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In recent weeks, BYD has found itself at the center of numerous controversies, sparking widespread discussion among experts and consumers alikeOn January 9th, a typical workday turned into a nightmare for many BYD owners who discovered they could not access their vehicles through the company’s appThis issue, which arose while numerous owners relied on their smartphones to unlock their doors, left many individuals stranded and forced to walk to work without their car keysSocial media was flooded with complaints about connectivity problems affecting the app for various models including the Dynasty and Ocean seriesIn response, BYD's official customer service cited a "cloud service system anomaly," assuring users that normal functionality had been restored.
This incident came on the heels of a significant report highlighting labor rights issues concerning BYD’s factory in Camaçari, Bahia, Brazil, where an investigation revealed that 163 workers were facing harsh living conditionsThe workers were found to be living in accommodations with severe infrastructure and hygiene problemsIn defense, Jincai Group, which provides outsourced services to BYD, claimed the situation had been misrepresented, insisting there was no slavery involvedMeanwhile, BYD stated that the affected workers had been relocated to hotels.
Despite the negative attention, it cannot be denied that BYD has shown exceptional performance in recent years, claiming the title of a dominant player in the electric vehicle marketHowever, beneath this shiny exterior lies a range of issues that suggest the company is at a crossroads.
Behind the “Collapse” of Systems: The Challenge of Intelligent Driving
BYD's remarkable achievements over the years can be traced back to its proactive transformation toward the new energy sectorStarting as a battery manufacturer focusing on nickel-cadmium batteries, the company transitioned to lithium batteries in the late 1990s, positioning itself as a supplier to notable international brands like Sony and Philips
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By 2002, BYD went public in Hong Kong and soon after ventured into automotive manufacturing with the acquisition of a factory in Xi'an.
Recently, on the cusp of its 30th anniversary, BYD achieved a critical milestone, surpassing Tesla in quarterly revenuesAccording to its 2024 quarterly report, BYD reported a staggering operating revenue of 502.251 billion yuan ($70.7 billion), posting an 18.94% increase year-on-year, alongside a net profit of 25.238 billion yuan, representing an increase of 18.12%. In the third quarter alone, the company recorded revenues of 201.125 billion yuan and net profits of 11.607 billion yuan—significant increases of 24.04% and 11.47%, respectivelyIn contrast, Tesla reported a third-quarter revenue of approximately 180 billion yuan, falling short of BYD's figures.
However, the fiercely competitive landscape of the electric vehicle market could soon necessitate a second transformation for BYD.
The advancements in battery technology, which serve as the driving force for electric vehicles, have opened new avenues for innovation in the field of intelligent drivingWith traditional car manufacturing facing various technological barriers and entering a phase of stagnation, the realm of smart driving presents opportunities for companies to differentiate themselvesAs automated driving technology emerges as a fundamental growth driver for the automotive industry’s future, it’s essential to consider how technological developments may lead to a restructuring of the industry itself.
Despite the opportunities presented by technological advancements, BYD's approach to intelligent driving has raised eyebrowsRemaining firmly rooted in its traditional automotive background, the management at BYD appears skeptical regarding the deployment of advanced autonomous driving technologiesProminent figures within the company have made controversial statements that suggest a deep-seated reluctance to fully embrace the potential of autonomous technology.
For instance, in March 2023, BYD's founder, Wang Chuanfu, dismissed the prospect of self-driving cars, labeling them as "nonsense" during a conference relating to the company's annual report
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His comments revealed a dismissive attitude towards the concept of autonomous driving, which he likened to the fable of the emperor's new clothesSimilarly, Yu Kai, the CEO of Horizon Robotics, expressed pessimism regarding the near-term feasibility of higher-level autonomous driving during a forum that same month, stating that true autonomous driving wouldn't be realistically achievable for another decade.
When discussing the pricing of driver-assistance systems, Wang further trivialized the technology by referring to it merely as a luxury feature, emphasizing that its actual worth should not exceed a few thousand yuanThis mindset starkly contradicts the growing market demand for intelligent driving technologies.
Market research groups indicate that the autonomous vehicle industry is on the verge of immense growthA report from Business Research Insights projects the global market for autonomous driving vehicles could reach $43.87 billion by 2024 and soar to $245.1 billion by 2032, representing a compound annual growth rate of 23.5%. This substantial shift in consumer preference is evidenced by figures forecasting a penetration rate of 55.7% for L2-level and higher autonomous driving systems in passenger vehicles in China by 2024. Zhang Yongwei, vice-chairman of the China Electric Vehicle 100 People’s Congress, believes that this figure could approach 65% by 2025.
Moreover, consumer preferences are increasingly shifting toward vehicle features related to intelligent capabilities, which currently influence vehicle purchase decisions with significant weight—ranking third overall, post vehicle quality and performance, and surpassing significance previously held by brand loyalty and pricing considerations.
As numerous competitors ramp up their investments in R&D and introduce vehicles equipped with advanced intelligent driving capabilities, BYD's current stance poses a risk of lagging behind in the race for technological leadership.
The recent app failures not only underline the challenges facing BYD in terms of software development and cybersecurity, but they also throw a spotlight on potential vulnerabilities in the company’s foundational frameworks for intelligent connectivity and driving technology
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In an ecosystem dominated by smart vehicles, stable interactions between vehicle systems and mobile applications are essential for functions like remote control, intelligent navigation, and vehicle condition monitoringThe recent incident signals alarm bells regarding BYD’s capacity to maintain the stability of its software systems and reinforce the integrity of its online infrastructure.
In 2024, it appears that BYD has acknowledged its need for change, as evidenced by numerous internal adjustments within its intelligent driving divisionEarlier this year, the company consolidated various departments dedicated to smart driving technology into a new “Intelligent Technology Research Institute” aimed at enhancing focus on R&DSubsequently, it established the "Tianxuan" and "Tianlang" development teams to accelerate self-driven solutions and in October, BYD created a forward-looking department dedicated to the implementation of end-to-end technologiesBy November, reports suggested BYD was mobilizing employees from across its divisions to transition to its self-driving departments without requiring approvals from previous teams.
The Supply Chain Crisis under Cost Pressures
Another essential aspect of discussion surrounding BYD relates to its cash flow situation and debt repayment capabilities.
At first glance, BYD seems to exhibit minimal pressure regarding its debt obligations.
Short-term debts are chiefly composed of short-term loans, long-term borrowings, and bonds payable, with the company's 2024 quarterly report revealing that total short-term loans and long-term debts amounted to 30.35 billion yuan—less than 5.1% of total liabilitiesAdditionally, BYD reported an impressive net cash flow from operating activities amounting to 56.273 billion yuan for the first three quarters of the year.
However, other metrics seem to contradict this positive outlookThe same quarterly report indicated that BYD's cash flow from financing activities had dramatically declined by 4768.45% year-on-year, resulting in a net cash outflow of 11.961 billion yuan due to heightened debt repayments and increased dividend distributions
Notably, the cash flow analysis indicated a negative cash and cash equivalents change of 42.702 billion yuan in the first three quarters.
One might wonder what debts BYD is committing to repay or the origins of its current debt pressures.
The quarterly report highlighted that by September 30, 2024, BYD's accounts payable stood at 240.46 billion yuan, comprising nearly 47% of its current liabilities, representing the amounts owed to suppliers within the company's supply chain.
When compared to others in the industry, BYD’s accounts payable figures are notably higher.
This indicates that BYD may be transferring financial pressures onto its suppliers—a factor that may explain the uproar triggered last year when rumors surfaced that the company sought to cut prices by 10%. While such a request might be an industry standard, it also stirred concern due to BYD's longstanding pattern of delaying payments through its procurement platform, “Dichain.” Many suppliers reported a significant increase in accounts receivable stemming from their collaborations with BYD.
For example, Huazhuang Technology, one of BYD’s multiple suppliers, reported that the bulk of its revenue in the first half of 2023 derived from BYD, marking the car manufacturer as its chief clientIn its initial public offering material, Huazhuang disclosed that as of December 31, 2020, its balance in the “Dichain” system was merely 3.53 million yuanBy June 2023, however, that figure surged to 264 million yuan, 41.7% of its total receivables, highlighting the rapid financial strain imposed upon suppliers.
BYD's demands for price cuts have further shrunk suppliers’ profit margins, subjects them to intense financial pressures, and compels them to seek larger loans or curb funding for R&D and equipment upgradesSuch reallocations could devastate their innovation capacity and long-term growth potentialIf these primary suppliers experience challenges, BYD's operational growth could be adversely affected.
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