Is BYD having liquidity problems?

Investment Analysis Clubs Macro Economic Trends and Risks
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At the end of 2023, BYD took 275 days to pay it suppliers, substantially longer than the 219 days in 2022. Chinese EV makers delay payments to vendors as they feel the heat from slowing sales, price cuts | South China Morning Post

Now an email was leaked that BYD is demanding at least some of its suppliers give a 10% reduction in price. Leaked email signals BYD’s plan to heat up EV price war | Electrek

Liquidity ratio compares assets to liabilities. A ratio above 1.1 is considered healthy. Tesla is at 1.8, BYD is at about 0.7. This suggests to me that BYD is financially dependent on government subsidies. BYDDF (BYD Co) Current Ratio

Liquidity problems during a period when the Chinese economy is slowing considerably and protectionism in the major car markets is on the rise is not a good thing.

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The big simple untold story of China today is almost every entity trying to survive their bad investments financed by idiot debts by collecting the money they have idiotically spent financing other bad investments.

Very messy and confusing in detail, stunningly clear and brutal in big picture.

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According to statistics from Late Finance BYD make an average net profit of 9,000 yuan per car, that’s about 1,250 USD. Tesla on the other hand made over 8,250 USD per car based on net profit of 14.9 billion dollars and sales of 1.81 million cars in 2023. What this clearly shows is that BYD is going after market share rather than profits.

China for a long time has had too many producers and too many brands, and the average factory utilization rate is 59% according to JustAuto. A healthy range is generally considered to be 70-80%.

Despite the low profit level in 2023 BYD has actually increased its profit levels over previous years.

So there is over capacity in China. But BYD is still profitable. It likely will outlast many of its Chinese competitors.
https://www.investors.com/news/byd-earnings-ev-giant-overtake-tesla-sales/#:~:text=BYD%20net%20income%20rose%2011.5,Q3%20revenue%20of%20%2425.182%20billion.
BYD Earnings Rise. The EV Giant Overtakes Tesla On Revenue For The First Time.
BYD net income rose 11.5% to 11.6 billion yuan, or $1.631 billion, slightly exceeding consensus.

Revenue climbed 24% in local currency terms to $28.2 billion. That fell short of estimates of for $28.3 billion. But that easily topped Tesla’s Q3 revenue of $25.182 billion.

BYD vehicle sales passed Tesla’s back in Q2 2022 and are now more than twice as high: 1.135 million vs. 462,890.

However, Tesla makes only fully battery electric vehicles (BEVs). The China EV giant makes both BEVs and plug-in hybrids (PHEVs). PHEV sales has surged this year due to a more-advanced hybrid system.

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That is not possible. They are selling the car for $11k last I heard. They are selling at a loss. There is more to selling cars than the operating margin. Note I think the gross margin is higher than $1250. Anything like a recall, marketing in markets that are non responsive and other blunders will wipe them out. The worst factor being the Chinese economy.

The US needed Biden’s industrial policy. WE still do.

The tariffs are not needed to beat China. The tariffs will be a blunder.

I am in cash. That pile might grow when my game is released.

I look forward to his blunders. He will rush the equity markets into negative standard deviations against the long term value trend line.

Blundering.

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They sell many models. Some are in the $35k range.

And they sell export models at much higher pricing.

BYD makes a profit of 15,400 USD on BYD Seal U in Europe, compared to 1,400 USD in China. This means BYD makes 14,000 USD more profit, referred as EU premium , on every Seal U model sold in the EU, according to a report by Rhodium Group.

According to Rhodium Group, the 30% duty on the BYD Seal U (see specs) would not be enough to make the profits on the car equal between the EU and China, meaning the playing field would still be uneven. A 30% duty would still leave the company with a 15% (5,080 USD) EU premium in relation to its China profits. This means BYD would still make over 5,000 USD more on Seal U sold in the EU than in China. That would keep the exports to Europe highly attractive.

And once foreign factories are up and running tariffs no longer have any influence upon pricing. That factoid explains BYD expansion of foreign manufacturing capability.

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That is what I am finding with BYD. As others keep noting, BYD growth and profitability numbers are terrific. But one begins to see concerns upon closer looks.

I am a believer in the inevitable impact of age demographics, which says that economic growth in China and the EU will be in long-term decline. It doesn’t really matter what they do, a rapidly declining work force relative to a rapidly increasing dependent elder population is a big drag to any economy. Under such economic conditions where downturns are likely, the proportion of liabilities carried by Chinese and European companies become very important.

BYD as of Sep2024 has $500B USD in liabilities with a liquidity ratio of 0.7, a quick ratio of 0.47, and a cash ratio of 0.26. Ratios above 1.0, 1.0, 0.5, respectively are considered in the “healthy” range. This means that BYD would have difficulty covering its financial obligations in an economic downturn. As a comparison, Tesla has a liquidity ratio of 1.7, a quick ratio of 1.3, and a cash ratio of 0.57.

This is why by some calculations, BYD currently has an Altman Z-score of 1.74, “indicating it is in Distress Zones. This implies bankruptcy possibility in the next two years.” BYDDF (BYD Co) Altman Z-Score.

In comparison, Tesla’s Altman Z calculation by the same analysts “Tesla has a Altman Z-Score of 17.56, indicating it is in Safe Zones. This implies the Altman Z-Score is strong.”

I don’t believe BYD is going bankrupt, but I do believe it is a much riskier long-term investment than Tesla, simply because of the liabilities to assets ratios. In the addition, Tesla appears to be about to introduce the first of its mass-market cars that Deutsche Bank calls the Model Q. If that is very successful and eats into BYD China marketshare, BYD might be living in very interesting times.

The surprise introduction of the mass market Tesla makes sense if the goal is to avoid Osborne-ing 2024 Model 3/Y sales. https://www.roadandtrack.com/news/a63138882/tesla-model-q-more-affordable-car-2025-report/

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The number of sales in the EU went down from just over 15k in 2023 to 10k in 2024. It is not enough to matter.

BYD’s plans are for 300k. The assembly lines are a waste of money. The tariffs are working.

Please become a better information source.

According to available data, BYD sold a relatively small number of EVs in Europe in 2024, with reports stating that they sold fewer than 10,000 cars in Western Europe during the first four months of the year; however, they are aiming to significantly increase their European sales with ambitious plans to sell over 300,000 cars annually in the region.

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BYD profits continue to rise.
BYD is in for the long haul as their Hungary factory will be up and running in 2025. Then NO tariffs.

NYD keeps production cost down due to innovative designs. Their“E-Axle” combines 8 different components. 75% of the parts were made in-house ; giving BYD a 25% cost advantage over American and European carmakers.

The worm will turn and BYD will make inroads to sales in the EU.

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With the EU in mind.

AI Overview

Learn more

In a supply-side economy, auto manufacturers may face a number of challenges, including:

  • Reduced production

Supply-side constraints, such as shortages of semiconductors, can force manufacturers to reduce production.

  • Higher prices

Reduced supply and strong demand can lead to higher prices for new and used cars.

  • Longer wait times

A shortage of chips can lead to longer wait times for buyers.

  • Fewer features

Manufacturers may remove popular features, such as heated seats, from their offerings.

  • Inventory issues

Inventory levels can fall sharply, as was seen in the United States in October 2021.

Supply-side economics is an economic theory that emphasizes the importance of production in driving economic growth. It focuses on policies such as low marginal tax rates, minimal government intervention, and prudent monetary policies.

My comment the last bit it what does not happen. Supply side economics is a financier’s paradise because taxes on the wealthy are low. It is a production nightmare full of lies. We all know that.

BYD is aiming for the wrong market.

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But liabilities are increasing faster than profits. That’s not good in the long run.

The amount of assets relative to liabilities can be measured by the “Current ratio” (assets/liabilities). As Tesla matured its current ratio has increased. That’s the sign of a health company, assets are growing faster than liabilities suggesting that profits are increasing relative to the cost of production. Here is the Tesla current ratio graph:

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Compare that with the BYD chart:

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BYD’s 2024 current ratio at the moment is about 0.7. That was about where Tesla was in 2017-2018, a period where Musk himself stated that Tesla was in a cash crunch and about a month away from bankruptcy. I stuck with Tesla during this period because I understood why liabilities were high. The model 3 was still in the early stages of ramping. I thought it likely that this was a temporary problem.

I don’t understand BYD’s issues in the same way and I am not as optimistic that BYD can make a profitable BEV if it has to pay EU and USA wages in its foreign factories. For the next couple of years at least BYD will be dependent on the Chinese market for the bulk of its revenues and I think it likely that the Chinese economy will slow significantly. Not a good time to have more liabilities than assets IMO.

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True that. And a few years ago the same applied to Tesla.
Tesla eventually expanded production & profits to turn the corner.

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Can BYD pull a Tesla? Maybe.
https://insideevs.com/news/743879/byd-outsell-ford-honda-2024/
BYD Could Soon Outsell Ford And Honda

The Chinese giant was an unknown entity just a few years ago. Now, it’s on course to topple two of the biggest names in the industry.

  • Chinese giant BYD sold over half a million cars in November.
  • It’s enough to possibly surpass traditional giants like Ford and Honda.
  • With great sales numbers like these, the automaker is on track to surpass its goal of delivering four million cars this year.*

BYD is surpassing competitors on the lower rungs of the EV ladder.
I believe BYD is just starting to gain momentum.

BYD still has some work to do to topple the world’s top players, but if its previous performance is anything to go by, it won’t be long before we see its name at the top of the global automaker list. Volkswagen, for instance, sold 6.5 million vehicles in the first nine months of the year, while Toyota sold 8.3 million vehicles in the first 10 months. Tesla, meanwhile, delivered 1.3 million all-electric cars in the first three quarters–100,000 more than BYD. That said, BYD’s portfolio includes EVs and plug-in hybrids, which is why its overall sales figures are higher than Tesla’s.

Next year, BYD aims to sell between 5 and 6 million cars, according to a Citi note published after a meeting with the automaker’s management.

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Yep Tesla beat those 100% tariffs and made good in the US market.

GM will take the US market. You can buy a GM EV locally. Service is local. GM has a better line of vehicles to CHOOSE from than Tesla. GMs assembly line costs are lower than Tesla’s to move around North America.