BYD's price reduction behavior is not a simple market competition strategy, but a positive layout of China's manufacturing industry in the context of globalization. This is not only a contest about the cost performance of products, but also an important part of redividing the sphere of influence in the global economic map.
In this global manufacturing competition, China's victory not only means a technological victory, but also an acceleration of the internationalization of the RMB. In 1999, in the face of the challenge of industrial hollowing out in the United States, Japan and Europe successfully achieved industrial upgrading and economic transformation through the development of the electronic automobile industry.
In the process, the euro was born, linked to the EU's strong manufacturing sector and **, and its share of global circulation jumped to 38% in just five years, while the share of the dollar fell from 72% to 44%, forming a strong competitive relationship.
In the face of the challenge to the hegemony of the euro over the dollar, the United States has adopted a series of economic and political measures, including pushing for Brexit and the bankruptcy of Greece, and even resorted to destructive tactics, such as blowing up the "Nord Stream" pipelines and intensifying conflicts in Eastern Europe, in an attempt to undermine the unity of the European Union and the influence of the euro. Today, however, China is more well prepared, and we are confident that we will gain a firm foothold in the global economic competition and steadily advance the process of RMB internationalization.
The development of China's manufacturing industry, especially high-tech enterprises such as BYD, will not only enhance our voice in the global economy, but also pave the way for the internationalization of the renminbi.
In October 2023, China made a major decision to completely remove foreign investment access restrictions in the manufacturing industry.
This measure clarifies the background of global competition to national industries, including BYD, and makes full use of China's industrial agglomeration advantages, cost advantages and late-mover advantages to make these private enterprises more competitive in the global market.
At the end of January this year, we took a new step towards opening up to the outside world, relaxing restrictions on foreign investment in the banking and insurance industries, and allowing foreign-funded enterprises to operate wholly owned.
This change has undoubtedly increased the competitiveness of foreign enterprises in these fields. Why, then, do we dare to take such a step?
This is because the premise of opening up the financial market is to realize the internationalization of the national currency, and only when the internationalization of the currency achieves certain results can the financial market be further opened.
Now, it is through the open financial market that we are promoting the internationalization of the renminbi. This strategy can be said to be our consistent practice since the beginning of reform and opening up, that is, to gradually explore and advance in practice.
BYD and other companies have taken the lead in taking action, and the auto industry, which represents the country's strength and manufacturing level, has launched a "Star Wars" in the global market.
In this battle, we rely on the local market and have a better chance of winning. So, what benefits can ordinary consumers get from it?
Imagine that the Audi A6 with a price of less than 300,000 yuan in the future, or the BYD Qin with a price of less than 80,000 yuan, will it make you excited?
If we win this battle, the world industrial landscape of the 21st century will be dominated by China. Therefore, this decisive battle in the automobile industry is what we have planned and fully prepared for.
In the initial phase of 2023, Citroen will have to respond to market pressure by cutting prices by 120,000 yuan, a move aimed at clearing inventory and withdrawing from the Chinese market.
This reflects the lack of competitiveness in technology, industrial agglomeration and cost control, marking the official opening of the reorganization and reshuffle of the automobile industry, which is the grand strategy of China's industrial upgrading and structural adjustment.
For those who are planning to buy a car, there is no need to rush it. By August 2023, 30 models, including Mercedes-Benz S, BMW 7, and Audi A8, have reduced their prices by between 5 and 300,000 yuan.
This is undoubtedly a fierce knockout game, some car companies choose to accelerate the realization of exit, some insist on not leaving, and at the same time increase R&D investment to transform the production of electric vehicles.
As expected, BYD recently revealed the last fig leaf of the automobile industry through a promotional poster "electricity is lower than oil".
The starting price of the BYD Qin PLUS DM and Destroyer 05 is only 7980,000 yuan, Qin PLUS EV is as low as 10980,000 yuan, showing BYD's determination to sweep the market, this strategy directly refers to the six major joint ventures.
Elantra responded quickly and launched a marketing strategy of "oil is stronger than electricity", and the vehicle ** was also lowered from more than 100,000 yuan to 7580,000 yuan.
This action is not only a direct response to domestic cars such as BYD, but also reflects the unfair treatment of foreign brands in China*** over the past 30 years.
Chinese consumers have experienced a period of "cutting leeks" by foreign brands, and those models that once cost more than 100,000 yuan, such as Elantra, Fit, Corolla, Lavida, Kaiyue, etc., are now generally between 7 and 90,000 yuan.
This is not a simple ** battle, but a return to market value, indicating that the previous car price was too high, and now it has returned to a more reasonable profit level, which is in line with the expectations of the market public.
The rise and competition of domestic automobiles such as BYD, Geely, and Changan have exposed the profit-manipulation behavior of foreign brands.
This is the pride of China's manufacturing industry, that is, through market competition to continuously compress corporate profits, to maximize the cost performance of products and services.
This business model not only promotes the development of China's leading enterprises, but also brings tangible benefits to consumers.
This also explains why Chinese listed companies tend to be less profitable than foreign companies, such as Google and Apple. Our corporate purpose is to serve the people, not simply to cater to capital.
In addition, the price reduction of joint venture vehicles is often interpreted as a signal of allocation reduction, has this phenomenon been taken for granted?
BYD's approach is quite different, and instead of reducing costs by reducing allocations, BYD has implemented a price reduction strategy in the most competitive car range.
BYD sold 3.02 million vehicles last year, of which 380,000 were Qin series, a figure that leads the A-segment car market, far exceeding Volkswagen's annual sales of 1.75 million vehicles and Toyota's 1.39 million sales.
Models such as the Lavida and Sutar have been sold in the Chinese market for decades, despite discounts of thousands of yuan, while BYD has directly offered discounts of up to 75,000 yuan.
National industries such as BYD have not only challenged luxury car brands such as BBA, reducing their ** from 500,000 yuan to 300,000 yuan, but also forcing the once priced price of 300,000 yuan to drop to more than 100,000 yuan.
Now, the A-class car at the 150,000 yuan level has been reduced to 70,000 yuan. This strategy not only changes the market pattern, but also reflects BYD's confidence in China's manufacturing industry.
Some may question whether BYD's price-cutting strategy will lead to losses for the company. However, this is not the case.
February** Dynamic Incentive Plan There are five key factors that ensure that BYD is not only able to cut prices, but also to continue to reduce prices while still remaining profitable. First, sales, production capacity and output lead to economies of scale. BYD's sales figures show that it sold 400,000 vehicles in 2020, increased to 710,000 units in 2021, further increased to 1.86 million units in 2022, and reached 3.02 million units in 2023.
These figures only reflect its sales, but what about BYD's production capacity and inventory?
In 2020, for example, BYD produced 470,000 units and had an inventory of 70,000 units. This data reveals that BYD is not at full capacity, as its production line can theoretically reach a capacity of 550,000 units.
BYD's decision to expand production in 2021 is based on a prediction of future market growth.
Therefore, BYD has made a large investment in the construction project, which has increased by 3 times, and the investment has reached 20.2 billion yuan, which is mainly used for the expansion of plants and equipment to increase production capacity.
In 2020, BYD invested 6.1 billion yuan in construction projects, and in 2022 this figure doubled to 44.6 billion yuan.
By 2023, BYD's production capacity has expanded to be able to produce 5.97 million electric vehicles, including the newly developed Yangwang production line and other Dynasty series production lines.
This series of investments and capacity expansions shows that BYD has positive expectations and preparations for future market development.
BYD's production line has not yet fully released its production capacity.
Excluding these production lines, which have not yet been fully launched, BYD currently has a production capacity of about 5 million vehicles. Therefore, for 2024, BYD aims to achieve sales of 4 million units, which will bring its production capacity release to 80%.
This year's sales of 3 million units correspond to a return on assets of about 18%, and a gross profit margin of about 20%. In contrast, SAIC, which has decades of management experience, has a gross profit margin of only 99%。
How can BYD surpass SAIC's scale effect? The data for 2021 has already shown BYD's scale effect.
When sales reached 710,000 units, its return on equity was only 36%, and the gross profit margin is only 13%. These data clearly show that with the increase in BYD's sales, its scale effect will become more obvious, and the gross profit margin and return on assets will also increase.
BYD still has about 3 million production capacity to be released. According to the benefit curve principle, as the scale increases, the workforce will become more skilled and the cost will decrease.
At the same time, energy utilization will be more efficient, and the import of raw materials can reduce costs through centralized procurement, which will make BYD's cars more accessible to the people.
Second, the reduction of core costs - batteries. Lithium carbonate is one of the key raw materials for electric vehicle batteries, and its ** from more than 200,000 yuan per ton to 90,000 yuan / 90,000 yuan.
With lithium batteries accounting for about 40% of the total vehicle cost, this significant cost drop is a common phenomenon for the industry as a whole.
* Cutting it in half can theoretically reduce the selling price of the entire vehicle by 20%.
In other words, the price of all new energy vehicles may be equivalent to a discount of 20%, without changing the gross profit margin.
Third, the layout of the whole industrial chain. BYD has a number of specialized subsidiaries, such as Fodi Power, which focuses on motor manufacturing; Fu Technology, committed to the research and development of chassis and related electronic products; Foday Seiko, specializing in the production of automotive molds and lights.
In addition, BYD ranks third in the world in terms of sales of automotive semiconductors, and it is not only for its own use, but also for export to overseas markets.
BYD has more than a dozen similar related industrial chain enterprises, covering the independent research and development and production of most auto parts except tires and glass.
Most notably, on January 15, BYD's self-developed ro-ro ship officially set sail for ocean transportation vehicles.
The reason behind this move is that BYD plans to export more than 240,000 vehicles in 2023, making it China's largest state-owned enterprise in terms of exports.
This means that consumers who buy BYD cars will be able to enjoy a lower-cost delivery service.
It is worth mentioning that China's automobile exports have surpassed Germany and Japan, reaching more than 5 million units, including more than 1.2 million new energy models, and BYD occupies a leading position in these fields.
BYD's exports are expected to increase further, not decrease, by 2024.
Fourth, completionBrand matrix. BYD's product line covers various market segments from high-end to entry-level, including the most expensive Yangwang brand starting at 1.1 million yuan, as well as series such as Dynasty, Ocean, and Denza.
The DENZA brand focuses on the utility vehicle (MPV) market, in addition to models such as the Formula Leopard.
BYD's comprehensive product layout strategy aims to reduce costs through economies of scale to remain competitive in the highly competitive automotive market.
Fifth, strong R&D technology. BYD invests 24.9 billion yuan in R&D every year to ensure future technological innovation.
This continuous technological innovation has helped to reduce costs, and the scale of such an investment is undoubtedly remarkable on a national scale.
BYD currently owns 280,000 global patents, and the development of blade batteries, E3These innovations not only have a leading position in China, but also have been recognized by authoritative institutions in the world, winning unique competitiveness.
BYD's price reduction strategy is not only an internal matter of the auto industry, but also an important factor in promoting the rise of the entire manufacturing industry.
In fact, China's manufacturing industry has been striving to reduce costs to infinitely close to zero, with the ultimate goal of achieving autonomy and replacing foreign industries.
Take the shield machine as an example, which is the key equipment used for tunnel excavation, a shield machine in our country is sold for 30 million yuan, which is the most expensive.
30 years ago, in 1997, the Germans even opened 3The sky-high price of 500 million yuan, and confidently said that even if China is given 100 years, China will not be able to make such equipment.
However, we chose to buy these devices at that time in order to conduct independent research and break through the technical bottleneck.
Nowadays, the shield machine industry in Germany has been discontinued, because they have been replaced by Chinese products, and the price of the shield machine we produce is only 30 million yuan, while the price of the original equipment in Germany is as high as 3500 million yuan.
This huge difference is not only the success of cost control, but also the embodiment of independent innovation and market competitiveness of China's manufacturing industry.
There is also the story of Galanz, a well-known brand in Guangdong, whose microwave oven business has a legendary history.
Panasonic, a leader in Japan's microwave oven industry, was once in the first echelon of the market, but finally chose to cut its own microwave oven production line.
Behind this decision, Panasonic conducted an in-depth market research on Galanz, and the results of the survey showed that although Galanz and Panasonic are similar in technical parameters, the market retail price of Galanz is lower than the wholesale price of Panasonic.
This strategy gave Galanz a huge advantage in the market, which eventually led to Panasonic choosing to transfer its production line to Galanz and completely withdrawing from the microwave oven industry.
Similarly, Hitachi was once an industry giant in electronics, but in the face of the rise of Chinese brands such as Gree, Haier, TCL, etc., Hitachi failed to maintain its market position, which eventually led to bankruptcy.
As well as regarding GPS chips, its application in the automotive industry was once a revolutionary technological advancement.
In the past, cars equipped with GPS chips were regarded as high-end products, with each chip costing more than 2,000 yuan, and companies such as Intel, Samsung, and Qualcomm made huge profits from it.
At that time, GPS chips not only represented advanced navigation functions, but also became a status symbol, however, a significant disadvantage of such chips was that they needed to be returned to the factory every year for upgrades and maintenance.
BYD has subverted this market pattern, and the GPS chips they produce not only do not need to be upgraded, but are also very cheap, only 5 yuan.
For BYD, this chip can almost be seen as a giveaway, which you can get for free with the purchase of their car.
In 1997, the Motorola 8900 and Nokia 6110 were 30,000 yuan and 20,000 yuan each, respectively, and now, the debut of Chinese brands such as the Xiaxing A8 is only 4,000 yuan each.
Subsequently, the emergence of mobile phone brands such as Xiaomi, OPPO, and vivo further lowered the mobile phone ** to several thousand yuan, which fully demonstrated the strong ability of China's manufacturing industry in cost control and innovative technology.
This reflects the strong development of China's manufacturing industry and the improvement of international competitiveness, and the rise of Chinese brands has not only achieved great success in the domestic market, but also demonstrated China's manufacturing strength on the international stage.
BYD's statement is loud, and they are confident that they have absolute pricing power in the car market within 200,000 yuan. This self-confidence is not groundless, but based on BYD's comprehensive breakthrough and market occupation in the manufacturing industry.
With BYD taking a leading position in the global market for a wide range of products and technologies, trading in the renminbi will be a no-brainer.
Therefore, we have reason to believe that BYD fired the first shot of RMB internationalization at the beginning of the year, and also marked the beginning of a century of battle.