Facing Tesla? What is the intention of BYD's official price increase?

On November 23, BYD Auto announced on Weibo that the official guide prices for new energy models related to Dynasty, Ocean, and Tension will be adjusted. The increase will range from 2,000 yuan to 16,000 yuan. Price adjustment notices for specific models will be posted separately. However, customers who paid a deposit before January 1, 2023 will not be affected by this price adjustment.

After the news was released, there was constant buzz in the market, and it even hit the headlines for a while.

You need to know that since late October, under the leadership of $TSLA.US (TSLA.US) $, $Cyrus (601127.SH) $, $Zero Sports Car (09863.HK) $, Xiaopeng (09868.HK), and Ford MustungMach-e have all participated in promotions through terminal discounts or official price reductions to boost sales.

Today, BYD is going the other way around. The price of new energy vehicles is rising instead of falling. What is the reason behind this?

01. What is the driving force behind BYD's price increase?

According to the announcement, there are two reasons why BYD announced price increases for some new energy vehicles.

First, it is affected by the imminent withdrawal of state subsidies. According to the country's series of policies and plans for the development of new energy vehicles, the NEV purchase subsidy policy will end on December 31, 2022, and the countries that license vehicles after that will no longer be subsidized (current subsidy amounts: 4,800 yuan/unit for plug-in hybrids, 12,600 yuan/unit for pure electric vehicles).

Second, since the second half of the year, the prices of the main raw materials for batteries have risen sharply.

In fact, this layer of rising raw material prices is also common throughout the industry.

Specifically, the price of power batteries, which act as the heart of new energy vehicles, has been rising steadily in recent years. The reason behind the rise is the rapid rise in the price of lithium carbonate, the main raw material.

According to reports, according to data from the Business News Agency, as of November 23, the highest battery-grade lithium carbonate market price had exceeded 625,000 yuan/ton, rising from 500,000 yuan/ton until now, in less than 3 months.

Affected by the rise in raw material prices, many new energy vehicle companies are under more or less cost pressure, but at the same time, due to sales falling short of expectations, some new energy vehicle companies have to choose marketing methods such as price reduction promotions.

Over the past month, Tesla's price reduction “combo punch” has been coming menacingly. First, in late October, the price reduction for all Tesla's domestic models ranged from 14,000 yuan to 37,000 yuan, followed by another official announcement of insurance benefits of up to 8,000 yuan in early November. This practice has also triggered new car companies to follow suit.

According to incomplete statistics, since October 24, Cyrus, Zero Run, Xiaopeng, Ford MustungMach-e, and Mercedes-Benz have all participated in promotions through terminal discounts or official price cuts, boosting sales.

However, in the midst of Tesla triggering a wave of price cuts for new energy vehicles, BYD chose to go against this trend. In response, some industry insiders believe that BYD's early announcement of price increases is actually also hoping to have the effect of “grabbing orders” at the end of the year.

As we all know, in the first half of 2022, BYD has already adjusted prices twice. First, in January, there was an increase of 1,000 to 7,000 yuan for new energy vehicles related to Dynasty Network and Ocean Network; in March, BYD carried out another price adjustment, with a price increase ranging from 3,000 to 6,000 yuan.

Based on the lower limit of the increase, after the previous two price increases, BYD's lowest increase reached 4,000 yuan. However, the “repeated rise” in terminal prices does not seem to have had an impact on its sales volume.

According to BYD's sales data, from January to October this year, BYD's cumulative sales volume reached 1.4 million units, an increase of 158.52% over the previous year. Among them, the total monthly sales volume in October reached 217,800 units. This is another sales volume that broke 200,000 units after September, setting a new high in monthly sales volume and losing 37.1% of the market share.

However, the four new forces “Wei Xiaoli” and Zero Run all showed signs of month-on-month decline in October. Among them, Zero Run and Xiaopeng all fell by more than 35%. Tesla's market share also declined by 1.2% to 2.5% year on year.

In comparison, BYD's performance is indeed outstanding, and strong sales may have given BYD more encouragement to increase prices.

On the day of BYD's official price increase announcement, Cui Dongshu, Secretary General of the Passenger Transport Federation, said that due to the official withdrawal of NEV subsidies at the end of this year, the domestic NEV market will set off another wave of price increases at the beginning of next year, but the scale will not be too large. Cui Dongshu believes that the price increase announced by BYD more than a month in advance will help BYD further accumulate orders and facilitate the smooth transition in sales after the price increase at the beginning of next year.

02. Being looked down upon by stock god Buffett, the stock price was “overshadowed”

Against the backdrop of a sharp increase in sales of terminal new energy vehicles, BYD handed over an impressive report card.

In the first three quarters of this year, BYD achieved net profit of 9.311 billion yuan, an increase of 281.13% over the previous year. Among them, in the third quarter alone, BYD's net profit was 5.716 billion yuan, up 350.26% year-on-year from 1.27 billion yuan in the same period last year.

However, good fundamentals failed to ignite investors' enthusiasm for investment. Instead, stock prices showed slight fatigue amid stock god Buffett's bearishness (reduction in holdings), and the rise was weak.

Looking specifically, continuing the volatile downward trend in 2021, BYD's stock price once again fell into a freezing point in 2022, hitting a new low in the past two years in May. Since then, the stock has been fluctuating, and the rebound is relatively limited.

On November 22, the Hong Kong Stock Exchange disclosed an announcement showing that Berkshire Hathaway, a subsidiary of Buffett, continued to reduce its holdings of BYD by 3,225,500 shares on November 17. The average price of the reduction was HK$195.42. This time, the cash out of about HK$630 million was about HK$630 million. After the reduction was completed, Berkshire's holdings of BYD fell from 16.28% to 15.99%.

Obviously, stock god Buffett has not slowed down the pace of reducing his holdings of BYD. Up to now, since August of this year, Buffett has reduced his holdings of BYD H shares 5 times during the year, totaling about HK$10.268 billion (approximately RMB 9.343 billion).

As of the close of trading on November 23, A-share BYD (002594.SZ) rose 0.40% to close at $251.5 per share, with a total market value of $732.2 billion; H-share BYD shares (01211.HK) fell 1.80% to HK$175 per share, with a total market value of HK$509.5 billion.