volume of 4,808 units over five months, averaging less than 1,000 units per month. Entering 2024, Denza N7 sales plummeted, with only 320 and 294 units sold in January and February, respectively. Due to lower-than-expected sales, Denza N7 prices have been reduced multiple times, with the new model released in April 2024 seeing a price cut of 70,000 yuan, bringing the starting price down to 239,800 yuan.

As the leading player in the new energy vehicle industry, BYD undoubtedly holds significant influence in the low-price market. However, as competition in the new energy vehicle sector enters its second phase, Kanjian Finance believes that relentless price competition is not the optimal solution for the industry.