Source | Bohu Finance and Economics (bohuFN)

As 2024 draws to a close, the competitive landscape within the new energy vehicle industry continues to intensify. The challenges faced by automakers such as Nezha, Hozon, and Geely are merely a prelude to a new and more rigorous phase.

In response, new energy vehicle companies are doubling down on their strategies. XPeng Motors has abandoned its stance against range-extended vehicles and announced the introduction of such technology. Even NIO, which once vowed never to reduce prices, has been compelled to join the price war.

Even BYD, the market leader in sales volume, is embarking on a new path of innovation by 'aggressively' pursuing intelligent driving. In January this year, BYD unveiled its comprehensive vehicle intelligentization strategy and pledged to invest 100 billion yuan in the field.

However, with 'intelligent driving' becoming a standard feature across the industry, how can BYD differentiate its intelligentization strategy?

01 'Intelligentization' is Imperative

According to BYD's Q3 2024 financial report, the company reported total revenue of 502.251 billion yuan in the first three quarters of the year, up 18.94% year-on-year, with a net profit of 25.238 billion yuan, a 18.12% increase from the previous year. In the third quarter alone, BYD generated revenue of 201.125 billion yuan, surpassing Tesla for the first time in a single quarter.

Apart from its impressive revenue and profit figures, BYD sold a total of 2.7479 million vehicles in the first three quarters, marking a 32.13% year-on-year increase and consistently breaking its previous monthly delivery records.

Whether measured by revenue, profit, or sales volume, BYD stands out prominently in China's new energy vehicle market, attributed to its robust vertical integration capabilities. It is one of the few companies in the industry with full control over software, hardware, and manufacturing, combined with strong profitability.

With no pricing pressures, BYD has earned the moniker of the 'King of Competition.' Earlier this year, BYD spearheaded a 'price war' by reducing the entry-level model of its Qin PLUS series to the '70,000 yuan' range.

Despite this, BYD remains confident. Li Yunfei, General Manager of BYD Brand and Public Relations, stated, 'A price war is like playing cards with others. If you can follow suit, you do; if not, you pass. Don't get angry or upset because there will be another round.'

However, recent news that 'BYD is requiring suppliers to reduce prices by 10%' suggests the pressure the company is under in the competitive new energy vehicle market. It is reported that BYD has sent a letter to its supply chain, requesting dealers to reduce prices by 10% in an effort to further enhance BYD's competitiveness.

But judging from the market's intense reaction to this matter, finding a new path beyond price wars, amidst the vicious cycle of 'automakers competing on price and suppliers competing on cost,' is not just a challenge for BYD but for the entire industry.

Despite BYD's leading operating data this year, the gross margin of its automotive business declined from 28% in Q1 to 22.4% in Q2 due to the price war in the first half of the year. Excluding the battery business, the actual gross margin of its vehicle manufacturing business is less than 20%.

However, this trend improved in Q3. Benefiting from the launch of DMI 5.0 plug-in hybrid models and an increase in average vehicle prices, BYD's automotive business gross margin rebounded to 25.6%.

This figure is still significantly ahead of its peers. With increasing sales volume, BYD's automotive business gross margin has risen from 20.39% in 2022 to 23.02% in 2023 and is currently at its current level. For reference, Tesla's automotive business gross margin in Q3 was 17.1%.

However, relying solely on supply chain cost reductions and sales driven by price cuts is probably not a sustainable solution. This year, BYD Chairman Wang Chuanfu stated that the new energy vehicle industry has entered a fierce competitive phase, with the first half of the electrification era already on the fast track, and the second half of the intelligentization era shifting gears. The future lies in the integration of intelligent and electric technologies in vehicles.

To this end, BYD announced its overall vehicle intelligentization strategy at the beginning of this year. Yang Dongsheng, Dean of BYD's New Technology Research Institute, previously stated that BYD had identified intelligent driving as one of its core strategies in the first half of 2023.

Since the beginning of this year, BYD has made several adjustments to its intelligentization-related departments, including consolidating the Intelligent Driving R&D Center and the Intelligent Cockpit Software and Hardware R&D Center into a virtual organization called the 'Intelligent Technology Research Institute' and merging the internal Tianxuan and Tianlang R&D departments responsible for in-house intelligent driving research. According to industry headhunters, BYD is also actively recruiting intelligent driving talents on a large scale.

It is evident that BYD is driving a top-down and bottom-up intelligentization revolution. As always, once BYD sets its mind on something, it moves swiftly to achieve it.

02 'Late' but Not 'Absent'

In fact, BYD began accumulating intelligent driving personnel as early as 2021, although this may not have been widely perceived. Here, it is essential to mention Wang Chuanfu's stance on autonomous driving.

Although Wang Chuanfu has publicly stated that autonomous driving is a gimmick, BYD started collaborating with Baidu on driverless technology as early as 2015, with Wang Chuanfu serving as an advisor to Baidu's autonomous driving program.

At the beginning of 2022, BYD chose Baidu as its intelligent driving supplier. However, by 2023, market rumors suggested that BYD had decided to terminate its autonomous driving technology cooperation agreement with Baidu and focus on in-house intelligent driving research and development.

It is evident that Wang Chuanfu's judgment on intelligent driving is very rational. In the early stages, BYD did not vigorously promote its intelligent driving business but maintained attention and moderate investment.

At the beginning of the electric vehicle industry's transition, consumer interest in intelligent driving was indeed low, especially for early intelligent driving functions primarily relying on lidar, which posed a significant price barrier for consumers new to new energy vehicles.

However, after two or three years of development, intelligent driving systems have undergone algorithmic and hardware cost reductions, gradually achieving a balance between cost and technology. Consumers can now experience intelligent driving systems at lower prices and have started to consider it an essential factor in their purchasing decisions.

Against this backdrop, it is not difficult to understand BYD's acceleration towards 'intelligentization.' The current competition in the new energy vehicle industry is multifaceted, with brands, prices, products, and intelligent driving technology all influencing consumer purchasing decisions. Moreover, the global development of the new energy vehicle industry faces constraints such as tariffs and policies, necessitating all automakers to find more breakthroughs in this global competition.

However, faced with new forces with intelligent and internet genes, one may wonder if BYD's path to intelligentization is too slow. Currently, BYD's high-level intelligent driving system still lags behind top competitors but has the potential to catch up.

Firstly, BYD is willing to invest heavily, committing 100 billion yuan to intelligentization. For reference, NIO's research and development expenses last year were 13.431 billion yuan, accounting for 24.1% of its revenue. As of last year, Huawei's automotive business unit had cumulatively invested 30 billion yuan in R&D.

With adequate funding, BYD can recruit talents more freely. In 2022, BYD's New Technology Research Institute's intelligent driving team had only over 100 members, but the current team exceeds 5,000, far exceeding the industry average.

Secondly, technological advancements often surpass human expectations, but it must be acknowledged that BYD has timed its entry into the intelligent driving technology iteration well.

A few years ago, there were various approaches to intelligent driving, including Tesla's pure vision-based approach and the lidar-based approach favored by domestic automakers. Intelligent driving suppliers also had differing opinions on whether to start with L4 and scale down or start with L2 and scale up.

However, as technology has progressed, the path for intelligent driving has become clearer. Tesla's end-to-end approach, once unique, has become the mainstream solution for intelligent driving. Many intelligent driving suppliers, after encountering numerous obstacles, have realized that it will be easier to commercialize high-level intelligent driving by first developing L2-level assisted driving and then scaling up.

These changes seem to have brought the domestic intelligent driving industry back to the same starting line. End-to-end intelligent driving solutions require massive real-road data collection and efficient backend data training. However, more data does not necessarily equate to better system performance, and companies are still in the exploratory stage. Elon Musk once stated that after feeding the intelligent driving system with a large amount of complex scenario data, its driving smoothness in simple scenarios actually deteriorated.

Finally, a solid foundation is crucial for embracing 'intelligent driving.' Although BYD is 'late,' it is not entirely without a foundation in intelligentization. Based on its overall vehicle intelligence and Xuanji architecture, BYD can achieve efficient integration of electrification and intelligentization, breaking down barriers between different systems and facilitating intelligent driving research and development.

In addition, BYD has advantages in the quantity, quality, and diversity of intelligent driving data. It is also a significant customer of NVIDIA graphics cards, which means that if BYD wants to focus on intelligent driving, it already has a solid foundation.

03 'In-house Research and Development' and 'Equal Access to Intelligent Driving'

However, BYD has never intended to rely solely on itself in intelligent driving, adopting a dual approach of 'in-house research and development + suppliers.'

Apart from collaborating with Baidu, BYD has also invested in AI chip manufacturer Horizon Robotics and lidar supplier RoboSense. It has also established a joint venture, DeepMotion-BYD Intelligent Mobility, with autonomous driving software solution provider Momenta. BYD's F-brand Equation Auto has signed an intelligent driving cooperation agreement with Huawei.

However, between these 'two legs' of intelligent driving, BYD has its priorities, namely, first filling gaps with suppliers to quickly close the gap with competitors and then gradually pushing its in-house research and development team to the forefront.

Firstly, BYD adopts a broad approach to quickly enhance its competitiveness. In terms of intelligent driving development, BYD has considered almost all possible solutions. One is to rely entirely on suppliers, such as the Han EV Glory Edition equipped with the Horizon Journey 5 chip.

Additionally, BYD collaborates with intelligent driving suppliers to jointly develop systems. For example, some Tengshi N7 models are equipped with a domain controller independently developed by BYD, with underlying algorithms jointly developed with DeepMotion-BYD Intelligent Mobility. The recently launched Equation Auto BAO 8 adopts a high-level intelligent driving solution using Huawei's algorithms and chips.

There are also BYD's fully in-house algorithm-based DiPilot intelligent driving assistance system and Tian Shen Zhi Yan (Divine Eye) intelligent driving assistance system. Currently, models such as the Yangyue U8 and Tengshi N7 offer versions equipped with 'Divine Eye.' Recently, BYD announced the official launch of the 'Divine Eye's' city navigation pilot function nationwide without high-definition maps.

By collaborating with multiple intelligent driving suppliers, BYD has essentially tried out different intelligent driving solutions. Collaborations at various intelligent driving levels have not only further validated the reliability of BYD's full-stack in-vehicle core technologies but also helped BYD refine its intelligent driving technology.

Secondly, BYD aims to reduce intelligent driving costs and promote 'equal access to intelligent driving.' In the first half of this year, models equipped with L2 and above intelligent driving systems accounted for 56% of the market. iResearch consults predicts that the penetration rate of high-level intelligent driving is expected to exceed 25% by 2025. Therefore, Wang Chuanfu announced at the beginning of the year that BYD plans to offer intelligent driving as an option for models priced above 200,000 yuan and as a standard feature for models priced above 300,000 yuan.

Currently, with the accelerated layout of companies like XPeng and Xiaomi, intelligent driving solutions have reached models priced below 150,000 yuan. Early promotion of intelligent driving in 100,000 yuan models is expected to bring new market segments to BYD. The challenge lies in further reducing intelligent driving costs.

'Collaboration' remains a crucial way for BYD to control intelligent driving costs. Recently, BYD announced its investment in JoyWay Technology, formerly DJI's automotive business, which specializes in pure vision-based intelligent driving solutions. It advocates optimizing algorithms to reduce reliance on high-cost hardware and achieving high-level intelligent driving functions with low-cost solutions.

Through this collaboration, BYD not only enhances its intelligent driving competitiveness but also brings high-level intelligent driving to lower-end markets. According to relevant media reports, BYD plans to make basic intelligent driving features accessible in models priced around 100,000 yuan.

Finally, BYD is spearheading a 'bottom-up' approach to intelligentization transformation. Unlike most new energy vehicle companies that typically introduce high-end models equipped with advanced intelligent driving features first, adopting a 'top-down' strategy where entry-level intelligent driving is later integrated into more affordable models to boost sales once market acceptance is established, BYD's method is unique.

However, in recent years, BYD's core business has focused on affordable models priced below 200,000 yuan, with minimal to no high-level intelligent driving capabilities in this segment. Therefore, BYD's decision to achieve intelligent driving technology coverage from the ground up holds a higher potential for success.

Given the sales success of models like XPeng's G3i, the growth potential in the affordable intelligent driving segment appears even more promising. As these affordable models gain traction, their economies of scale and data iteration algorithms create a virtuous cycle, further accelerating the evolution of BYD's in-house intelligent driving technology.

BYD's entry into this sector acts as a 'catalyst,' exerting downward pressure on prices for other automakers while fostering the gradual maturation of domestic intelligent driving regulations and enhancing the domestic intelligent driving ecosystem.

As the elimination phase in the new energy vehicle industry progresses into its latter stages, even a formidable player like BYD must continuously push itself to advance to the finals. However, such a 'giant's turn' may also trigger a 'new seismic shift' in the industry, leaving limited opportunities for other automakers to make breakthroughs. Early preparation is paramount to emerging victorious in this competitive landscape.

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