In 4Q24, BYD’s revenue grew by 36.7% QoQ, beating our estimate on stronger BYDE revenue contribution and higher vehicle ASP. Despite aggressive OPEX spending, 4Q24 net income expanded 29.4% QoQ to RMB15.0bn with net profit (excluding BYDE) per vehicle staying high at RMB9.3k, partially helped by higher non-operating income (mostly government subsidy). For 1Q25, we expect sales volume likely to pull back c.30% QoQ given the near-term demand weakness for legacy fleets, whereas the rising proportion of profitable overseas shipments set to give a solid support to quarterly net profit and margin. With rivals successively catching up in NEV market, we believe BYD’s early-mover advantages and tech leadership in electrification and “smart driving popularisation” in the affordable segment might fade away. Meanwhile, we deem the company may need to convince investors with more solid evidences in either premiumisation breakthrough or reliable overseas market expansion. As the current valuation (22x 2025E P/E) seems fair, we downgrade to HOLD with TP at HK$365 (20x 2025E P/E).
　　Key Factors for Rating
　　Better-than-expected 4Q24 revenue growth with stronger BYDE revenue and higher vehicle ASP. In 4Q24, total revenue grew by 36.7% QoQ to RMB274.9bn, beating our prior forecast on stronger BYDE contribution and higher vehicle ASP. If excluding BYDE’s revenue of RMB55.2bn (+26.7% QoQ), the remaining revenue (mostly contributed by automobile business) rose by 39.4% QoQ to RMB219.7bn, outpacing the vehicle sales volume growth of 34.3% for the period, while the revenue per vehicle added c.RMB5k QoQ to RMB144k. The QoQ ASP expansion could be primarily explained by the i) lower comparative base in 1H24 given cheaper Rongyao Edition’s launch and ramp- up; ii) improving product structure for Dynasty Network fleets with escalated sales mix of DM5.0 platform PHEV models, most of which tag higher ASP than old PHEV models.
　　4Q24 gross margin slightly missed on larger dealer rebates against better scale effect and battery cost deflation savings. Distorted by accounting changes, 4Q24 overall gross margin came at 17.0%. If removing the warranty expenses (equivalent to c.RMB12bn) that shifted from selling expenses to COGS during year-end accounting policy adjustment, the adj. gross margin edged down 0.4ppt QoQ to 21.5%, slightly weaker than we expected as the larger dealer rebates more than offset the better scale effect on the back of record-high quarterly sales and battery cost deflation savings. From another metric, the variance between reported gross margin and selling expense ratio remained stable QoQ at 17% in 4Q24, which also implies higher selling expense ratio in 4Q24 if eliminating the impact of accounting policy changes.
　　Despite aggressive OPEX outlay, net profit per vehicle stayed steady at above RMB9k thanks to higher non-operating items led by government grants. In addition to the higher selling expenses, we notice general administrative expenses and R&D expenses also beat expectations, which in total expanded over 40% QoQ to RMB26.1bn as record high. But on the other hand, other non-operating income (incl. government subsidy and asset disposal gains etc.) increased to RMB4.5bn in 4Q24 from RMB3.9bn in 3Q24. As a result, net profit excluding BYDE per vehicle remained high at RMB9.3k.
　　Valuation
　　To reflect stronger overseas demand alongside intensive local production output release, we revise up our sales volume forecasts for 2025-26E to 5.32m/6.03m units. Combined with higher ASP and gross margin assumptions given the larger sales proportion of overseas vehicle sales, we raise our earnings forecasts for 2025-26E by 13-17% to RMB51.3bn/56.2bn, respectively.
　　For near term, we see on-going demand headwinds for BYD as the YTD domestic demand growth for legacy flagship fleets remained lacklustre even with substantial destocking promotions before the product upgrades with God’s Eye smart driving system on vehicle. In addition, we deem the company is likely to widen the end-user incentives for coming revamped smart-driving models in a bid to drive demand, given the weaker-than-expected audience acceptance for updated smart-driving products (mainly due to the higher selling price versus models without smart-driving functions) per our channel check. Hence, we anticipate March sales may hardly return to the high level in 4Q24, dragging 1Q25 sales volume down by 30% from 4Q24. Albeit a notable decrease in quarterly sales volume, the rising sales proportion of overseas shipments with richer margin than domestic sales might give a solid support to 1Q25 earnings profile.
　　Over the one-year horizon, BYD’s leadership in domestic economy market may face rising competition from mass market-oriented counterparts that swiftly follow up the adoption of cost-competitive smart driving systems on affordable models. Although BYD leads in the popularisation of smart driving specs as standard for affordable fleets, we notice that direct rivals such as Geely and Chery Auto successively unveiled their smart driving suites to equip lower-price lineups to strengthen market presence. In another words, the early-mover advantages and tech leadership of BYD in “smart driving popularisation” for cost- conscious audience might fade away with the mass deliveries of updated smart- driving models from counterparts from 2H25 onwards.
　　In addition to domestic mass-market expansion, the mid-to-long term growth upside largely counts on how the company achieves premiumisation and go- global expansion, both of which may face challenges ahead. Firstly, we see a slower brand premiumisation progress for BYD as the trio high-end sub-brands continuously accounted for below 5% in full-year shipments over 2023-24. This could be partly explained by BYD’s consecutive drastic price-cuts for main brand models that more or less disrupt the brand awareness for target premium audience.
　　For globalisation, we agree that the broader market entry, rich pipelines and massive local capacity release will give a robust lift to overall sales, especially in early stage usually dominated by export mode rather than overseas manufacturing. However, as BYD’s globalisation progresses from export to overseas localisation stage, the potential demand upside and local operation stability might be disturbed by geopolitical threats and unfavourable macro dynamics in key destination regions, which has been well evidenced by the bumpy move of reputable Chinese auto parts suppliers (such as Fuyao Glass) in global expansion. All in, we deem the globalisation is a long and bumpy road for Chinese automakers including BYD.
　　At present, its shares are trading at 22x 2025E P/E, which seems a bit overvalued for its slower growth outlook. Overall speaking, while we acknowledge BYD’s dominant position in global NEV industry with competitive edges in terms of technology and scale, we deem it yet to convince investors with more solid clues in either premiumisation breakthrough or reliable overseas market expansion. Based on unchanged 20x 2025E P/E, we raise our TP to HK$365, but downgrade H-share stock to HOLD rating.