Editor's Notes:

As a leader in the new energy automobile industry, BYD has continued to make breakthroughs in intelligence, electrification and globalization, and the full-scale promotion of intelligent driving has further strengthened its market leadership. However, the high debt level and the sustainability of the supply chain financing model have become challenges that cannot be ignored.

From an ESG (Environmental, Social and Governance) perspective, BYD still needs to strengthen its supply chain environmental management and battery recycling system to ensure green and sustainable development while promoting the low-carbon transformation of the global automotive industry. In terms of social responsibility, although the globalization layout brings employment and economic growth, the supply chain financing model may put financial pressure on small and medium-sized suppliers, and BYD needs to find a balance between expansion and the healthy development of its supply chain. In terms of corporate governance, improving financial transparency and optimizing debt structure will be a continuing focus of the market.

In the future, BYD will need to find the optimal solution between ‘innovative growth’ and ‘financial soundness’ to ensure its long-term sustainable development in the global new energy market.

Smart Driving Fuels Share Price

BYD's share price has been strong in recent days, with both A-share and Hong Kong shares soaring on the positive news of the comprehensive upgrade of its intelligent driving technology.

February 6, A-share BYD (002594.SZ) rose, closing at 311.08 yuan, the total market value of 905 billion yuan, a single day of market value growth of about 82.2 billion yuan; Hong Kong shares BYD shares (01211.HK) closed up 11.51%.

The next day (February 7), A-share BYD continued to close up 5.09%, the total market value further rose to 951 billion yuan; Hong Kong shares BYD shares also closed up 4.50%.

The core driving force of this round of BYD's share price surge comes from its announcement that its models will be fully equipped with intelligent driving technology as standard. According to the ‘Di Fans' Home’ news, BYD plans to hold an intelligent strategy conference on February 10 at its headquarters in Shenzhen to officially launch the ‘God's eye’ high-level intelligent driving system, and plans to implement intelligent strategies on all BYD models this year, including installing intelligent driving systems on models priced from 100,000 to 150,000 yuan to promote the popularization of intelligent driving. The market's confidence in BYD's intelligent strategy continues to grow, helping it to further consolidate its competitiveness in the new energy vehicle market.

Overseas market expansion accelerated

BYD's 2023 annual report shows that the company's annual operating income reached 602.315 billion yuan, up 42.04% year-on-year. Among them, automobiles, automobile-related products and other products business contributed about 483.453 billion yuan, up 48.90% year-on-year; mobile phone parts, assembly and other products business contributed about 118.577 billion yuan, up 20.00% year-on-year. Net attributable profit amounted to RMB30.041 billion, an increase of 80.72% year-on-year, mainly benefiting from the growth in sales of new energy vehicles. In addition, R&D expenses amounted to RMB 39.575 billion, up 112.1% year-on-year, highlighting its continued investment in technological innovation.

As a pioneer and leader in the global new energy vehicle industry, BYD has established its leadership in the global new energy vehicle industry and accelerated the transformation and upgrading process of the global automotive industry with its strong technological accumulation in the fields of power battery, motor, electronic control, etc., and has built up a long-term and sustainable core competitive advantage through continuous technological innovation.

BYD's global sales have also continued to climb. 2023 saw BYD ranked among the world's top 10 automakers for the first time, with sales of more than 3.02 million units, BYD ranked ninth. 2024 saw BYD overtake General Motors (GM) and Ford, and its global sales jumped to fifth, with sales of 4,272,100 units in the year, a year-on-year increase of 41.26%; of which, 417,204 passenger cars were sold overseas, a year-on-year increase of 71.9%, showing the remarkable results of its globalization layout.

In January 2025, BYD sold approximately 300,500 new energy vehicles, a year-on-year increase of 49.16%; of which, a total of 66,336 new energy passenger vehicles were sold overseas, a year-on-year increase of 83.4%, and a year-on-year increase of 16.1%, further consolidating its competitiveness in the international market.

While consolidating its leading position in the domestic market, BYD is accelerating its globalization process. As of June 2024, BYD's new energy passenger cars have entered 77 countries and regions, including Brazil, Germany, Japan, Thailand, etc., becoming a hot-selling brand of new energy vehicles in many markets and favored by global consumers.

To further enhance its competitiveness in the global market, BYD has set up factories in Hungary, Uzbekistan, Thailand, Brazil and other countries to accelerate its localized production deployment. Meanwhile, the successful maiden voyage of BYD's first automobile transport ro-ro vessel in early 2024 marked a new stage in its overseas market expansion.

Brokerage firms are optimistic about growth

Recently, a number of brokers are optimistic about BYD and give positive ratings, mainly based on its sales growth, high-end process, overseas layout and intelligent development and other multiple positive factors.

For example, Citi maintains a ‘buy’ rating on BYD, with a target price of HK$500. The bank expects BYD's overall domestic wholesale volume in February this year will record a non-universally expected growth rate, only the export volume will also be maintained at more than 60,000 units of the operating rate. The first reason is that the inventory days are relatively low, and the second is that compared with January, February recovered earlier due to the impact of the Lunar New Year.

CITIC Lyon, which upgraded BYD's rating to ‘Highly Convinced’ Outperform, said it raised its target price for BYD (01211) to HK$443, while raising its target price for A-shares to CNY446. BYD's autonomous driving (L2+) penetration rate is expected to increase to 40% by 2025. Meanwhile, by 2026, intelligent features will enhance BYD's price competitiveness, with single-vehicle profitability expected to reach 12,000 yuan.

Minsheng Securities expects BYD's revenue to be RMB833.6bn, RMB1,017.0bn and RMB1,214.3bn from 2024 to 2026, with estimated net attributable profit of RMB39.88bn, RMB55.44bn and RMB65.61bn each. Technology renewal and overseas expansion will be its main growth drivers.

High debt under supply chain financing sparks market controversy

Although BYD's performance continues to grow, its supply chain financing model has raised concerns in the market. Some argue that BYD's use of supply chain financing to hide its actual debt level may pose liquidity risks.

According to GMT Research, a Hong Kong-based accounting and consulting firm, BYD is using supply chain financing to hide inflated debt levels, and its real net debt may be much higher than the company's disclosed figures. GMT estimates that BYD's actual net debt may reach RMB 323 billion by the end of June 2024, far exceeding BYD's previous estimate of RMB 27.7 billion, which is a big gap.

Looking at BYD's data over the years:

- Total Debt Scale: as of the end of June 2024, BYD's total debt reached 531.634 billion yuan, of which, current liabilities of 452.743 billion yuan, accounting for as much as 85%.

- Accounts and notes payable: surged from tens of billions of yuan in 2020 to 209.777 billion yuan at the end of June 2024.

- Other payables: a sharp rise since 2021, from billions to hundreds of billions. 2024 half-yearly report shows that about 150 billion yuan of other payables are mainly ‘external transactions and balances’, but the specific details are less disclosed.

- Supply chain financing: since its launch in 2018, the scale of BYD's ‘Di chain’ supply chain financing platform has grown rapidly, with the cumulative issuance of hundreds of billions of yuan of promissory notes, and the payment cycle of suppliers has been extended to 275 days.

Market question: Does high debt affect cash flow? GMT analyst Nigel Stevenson said BYD's form of financing may have led to an underestimation of its debt levels. He further pointed out that US General Accounting Standards (GAAP) and International Financial Reporting Standards (IFRS) have been amended to require companies to disclose more relevant information so that investors can assess the impact of such financing on corporate liabilities, cash flow and liquidity risk.

The market has two main concerns:

1. Funding chain pressure: BYD's high dependence on supplier financing may affect cash flow health.

2. Financial transparency issues: Investors need to be concerned about whether BYD has underestimated its actual debt level and the financial risks it may face in the future.

As BYD's global expansion accelerates, its financing model and financial health may continue to be the focus of market attention.