Summary of Key Points
The competition between BYD and Geely, the two leading Chinese automakers, widened again in the second quarter: BYD sold 1.8085 million vehicles in the first half of the year (a year-on-year decrease of 15.7%) and earned a profit of 12.325 billion yuan, while Geely sold 1.423 million vehicles (a year-on-year increase of 1%) and earned a profit of 9.091 billion yuan. The main difference lies in their performance in overseas markets during the second quarter. BYD managed to maintain its scale and profit levels thanks to its overseas sales (790,000 vehicles, a year-on-year increase of 70%) and the increasing proportion of overseas revenue (which exceeded 50% for the first time), although it faces significant inventory issues. Geely, on the other hand, boosted its revenue through its premium models (such as the Polestar) and an upgrade in its export strategy (with new energy vehicles accounting for 58.5% of its sales), although some of its domestic brands still have shortcomings. The two companies have different approaches to overseas expansion (BYD builds its own facilities, while Geely collaborates with others), and the future outcome will largely depend on their ability to manage overseas operations.
I. The Key to the Difference: Overseas Markets Account for Over 80% of the Sales Gap
The overall sales gap between BYD and Geely is 385,600 vehicles, of which 317,800 vehicles come from overseas markets (accounting for 82.4%), which was the main factor in the widening of the gap during the second quarter.
- BYD's Overseas Success: In the first half of the year, BYD sold 790,000 vehicles overseas, a year-on-year increase of 70%, accounting for 44% of its total sales. More importantly, its overseas revenue exceeded its domestic revenue for the first time (accounting for 52.57% of its total income), and its new energy business increased its gross profit margin from around 17% last year to 18.85%. This indicates that although BYD has difficulty selling vehicles in the domestic market, it is making up for it through overseas sales.
- Geely's Rapid Export Growth but from a Low Base: Geely exported 474,200 vehicles, a year-on-year increase of 158%, but due to its lower starting point, its absolute overseas sales volume is still less than BYD's by over 300,000 vehicles. However, new energy vehicles accounted for 58.5% of Geely's exports (277,200 vehicles, a year-on-year increase of 585%), showing that it is also shifting towards new energy products overseas, although it has not yet reached BYD's scale.
II. BYD's Advantages and Challenges: Overseas Performance Stabilizes the Company, but Inventory and Domestic Issues Are Concerns
BYD's performance is largely driven by overseas sales, but two issues cannot be ignored:
- Rising Inventory: Inventory increased from 138.4 billion yuan to 189.9 billion yuan (an increase of 50 billion yuan), and the time required to sell inventory has increased from 79 days to 109 days. This is because export processes involve preparation, shipping, transportation, and customs clearance, all of which take time, and unsold goods become inventory. The more BYD sells overseas, the greater the inventory pressure, which poses challenges for supply chain management and demand forecasting.
- Weak Domestic Growth: In the past, BYD dominated the domestic market due to its large scale, in-house parts production (vertical integration), and a variety of models. However, the slow growth of new energy vehicles in the domestic market and the fierce price competition have made this strategy less effective. BYD has introduced new technologies and models (such as the Blade Battery and Flash Charging) in an attempt to reverse this trend, but the half-year report does not provide details on the sales performance of these new products, so their effectiveness remains to be seen.
III. Geely's Highlights and Weaknesses: Premium Models Boost Revenue, but Domestic Brands Face Limits
Although Geely's overall sales only increased by 1%, its revenue increased by 14.67%, mainly due to the sale of more expensive vehicles:
- Premium Models Drive Growth: The Polestar sold 178,400 units in the first half of the year, a year-on-year increase of 97%, with models priced over 300,000 yuan accounting for nearly 40% of total sales. This has raised the average revenue per vehicle from 97,000 yuan to 112,000 yuan and increased the gross profit margin by 1.58% to 17.9%. This is the key to Geely's improved performance.
- Domestic Brand Challenges: The sales of Lynk & Co. decreased by 6.4%, and it lacks a mainstream new energy vehicle that can drive sustained growth. The Galaxy brand, which targets the mainstream market, relies mainly on the Starwell model for sales. Geely's current challenge is whether it can replicate the success of its premium models (Polestar) across its other brands; otherwise, it will struggle to achieve growth in the domestic market.
IV. Different Approaches to Overseas Expansion: BYD Builds Independently, Geely Collaborates
Both companies are competing in overseas markets, but with different strategies:
- BYD: Heavy Asset Independent Expansion: BYD invests heavily in building its own factories, purchasing transport ships, and establishing sales channels. This approach requires significant upfront costs but allows for better control over the supply chain and pricing. However, it leads to slower inventory turnover, and in the future, it may need to increase local production (e.g., by building factories overseas) to reduce transportation times and inventory.
- Geely: Light Asset Collaboration: Geely collaborates with Renault in the Brazilian market, uses Ford's Spanish factories for production, and plans to start producing high-end vehicles at Volvo's European factories in 2028. This approach allows for faster expansion but may result in less control over production and pricing. Geely aims to export 446,000 vehicles in the second half of the year (nearly half of its first-half figure) to meet its annual target of 920,000 vehicles, which is a significant challenge.
Conclusion: The Future Depends on Overseas Operations
The next round of competition between BYD and Geely will not be about the domestic market but on their ability to manage overseas operations. BYD needs to improve inventory turnover and rely more on local production to boost sales, while Geely must replicate the success of its premium models overseas and maintain high growth rates. The company that can expand its overseas presence and profit margins the most will likely emerge as the leader in the industry.