By Jiahui Huang
BYD, the world's largest electric-vehicle maker, paid a price for aggressively cutting prices on its cars, grinding revenue growth to a four-year low in the first quarter. But the bigger story is in its margins.
Weaker growth in both revenue and profit announced this week was largely the product of price wars with the likes of Tesla and Li Auto in China, the world's biggest EV market. Although BYD sold more vehicles in the first quarter than it did a year ago, its profit per car was hurt by the lower prices, along with higher spending on sales expenses and research and development. According to Jefferies analysts, profit per car fell 21% quarter-on-quarter.
What stands out is BYD's gross profit margin, which the carmaker managed to grow both on an annual and sequential basis. First-quarter GPM, a measure of how profitable sales are relative to input costs, rose to 21.9% from 21.2% in the fourth quarter, and from 17.9% a year ago. That keeps BYD among the few EV makers in the world with margins near or over 20%. Li Auto and Tesla are also members of the high-margin club. Margins for rivals XPeng, NIO and Seres languished in the single digits in the fourth quarter.
BYD has lower battery costs and its newfound status as the world's biggest seller of EVs, a title it's held since late last year, to thank for the margin growth.
"It's all about economies of scale," said CCB International analyst Qu Ke. Industry-leading sales volumes give the company more power to negotiate prices with its supply chain, he said.
Essentially, BYD's relative cost of goods sold is falling.
The strong margin showing implies "synergy from BYD's cost control," Citi analysts said in a note. Profit margins at BYD's passenger-vehicles segment, which makes up the bulk of sales, was "particularly impressive" at 28.1%, the analysts added. They expect that number to rise further this quarter.
Goldman Sachs analysts also see more room for BYD's margins to run higher. They have edged up net profit forecasts for the carmarker through 2026, citing higher gross margin assumptions, and project a 26% sequential rise in net profit per car in the second quarter.
"Our recent channel check shows strong order and sales momentum for BYD" after recent launches, they wrote in a note.
After a slow start to the year, the Warren Buffett-backed automaker rallied to deliver 626,263 vehicles in the first quarter, beating all other EV makers in China. If BYD can maintain monthly deliveries around the same levels posted in March, when it topped 300,000 vehicles, its margins will continue to be the envy of the industry, analysts say.
"As long as BYD can hold up its monthly volume in the 300,000 to 350,000 units range, the overall profitability should be all right," CCB International's Qu said. "BYD has to have the economies of scale to maintain its profit under current competition dynamics."
BYD on Wednesday said it sold 313,245 cars in April, up 49% on the year.
Write to Jiahui Huang at jiahui.huang@wsj.com
(END) Dow Jones Newswires
May 02, 2024 04:29 ET (08:29 GMT)
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