ACTION Buy BYD Co. (1211.HK) Return Potential: 15% Equity Research Electrifying the world's largest new car market; reinstate at Buy PDF Free Download
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August 31, 2016
ACTION
Buy
BYD Co. (1211.HK)
Return Potential: 15% Equity Research
Electrifying the world’s largest new car market; reinstate at Buy
Source of opportunity
Electrification is set to reshape China’s auto market and we expect BYD to
lead this trend given its strong product portfolio, vertically integrated model
and high OPM vs. peers. A comparative analysis with Tesla shows many
strategic similarities but BYD’s new energy vehicle business trades at a sizable
discount, which we see as unjustified given its large cost savings, capacity
utilization, and front-loaded investment. China’s new energy vehicle market is
poised to deliver c.30% CAGR (vs. 4% for traditional cars) over the next decade.
We have removed the RS designation from BYD. It is on the Buy List with a
12-m TP of HK$61.93, implying 15% upside. Our scenario analysis, flexing
sales volume and margin assumptions, implies a further 30% valuation upside.
Catalyst
1) More cities in China are likely to announce local preferential policies in
the new energy vehicle (NEV) segment once the result of the subsidy fraud
probe is announced. 2) BYD plans to launch electric versions of the
Song/Yuan SUVs and its e-logistic product this year. 3) Increased battery
capacity should remove the bottleneck of recent years. 4) Our 2016E-18E
EPS are up to 41% above Bloomberg consensus (we believe the street has
not sufficiently factored in BYD’s unique competitive edge in new energy
vehicles), and strong FY2016 earnings would be a positive catalyst. 5)
Stricter fuel consumption standards for passenger cars in China.
Valuation
Our 12-m TP of HK$61.93 is based on a sum-of-the-parts valuation, with the
lion’s share contributed by BYD’s NEV business (using a 10-year DCF). We
see BYD’s current valuations as attractive given: 1) its 20X 12-m fwd. P/E is
below historical median -1std; 2) the NEV business (incl. EV battery) trades
at 1.1X 2020E P/S and 11.0X 2020E P/E, well below Tesla’s 1.4X and 20.0X
respectively, and we expect this gap to narrow given the strong medium-
term revenue/earnings growth outlook for BYD’s business; 3) completion of
its recent private placement has improved balance sheet/cash flow metrics.
Key risks
Scaling down of purchase subsidy; lower market share/OPM as competition
increases; disruptive battery technolo
g
ies impactin
g
competitive ed
g
e.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Coverage View: Neutral
Yipeng Yang
+86(10)6627-3189 yipeng.yang@ghsl.cn Beijing Gao Hua Securities Company Limited Goldman Sachs does and seeks to do business with companies
covered in its research reports. As a result, investors should be
aware that the firm may have a conflict of interest that could
affect the objectivity of this report. Investors should consider
this report as only a single factor in making their investment
decision. For Reg AC certification and other important
disclosures, see the Disclosure Appendix, or go to
www.gs.com/research/hedge.html. Analysts employed by non-
US affiliates are not registered/qualified as research analysts
with FINRA in the U.S.
Yuqian Ding
+86(10)6627-3327 yuqian.ding@ghsl.cn Beijing Gao Hua Securities Company Limited
Longjin Li
+65-6654-5141 longjin.li@gs.com Goldman Sachs (Singapore) Pte
The Goldman Sachs Group, Inc. Global Investment Research
Growth
Returns *
Multiple
Volatility Volatility
Multiple
Returns *
Growth
Investment Profile
Low High
Percentile 20th 40th 60th 80th 100th
* Returns = Return on Capital For a complete description of the investment
profile measures please refer to the
disclosure section of this document.
BYD Co. (1211.HK)
Asia Pacific Autos & Autoparts Peer Group Average
Key data Current
Price (HK$) 54.00
12 month price target (HK$) 61.93
Market cap (HK$ mn / US$ mn) 110,705.4 / 14,270.1
Foreign ownership (%) --
12/15 12/16E 12/17E 12/18E
EPS (Rmb) New 1.14 1.87 2.51 3.23
EPS revision (%) 55.6 45.7 33.8 --
EPS growth (%) 537.9 63.7 34.7 28.4
EPS (dil) (Rmb) New 1.14 1.87 2.51 3.23
P/E (X) 28.7 24.9 18.5 14.4
P/B (X) 2.5 2.5 2.3 2.1
EV/EBITDA (X) 12.9 10.1 9.2 8.0
Dividend yield (%) 0.0 1.3 1.4 1.7
ROE (%) 9.8 11.7 13.1 15.1
CROCI (%) 14.1 12.8 13.7 13.7
Price performance chart
7,500
8,500
9,500
10,500
11,500
12,500
30
35
40
45
50
55
Sep-15 Dec-15 Mar-16 Jun-16
BYD Co. (L) Hang Seng China Ent. Index (R)
Share price performance (%) 3 month 6 month 12 month
Absolute 20.1 39.9 70.6
Rel. to Hang Seng China Ent. Index 9.6 16.1 74.2
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 8/31/2016 close.
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 2
BYD Co.: Summary Financials
Analyst Contributors
Yipeng Yang
yipeng.yang@ghsl.cn
Yuqian Ding
yuqian.ding@ghsl.cn
Longjin Li
longjin.li@gs.com
Profit model (Rmb mn) 12/15 12/16E 12/17E 12/18E Balance sheet (Rmb mn) 12/15 12/16E 12/17E 12/18E
Total revenue 77,612.0 103,214.1 132,373.6 159,351.5 Cash & equivalents 6,010.9 15,318.1 11,321.1 7,591.1
Cost of goods sold (60,439.1) (77,538.0) (100,105.5) (120,666.5) Accounts receivable 27,164.7 35,277.3 44,155.7 53,154.7
SG&A (8,659.2) (11,773.7) (15,761.8) (19,133.4) Inventory 15,750.6 20,206.5 26,087.7 31,445.9
R&D -- -- -- -- Other current assets 5,592.9 6,152.2 6,459.8 6,782.8
Other operating profit/(expense) 499.7 664.6 720.0 675.5 Total current assets 54,519.1 76,954.1 88,024.3 98,974.5
EBITDA 9,013.4 14,567.0 17,226.3 20,227.1 Net PP&E 39,039.0 43,599.3 48,475.2 53,078.0
Depreciation & amortization (5,313.6) (6,492.1) (7,005.9) (7,499.9) Net intangibles 7,168.7 5,927.7 4,686.8 3,445.8
EBIT 3,699.8 8,074.9 10,220.5 12,727.3 Total investments 4,960.1 4,834.3 4,720.2 4,643.0
Interest income 53.4 120.2 306.4 226.4 Other long-term assets 9,798.8 10,778.7 11,317.7 11,883.5
Interest expense (1,517.0) (1,591.8) (1,407.6) (1,284.5) Total assets 115,485.8 142,094.2 157,224.1 172,024.7
Income/(loss) from uncons. subs. 3.0 0.0 0.0 0.0
Others 1,555.8 (267.5) (139.4) (102.6) Accounts payable 30,655.8 36,142.2 45,290.1 52,939.4
Pretax profits 3,795.0 6,335.8 8,979.8 11,566.6 Short-term debt 26,412.9 27,412.9 27,212.9 26,512.9
Income tax (656.8) (1,110.1) (1,663.1) (2,257.9) Other current liabilities 9,041.4 10,684.0 10,756.0 11,242.5
Minorities (314.8) (400.6) (458.3) (504.3) Total current liabilities 66,110.1 74,239.1 83,259.0 90,694.8
Long-term debt 11,229.9 11,229.9 11,229.9 11,029.9
Net income pre-preferred dividends 2,823.4 4,825.1 6,858.4 8,804.4 Other long-term liabilities 2,116.5 2,539.8 3,047.7 3,504.9
Preferred dividends 0.0 0.0 0.0 0.0 Total long-term liabilities 13,346.4 13,769.7 14,277.6 14,534.8
Net income (pre-exceptionals) 2,823.4 4,825.1 6,858.4 8,804.4 Total liabilities 79,456.5 88,008.8 97,536.6 105,229.6
Post-tax exceptionals 0.0 0.0 0.0 0.0
Net income 2,823.4 4,825.1 6,858.4 8,804.4 Preferred shares 0.0 0.0 0.0 0.0
Total common equity 32,294.4 49,950.0 55,093.7 61,697.0
EPS (basic, pre-except) (Rmb) 1.14 1.87 2.51 3.23 Minority interest 3,734.8 4,135.4 4,593.8 5,098.1
EPS (basic, post-except) (Rmb) 1.14 1.87 2.51 3.23
EPS (diluted, post-except) (Rmb) 1.14 1.87 2.51 3.23 Total liabilities & equity 115,485.8 142,094.2 157,224.1 172,024.7
DPS (Rmb) 0.000.600.630.81
Dividend payout ratio (%) 0.0 32.3 25.0 25.0 BVPS (Rmb) 13.04 18.31 20.19 22.62
Free cash flow yield (%) (2.6) (5.3) (1.5) (0.4)
Growth & margins (%) 12/15 12/16E 12/17E 12/18E Ratios 12/15 12/16E 12/17E 12/18E
Sales growth 40.2 33.0 28.3 20.4 CROCI (%) 14.1 12.8 13.7 13.7
EBITDA growth 46.8 61.6 18.3 17.4 ROE (%) 9.8 11.7 13.1 15.1
EBIT growth 91.8 118.3 26.6 24.5 ROA (%) 2.7 3.7 4.6 5.3
Net income growth 551.3 70.9 42.1 28.4 ROACE (%) 7.1 8.9 10.0 11.1
EPS growth 537.9 63.7 34.7 28.4 Inventory days 77.7 84.6 84.4 87.0
Gross margin 22.1 24.9 24.4 24.3 Receivables days 117.3 110.4 109.5 111.4
EBITDA margin 11.6 14.1 13.0 12.7 Payable days 170.6 157.2 148.5 148.6
EBIT margin 4.8 7.8 7.7 8.0 Net debt/equity (%) 87.8 43.1 45.4 44.8
Interest cover - EBIT (X) 2.5 5.5 9.3 12.0
Cash flow statement (Rmb mn) 12/15 12/16E 12/17E 12/18E Valuation 12/15 12/16E 12/17E 12/18E
Net income pre-preferred dividends 2,823.4 4,825.1 6,858.4 8,804.4
D&A add-back 5,313.6 6,492.1 7,005.9 7,499.9 P/E (analyst) (X) 28.7 24.9 18.5 14.4
Minorities interests add-back 314.8 400.6 458.3 504.3 P/B (X) 2.5 2.5 2.3 2.1
Net (inc)/dec working capital (5,915.3) (7,082.2) (5,611.6) (6,707.9) EV/EBITDA (X) 12.9 10.1 9.2 8.0
Other operating cash flow 1,305.6 (864.7) (99.2) (229.1) EV/GCI (X) 1.3 1.4 1.3 1.2
Cash flow from operations 3,842.1 3,770.9 8,611.8 9,871.6 Dividend yield (%) 0.0 1.3 1.4 1.7
Capital expenditures (6,072.5) (10,321.4) (10,589.9) (10,357.8)
Acquisitions 0.0 0.0 0.0 0.0
Divestitures 1,808.6 904.3 452.1 0.0
Others (6,472.5) (519.7) (628.3) (629.2)
Cash flow from investments (10,736.5) (9,936.8) (10,766.1) (10,987.1)
Dividends paid (common & pref) 0.0 0.0 (1,642.6) (1,714.6)
Inc/(dec) in debt 10,465.6 1,000.0 (200.0) (900.0)
Common stock issuance (repurchase) 0.0 14,473.0 0.0 0.0
Other financing cash flows (1,510.7) 0.0 0.0 0.0
Cash flow from financing 8,954.9 15,473.0 (1,842.6) (2,614.6)
Total cash flow 2,060.5 9,307.1 (3,996.9) (3,730.1) Note: Last actual year may include reported and estimated data.
Source: Company data, Goldman Sachs Research estimates.
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 3
Table of contents
A letter to investors 3
Our investment thesis in six charts 4
PM Summary: NEV market leader with strong pipeline, Buy 5
Setting the scene: China’s NEV market set to grow tenfold by 2025 7
BYD profile: The world’s biggest NEV/battery maker in 2015 21
Investment case: BYD’s unique competitive edge to drive stronger-than-consensus earnings 26
Vs. Tesla: Similarities in strategy but BYD’s NEV business trades at a significant valuation discount 37
BYD valuation: Attractive with clear near-term catalysts 41
Introducing M&A rank for BYD 49
Risks: China NEV market fluctuations, increased competitive pressures, technological disruption 52
Appendix 1: NEV battery capacity, lithium supply, and battery makers’ valuation 53
Appendix 2: Glossary of key terms and acronyms 58
Disclosure Appendix 59
Prices in the body of this report are based on the market close of August 31, 2016, unless otherwise stated. For a full
‘Glossary of terms’ used in this report please see Appendix 2.
A letter to investors
Dear Investors,
The future is not what it used to be. We expect China’s passenger car market to grow at
mid-single digits over 2015-2025E, much lower than the c.20% CAGR over 2005-2015. Auto
electrification looks set to be one of the biggest changes in the coming decade, reshaping
the auto industry and driving the new energy vehicle market to grow tenfold, driven by
stricter emission standards and the continuation of preferential government policies.
2015 saw BYD become the world’s biggest new energy vehicle maker in terms of sales
volume and it is also the biggest battery maker for these vehicles. We believe its unique
competitiveness is rooted in a strong product portfolio, vertically integrated business
model, flexible manufacturing footprint, and sustainable operating margin. In the wave of
auto electrification, we expect BYD to be one of the companies that benefits most.
As well as articulating on both near-term and long-term market trends for the new energy
vehicle market, this report also provides a deep dive into BYD’s history, strategic direction,
competitive edge and financial results. We provide a unique dimension by comparing the
business strategy and key operating assumptions of BYD with U.S. leader Tesla. With our
earnings forecasts well above consensus, we believe the street has not sufficiently factored
in BYD’s competitive edge in new energy vehicles.
We firmly believe in the secular growth for the new energy vehicle market in China over
the next decade (28% CAGR), despite potential near-term fluctuations in growth and
uncertainty with the timing of policy announcements, with clear positive catalysts for BYD
in the coming 12 months (policy tailwinds, new products, battery capacity expansion,
strong FY16 earnings, etc.). We reinstate a rating on BYD at Buy.
The Goldman Sachs China Autos Research Team
Why did we write this
report?
Why do you need to
read it?
How is our view
different?
What should you do?
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 4
Our investment thesis in six charts
Exhibit 1: We expect 28% CAGR in China’s new energy
vehicle (NEV) market over 2015-2025E
Sales volume of new energy vehicles in China (‘000)
Exhibit 2: BYD has a strong product portfolio in the NEV
space, especially in the SUV-NEV sub-segment
Summary of BYD product portfolio in the NEV space
Notes: CV = commercial vehicle, PHEV = plug-in hybrid electric vehicle, EV =
electric vehicle.
Notes: SUV = sports utility vehicle, MPV = multi-purpose vehicle.
Source: China Association of Automobile Manufacturers (CAAM), Gao Hua
Securities Research.
Source: Company data.
Exhibit 3: BYD’s battery bottleneck has been removed
since 2015 on continuous investment in battery capacity
BYD battery capacity (GWh) and utilization rate (%)
Exhibit 4: BYD already has a market leading position in
China with c.20% market share
BYD NEV sales volume (‘000) and market share (%)
Source: Company data, Gao Hua Securities Research. Source: Company data, Gao Hua Securities Research.
Exhibit 5: We expect BYD’s nominal OPM to be higher
than that of Tesla, but comparable OPM to be lower
OPM and comparable OPM (excl. subsidy, CO2 credit and
battery profit) comps between BYD NEV business and Tesla
Exhibit 6: BYD’s NEV business valuation looks attractive
at a 20% discount vs. Tesla in terms of 2020E P/S
2020E price to sales valuation multiple (X) comparison
between BYD’s NEV business and Tesla
Source: Company data, Goldman Sachs Global Investment Research, Gao Hua
Securities Research.
Source: Goldman Sachs Global Investment Research, Gao Hua Securities
Research.
‐
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
NewenergyCVsalesvolume('000) PHEVcarsalesvolume('000) EVcarsalesvolume
2015‐2025E CAGR:27.9%
Small
Compact
Midsize
Sedan SUV MPV
Yuan (PHEV, 2H16)
Shang (PHEV,
2H16/1H17)
Qin (PHEV, Dec 13) Song (PHEV, 2H16)
Tang (PHEV, 1H15)
Han (PHEV, 17)
e6 (EV, 2011)Tenza (EV, Oct 14)
Ming (PHEV, 1H17)
e5 (EV, 1H16)
Qin 300 (EV, 1H16)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
0
5
10
15
20
25
30
35
40
2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E
Batterycapacity Utilizationrate(RHS)
0%
5%
10%
15%
20%
25%
30%
‐
50
100
150
200
250
300
350
400
450
2013 2014 2015 2016E 2017E 2018E 2019E 2020E
BYDNEVvol. BYDNEVMS(RHS)
‐15%
‐12%
‐9%
‐6%
‐3%
0%
3%
6%
9%
12%
15%
18%
2015 2016E 2017E 2018E 2019E 2020E
BYD‐NEVOPM
Tesla OPM
BYD‐NEVcomparableOPM
Tesla comparableOPM
1.11
1.37
0.5
0.7
0.9
1.1
1.3
1.5
BYD Tesla
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 5
PM Summary: NEV market leader with strong pipeline, Buy
China’s new energy vehicle (NEV) market1 has shown strong momentum in recent years,
becoming the world’s No. 1 by volume in 2015 with 331k units sold vs. 129k in the U.S.
Strong sales volume growth seen in 2015 (+343%) has continued into 2016, with NEV sales
volumes in China achieving >120% yoy growth in January-July 2016. In this report we raise
our industry estimates for the China NEV market in the coming decade by 10%-20%,
articulating on expected market trends for both the near-term and long-term.
Founded in Shenzhen in 1995 and originally principally engaged in the IT industry, BYD (its
name is an acronym of “Build Your Dream”) has since transformed not only into the
world’s biggest NEV maker but also the biggest NEV battery maker, with c.50% of its total
revenues coming from these segments in 2015. Against a strong backdrop for the NEV
market, BYD’s unique competitive edge and its c.20% market share in China (in 2015) mean
the company is well placed to benefit, in our view. We reinstate a rating on BYD at Buy
with our SOTP-based 12-m target price of HK$61.93 implying 15% upside potential.
China NEV market set to grow tenfold in the coming decade
Based on our updated industry model, we now expect China’s NEV market to sustain 28%
CAGR (2015-2025E), reaching 3.9mn units in 2025E, more than 10X higher than the units
sold in 2015. We believe this demand will be driven by: 1) stricter 2020/2025 fuel
consumption standards for passenger cars from the Ministry of Industry and Information
Technology (MIIT) of China; 2) continuation of preferential government policies beyond
2020E after the current phase-out of the NEV purchase subsidy, with the focus likely to shift
from purchase to usage (license plate, charging infrastructure rewards, etc.) and total cost
of ownership (TCO) to remain an advantage; and 3) demand in the new energy commercial
vehicles (CV) space from electric logistic vehicles.
In the near-term, we see the following as driving positive NEV growth in China: 1) NEV
volume targets from pilot cities underpinning strong 2016 demand; 2) announcement on
the final result of the NEV subsidy fraud probe (expected in the next 1-2 months, per the
government) could clear the uncertainty regarding NEV-related policy trends and also
encourage more pilot cities to stipulate detailed local supportive policies. On the other
hand, high comps in 4Q15 could lead to lower yoy growth in 4Q16E which may impact
investor sentiment, while new entrants/new business models raising competition could
somewhat temper the considerable potential NEV demand seen to date.
Our BYD earnings forecasts are up to 41% above consensus
Over 2015-2020E, we expect BYD’s NEV division to achieve 44% revenue and 36% OP
CAGR, driving consolidated revenue CAGR of 22% and consolidated net income CAGR of
36% (versus 11% and 2% respectively over the past five years). Our 2016E-18E EPS are
13%-41% above Bloomberg consensus as we believe the street has not sufficiently factored
in: 1) the strong NEV market growth in China; 2) BYD’s robust market share given its current
NEV product portfolio; 3) BYD’s vertically integrated business model, which enables it to
conduct R&D of NEV and ramp-up NEV/battery manufacturing capacity quicker via better
coordination of the R&D, quality control, and capacity expansion of different key supply
chain components; 4) the company’s flexible manufacturing footprint, which should ensure
a strong order book from outside its home turf; and 5) BYD’s ability to sustain its operating
margin at the double-digit level, due to continuing preferential NEV policies, cost savings
on a larger scale, high capacity utilization, and front-loaded R&D/CAPEX.
1Based on the Chinese government definition, the NEV market includes PHEV, EV, and fuel-cells but excludes HEV
(please see Appendix 2 for a full ‘Glossary of key terms and acronyms’).
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August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 6
BYD vs. Tesla: Similarities in NEV strategies but BYD’s OPM higher
When we compare BYD and Tesla, we see two companies that share a number of
similarities with their respective NEV strategies, in particular regarding the vertical
integration of battery and solar business, expansion of the NEV product offering from
passenger car to commercial vehicles, and also expansion into car sharing & autonomous
driving business. Differences arrive in the form of terms of inclusion of ICE/PHEV,
pricing/branding strategy, manufacturing and organization style, etc. In 2015, the NEV
business of BYD enjoyed an OPM of 16.5% vs. -4.0% for Tesla. We believe this is mainly
due to the higher government subsidy received by BYD, as well as the inclusion of battery
OPM (BYD consolidates EV battery business profit in the NEV divisional profit). This OPM
gap is likely to gradually close by 2020E, with our US automobiles analyst expecting
Tesla’s OPM to increase to c.10% after the inclusion of its battery business and a ramp up
of production scale to c.300k units.
Attractive valuation and clear catalysts, with NEV contributing the
lion’s share of our 12-month target price
We use a sum-of-the-parts (SOTP) valuation methodology for BYD given the different
nature and growth profile for each of its distinct business divisions (automobiles, handset
components & assembly services, and rechargeable batteries & others). With nearly 90% of
the value contributed by the NEV business (using a 10-year DCF) given secular growth of
the NEV market in China and BYD’s long-term competitive edge in the space, our SOTP-
based 12-m target price of HK$61.93 implies 15% potential upside, among the highest in
our H-share OEMs coverage, and we reinstate a rating on BYD at Buy. The company
currently trades on a 20X 12-month fwd. P/E (below the historical median minus 1 STD)
and a 2.3X 12-month fwd. P/B (in-line with its historical median).
While our comparative analysis vs. Tesla showed a number of similarities in the strategic
direction of the companies, the NEV business of BYD currently trades at 1.1X 2020E P/S
and 11.0X 2020E P/E, well below Tesla’s 1.4X and 20.0X respectively. Although we believe
part of this valuation premium can be attributed to Tesla’s technological leadership, higher
brand recognition & pricing power, as well as its more diversified geographic presence, we
expect this gap to narrow given the strong medium-term revenue/earnings growth outlook
for BYD’s NEV business. That said, our BYD 12-month target price implies its NEV business
trading at a 12.6X 2020E P/E, a level still lower than Tesla.
We also conduct a scenario analysis where we flex our assumptions on market share/OPM
for BYD’s different divisions. In our bull case, with NEV sales volume assumptions for BYD
increased by 5%-10% vs. our base case and OPM to sustain at a level above mid-teen digits
before 2020E, this implies earnings upside of 6%-17% in 2016E-20E vs. our base case and
30% further valuation upside. On the other hand, our bear case has BYD’s NEV sales
volume assumptions lowered by 8%-13% vs. our base case and OPM gradually lowered to
9.6% by 2020E, the same level as Tesla’s by then, thus earnings are 14%-30% lower vs. our
base case, with 27% implied valuation downside from the latest market close.
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 7
Setting the scene: China’s NEV market set to grow tenfold by 2025
China is the No.1 NEV player globally and strong growth continues
The Chinese government’s definition of a new energy vehicle (NEV), which thus qualifies
for a subsidy, includes plug-in hybrid electric vehicles, electric vehicles, and fuel-cell
vehicles but excludes hybrid electric vehicles. We apply this government definition for NEV
when estimating the market opportunities for car electrification in China given: 1) progress
to date has been primarily driven by preferential government policies (purchasing
subsidies, free license plates in Beijing/Shanghai, etc.), which play a key role in promoting
NEV sales; and 2) globally, auto emission regulations are tightening (e.g., the Zero
Emission Vehicle (ZEV) credit will exclude hybrid electric vehicles from 2018).
In 2015, China claimed the world No. 1 market position in the NEV industry, with 331k units
sold. As shown in Exhibit 9, we exclude hybrid electric vehicles in the scope of our analysis,
in-line with the government definition; otherwise US/Japan would have higher volume
than China. In January-July 2016, we have continued to see strong growth in the China
NEV market, which recorded >120% yoy growth.
Exhibit 7: Electrified vehicles could reach 20% of new car
sales in 2025 (incl. hybrid electric vehicles)
Demand forecasts by power train
Exhibit 8: Rising tide of tighter fuel economy regulations
CO2 emissions (gCO2/km) regulations
Notes: FCV = fuel cell vehicles, EV = electric vehicles, PHEV = plug-in hybrid
electric vehicles, HEV = hybrid electric vehicles.
Source: IHS, Goldman Sachs Global Investment Research. Source: Japan Automobile Manufacturers Association (JAMA), U.S.
Department of Energy (DOE), Goldman Sachs Global Investment Research.
Exhibit 9: China was the biggest NEV market in the world
(excl. HEV) in 2015
NEV sales volume (‘000 units) in China, the US and Japan
Exhibit 10: Strong growth (>120%) in NEV sales in China
continued in the first seven months of 2016
NEV monthly sales volume growth rate in China, Jan 2015-
July 2016 (% yoy)
Source: IHS, CAAM, Autodata, U.S. Energy Information Administration (EIA) Source: CAAM
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2012
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
FCV
EV
PHEV
HEV
Internal combustion
engines
(Mix)
0
50
100
150
200
250
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
US Europe Japan China
45
247
77 76
17 17
30
84
48 53
13 13
189 209
857
1,013
0
200
400
600
800
1,000
1,200
CY2014 CY2015 CY2014 CY2015 FY2013 FY2014
HEV
PHEV
EV
China US JP
+343%
+8%
+18%
0%
100%
200%
300%
400%
500%
600%
700%
800%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2015 2016
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 8
Exhibit 11: Top 10 new energy passenger car players in China
New energy passenger car sales volume (unit) by OEMs
Source: China Passenger Car Association (CPCA)
Long-term outlook: NEV volumes to grow >10X in coming 10 years
We expect China’s NEV market to sustain 27.9% CAGR (2015-2025E) to reach 3.9mn units
sold in 2025, more than 10X higher than the 331k units sold in 2015. In this report, we raise
our estimates for the NEV market in China over 2016-2025 by 11%-21% vs. our previous
assumptions. These volume revisions are primarily driven by: 1) stricter 2020/2025
passenger car fuel consumption standards from MIIT; 2) our expectation that the
continuation of preferential policies and sustained total cost of ownership should remain
an advantage for NEV beyond 2020E after expiration of the current purchase subsidy
scheme; and 3) new demand from electric logistic (e-logistic) vehicles which we believe is
the fastest growing sub-segment in the new energy commercial vehicle space.
Exhibit 12: We expect NEV sales volume to grow at a CAGR of 27.9% during 2015-2025 in
China
Sales volume of new energy CV, PHEV cars and EV cars (‘000) in China
Source: CAAM, Gao Hua Securities Research.
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
BYD
Zotye
Kandi
BAIC
Chery
SAIC
Jianghuai
Geely
Jiangling
Denza
2015 2014
‐
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
NewenergyCVsalesvolume('000) PHEVcarsalesvolume('000) EVcarsalesvolume
2015‐2025E CAGR:27.9%
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 9
Exhibit 13: We raise our China NEV volume estimates by 11%-21% for 2016-2025
China NEV market sales volume forecasts from 2016E-2025E
Source: CAAM, Gao Hua Securities Research.
Industry driver #1: Strict 2020/2025 fuel consumption standard for passenger cars
According to the Ministry of Industry and Information Technology (MIIT) of China, the
passenger car fuel consumption standard target is for average fuel consumption to reach
5.0/4.0 liter per 100 km respectively in 2020/2025, which implies a 29% fuel consumption
cut from 2015 levels (industrial actual fuel consumption at 7.04 liter/100k) by 2020, with
another 20% cut by 2025.
In order to meet the strict fuel consumption target by 2020, i.e., fill the 29% fuel
consumption gap between 2015 to 2020, we believe OEMs would need to adopt both of the
following measures:
Improve fuel efficiency of internal combustion engine (ICE) cars: Fuel efficiency
improvement would be driven via light-weighting, turbo-charging, engine-downsizing,
transmission optimization, and other related technologies; and
Introduce more NEV to lower the weighted average fuel consumption levels: As
per the fuel consumption calculation method in the China Phase III Fuel Consumption
Standard (issued by MIIT in March 2013), the Chinese government allocates a “super
credit” for NEV cars, with: 1) 5X credit weighting given to PHEV/EV/fuel cell vehicles
with mileage of more than 50km per charge (fuel consumption counted as 0); and 2) 3X
credit weighting given to passenger cars (excluding EV/fuel cell vehicles) with fuel
consumption of less than 2.8 liter/100km (most likely to be achieved by PHEV). This
“super credit” will gradually decline to 2X by 2020 for both PHEV/EV. As the costs of
complying with the required improvement in fuel efficiency for ICE cars become higher
and higher, we believe that increasing the amount of NEV in the sales mix (with the
help of the “super credit”) would make sense to OEMs in term of cost-efficiency.
2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2015‐25ECAGR
Newforecasts
NewenergyCVSalesVolume('000) 6 20 131 215 277 339 407 467 515 555 580 613 647 17.3%
PHEVCarSalesVolume('000) 0 24 60 103 164 271 407 700 840 958 1,082 1,212 1,339 36.4%
EVCarSalesVolume('000) 11 31 140 217 282 409 511 700 910 1,138 1,365
1,611 1,890 29.7%
TotalSalesVolume('000) 18 75 331 535 724 1,020 1,325 1,867 2,265 2,650 3,027 3,436 3,876 27.9%
GrowthRate(YoY) 327% 341% 62% 35% 41% 30% 41% 21% 17% 14% 14% 13%
Oldforecasts
NewenergyCVSalesVolume('000) 6 20 131 144 159 174 192 211 222 233 244 256 269 7.5%
PHEVCarSalesVolume('000) 0 24 60 96 154 230 346 518 648 810 1,013 1,164 1,339 36.4%
EVCarSalesVolume('000) 11 31 140 210 315 441 617 864 1,037 1,245 1,494
1,680 1,890 29.7%
TotalSalesVolume('000) 18 75 331 450 627 846 1,155 1,594 1,907 2,287 2,750 3,101 3,499 26.6%
GrowthRate(YoY)(RHS) 327% 341% 36% 39% 35% 37% 38% 20% 20% 20% 13% 13%
Var(%)
NewenergyCVSalesVolume 49% 75% 95% 112% 122% 132% 138% 137% 139% 140% 9.8%
PHEVCarSalesVolume 7% 7% 18% 18% 35% 30% 18% 7% 4% 0% 0.0%
EVCarSalesVolume 3% ‐10% ‐7% ‐17% ‐19% ‐12% ‐9% ‐9% ‐4% 0% 0.0%
TotalSalesVolume 19% 15% 21% 15% 17% 19% 16% 10% 11% 11% 1.3%
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 10
In Exhibit 15, we consider two additional factors which could influence the evolution of car
industry fuel consumption between 2015 and 2020:
Consumption preferences for SUV leading to higher fuel consumption: In China,
the SUV volume mix increased from 11% in 2010 to 34% in 1H16, and we expect it to
increase further to ~40% in 2020 on consumer preference and more new product
offerings. Comparing a SUV sharing the same chassis as a sedan, we observe that fuel
consumption is higher for the SUV. For example, FAW Toyota’s RAV 4 SUV is
equipped with a 2.0L/2.5L engine and its fuel consumption is 7.3-8.7 liter/100km, while
the Corolla sedan (based on a similar platform) is equipped with a 1.6L/1.8L engine and
its fuel consumption is 5.9-6.3 liter/100km. Hence, we expect that a consumption trend
towards an SUV preference will increase fuel consumption of the industry by 0.17
liter/100km over 2015-2020.
A potential buffer for compliance: With reference to the practices in developed
countries, e.g., the US which provides a scheme of TLAAS (Optional Temporary Lead-
time Allowance Alternative Standards) to give more time for certain OEMs to meet the
CO2 emission standard, it is possible that China may provide some buffer to selective
OEMs (e.g., luxury car importers) before their full compliance. This may be around the
5% level, in-line with the number of imported passenger cars in 2015 as a percentage
of the total new car market in China, as these cars tend to be high in fuel consumption
and may need longer to comply.
Our forecast of 1.4mn units of NEV passenger car sales volume in 2020 is primarily based
on the 0.88 liter/100km fuel consumption reduction needed from NEV roll-out for the auto
industry to meet the MIIT fuel consumption target.
Exhibit 14: MIIT targets imply a 29% fuel consumption
cut by 2020 followed by another 20% cut by 2025…
Fuel consumption target, liter/100km, 2012-2025E
Exhibit 15: …and we expect the reduction to mainly be
driven by ICE improvement and NEV roll-out
Walkthrough from 2015 actual fuel consumption to 2020
target, liter/100km
Source: MIIT, Gao Hua Securities Research estimates. Source: MIIT, Gao Hua Securities Research estimates.
7.507.337.227.046.706.406.00
5.50
5.00
4.00
‐
1
2
3
4
5
6
7
8
2012
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
2025E
29%
20%
7.04 +0.17 ‐1.08
‐0.88
‐0.25
5.0
0
1
2
3
4
5
6
7
8
2015fuel
consumption
level
Consumption
trend
ICEcar
improvement
NEVroll‐out Buffer 2020fuel
consumption
traget
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 11
Industry driver #2: Sustaining preferential policies/TCO advantage beyond 2020E
We believe that government policy is one of the most influential factors in the development
of a new industry in China, as shown by the solar and high-speed railway industries since
2007 and 2004 respectively, and also in the NEV industry since 2013. In Exhibit 16, we
summarize the incentives, challenges, and major directions taken by China’s government
policies with respect to the NEV industry, and highlight the following:
Three key incentives: i) To increase national industrial competitiveness by incubating
a strong local NEV industry; ii) to promote energy security by reducing dependency on
imported petroleum (in 2015, China imported 61% of its petroleum needs and the auto
sector consumed the majority of this incremental petroleum); and iii) to promote
environmental protection via the reduction of air pollutants (e.g., NOx and PM) as well
CO2 emissions.
Three key challenges to address: We see current policies as addressing the three key
challenges to the mass roll-out of new energy vehicles: i) cost-benefit, ii) mileage
anxiety, and iii) local & national protectionism concerns. Additionally, the Chinese
government is adopting various policies like granting free license plates for NEV and
building more charging infrastructure to promote NEV sales.
Exhibit 16: We see current government policies as addressing major challenges and enabling achievement of targets in
the mass roll-out of new energy vehicles
Summary of current government incentives and policies on NEV market
Source: Government websites.
Gov. Subsidy & cost down
via bigger scales
Policies
Challenges
Cost-Benefit
Extra costs for e-powertrain/
battery/BMS
Mileage anxiety
Density of charging station and
different cars for different usages
Protectionism
Local & national
Subsidy from central &
local government
Potential solutions
Build more charging
infrastructure; new
business model; change
customer behaviors
Promote open market;
remove obstacles in market
entrance of import /non
locally-made NEVs
Tax/fee exemption
Free license
Set target on no. of
charging stations
Encourage car
sharing/leasing/rental
model
No usage restriction
To expand beneficial
scope to include import
or non locally-made
vehicles
Use national product
category replacing local
ones
Promote Government direct purchase
Cross subsidy by
OEM/petrol companies
Fuel consumption std.
Standardization of EV
chargers
Bus/fleet users
Buyers incl. government
Private buyers
Types of customers
Govt. incentives
Energy security National competitiveness Environmental protection
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 12
We believe the NEV purchase subsidy has been one of the most persuasive measures from
the government for potential NEV buyers. In Exhibit 17, we summarize changes to the
central government’s NEV purchase subsidy per unit amount in the coming five years for
different types of vehicles. We observe that NEV purchase subsidy is scaling down (with
bus subsidy declining most and special purpose vehicle/fuel cell vehicle amount remaining
unchanged) and is due to fully expire by the end of 2020. While shrinking purchase subsidy
may lead to investor concerns on the sustainability of NEV market growth in China, we
believe the impact should be limited given we expect: i) subsidy to shift from purchase to
usage, and ii) the price of NEV to drop with declining battery costs and the introduction of a
fuel consumption credit trading system.
Exhibit 17: Central government purchase subsidy is scaling down (with bus subsidy declining most and special purpose
vehicle/fuel cell unchanged) and is due to fully expire by the end of 2020
Summary of central government purchase subsidy, 2013-2020
Source: Ministry of Finance (MoF), Ministry of Technology (MoT), MIIT, National Development and Reform Commission (NDRC), National Energy Administration
(NEA).
Subsidy (Rmb '000) 2013 2014 2015 2016 2017 2018 2019 2020 2015-20 CAGR
Passenger car Mileage under EV mode (km)
EV
150≤R<250 50.0 47.5 45.0 45.0 36.0 36.0 27.0 27.0 -9.7%
R≥250 60.0 57.0 54.0 55.0 44.0 44.0 33.0 33.0 -9.4%
PHEV R≥50 35.0 33.3 31.5 30.0 24.0 24.0 18.0 18.0 -10.6%
Bus
2013-2015
EV(6≤L<8) 300 300 300 -22.8%
EV(8≤L<10) 400 400 400 -19.9%
EV(L≥10) 500 500 500 -18.4%
PHEV(L≥10) 250 250 250 -9.3%
2016-2020
EV*(10＜L≤12) 6≤R＜20 176 141 141 106 106
20≤R＜50 208 166 166 125 125
50≤R＜100 236 189 189 142 142
100≤R＜150 280 224 224 168 168
150≤R＜250 336 269 269 202 202
R≥250 408 326 326 245 245
PHEV(10＜L≤12) 50≤R＜100 200 160 160 120 120
100≤R＜150 230 184 184 138 138
150≤R＜250 250 200 200 150 150
R≥250 250 200 200 150 150
EV & PHEV L≤66<L≤88<L≤10 10<L≤12 L≥12
Ratio to 10＜L≤12 All ranges 0.2 0.5 0.8 1.0 1.2
Fuel cell
Passenger car 200 190 180 200 200 200 200 200 2.1%
Bus & Freigt wagon Small 500 475 450 300 300 300 300 300 -7.8%
Medium/Big 500 475 450 500 500 500 500 500 2.1%
Special Purpose Vehicle
Special Purpose EV/PHEV 150 143 135 0.0%
R: ranges, L: vehicle length
*EV bus only list average subsidy for different levels of energy consumption of per unit carriage: Ekg (Wh/km·kg)
RMB 1,800/kWh
80≤R<150 (100≤R<150 from
2016) 35.0 33.3 31.5 25.0 20.0 20.0 15.0 15.0 -13.8%
Unchanged
Declining most
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 13
The key question is whether the NEV market will be negatively impacted by the
diminishing purchasing subsidy? Our analysis shows that the impact should be limited. In
Exhibit 18, we summarize eight different types of subsidy/preferential benefits that NEV
buyers/OEMs might receive from either the government in China or other sources such as
a fuel consumption credit trading system. We expect the negative impact of declining NEV
purchase subsidy to be gradually offset by increasing other subsidies/benefits like NEV
license plate value, charging infrastructure rewards, etc. In total, we estimate that NEV
government subsidies/benefits reach RMB200bn in 2025E, accounting for ~0.5% of the
government budget. We also expect benefits from fuel consumption credit trading (i.e., the
OEMs who can’t meet the fuel consumption standard could buy ‘credit’ from the OEMs
who have a surplus in meeting the standard) to reach RMB18bn in 2025E, which would
partially offset the negative impact of declining NEV purchase subsidy. The consideration
of fuel consumption credit trading is not paid by government but by the OEMs who fail to
comply (as the penalty) to the OEMs who achieve better than required fuel consumption
levels (as the bonus).
Exhibit 18: We expect subsidy to shift from purchase to usage, with total NEV subsidy/benefit reaching RMB200bn in
2025 (~0.5% of govt. budget); we also expect benefits from fuel consumption credit trading (RMB18bn in 2025)
Summary of government subsidy/benefit for the NEV industry, 2015-2025E
Note: From 2017E-25E, we expect govt. budget growth rates to be 2-3% higher than GDP growth rate forecasts from our China Macro Research team.
Source: MIIT, MoT, MoF, NEA, NDRC, Tesla, Gao Hua Securities Research, Goldman Sachs Global Investment Research.
For car buyers, we expect total cost of ownership (TCO) of an EV car to still be c.20% lower
than an ICE car in 2025E even after the expiration of purchase subsidies, assuming battery
costs are 50% lower vs. 2015 levels, the introduction of fuel consumption credit trading
system, etc.
NEVsubsidy(RMBmn) 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E
NEVpurchasesubsidy 94,295 62,713 65,178 79,558 74,078 93,588 ‐ ‐ ‐ ‐ ‐
NEVlicenseplatevalue 6,691 11,053 15,229 18,764 23,413 28,242 30,920 33,988 37,530 42,150 47,200
13thFYPonNEVcharginginfrastructurerewardpolicy 4,164 5,413 6,583 7,959 8,997 10,134 12,161 14,593 16,052 17,657 18,540
LocalEVcharginginfrastructuresubsidyprogram 2,668 3,495 4,578 5,997 7,856 10,291 12,864 15,437 16,981 18,679 19,613
Newenergybusoperatingsubsidy 2,948 6,949 12,699 19,024 24,499 28,937 39,599 44,835 48,547 50,840 53,268
Purchasetaxexemption 1,500 2,295 7,029 10,071 14,445 20,741 25,278 30,820 37,592 42,670 48,441
R&Dandothersubsidies 10,000 10,000 11,000 11,000 12,000 13,000 14,000
15,000 15,000 16,000 16,000
Total 122,266 101,918 122,296 152,373 165,288 204,933 134,822 154,674 171,702 187,997 203,062
Growth(yoy) ‐17% 20% 25% 8% 24% ‐34% 15% 11% 9% 8%
TotalNEVsubsidyas%ofgovt.budge
t
0.7% 0.6% 0.6% 0.7% 0.7% 0.8% 0.5% 0.5% 0.5% 0.5% 0.5%
Benefitfromfuelconsumptioncredittradingsystem 7,281 10,443 14,996 13,768 16,787 14,173 16,088 18,264
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 14
Exhibit 19: Total cost of ownership of an EV car still likely to be ~20% lower than an ICE car in 2025E, even after all the
government purchase subsidies expire
TCO comparison of BYD E5 EV and BYD Suri, 2016 and 2025E
Assumptions: 1) Battery cost accounts for 50% of the total cost of an EV car, and battery cost to halve in 2025E vs. 2016; 2) without usage restriction, an EV car can
drive one more day per week vs. an ICE car; 3) benefit from fuel consumption credit trading system per EV car is 50% of Tesla’s NEV credit revenue per EV car in
2018E.
Source: Autohome.com, MIIT, Tesla, BYD, CEIC, Gao Hua Securities Research.
Exhibit 20: We expect the total cost of ownership of an EV car to increase by ~16% by 2025E vs. 2015, as the decreasing
government purchase subsidy is mostly offset by battery cost reduction
Walkthrough of BYD E5 EV TCO changes from 2015 to 2025E (in RMB)
Note: For comparison purposes, we expect BYD Suri (a compact ICE car comparable to the E5 EV in size) TCO to decrease by 6% in 2025E, mainly on improved fuel
consumption efficiency.
Source: Autohome.com, MIIT, Tesla, BYD, CEIC, Gao Hua Securities Research.
2016 2025E
RMB BYDE5EV BYDSuri RMB BYDE5EV BYDSuri
MSRP 229,800 95,900 MSRP 172,350 95,900
+Purchasetax 4,795 + Purchasetax 9,590
‐Governmentpurchasesubsidy(central+local) 99,000 ‐Governmentpurchasesubsidy(central+local)
‐Benefitfromfuelconsumptioncredittradingsystem‐Benefitfromfuelconsumptioncredittradingsystem5,655
Actualpricepaid 130,800 100,695 Actualpricepaid 166,695 105,490
‐Freelicenseplate 40,000 ‐Freelicenseplate 50,000
Totalcostbeforeoperationcost 90,800 100,695 Totalcostbeforeoperationcost 116,695 105,490
+Fuelcost 6,300 +Fuelcost 4,500
+ Electricitycost 3,000 + Electricitycost 2,250
+Maintenancecost 2,000 4,000 + Maintenancecost 2,000 4,000
+ Annualvehicletax 500 + Annualvehicletax 500
‐Savingsfrommobilityfeeswithuserestriction 1,714 ‐Savingsfrommobilityfeeswithuserestriction 1,714
Annualoperationcost 3,286 10,800 Annualoperationcost 2,536 9,000
Totaloperationcost(8years) 26,285 86,400 Totaloperationcost(8years) 20,285 72,000
‐Scrappagevalue 10,341 19,180 ‐Scrappagevalue 13,214 19,180
TCO(assuming8yearsofusage) 106,744 167,915 TCO(assuming8yearsofusage) 123,766 158,310
Costdifference Costdifference
Assumptions: Assumptions:
Drivingdistance/year(km) 15,000 15,000 Drivingdistance/year(km) 15,000 15,000
Fuelconsumption(L/100km) 7.0 Fuelconsumption(L/100km) 5.0
Gasolineprice(RMB/L) 6.0 Gasolineprice(RMB/L) 6.0
Electricityconsumption(kwh/100km) 20.0 Electricityconsumption(kwh/100km) 15.0
Electricityprice(RMB/kwh) 1.0 Electricityprice(RMB/kwh) 1.0
Maintenancecost(RMB) 2,000 4,000 Maintenancecost(RMB) 2,000 4,000
Yearsofusage 88 Yearsofusage 88
‐36% ‐22%
Purchasecost
Licensesubsidy
Operationcost
Totalcostofownership
Purchasecost
Licensesubsidy
Operationcost
Totalcostofownership
Scrappage Scrappage
106,744
123,766
57,450
99,0005,65510,000
6,000
2,873
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
TCO(2016) Batterycost
reduction
Government
purchasesubsidy
end
Benefitfromfuel
consumptioncredit
tradingsystem
Freelicenseplate
valueincrease
Electricitycost
reductiononbetter
batteryefficiency
Higherscrappage
valueonbetter
batteryquality
TCO(2025E)
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 15
Industry driver #3: New demand for electric logistics vehicles
The biggest driver of the change in our current NEV market size vs. our previous estimation
is new demand for electric logistics (e-logistic) vehicles, which is growing fast within the
new energy commercial vehicle space. These vehicles might be less suitable for intra-city
long-haul purposes but more so for inter-city logistics with fixed routes in certain areas
(more convenient to plan and install charging infrastructure), with limited mileage and high
frequency of usage, and are likely to be mostly purchased by the government or corporates
as a fleet. We estimate that by 2025E 22.5% of total logistic vehicles sold might be
electrified, which would contribute to more than 500k units of sales volume.
Exhibit 21: We expect the penetration rate of e-logistic vehicles to reach 22.5% in 2025E
Sales volume (‘000 units) and penetration rate (%) of e-logistic vehicles
Source: CAAM, Gao Hua Securities Research.
Exhibit 22: Government policies in China to boost the
development of electric logistics vehicles
Summary of government policies on e-logistics vehicles
Exhibit 23: Orders for electric logistics vehicles have
exceeded 90k YTD, already representing 99% growth vs.
2015 sales
Electric logistics vehicles sales volume, 2015-2016E
Source: Government websites Source: CAAM, Company data, Gao Hua Securities Research.
Annualsalesvolume('000units) 2015 2020E 2025E
Totallogisticsvehicles 2,909 2,755 2,891
Totallogisticsvehiclesthatcouldbeelectrified 2,524 2,269 2,386
Electriclogisticsvehiclespenetrationrate 1.8% 15.0% 22.5%
Totalelectriclogisticsvehicles 46 340 537
Government Policies
Centralgovernment ThepercentageofNEVinnewlypurchasedspecialpurposevehiclesbygovt.institutions
shouldbehigherthan50%
Shanghai Shanghaiplanstoaddabout10klogisiticsNEVby2017and18kby2020
Shenzhen Shenzhenplanstodeploy4000logisticsNEVin2016;itplantoadd500logisticsNEVeach
yearanddeploy25000intotaltill2020
Guangdongprovince ThepercentageofNEVinnewlypurchasedspecialpurposevehiclesshouldbehigherthan
30%
Nanjing Nanjingplanstodeploy400logisticsNEVin2016
Qingdao Qingdaoplanstodeploy1000logisticsNEVby2017and7000by2020
ShanxiShanxiplanstodeploy5000logisticsNEVbytheendof2016
Hebei Hebeiplanstodeploy3330logisticsNEVin2016
Huzhou Huzhouplanstodeploy300logisticsNEVin2016
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
2015 2016E
2015actual
salesvolume
46,000
Orders
receivedytd
91,750
GHeforthe
restof2016
22,621
2016E sales
volume
114,371
+149% yoy
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 16
Near-term trends in China’s NEV market: Focus on policy direction
Demand for NEV continues to show strong momentum in China (>120% yoy growth in
January-July 2016), a situation we expect to continue in the near-term driven by
government policies and resolution of an investigation into NEV subsidies fraud. On the
other hand, demand could be slightly tempered by market sentiment due to high comps
and also intensified competition given more new entrants and also new business models.
Trend #1: NEV volume targets from pilot cities to underpin strong 2016 demand
Since 2009 the central government has encouraged city-level local governments to join a
NEV pilot programme to demonstrate and popularize energy conservation and new energy
vehicle development. While 88 cities joined the pilot programme, only 23 announced
detailed supportive policies (concrete volume targets, local NEV purchase subsidy schemes
on top of the subsidy from central government, etc.) to date. We believe more local
supportive policies are crucial to the development of China’s NEV market given the
following:
For those cities that have announced supportive policies, the local purchase subsidy
amounts to c. 80% of the central government subsidy on average, a strong
consideration for potential NEV buyers as they would get a subsidy from both the local
and central government;
The pilot cities are likely to contribute significantly to the volume of NEV sales directly.
If we sum up the 23 pilot cities’ NEV volume targets for 2016 announced so far this
year to date, the total volume would imply 28% yoy growth in 2016. If we assume that
a number of additional pilot cities announce volume targets, and that there are also
some sales from non-pilot cities, we estimate the NEV market in China could see over
60% yoy growth in 2016E.
Exhibit 24: Pilot cities’ 2016E NEV sales volume targets
announced YTD imply 28% growth vs. 2015’s total NEV
sales volume
Government NEV sales volume target in all pilot cities and
total NEV sales volume (‘000 units), 2015-2016E
Exhibit 25: Government-led purchases (especially in the
commercial vehicle space) are likely to remain strong in
the NEV volume mix in the coming three years
Breakdown of new energy CV and PV sales, 2013-2025E
Source: CAAM, Government websites, Gao Hua Securities Research. Source: CAAM, Gao Hua Securities Research.
2015 2016E
Govt.NEVsalesvolumetargetinallpilotcities 220 423
Growth 93%
TotalNEVsalesvolume 331 535
Growth 62%
Govt.NEVsalesvol.targetinallpilotcitiesas%oftotalNEVsalevol. 66% 79%
28%Govt.2016ENEVsalesvol.targetannouncedytdimplyinggrowthvs.2015totalNEVsalesvol.
36% 27% 40% 40% 38% 33% 31% 25% 23% 21% 19% 18% 17%
64% 73%
60% 60% 62% 67% 69% 75% 77% 79% 81% 82% 83%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
NewenergyCV NewenergyPV
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 17
Exhibit 26: Local government purchase subsidies for those cities that have announced supportive policies amount to ~
80% of the central government subsidy on average
Summary of local govt. purchase subsidy for NEV in those cities that have announced supportive policies
Source: Government websites.
Exhibit 27: Only 23 out of 88 NEV pilot cities (25%) have implemented the supportive
policies, although we expect more will announce favorable local policies this year
Summary of NEV pilot cities that currently have supportive policies implemented
Note: The number of cities with NEV promotion policies that have implemented the policies has now increased to 23, from
15 at the beginning of this year.
Source: Government websites.
RMB 000
PHEV EV PHEV EV PHEV PC
Small
Bus/Freight
wa
g
on
Medium/Big
Bus/Freight
wa
g
on
Cit
y
/Province 100≤R<150 150≤R<250 R≥250 R≥50 Per unit Per unit Per unit Per unit Per unit
Bei
j
in
g
25 45 55 0 500
(
EV onl
y)
0 1.8/kwh 0 200 0 0 Local
g
ovt. subsid
y
e
q
ual to central
g
ovt. subsid
y
; subsid
y
onl
y
for EV
Shanghai 10 30 30 24/10 300 50 1.5/kwh 1.5/kwh 300 400 600 For a PHEV, another 14k will be subsidized if: 1) engine size<=1.6L; 2) fuel
consum
p
tion/100km<=5.9L; 3
)
fuel tank ca
p
acit
y
<=40L
Shenzhen 35 50 60 35 500 250 0.6/kwh 0.6/kwh 200 300 500
Guan
g
zhou 25 45 55 30 500 250 1.8/kwh 1.8/kwh 200 300 500 Local
g
ovt. subsid
y
e
q
ual to central
g
ovt. subsid
y
Han
g
zhou 30 30 30 20 500 250 0.9/kwh 0.9/kwh 200 300 500
Tian
j
in 25 45 55 30 500 250 1.8/kwh 1.8/kwh 200 300 500 Local
g
ovt. subsid
y
e
q
ual to central
g
ovt. subsid
y
Nan
j
in
g
15 23 30 15 150 80 0.4/kwh 15 60 80 100
Haerbin 25 45 55 24 500 200 1.8/kwh 1.44/kwh 200 300 500 For EV/PHEV, local
g
ovt. subsid
y
e
q
ual to 100%/80% of central
g
ovt. subsid
y
Shenyang 22.5 40.5 49.5 27 350 175 1.62/kwh 1.62/kwh 180 270 450 For EV/PHEV Bus, local govt. subsidy equal to 70% of central govt. subsidy; for
the rest, local govt. subsidy equal to 90% of central govt. subsidy
Xi'an 25 45 55 30 500 250 1.08/kwh 1.08/kwh 200 300 500 Local
g
ovt. subsid
y
e
q
ual to central
g
ovt. subsid
y
Haikou 15 27 33 18 300 150 1.08/kwh 1.08/kwh 120 180 300 Local
g
ovt. subsid
y
e
q
ual to 60% of central
g
ovt. subsid
y
Xinin
g
12.5 22.5 27.5 15 300 150 0.9/kwh 0.9/kwh 100 150 250 Local
g
ovt. subsid
y
e
q
ual to 50% of central
g
ovt. subsid
y
Shi
j
iazhuan
g
12.5 22.5 27.5 15 250 125 0.9/kwh 0.9/kwh 100 150 250 Local
g
ovt. subsid
y
e
q
ual to 50% of central
g
ovt. subsid
y
Chan
g
chun 25 45 55 30 500 250 1.8/kwh 1.8/kwh 200 300 500 Local
g
ovt. subsid
y
e
q
ual to central
g
ovt. subsid
y
Wuhan 25 45 55 30 500 250 1.8/kwh 1.8/kwh 200 300 500 Local
g
ovt. subsid
y
e
q
ual to central
g
ovt. subsid
y
Gui
y
an
g
12.5 22.5 27.5 15 250 125 0.9/kwh 0.9/kwh 100 150 250 Local
g
ovt. subsid
y
e
q
ual to Guizhou
p
rovince subsid
y
Wuxi 10 15 20 10 150 80 0.4/kwh 15 60 80 100 Local
g
ovt. subsid
y
e
q
ual to Jian
g
su
p
rovince subsid
y
Nanton
g
10 15 20 10 150 80 0.4/kwh 15 60 80 100
Jian
g
su* 10152010150 800.4/kwh 156080100
Hainan* 25 45 55 30 500 250 1.8/kwh 1.8/kwh 200 300 500 Local
g
ovt. subsid
y
e
q
ual to central
g
ovt. subsid
y
Shanxi* 25 45 55 30 500 250 1.8/kwh 1.8/kwh 200 300 500 Local
g
ovt. subsid
y
e
q
ual to central
g
ovt. subsid
y
Hebei* 25 45 55 30 500 250 1.8/kwh 1.8/kwh 200 300 500 Local
g
ovt. subsid
y
e
q
ual to central
g
ovt. subsid
y
Guizhou* 12.5 22.5 27.5 15 250 125 0.9/kwh 0.9/kwh 100 150 250 Local
g
ovt. subsid
y
e
q
ual to 50% of central
g
ovt. subsid
y
Henan* 80 40
(p
ublic bus
)
Guan
g
xi* 80 40
(p
ublic bus
)
Inner Mon
g
olia* 80 40
(p
ublic bus
)
Note: * re
p
resents the name of a
p
rovince
60 (public bus)
60 (public bus)
60 (public bus)
Note
Passenger Car
EV
Bus Fuel cell
Maximum
Specially-used Vehicles/Truck
23
65
Cities with implemented promotion policies
Cities with unimplemented promotion policies
Beijing, Shanghai, Guangzhou, Shenzhen, Tianjin,
Hangzhou, Nanjing, Chongqing, Chengdu, Qingdao,
Wuhan, Xi'an, Haikou, Changsha, Haerbin,
Shenyang, Shijiazhuang, Changchun, Guiyang,
Xiamen, Foshan, Luzhou, Nantong
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 18
Trend #2: High comps may lead to low yoy growth in 4Q16
In January-July 2016, the China NEV market recorded >120% yoy growth. Nevertheless, as
shown in Exhibit 28 the high comps seen in 4Q15 could lead to low yoy growth in 4Q16,
potentially hurting NEV market sentiment.
Exhibit 28: High comps in 4Q15 could lead to low yoy growth in 4Q16
Monthly NEV sales volume (unit) and growth rate (%)
Source: CAAM, CPCA
Trend #3: Result of subsidy fraud probe may clear uncertainty regarding policy
In January 2016, the Ministry of Finance (MoF), Ministry of Technology (MoT), Ministry of
Industry and Information Technology (MIIT), and National Development and Reform
Commission (NDRC) jointly announced an investigation into NEV subsidies fraud. On-site
inspections led by the MoF started from February and had finished by the end of May.
Then, in early July, an official supervision report was released and Premier Li Keqiang
instructed regulatory institutions to penalize corporates and persons committing fraud
(including the elimination of related auto models from the national NEV recommendation
catalog, cancellation of the NEV subsidy, auto production disqualification, etc.) and to
improve the NEV subsidy granting system. To date, the list of those likely to be penalized
has not been released.
The final result of the subsidy fraud probe could be announced in the coming 1-2 months,
according to a government announcement, which we believe should clear up uncertainty
surrounding NEV-related policy trends as well as encourage more pilot cities to release
detailed local supportive policies. According to the announcement, it will punish the low-
quality NEV OEMs and favor the NEV industrial leaders with stronger technologies and
quality assurance capabilities. Overall, we expect the upcoming final probe result to be a
positive move that will help sustainable development of the NEV industry.
0%
100%
200%
300%
400%
500%
600%
700%
800%
‐
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
2014/1
2014/3
2014/5
2014/7
2014/9
2014/11
2015/1
2015/3
2015/5
2015/7
2015/9
2015/11
2016/1
2016/3
2016/5
2016/7
NewEnergyPassengerVehicles NewEnergyCommercialVehicles Growth(yoy)(RHS)
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 19
Exhibit 29: The result of the NEV subsidy fraud probe may be announced soon
Timeline of NEV subsidies fraud probe
Source: Government websites.
Trend #4: New entrants and new business models to fuel competition
In addition to the existing OEMs who are increasingly paying more attention to the NEV
market given continued strong demand, we have also seen a number of new entrants,
including:
Internet giants: Google is actively developing driverless EV cars; Alibaba.com has
formed a partnership with SAIC to launch an “internet car” (and could launch an EV
version in future according to SAIC); Tencent cooperates with Foxconn and Harmony
on making EVs; Baidu is developing Advanced Driver Assistance System (ADAS) and
Autonomous Vehicles (AV) and aims at mass production in five years; Apple is also
widely reported (WSJ, Reuters, etc.) to be developing a car, potentially an EV.
Electronic OEMs: Foxconn cooperates with Tencent and Harmony on making EVs;
household electronic goods maker Gree announced the acquisition of Zhuhai Yinlong
and its entrance into the NEV market in August 2016.
Other EV specialists: Letv.com and its subsidiary Faraday announced the
development of a “super car” and further development of a “complete new energy
eco-system”; NextEV is to cooperate with JAC in developing EV; there are many other
small EV makers in China that have also entered into the NEV space recently.
Over the last 1-3 years, we have also seen new business models emerging, including: i) a
combination of EV/autonomous vehicle (AV)/shared mobility which could become the
ultimate solution for future mobility; ii) autonomous diving technologies that remove
mileage anxiety as an EV can automatically allocate a charging location when needed; and
iii) the car sharing business model which reduces cost-benefit concerns of potential NEV
users as they just use the car when needed but don’t own the car thus reducing concerns
on the high cost of EV battery, etc.
Time Events
Jan2016 MoF,MoT,MIITandNDRCannouncedtoinvestigateontheNEVsubsidyfraud
Feb2016 On‐siteinspectionledbyMoFstarted
May2016 MoFannouncedthaton‐siteinspectionhadfinishedwhilehearingandtrialswere
beingheld
Jul2016
AsupervisionreportwasreleasedandPremierLiKeqianginstructedrelated
institutionstopenalizecorporatesandpersonscommittingfraud,butthelistof
fraudwasnotreleased
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 20
Exhibit 30: New business models: Combination of EV/AV/shared mobility could be the
ultimate solution for future mobility
The evolving mobility solution
Source: Gao Hua Securities Research.
Overall, we expect competition in the NEV market in China to gradually intensify given
more new entrants and also new business models. We believe these could be positive for
NEV demand as product offerings become more extensive and the price of NEV or cost of
using them could be lowered.
Electrification
Autonomous
driving
Car
sharing
Ultimate
mobility
solution
1
32
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 21
BYD profile: The world’s biggest NEV/battery maker in 2015
Autos the primary business, with NEV the future focus
BYD has three major business divisions – handset components & assembly services,
automobiles, and rechargeable batteries & others – among which automobiles is the
largest, accounting for ~50% of revenue and assets in 2015, with NEV contributing 49% of
the automobiles segment revenue.
The company has indicated that NEV business is its future focus, given the relatively
‘turbo-charged’ growth of NEV in the autos space. In April 2015, BYD released its “7+4”
NEV strategy to explore all related sub-segments in the NEV space, ranging from PHEV, E-
bus, E-taxi, E-truck etc., to e-forklift, e-airport vehicles, etc. We also see significant
synergies among the different divisions of BYD, especially benefiting its NEV business. For
example, the NEV and ICE business can share the chassis, exteriors, and some powertrain
tech (especially for PHEVs); battery can be used in powertrain for NEV and also in energy
storage; solar is a clean energy source for NEV; and electronics products can be used in
ICE/NEV cars.
Exhibit 31: BYD has 50% of its revenue contributed by the
auto (ICE+NEV) business
BYD revenue breakdown, 2015
Exhibit 32: BYD’s vision in “solar + storage + NEV” and
its “7+4” NEV strategy
Summary of the BYD development strategy
Source: Company data Source: Company data
Exhibit 33: Financial overview of BYD’s three divisions
BYD revenue/PBT/total assets breakdown by division (2015, in Rmb mn)
Source: Company data
NEV,
49%
ICE
Vehicles,
51%
50%
42%
7%
Automobiles
Handsetcomponents&Assemblyservices
Rechargeablebatteriesandothers
“7+4” strategy to explore all related segments in NEV
Synergy among different divisions
• NEV + ICE: sharing the chassis, exteriors, and some powertrain
tech esp. for PHEVs
• Battery: as powertrain for NEV and also used in energy storage
• Solar: clean energy source for NEV
• Electronics used in ICE/New Energy Vehicles
• The 7 major target segments include: E-bus, E-taxi, PHEV,
Environmental sanitation vehicles, E-bus for inter-city public
transportation, E-truck, and selective construction machinery
• The 4 special vehicles/machinery segments include: e-forklift,
e-airport vehicle, e-mining vehicle, and e-harbor vehicles
Breakdown Revenue PBT Totalassets PBTas%ofrevenue Assetturnover
Handset components & Assembly services
32,928 1,277 25,953 3.9% 126.9%
Automobiles
38,934 3,691 67,189 9.5% 57.9%
Rechargeable batteries and others
5,750 988 16,769 17.2% 34.3%
Subtotal 77,612 5,955 109,911 7.7% 70.6%
Financing cost & others
(2,160) 5,574 n/a n/a
Total 77,612 3,795 115,486 4.9% 67.2%
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 22
No. 1 market share in both NEV sales and NEV battery
BYD was the biggest NEV maker globally in 2015, selling 58k units and capturing 11%
market share. BYD Qin and BYD Tang both ranked in the Top 10 most popular NEV models
globally in 2015. In China’s NEV market, BYD is a clear leader, with 18% market share in
2015. We expect the company to sustain its leadership and that its market share expands to
20% in 2020E thanks to its strong product cycle in the NEV space and also its first mover
advantage.
Exhibit 34: BYD is the largest NEV maker globally with
11% market share in 2015
NEV sales volume (‘000 units) and market share (%) by OEM,
2015
Exhibit 35: BYD Qin/Tang ranked in Top 10 most popular
NEV models globally
NEV sales volume (‘000 units) and market share (%) by
model, 2015
Source: Company data, EVObsession Source: Company data, EVObsession
As well as its leading position in NEV globally, BYD also has leading EV battery capacity
and market share in China as well. We expect its battery capacity to expand to 34 GWh in
2020E (vs. 10 GWh currently), taking 26% share in China.
Exhibit 36: BYD is a clear NEV leader in China
BYD NEV sales volume (‘000) and market share (%) in China
Exhibit 37: BYD has leading auto battery capacity and
market share in China as well
BYD battery capacity (GWh) and market share (%) in China
Source: Company data, CAAM, Gao Hua Securities Research. Source: Company data, Gao Hua Securities Research.
Rank OEM 2015SalesVolume('000) MarketShare(%)
1 BYD 58.00 11
2 Tesla 50.56 9
3 Mitsubishi 48.20 9
4 Nissan 47.67 9
5 Volkswagen 40.15 8
6 BMW 33.41 6
7 Kandi 28.06 5
8 Renault 27.28 5
9 Zotye 24.52 4
10 Ford 21.33 4
11 Chevrolet 20.23 4
12 BAIC 17.04 3
13 Chery 14.16 3
14 Audi 12.12 2
15 SAIC 11.12 2
16 Mercedes 10.87 2
17 JAC 10.42 2
18 Volvo 10.16 2
19 Kia 7.63 1
20 Porsche 6.53 1
Rank Model 2015SalesVolume('000) MarketShare(%) Type
1TeslaModelS 50.34 9 EV
2NissanLeaf43.87 8 EV
3MitsubishiOutlanderPHEV 43.26 8 PHEV
4BYDQin 31.90 6 PHEV
5BMWi3 24.08 4 EV
6KandiK11PandaEV 20.39 4 EV
7RenaultZoe 18.85 3 EV
8BYDTang 18.38 3 PHEV
9ChevroletVolt 17.51 3 PHEV
10 VolkswagenGolfGTE 17.28 3 PHEV
0%
5%
10%
15%
20%
25%
30%
‐
50
100
150
200
250
300
350
400
450
2013 2014 2015 2016E 2017E 2018E 2019E 2020E
BYDNEVvol. BYDNEVMS(RHS)
1.6 4.0 10.0
16.0
24.0
34.0 34.0
12%
10%
13%
16%
21%
26% 26%
0%
5%
10%
15%
20%
25%
30%
0
5
10
15
20
25
30
35
40
2014 2015 2016E 2017E 2018E 2019E 2020E
BYDbatterycapacity(GWh) MarketShare(%)(RHS)
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 23
Company history overview: “Build Your Dream (BYD)” step by step
Founded in 1995 in Shenzhen, BYD began manufacturing Li-ion battery in 1997 and was
principally engaged in the IT industry, mainly related to rechargeable battery business,
handset and computer components, and assembly services in the beginning. The company
listed on the Hong Kong Stock Exchange in 2002 and acquired Qinchuan Auto (located in
Xi’an) in 2003. With BYD having entered the auto market, its first car model – the F3 –
launched in April 2005. We look at BYD’s three phases of development in the auto space:
1. Fast growth in the ICE space before 2009
By launching a series of popular ICE models, with the help of reverse engineering, vertical
integration, labor replacing machinery, as well as aggressive dealer development, BYD’s
ICE auto business grew very fast (from 63k units in 2006 to 448k in 2009), becoming one of
the leading local brands in China in 2009 based on market share. In September 2008, the
company announced that Warren Buffett had invested in a 10% stake, which pushed the
stock price to a historical high.
2. Adjustment between 2010-2013
As a result of launching too many new models at the same time, expanding capacity
aggressively, a lack of strong product quality controls, and channel over-stuffing, BYD’s
auto business came under pressure, suffering a drop in profits in 2010 (its auto business
operating margin was half in 2010 vs. the 2009 level), and the stock price fell. The BYD
Chairman, Wang Chuanfu, announced a 3-year adjustment period from 2010-2013, during
which it gradually rebuilt brand and channel, improving product quality, and invested into
technologies, launching the 1st generation of EV/PHEV car as well as the e-bus.
3. Refocusing on NEV since 2014
Since 2014, BYD has been refocusing on NEV business, by realigning different business
divisions and investing in NEV technologies & battery. In April 2015, BYD released its “7+4”
NEV strategy to explore all related sub-segments in NEV space. In July 2016, BYD
announced it had completed a private placement, raising Rmb14.473bn capital to invest in
EV battery capacity expansion and NEV R&D. With its vision in “Solar + storage + NEV”,
BYD also actively develops solar and storage business that has synergies with its NEV
business. In January 2015, the first PHEV SUV Model Tang was launched. Now BYD takes
the lion’s share in the PHEV space in China and its product cycle in the EV space is gaining
strength. The company in 2015 was the biggest NEV maker (excluding HEV) in both the
world and in China, while it also has leading EV battery capacity and market share in China
as well.
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 24
Exhibit 38: BYD’s historical path
BYD H stock price (HK$) and key events summary
Source: Company data, Datastream.
Current strategic focus is on NEV and re-connecting the dots of
different business divisions
BYD began its strategic refocus on NEV in 2014, and is adopting a vertically integrated
business model (e.g., including battery capacity) and re-connecting the dots of its different
business divisions (EV, battery, solar, electronics) to fully utilize synergies between them.
We see significant synergies among different divisions for BYD, and believe that in
particular it could benefit the NEV business. The vertically integrated business model of
BYD differentiates itself and increases its competitiveness to a large extent in the NEV
space compared to other NEV manufacturers.
From a sub-segment point of view, BYD targets its pure electric vehicle business (i.e., e-bus
and e-taxi) for public transportation, its plug-in hybrid vehicles for the private space, and
plans to enter the new market in e-commercial vehicle/machinery, etc. We think BYD’s
strategy fits well into the demand from different buyers in China.
On the one hand, private buyers care more about cost and availability of charging
infrastructures; PHEV has lower battery size hence lower total cost, and can still run on ICE
if the battery is running out of power; thus PHEV cars ease the mileage anxiety as well as
cost-benefit concerns and fit well with the demand for private buyers at the current stage of
the NEV cycle in China. For example, Qin (BYD’s PHEV sedan) was launched over two years
ago and is still seeing sales volume of 2k-3k units per month in 2016. Tan (PHEV SUV) was
launched in January 2015 targeting the “NEV+SUV” space, and three more PHEV SUVs
(Song/Yuan/Ming) are due to be launched in 2016-2017.
0
10
20
30
40
50
60
70
80
90
8/15/2002 8/15/2004 8/15/2006 8/15/2008 8/15/2010 8/15/2012 8/15/2014 8/15/2016
BYD (H) Stock Price (HK$)
Jan, 2003: BYD
acquired Qinchuan Auto
and entered car market
Dec, 2007: BYD
Electronic listed on
HK stock exchange
Dec, 2008: First NEV
F3DM came out Jan, 2015: first
PHEV SUV
Model Tang was
launched
Jul, 2016: private
placement raised
Rmb15bn capital to
invest in battery
capacity and NEV
Sep, 2008: Buffett
invested in BYD
BYD suffered from 2010
revenue/net income drop
(-0.7%/-45.1%)
Stock price rallied on
2009 revenue/net profit
went up 47.3%/271%
Sep 2011: Chairman
Wang announced a 3
year adjustment period
Jul, 2002:
Listed on the
HK Stock
Exchange
Apr, 2005: First
car model F3
was launched
Apr, 2015: BYD
released “7+4” NEV
strategy to explore all
related sub-segments
in NEV space
Jun 2011: BYD A
listed on SZ Stock
Exchange
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 25
On the other hand, buyers in the public transportation space are usually less price-sensitive
(most city bus companies are state-owned in China), have their own charging infrastructure
(less concerned about mileage anxiety), and have dedicated drivers (can schedule for time
of charging); therefore, we believe BYD is correctly positioning itself by selling more pure
EVs (both e-bus and e-taxi) to the public sector. For example, BYD launched the K9 e-bus
for public bus transport, and the e-5/e-6 for taxi transport, which are now running in
Shenzhen, Nanjing, Hong Kong, etc. The pure electric version of Qin with improved
drivability was launched in 1H16 for the Beijing market.
Exhibit 39: BYD is strategically focusing on NEV and re-connecting the dots of its different business divisions
Summary of BYD business and strategy focus
Source: Company data, Gao Hua Securities Research.
Handset components & Assembly
services
Automobiles
Rechargeable batteries
• Provision of electronic equipment for
NEV.
• ICE platform, powertrain, dealer networks
and other tech/infrastructure sharing with
NEV.
• Provision of power batteries for NEV;
• Development of solar panel to provide
clean energy for NEV.
Strategically
focusing on
NEV with
bigger vision
of “NEV +
energy
storage +
Solar”
Pure electric vehicles (EV) for public sector
Plug-in Hybrid vehicles (PHEV) for private
space
Potential new market in e-commercial
vehicle/machinery
• BYD released its “7+4” NEV strategy to explore
all related sub-segments in the NEV space in
Apr 2015.
• Private buyers care more about cost and
availability of charging infrastructures;
• PHEV has lower cost; and can still run on ICE
if battery is running out of power.
• Buyers in public transportation space are less
price-sensitive, have their own charging
infrastructure, and have dedicated drivers.
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 26
Investment case: BYD’s unique competitive edge to drive stronger-
than-consensus earnings
Earnings for 2016E-18E are 13%-41% above consensus
We expect BYD to achieve significant EPS growth of 28%-64% in 2016E-18E, primarily
driven by strong NEV business growth (we expect NEV sales volume to grow at a CAGR of
66% in 2015-18E). With our 2016E-18E EPS currently 13%-41% above Bloomberg consensus,
we believe the street has not sufficiently factored in: 1) the strong NEV market growth in
China; 2) BYD’s robust market share given its current NEV product portfolio; 3) the
vertically integrated business model of BYD, which enables it to produce both NEV income
and quickly ramp-up battery capacity; 4) the flexible manufacturing footprint of BYD, which
should ensure a strong order book from outside its home turf; and 5) BYD’s ability to
sustain operating margin at the double-digit level, due to continuing preferential NEV
policies, cost savings on a larger scale, high capacity utilization, and front-loaded
R&D/CAPEX.
Exhibit 40: Our 2016E-18E earnings for BYD are up to 41% above consensus
Gao Hua estimates vs. Bloomberg consensus (in Rmb mn)
Note: Consensus data as of August 29, 2016.
Source: Bloomberg, Gao Hua Securities Research.
Driver #1: Impressive secular total NEV market growth to 2025E
We expect China’s NEV market to sustain 27.9% CAGR (2015-2025E) to reach 3.9mn units
sold in 2025, more than 10X higher than the 331k units sold in 2015. As discussed earlier in
this report, we have raised our estimates for the NEV market in China over 2016-2025 by
11%-21%, primarily reflecting: i) strict 2020/2025 fuel consumption standard for passenger
cars; ii) sustaining preferential policies/TCO advantage beyond 2020E; and iii) new demand
for the electric logistics vehicles.
GH BBG Diff. GH BBG Diff. GH BBG Diff.
Revenue 103,214 100,886 2% 132,374 116,694 13% 159,352 130,284 22%
Grossprofit(excl.D&A) 19,184 18,166 6% 25,262 21,118 20% 31,185 23,073 35%
EBIT 8,075 7,430 9% 10,220 8,323 23% 12,727 9,367 36%
Pretaxprofit 6,336 5,699 11% 8,980 7,012 28% 11,567 8,068 43%
Reportednetprofit 4,825 4,246 14% 6,858 5,283 30% 8,804 6,135 44%
ReportedEPS(Rmb) 1.87 1.66 13% 2.51 1.98 27% 3.23 2.29 41%
2016E 2017E 2018E
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 27
Exhibit 41: We expect NEV to grow at a CAGR of 27.9% during 2015-2025E in China
Sales volume of new energy CV, PHEV cars and EV cars (‘000) in China
Source: CAAM, Gao Hua Securities Research.
Driver #2: Attractive product cycle driving strong NEV market share
BYD has a strong new product cycle in the NEV space, especially in the new energy SUV
sub-segment. It plans to launch three new models of PHEV/EV SUV, one PHEV sedan, and
one PHEV MPV in the coming 12 months.
Exhibit 42: BYD has a strong product cycle in the NEV space, especially in the new energy
SUV sub-segment
Summary of BYD product portfolio in the NEV space
Source: Company data.
Meanwhile, the new energy SUV products to be launched by BYD will share the same
platform as ICE SUV models, hence we believe BYD can win market share in both sub-
segments of NEV and SUV with a product offering similar to Great Wall (the SUV leader in
China with 10.3% market share in 2015, partly due to its extensive product offering). We
expect BYD to gain market share via providing a full range of SUV products, especially
adding the compact SUV (Song) and small SUV (Yuan) into its current product portfolio.
‐
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
NewenergyCVsalesvolume('000) PHEVcarsalesvolume('000) EVcarsalesvolume
2015‐2025E CAGR:27.9%
Small
Compact
Midsize
Sedan SUV MPV
Yuan (PHEV, 2H16)
Shang (PHEV,
2H16/1H17)
Qin (PHEV, Dec 13) Song (PHEV, 2H16)
Tang (PHEV, 1H15)
Han (PHEV, 17)
e6 (EV, 2011)Tenza (EV, Oct 14)
Ming (PHEV, 1H17)
e5 (EV, 1H16)
Qin 300 (EV, 1H16)
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 28
Exhibit 43: BYD’s SUV product offering structure should get it close to that of Great Wall in 2016-2017
Comparison of BYD and Great Wall SUV product portfolios
Source: Company data, Autohome.com, CPCA.
OEM
Model S6 S7 Tang S3/Song S1/Yuan S9/Ming H1 H2 H6 CoupeCH7H8H9
Powertrain ICE ICE PHEV ICE/PHEV ICE/PHEV ICE/PHEV ICE ICE ICE ICE ICE ICE ICE
Length(mm) 4810 4835 4815 4565 4360 5100 3898 4335 4640 4545 4700 4806 4856
Width(mm) 1855 1855 1855 1830 1785 2000 1729 1814 1825 1835 1925 1975 1926
Height(mm) 1680 1720 1720 1720 1690 1750 1621 1695 1690 1700 1718 1794 1900
Wheelbase(mm) 2720 2730 2720 2660 2595 3000 2460 2560 2680 2720 2850 2915 2800
No.ofseats 5 7 5 5 5 7 5 5 5 5557
Enginesize 1.5T/2.0T/2.4T 1.5T/2.0T 2.0T 1.5T/2.0T 1.5T 2.0T 1.5
L
1.5T 1.5T/2.0T/2.4T 1.5T/2.0T 2.0T 2.0T 2.0T
Transmission DCT/MT DCT DCT/Hybrid DCT/Hybrid DCT/Hybrid DCT/Hybrid MT/AMT MT MT/AT DCT MT/AT AT AT
MSRP(Rmb'000) 79.9‐123.9 106.9‐146.9 251.3‐518.8 96.9‐280 59.9‐249.8 n/a 54.9‐82.9 88.8‐128.8 85.3‐162.8 118.8‐163.8 149.8‐169.8 179.8‐242.3 209.8‐272.8
LaunchingTime Sep,2010 Oct,2015 Jan,2015 Oct,15 Apr,2016 2017E Nov,2014 Jul,2014 Aug,2011 Apr,2015 Apr,2016 Apr,2015 Nov,2014
Retailvol2015(unit) 15,362 90,038 18,375 13,080 n/a n/a
74,571 168,467 373,229 30,000
n/a
8,985 14,011
BYD GreatWall
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 29
Exhibit 44: We believe BYD could take the lion’s share in the PHEV space as its product cycle in the EV space becomes
stronger
NEV models by price/max mileage/sales volume (size of bubble), FY2015 background plus to-be-launched models in 2016-18
Source: Company data, Autohome.com, CPCA, Gao Hua Securities Research.
‐
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
0 50 100 150 200 250 300 350 400 450
Price(inRMB)
MaxMileage(km)
BAICE150
BAICES210
BAICEV200
BAICE160
BYDQinPHEV
BYDE6
BYDTang
BYDE5
Denza
RoeweE50
RoeweE550
ZoyteE20
ZoyteYun100
ZoyteSesameE30
JACiEV
KandiK10
KandiK11 GeelyZDD2 CheryeQEV
CheryQQEV
JianglingE100
ChanganEadoEV
SGMSailSpringo
FengshenE30L
VenuciaEV
ChevroletVolt
BMWi3
TeslamodelS
NissanLeaf
TrumpchiGA5PHEV
BMW530Le
VolvoS60L
AudiA3e‐tron
Luxury EVLuxury PHEV
MainstreamPHEV
MainstreamEV
Low‐speedEV
PHEV EV PHEVnewmodel EVnewmodel
TeslamodelX
BAIC EU260
Geely ECEV
BAIC EX200
Zoyte E200
Changan BenbenEV
Trumpchi GS4EV
Jingyi S50EV
BYDYuanPHEV
BYDShangPHEV
Chery Arrizo7e
Roewe E950
Sonata 9PHEV
JAC iEV6S
Fengshen A60E
BYD QinEV
BYDSongPHEV
BYDHanPHEV
BYD modelsXXX
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 30
Exhibit 45: BYD also has a strong product cycle in the ICE SUV space
SUV models by price/length/sales volume (size of bubble)/local (white bubble) or int’l brands (shadowed bubble); A0=small;
A=compact; B=mid-sized; FY2015 background plus to-be-launched models in 2016-18E
Source: Company data, Autohome.com, CPCA, Gao Hua Securities Research.
As a result of its strong product cycle in both the NEV and SUV space in China, we expect
BYD to sustain a high market share in these segments, as shown in Exhibits 46 and 47.
Exhibit 46: Strong new product cycle to boost BYD’s
market share in the NEV space…
BYD NEV sales volume (‘000 units) and market share (%),
2013-20E
Exhibit 47: ……as well as in the SUV space
BYD SUV (incl. ICE & NEV) volume (‘000 units) and market
share (%), 2013-20E
Source: Company data, Gao Hua Securities Research. Source: Company data, Gao Hua Securities Research.
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
220,000
240,000
260,000
280,000
300,000
3,500 3,700 3,900 4,100 4,300 4,500 4,700 4,900 5,100
Price (in RMB)
Length (in mm)
SUV
Segment A0 Segment A Segment B
Haval 6
Ti
g
uan
S3
CS75
CR-V
Haval H2
CS35
X-TRAIL
Envision
Baojun560
Kuga
GS4
T600
RAV 4
Vezel
ix35
XR-V
Tiggo
BYD S7
ix25
Highlander
Jingyi SUV
New S
p
orta
g
e
Encore
Haval H1
Audi Q3
V3
Peu
g
eot 3008
Haima S5
Fengshen AX7
GX7
Ecos
p
ort
Qashqai
C3-XR
Venutia T70
Besturn X80
Edge
BYD S6
International brand Domestic brand
CS15
CS95
BYD yuan ICE
CX70
Baojun 530
BYD models
Tiggo 5
New BMW X1
Outlander
NL-4
NL-3
Emgrand GS
UR-V
Acura CDX QX30L
Renegade
Haval 7
BYD Song ICE
BYD Ming ICE
New models
0%
5%
10%
15%
20%
25%
30%
‐
50
100
150
200
250
300
350
400
450
2013 2014 2015 2016E 2017E 2018E 2019E 2020E
BYDNEVvol. BYDNEVMS(RHS)
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
‐
50
100
150
200
250
300
350
2013 2014 2015 2016E 2017E 2018E 2019E 2020E
BYDSUVvol. BYDSUVMS(RHS)
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 31
Driver #3: Vertically integrated business model (esp. sufficient
battery capacity) underpin NEV leadership
In China, most NEV makers rely on external suppliers for EV batteries (Exhibit 48).
Although there has been a big capacity ramp-up of EV lithium-ion batteries in China since
2014, we believe it takes times for battery makers to gain the capability to consistently
supply lithium-ion batteries with satisfactory quality standards suitable for NEV on a big
scale. We see BYD’s integration of its EV battery business as a key competitive advantage
for its NEV business given:
Extensive experience in lithium-ion battery manufacturing: BYD started the
business of manufacturing lithium-ion batteries for consumer electronic goods in 1997
and has been producing lithium-ion batteries for EV since 2009;
Scale/cost advantage: By the end of 2015, BYD had built EV battery capacity of
10GWh, the biggest in the world. We expect its battery capacity to expand further to 34
GWh in 2020E and that this big scale should help it obtain a cost advantage;
Speed in R&D: The vertically integrated business model of producing both the NEV
unit and the EV battery in-house can lower the barriers of communication and increase
the speed of R&D. Hence, we believe BYD is quicker than most competitors in
launching new products.
Exhibit 48: Most OEMs in China rely on battery
outsourcing
Summary of EV makers and their battery makers
Exhibit 49: BYD battery bottleneck (less battery capacity
than needed for NEV demand) has been removed since
2015
BYD battery capacity (GWh) and utilization rate (%)
Source: Company data Source: Company data, Gao Hua Securities Research.
CATL, BESK, Coslight, Microvast, BAK, SK
EV makers EV battery makers
BYD (BYD and Tenza) BYD
SAIC Jiexin, Wanxiang, LG
Jianghuai Lishen, Guoxuan Hi-tech, Samsung
Yutong Lishen, CATL, Wanxiang, SK
Dongfeng Lishen, Guoxuan Hi-tech, CALB
Changan CALB
Zhongtai Lishen, CALB, BAK, Wina Battery
BAIC
Geely/Kandi Lishen, Wanxiang, LG
Wuzhoulongi Coslight, OptiumNano
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
0
5
10
15
20
25
30
35
40
2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E
Batterycapacity Utilizationrate(RHS)
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 32
Driver #4: Flexible production footprint ensures strong orders
outside home turf
BYD’s auto business has three primary manufacturing bases, in Shenzhen, Xian and
Changsha. Historically, local government pilot cities in China have generally favored local
manufacturers when sourcing NEV (especially for e-bus/e-taxi vehicles used in the public
sector), and we believe BYD’s flexible production footprint around China should ensure
strong orders from cities outside its home turf.
Exhibit 50: Flexible manufacturing footprint of BYD should ensure strong orders outside its home turf
BYD production base and orderbook by key cities in China
Source: Company data, Gao Hua Securities Research.
Shenzhen
Shantou
Changsha
Hangzhou
Nanjing
Wuhan
Dalian
Chengde
Tianjin
Manufacturingbase NEVCKDbase Ordersreceivedin2015
Xi’an
Cities 2015EVbusorderbook(unit)
Shenzhen3,600
Shanwei 200
Guangzhou 400
Changsha 400
Chengde 217
Tianjin 500
Wuhan 80
Nanjing 470
Hangzhou 750
Dalian 625
Total 7,242
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 33
Exhibit 51: BYD also underpins its order book from various countries outside China
BYD overseas production base and order book by key cities
Canada
Paris,
France
London,
UK Netherland
Campinas,
Brazil
Tokyo,
Japan
Singapore
Indonesia
Cuba
Washington,
USA
Long Beach
California,
USA
Antelope Valley
California, USA
Orderbook(unit)
2015
e‐bus London 51
Cuba 719
LongbeachCalifornia 60
Tokyo 5
Washington 750
Netherland 35
Campinas,Brazil 10
TOTAL 1630
2016
e‐bus Canada 200
Indonesia 500
Paris 16
AntelopeValleyCalifornia 85
e‐taxi Singapore 100
TOTAL 901
e‐busplant Campinas,Brazil
Orders received in 2015 Orders received in 2016 NEV production base
Source: Company data, Gao Hua Securities Research.
Driver #5: OPM for NEV to sustain at double-digit level to 2020E
In spite of the margin headwind as a result of intense competition in the NEV space in
China (as discussed on page 19), we believe BYD can sustain its OPM at the double-digit
level over our forecast period due to:
Sustained preferential policy: As discussed in Exhibits 17 and 18, we expect
government preferential policy on NEV will sustain (with a subsidy shift from purchase
to usage) and that the TCO advantage of NEV over ICE vehicles will remain, which
should help NEV makers like BYD to sustain OPM;
Cost savings on larger NEV scale: We estimate BYD’s NEV revenues will grow at a
CAGR of 44% from 2015-2020E. Also from Exhibit 54 we observe a positive correlation
between BYD’s historical NEV OPM and NEV revenue. Hence, we believe there is
potential cost savings to come from larger NEV scale;
High capacity utilization: As shown in Exhibit 49 we expect BYD’s EV battery capacity
utilization to sustain at a level between 55%-70% over our forecast period, broadly in-
line with the levels seen since 2014 and much higher than the 20%-30% utilization rate
seen during 2011-13;
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 34
Front-loaded R&D/CAPEX: We believe that BYD’s relatively high operating leverage
vs. peers could be explained by its front-loaded R&D and CAPEX in both the NEV and
battery business. On July 25, 2016, BYD completed a private placement amounting to
Rmb14.473bn and the company stated that the majority of the proceeds would be used
to increase production capacity of lithium-ion batteries and to expand its NEV R&D
operations. The company has proposed new LFP (lithium iron phosphate) battery
capacity of 6.0GWh to be built at a cost of ~Rmb6.0bn (i.e., Rmb1.0bn per GWh). By the
end of 2015, BYD had committed LFP capacity of 10.0GWh, thus implying that
c.Rmb10.0bn of investment had already been made in NEV battery capacity before
2016. While limited disclosure means we do not know the exact NEV R&D investment
to date by BYD, the scale of its proposed Rmb5.0bn NEV R&D project announced in the
private placement plan, and the fact that BYD already has 10+ NEV models developed
or in development, leads us to believe that a significant amount of investment had
already been made in the NEV business before 2016.
Exhibit 52: BYD’s new energy vehicle OPM remains
higher than for closest peer Tesla
OPM comparison between BYD NEV business and Tesla
Exhibit 53: In 2016E, NEV OPM for BYD still looks high vs.
peers due to high subsidy & vertical integration
OPM comparison between BYD’s NEV business and Tesla, as
well as ICE car peers
Source: Company data, Gao Hua Securities Research, Goldman Sachs Global
Investment Research.
Source: Gao Hua Securities Research, Goldman Sachs Global Investment
Research.
Exhibit 54: We can see a positive correlation between
NEV OPM and revenue
BYD NEV OPM vs. NEV revenue, 1H2014-2H2015
Exhibit 55: High operating leverage for BYD, as shown by
the positive correlation between its NEV OPM and
revenue, might be explained by the front-loaded
investment into battery capacity and NEV
Usage of proceeds from private placement in 2016
Source: Company data, Gao Hua Securities Research. Source: Company data
‐10.0%
‐5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
2013 2014 2015 2016E 2017E 2018E 2019E 2020E
BYDNEVOPM TeslaOPM
17.1%
‐0.1%
12.1% 12.0%
10.70%
7.63%
‐5%
0%
5%
10%
15%
20%
BYDNEV Tesla GreatWall BYDcar‐
blended
Brilliance
BMW
Geely
EV ICE car
y=5E‐06x+0.1149
R²=0.3072
0%
5%
10%
15%
20%
25%
‐ 5,000 10,000 15,000 20,000
NEVOPM(%)
NEVrevenue(RMBmn)
1H14
2H14
1H15
2H15
1H16
No. ProjectName
Total
Investment
(RMBmn)
Proposedamountof
proceedstobeapplied
(RMBmn)
1 LFP battery capacity expansion 6,023 6,000
2 NEV R&D 5,000 5,000
3 Adding liquidity and repayment of bank borrowings 4,000 4,000
Total 15,023 15,000
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 35
When comparing the OPM of BYD’s NEV business with Tesla (Exhibit 56), we found that
excluding the government subsidy/ZEV credit income, as well as the EV battery OPM (BYD
consolidates the EV battery business profit in the NEV divisional profit), the two companies
actually had a similar OPM loss at minus low double-digits in the NEV business.
Exhibit 56: Why can the OPM of BYD sustain at higher levels than Tesla? We believe government subsidy/battery
profitability/cost sharing with other business might be the key reasons
OPM comparison between BYD NEV business and Tesla, 2015
Notes: In the US, Tesla buyers directly receive a US$7,500 per car tax rebate from the federal government, while in China the government pays
the NEV purchase subsidy to OEMs first then to the customer indirectly. In our analysis, we assume 50% of the government purchase subsidy
goes to the OEMs (refer to Exhibit 86), but if there is no government subsidy on purchase (no matter if directly or indirectly to customers) then
OEMs would need to pay out of their own pocket for about 50% of the money to customers to achieve a similar level of sales volume.
Source: Company data, Gao Hua Securities Research, Goldman Sachs Global Investment Research.
BYDNEV TeslaEV Note
Unitofsales 000unit 58 51
ASP Rmb'000/unit 327 641
Revenue Rmb'mn 18,975 32,413
Governmentpurchasesubsidyperunit Rmb'000/unit 141 49 AssumingUS$7,500perunitZEVsubsidyforTesla
SubsidygoestoOEMs Rmb'000/unit 71 24 Assuming50%ofgovernmentsubsidygoestoOEM
AmountofpurchasesubsidygoestoOEMs Rmb'mn 4,090 1,232
CO2/ZEVcredit Rmb'000/unit n/a 22
CO2/ZEVcreditamount Rmb'mn n/a 1,097 AsperTeslafinancialreport
Totalsubsidy/creditamount Rmb'mn 4,090 2,329
as%revenue 21.6% 7.2%
OP Rmb'mn 3,134 (1,281)
OPM% % 16.5% ‐4.0%
OPexcl.subsidy/CO2credit Rmb'mn (956) (3,610)
OPM%excl.subsidy/CO2credit % ‐5.0% ‐11.1%
EVbatteryrevenue Rmb'mn 6,215 n/a
EVbatteryOP Rmb'mn 654 n/a
EVbatteryOPmargin % 10.5% n/a BasedonalistedEVbatterymaker'sfinancialreport
OPexcl.subsidy/CO2credit/batteryprofitability Rmb'mn (1,610) (3,610)
OPM%excl.subsidy/CO2credit/batteryprofitability % ‐12.6% ‐11.1% TeslaOPMhigheronpremiumpricingpotentially
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 36
Exhibit 57: We expect BYD’s comparable OPM to be lower than that of Tesla, even though
both are increasing
OPM (excl. government subsidy, CO2 credit and battery profitability) comparison between the
BYD NEV business and Tesla, 2015-2020E
Source: Company data, Goldman Sachs Global Investment Research, Gao Hua Securities Research.
Gearing down significantly in 2016E, operating cash inflow up
We expect BYD’s gearing to gradually decline while operating cash inflow increases in the
coming five years, in the main thanks to: i) strong growth of its NEV business (which
enjoys a double-digit OPM), ii) the extra capital raised (amounting to Rmb14.473bn) in its
recent private placement, and iii) front-loaded CAPEX and R&D – we expect total CAPEX to
decline from its 2015 peak after the completion of its R&D related to multiple new NEV
models launched/to be launched in 2015/16 and also the construction of its large LFP
battery plant (end-2015).
Exhibit 58: BYD’s gearing should decline given its improving cashflow
BYD net debt/equity (%) and cashflow from operations (Rmb bn), 2013-2020E
Source: Company data, Gao Hua Securities Research.
‐15%
‐12%
‐9%
‐6%
‐3%
0%
3%
6%
9%
12%
2015 2016E 2017E 2018E 2019E 2020E
Tesla BYD‐NEV
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0
2
4
6
8
10
12
14
16
2013 2014 2015 2016E 2017E 2018E 2019E 2020E
Cashflowfromoperations(RMBbn)
Netdebt/equity(RHS)
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 37
Vs. Tesla: Similarities in strategy but BYD’s NEV business trades at
a significant valuation discount
Overall, BYD and Tesla have similar business strategies but not
without difference
Strategy similarities:
Vertically integrated as “NEV + Battery”;
Inclusion of solar as source of clean energy to power NEV;
Expansion of NEV product offering from passenger car to commercial vehicles;
Expansion into car sharing & autonomous driving business.
Strategy differences:
BYD has an ICE car business as well as the PHEV business, which is suitable for
individual Chinese buyers who currently have high mileage anxieties;
Tesla developed a more premium brand image/product with a higher price and
advanced features like Autopilot;
BYD has some legacy businesses, like its handset assembly business which has limited
relevance to the core NEV business;
The way the two companies organize their operations is different, with BYD having a
more traditional industrial style and Tesla adopting a different approach.
– Tesla founder Elon Musk in his “Master Plan, Part Deux” (July 20, 2016) mentioned
that “Tesla engineering has transitioned to focus heavily on designing the
machine that makes the machine -- turning the factory itself into a product”. He
also claimed that even the world’s best automotive factories today — including
Tesla’s own factory in Fremont — are hampered by outmoded and inefficient
systems. He suggested that Tesla’s new Model 3 factory will be able to improve
the efficiency “by 5-10 fold by version 3 on a roughly 2 year iteration cycle”.
– The evolving manufacturing concept Tesla unveiled is very different from the
traditional practice of car industry which is more the model BYD currently follows.
Nevertheless, we see the potential for BYD to move towards a ‘smarter
manufacturing’ model as the whole auto industry starts to pursue higher
automation levels.
Tesla (TSLA; Buy;
US$211.34 as of
August 30, 2016
close) is covered by
our US Automobiles
analyst David
Tamberrino, CFA.
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 38
Exhibit 59: Business strategies of BYD and Tesla are similar
Comparison between BYD and Tesla
Source: Company data.
We compare the outlook for the two companies’ NEV development
While we expect BYD’s NEV sales volume to grow at a similar pace as Tesla over our
forecast period, its ASP is much lower. Although BYD’s revenue is lower than Tesla
through to 2020E, we believe the OPM of BYD’s NEV business will remain higher than
Tesla, primarily due to higher subsidies.
Exhibit 60: BYD NEV sales volume to grow at a similar
pace as Tesla…
Sales volume (unit), 2015-20E
Exhibit 61: ……but the ASP is much lower at BYD…
Average selling price (Rmb), 2015-20E
Source: Company data, Goldman Sachs Global Investment Research, Gao Hua
Securities Research.
Source: Company data, Goldman Sachs Global Investment Research, Gao Hua
Securities Research.
Business BYD Tesla
Auto
Car
EV Yes,core Yes,core
HEV Yes,core N/a
ICECar Yes,scalingdown N/a
Bus
e‐bus Yes,core AnnouncedaspartofMasterPlan:PartDeux
Truck
e‐logistictruck Productlaunched AnnouncedaspartofMasterPlan:PartDeux
e‐machinery Tobelaunched N/a
Battery
Carbattery Yes,core Yes,core
Energystoragebattery Yes,core Yes,core
Mobilephonebattery Yes,usedtobethecorebusiness N/a
Solarpanel Yes ProposedacquisitionofSolarCity
Carsharing StrategiccooperationwithDidi AnnouncedaspartofMasterPlan:PartDeux
OffersAutopilotsemi‐autonomousfeatures StrategiccooperationwithBaidu Yes,core
Others
Handsetcomponentsandassembly Yes n/a
Otherelectronicgoods Yes n/a
‐
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
2015 2016E 2017E 2018E 2019E 2020E
Tesla BYD‐autoblended BYD‐NEV
‐
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
2015 2016E 2017E 2018E 2019E 2020E
Tesla BYD‐autoblended BYD‐NEV
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 39
Exhibit 62: …and its revenue is slightly lower than Tesla
Sales revenue (Rmb mn), 2015-20E
Exhibit 63: OPM of BYD’s NEV business is higher than
Tesla, which we believe is mainly due to higher subsidy
Operating profit margin (%), 2015-20E
Source: Company data, Goldman Sachs Global Investment Research, Gao Hua
Securities Research.
Source: Company data, Goldman Sachs Global Investment Research, Gao Hua
Securities Research.
BYD’s NEV business trades at a much lower valuation vs. Tesla
In Exhibit 64, we compare the valuation of BYD’s NEV business with that of Tesla and find
that BYD is currently trading at 11.0X 2020E P/E, at around half the level of Telsa on 20.0X.
Our 12-month SOTP-based target price of HK$61.93 for BYD implies its NEV business
trades at 12.6X 2020E P/E, still well below Tesla’s current level in terms of 2020E P/E.
We believe part of this valuation premium could be attributed to Tesla’s technological
leadership, higher brand recognition & pricing power and also its more diversified
geographic presence. However, we believe this valuation gap could gradually close in
terms of seeing BYD generate strong profitability and cash returns in the mid-to-long term.
With BYD trading at a significant discount to Telsa on 2020E P/E, we believe its current
valuation underappreciates this strong mid-term revenue/earnings growth.
‐
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
2015 2016E 2017E 2018E 2019E 2020E
Tesla BYD‐autoblended BYD‐NEV
‐10.0%
‐5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
2015 2016E 2017E 2018E 2019E 2020E
Tesla BYD‐autoblended BYD‐NEV
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 40
Exhibit 64: BYD’s NEV business is at a much lower valuation than Tesla’s
BYD and Tesla valuation comparison
Notes: Gray area represents the data that is not available/applicable.
Source: Datastream, Goldman Sachs Global Investment Research, Gao Hua Securities Research.
Totalcompany NEVandBattery
BYD Tesla BYD Tesla
Marketcap US$mn 22,261 30,168 Marketcap US$mn 19,808 28,513
EnterpriseValue US$mn 27,644 31,569 EnterpriseValue US$mn
GCI2016E US$mn 14,657 5,374 GCI2016E US$mn
NEVvolume2016E unit NEVvolume2016E unit 120,000 76,212
NEVvolume2020E unit NEVvolume2020E unit 396,483 285,966
Marketcap/vol.2016E US$'000/unit Marketcap/vol.2016E US$'000/unit 165.07 374.13
Marketcap/vol.2020E US$'000/unit Marketcap/vol.2020E US$'000/unit 49.96 99.71
Revenue2016E US$mn 15,879 8,099 Revenue2016E US$mn 5,983 7,655
Revenue2020E US$mn 32,170
21,512 Revenue2020E US$mn 17,850 20,744
P/S2016E X 1.40 3.72 P/S2016E X 3.31 3.72
P/S2020E X 0.69 1.40 P/S2020E X 1.11 1.37
Netincome2016E US$mn 742 (164) Netincome2016E US$mn 798 (155)
Netincome2020E US$mn 2,011 1,477 Netincome2020E US$mn 1,801 1,424
P/E2016E X 29.99 P/E2016E X 24.83
P/E2020E X 11.07 20.42 P/E2020E X 11.00 20.02
EBITDA2016E US$mn 2,241 703 EBITDA2016E US$mn
EBITDA2020E US$mn 4,116 3,925 EBITDA2020E US$mn
EV/EBITDA2016E X 9.87 44.91 EV/EBITDA2016E X
EV/EBITDA2020E X 5.79 9.73 EV/EBITDA2020E X
CROCI2016E % 16.9% ‐0.1% CROCI2016E %
CROCI2020E % 19.9% 6.0% CROCI2020E %
EV/GCI/CROCI2016E X 10.70 EV/GCI/CROCI2016E X
EV/GCI/CROCI2020E X 7.36 47.69 EV/GCI/CROCI2020E X
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 41
BYD valuation: Attractive with clear near-term catalysts
NEV business contributes the lion’s share of our 12-m target price
We use a sum-of-the-parts (SOTP) valuation methodology for BYD given the different
nature and growth profile for each of its distinct business divisions (automobiles, handset
components & assembly services, and rechargeable batteries & others). Our SOTP-based
12-m target price of HK$61.93 implies 15% upside potential, among the highest in our H-
share OEMs coverage.
Exhibit 65: Nearly 90% of BYD’s 12-m target price of HK$61.93 is contributed by its NEV business
BYD SOTP walkthrough with summary of bear/base/bull case analysis (in HK$)
Notes: BYDE = BYD Electronics (0285.HK). Priced as of close on August 31, 2016.
Source: Company data, Gao Hua Securities Research.
Bear case Key assumptions Base case Key assumptions Bull case Key assumptions
1. ICE car/car assembly valuation 5.52 Assuming 10% EPS decrease vs.
base 5.58
Calculated from 2016E PB = 0.27X
(using 2016E PB vs. 2018E ROE
industry regression line).
5.79 Assuming 30% EPS increase vs.
base
2. NEV valuation 33.57
DCF, NEV vol. decreased by 8%-
13% and OPM gradually lowered to
9.6% by 2020E, the same level as
Tesla by then, NEV valuation
im
p
lies 2016E P/Sales = 2.2X
53.97
DCF, NEV valuation implies 2016E
P/Sales = 3.3X, vs. Tesla valuation
@3.9X
68.64
DCF, NEV vol. increased by 5%-
10% and OPM to sustain at a level
above mid-teen digits before
2020E, NEV valuation implies
2016E P/Sales = 4.2X
3. Handset components and
assembl
y
service 5.06 20% EPS decrease vs. base case 6.33 7.28 15% EPS increase vs. base case
3.1 BYDE 4.04 same as above 5.05 on actual price 5.80 same as above
3.2 Other handset components 1.03 same as above 1.28 1.0X 2016E P/B, same as BYDE 1.47 same as above
4. Rechargeable batteries and others 3.78 5.36 7.61
4.1 handset batteries 2.93 same as above 3.66 2016E P/B 1.0X, same as BYDE 4.21 same as above
4.2. Energy storage battery 0.85 Half on weaker demand 1.70 2016E P/E of China battery average
@22.3X 3.40 Double on stronger demand
4.3 Solar panel - - loss making, 0 valuation -
5. MI/Financing costs (8.57) (9.30) (11.45)
5.1 MI - BYDE
(
1.41
)
35% of BYDE value
(
1.77
)
35% of BYDE value
(
2.03
)
35% of BYDE value
5.2 other MI and financing costs (7.16) 5% less vs. base case (7.53) 1.0X 2016E P/B (9.42) 25% more vs. base case
SUM - HKD 39.37 61.93 77.86
Potential u
p
side/downside
(
%
)
-27.1% 14.7% 44.2%
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 42
From Exhibit 66 we can see that HK$53.97 of our BYD base case value per share of
HK$61.93 is contributed by its NEV/EV battery business, making it the most significant
contributor. We apply a DCF valuation methodology for the NEV/EV battery business with
the following key assumptions:
NEV sales volume to reach 608k units by 2025E, ~10 times higher than in 2015;
OPM to sustain at ~13% level till 2020E, then gradually drop to ~11% by 2025E due to
expiration of purchase subsidy as well as tougher competition;
Terminal growth of 5% given increasing penetration of NEV in auto space beyond
2025E.
Our discount rate at 8.7% is based on 6.0% equity market premium, 4.0% risk-free rate,
1.1X beta, 4.8% cost of debt, 8.3% effective tax rate, as well as long-run debt-to-capital
ratio at 30%.
Exhibit 66: Our DCF analysis of BYD’s NEV business imputes a value of HK$53.97/share, 87% of our base case valuation
BYD NEV business DCF walkthrough
Source: Company data, Gao Hua Securities Research.
Bull case scenario implies 44% upside potential to BYD
We construct a bull case scenario with BYD NEV sales volume increased by 5%-10% vs. our
base case and OPM to sustain at a level above mid-teen digits before 2020E which implies
earnings upside of 6%-17% vs. our base case in 2016-2020E and a 30% further valuation
upside vs. that implied by our base case. In our bull case we assume BYD obtains higher
market share in the NEV space vs. our base case via its strong product pipeline
underpinned by sufficient NEV battery supply. Extra cost savings from better scale is a key
driver of our OPM assumption.
NEV business DCF 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E
NEV Volume (unit) 58,000 120,000 196,125 264,050 319,059 396,483 445,753 500,401 560,453 585,418 607,980
ASP (RMB) 327,147 324,106 307,069 294,760 296,838 292,641 280,935 272,507 267,057 261,716 256,481
Total Revenue (RMB mn) 18,975 38,893 60,224 77,831 94,709 116,027 125,228 136,363 149,673 153,213 155,936
OPM% 5.0% 10.0% 16.5% 17.1% 15.4% 14.2% 13.3% 12.6% 12.1% 11.6% 11.1% 11.0% 10.8%
EBIT (RMB mn) 59 725 3,134 6,635 9,267 11,017 12,615 14,651 15,186 15,855 16,654 16,818 16,883
D&A as % of revenue -6.7% -5.8% -5.1% -4.4% -3.9% -3.8% -3.6% -3.5% -3.4% -3.3% -3.2% -3.2%
D&A (RMB mn) 1,097 1,979 2,623 3,057 3,594 4,196 4,403 4,659 4,964 4,928 5,015
Tax% 6.7% 15.3% 17.3% 17.5% 18.5% 19.5% 20.5% 20.5% 20.5% 20.5% 20.5% 20.5% 20.5%
Net Income (RMB mn) 55 614 2,592 5,472 7,550 8,866 10,026 11,644 12,070 12,601 13,236 13,367 13,418
As % of total company 113% 110% 101% 94% 89%
Share count (mn shares) 2,728
EPS (RMB/share) 0.02 0.23 0.95 2.01 2.77 3.25 3.68 4.27 4.42
4.62 4.85 4.90 4.92
DCF Evaluation
Discount rate 8.7%
Terminal growth 5.0%
Phase I Phase II Terminal value
EV business DCF
2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E
Cash inflow per year (OPM after Tax + D&A) (RMB mn) 7,451 10,173 11,923 13,620 15,840 16,473 17,260 18,200 18,295 18,434 493,877
Cash outflow per year (CAPEX) (RMB mn) (7,741) (7,942) (7,768) (8,871) (9,410) (9,786) (10,253) (10,812) (10,868) (10,951) (293,387)
Discount factor 1.00 1.09 1.18 1.29 1.40 1.52 1.65 1.80 1.95 2.12 2.12
Discount year - 1 2 3 4 5 6 7 8 9 9
DCF (RMB mn) (290) 2,052 3,514 3,695 4,600 4,400 4,240 4,112 3,801 3,523 94,376
Sum DCF (RMB mn) 128,022
Valuation per share (HK$) 53.97
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 43
Bear case scenario implies 27% downside potential to BYD
We also construct a bear case scenario with BYD NEV sales volume decreased by 8%-13%
vs. our base case and OPM gradually lowered to 9.6% by 2020E, the same level as Tesla by
then, which implies 27% valuation downside from the latest close. Our bear case
assumptions are driven by more intense competition in the NEV space which could lead to
weaker market share and margin erosion.
Exhibit 67: BYD NEV volume up 5%-10% in the bull case
and down 8%-13% in the bear case vs our base case
NEV sales volume (unit), 2015-20E
Exhibit 68: OPM of BYD NEV is kept at a level above mid-
teen digits in our bull case while it is lowered gradually
to 9.6% (the same as Tesla in 2020E) in the bear case vs
our base case
Operating profit margin (%), 2015-20E
Source: Company data, Gao Hua Securities Research. Source: Company data, Gao Hua Securities Research.
Exhibit 69: Earnings in the bull case scenario are 6%-17%
higher than our base case while they are 14%-30% lower
in our bear case
Net income comparison of bull/bear vs. base case, 2016E-20E
Exhibit 70: Valuation upside in our bull case scenario is
another 30% on top of our base case, while the bear case
scenario implies 27% downside potential to BYD
Valuation comparison between bull/bear vs. base case
Source: Gao Hua Securities Research. Source: Gao Hua Securities Research.
BYD trades below historical median-1STD in terms of 12m fwd. P/E
The company currently trades on a 20X 12-month fwd. P/E (below the historical median
minus 1 STD) and a 2.3X 12-month fwd. P/B (in-line with its historical median). Justified in
our view by a 2015-18E EPS CAGR of 41% vs. 21% for our H-share OEM coverage, BYD
trades at 21X 2017E P/E vs. peers on 13X. On the other hand, its new energy vehicle
business (including EV battery) looks attractive vs. peers at 1.1X 2020E P/S and 11.0X 2020E
P/E, well below Tesla’s 1.4X and 20.0X respectively.
‐
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
2015 2016E 2017E 2018E 2019E 2020E
BYD‐NEVbullcase BYD‐NEVbasecase BYD‐NEVbearcase
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
2015 2016E 2017E 2018E 2019E 2020E
BYD‐NEVbullcase BYD‐NEVbasecase BYD‐NEVbearcase
2016E 2017E 2018E 2019E 2020E
4,825 6,858 8,804 10,626 13,069
5,099 7,613 9,913 12,130 15,257
274 755 1,108 1,504 2,188
5.7% 11.0% 12.6% 14.2% 16.7%
4,162 5,594 6,920 8,052 9,171
(664) (1,265) (1,884) (2,574) (3,898)
-13.8% -18.4% -21.4% -24.2% -29.8%
RMB mn
Net income - Bull case
Net income - Base case
NI difference: Bull vs Bear
NI difference %
Net income - Bear case
NI difference: Bear vs base
NI difference %
HK$ per share Base case Bull case Bull vs. Base var% Bear case Bear vs. Base var%
53.97 68.64 27.2% 33.57 -37.8%
61.93 77.86 25.7% 39.37 -36.4%
14.7% 44.2% 29.5% -27.1% -41.8%
Implied Valuation-NEV
Implied Valuation-Total
Upside/downside
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 44
Exhibit 71: BYD is trading at 20X 12-m fwd. P/E, below
historical median –1STD
12-month forward P/E
Exhibit 72: BYD is trading at 2.3X 12-m fwd. P/B, in line
with historical median
12-month forward P/B vs. ROE
Source: Company data, Datastream, Gao Hua Securities Research. Source: Company data, Datastream, Gao Hua Securities Research.
Exhibit 73: Valuation summary: Global auto companies
Note: *denotes the stock is on our regional Conviction List. NA=Not Applicable. All target prices are on a 12-month basis, except for Tesla on a 6-month basis.
Source: Datastream, Company data, Goldman Sachs Global Investment Research, Gao Hua Securities Research.
0
10
20
30
40
50
60
70
80
90
100
Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15
12m Fwd P/E Median P/E
Median P/E = 54.3 X
0%
5%
10%
15%
20%
25%
30%
0.0X
1.0X
2.0X
3.0X
4.0X
5.0X
6.0X
7.0X
8.0X
9.0X
10.0X
Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15
12m Fwd P/B (LHS) Median P/B ROE (RHS)
Median P/B = 2.3 X
V
aluation Summary - Auto China
Ticker Company name Currency Close Rating Market cap EPS
8/31/2016 USD'mn
%
15-18E
CAGR 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E
600104.SS SAIC CNY 22.08 Neutral 28,150 3% 7.6X 7.6X 7.5X 1.3X 1.2X 1.1X 17% 16% 15% 7% 7% 7% 22% 21% 20%
0489.HK Dongfeng HKD 8.29 Neutral 9,207 3% 4.9X 5.1X 4.8X 0.6X 0.6X 0.5X 14% 12% 12% 3% 3% 3% 16% 15% 16%
2238.HK GAC HKD 10.68 Buy 4,818 32% 7.3X 6.5X 6.1X 1.3X 1.2X 1.0X 19% 19% 18% 4% 5% 5% 8% 6% 4%
1114.HK Brilliance HKD 8.87 Neutral 5,746 11% 12.3X 10.7X 8.1X 1.7X 1.5X 1.3X 14% 15% 17% 1% 1% 2% 15% 17% 20%
000625.SZ Changan (A) CNY 15.60 Neutral 9,811 0% 6.6X 7.0X 7.3X 1.8X 1.6X 1.4X 29% 24% 20% 6% 6% 6% 32% 26% 24%
2333.HK Great Wall (H) HKD 7.53 Neutral 3,987 0% 6.4X 6.9X 7.3X 1.3X 1.2X 1.0X 22% 18% 15% 5% 4% 4% 25% 21% 19%
601633.SS Great Wall (A) CNY 10.50 Neutral 13,271 0% 10.5X 11.3X 11.8X 2.1X 1.9X 1.7X 22% 18% 15% 3% 3% 3% 25% 21% 19%
0175.HK Geely HKD 6.22 Buy* 7,057 39% 13.6X 9.2X 7.8X 2.1X 1.7X 1.5X 16% 21% 20% 1% 1% 2% 22% 26% 24%
1211.HK BYD HKD 54.00 Buy 14,270 41% 28.9X 21.5X 16.7X 2.9X 2.7X 2.4X 12% 13% 15% 1% 1% 2% 13% 14% 14%
600418.SS JAC CNY 11.61 Neutral 2,240 16% 12.8X 13.2X 12.6X 1.8X 1.7X 1.5X 15% 13% 13% 2% 2% 2% 30% 26% 22%
000800.SZ FAW Car CNY 10.40 Sell 2,534 92% NA NA 45.0X 2.2X 2.3X 2.2X -11% -4% 5% 0% 0% 0% 0% 3% 6%
2338.HK Weichai (H) HKD 9.79 Neutral 2,523 18% 18.5X 16.0X 14.7X 1.0X 1.0X 0.9X 6% 6% 6% 1% 2% 2% 14% 13% 12%
000338.SZ Weichai (A) CNY 8.86 Neutral 2,652 18% 19.8X 16.8X 15.4X 1.1X 1.0X 1.0X 6% 6% 6% 1% 1% 2% 14% 13% 12%
3808.HK Sinotruk HKD 3.80 Neutral 1,352 25% 31.1X 25.5X 22.3X 0.5X 0.5X 0.5X 1% 2% 2% 1% 1% 2% 7% 7% 7%
China Average 22% 12.6X 11.3X 13.1X 1.4X 1.3
X
1.2
X
13% 13% 13% 3% 3% 3% 17% 16% 16%
China Average (excl. FAW Car) 15% 13.9X 12.1X 10.9X 1.5X 1.4
X
1.2
X
15% 14% 13% 3% 3% 3% 19% 18% 17%
China A share Average (excl. FAW Car) 8% 11.5X 11.2X 10.9X 1.6X 1.5
X
1.3
X
18% 15% 14% 4% 4% 4% 25% 21% 19%
China H average 21% 15.4X 12.7X 11.0X 1.4X 1.3
X
1.1
X
13% 13% 13% 2% 2% 3% 15% 15% 15%
V
aluation Summary - Global Peers
Ticker Company name Currency Close Rating Market cap EPS
8/31/2016 USD'mn
%
15-18E
CAGR 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E
MRTI.BO Maruti Suzuki INR 5,053 Buy 22,762 31% 27.1X 21.9X 18.3X 4.6X 4.6X 3.9X 18% 23% 23% 1% 1% 1% 16% 17% 19%
TAMO.BO Tata Motors INR 537 Neutral 24,736 -8% 17.4X 16.3X 16.5X 2.3X 2.1X 1.9X 15% 13% 12% 0% 0% 0% 15% 14% 13%
India Average 12% 22.3X 19.1X 17.4X 3.4X 3.3X 2.9X 17% 18% 17% 1% 1% 1% 15% 16% 16%
005380.KS Hyundai Motor KRW 133,000 Neutral 31,907 -3% 5.7X 6.0X 6.1X 0.5X 0.5X 0.5X 10% 9% 8% 3% 3% 3% 12% 12% 11%
000270.KS Kia Motors KRW 41,950 Sell 15,018 -2% 5.6X 6.9X 6.9X 0.6X 0.6X 0.5X 12% 9% 8% 3% 3% 3% 8% 7% 6%
Korea Average -3% 5.7X 6.4X 6.5X 0.6X 0.5X 0.5X 11% 9% 8% 3% 3% 3% 10% 9% 9%
PEUP.PA Peugeot EUR 13.45 Buy 12,974 15% 5.6X 6.1X 5.8X 0.9X 0.8X 0.8X 19% 15% 14% 4% 4% 4% 10% 7% 7%
VOLVb.ST Volvo SEK 91.80 Neutral 23,559 0% 15.8X 13.8X 12.5X 2.1X 1.9X 1.8X 14% 14% 15% 3% 4% 4% 11% 11% 11%
RENA.PA Renault EUR 73.36 Neutral 24,192 10% 5.6X 5.2X 5.0X 0.6X 0.6X 0.5X 12% 12% 11% 4% 4% 5% 8% 8% 8%
BMWG.DE BMW EUR 78.46 Neutral 56,727 2% 7.6X 7.5X 7.7X 1.1X 1.0X 0.9X 15% 14% 12% 4% 5% 5% 14% 12% 11%
FCHA.MI FCA EUR 6.21 Buy 10,485 22% 4.6X 3.4X 3.1X 0.5X 0.5X 0.4X 13% 15% 14% 0% 0% 0% 12% 12% 11%
DAIGn.DE Daimler AG EUR 62.31 Buy 74,335 2% 7.9X 7.1X 7.5X 1.1X 1.0X 1.0X 15% 15% 13% 5% 5% 5% 15% 17% 16%
VOWG_p.D
E
Volkswagen EUR 124.80 Sell 71,756 23% 7.7X 5.5X 5.1X 0.7X 0.6X 0.5X 11% 11% 11% 2% 3% 4% 7% 7% 7%
Europe Average 10% 7.8X 6.9X 6.7X 1.0X 0.9X 0.8X 14% 14% 13% 3% 4% 4% 11% 11% 10%
7203.T Toyota Motor JPY 6,238 Buy 192,198 -7% 10.1X 12.7X 11.4X 1.4X 1.1X 1.0X 14% 9% 9% 3% 3% 3% 14% 11% 11%
7269.T Suzuki Motor JPY 3,429 Buy* 18,590 13% 16.0X 11.7X 13.8X 2.0X 1.7X 1.5X 10% 15% 12% 1% 1% 1% 11% 13% 15%
7201.T Nissan Motor JPY 1,015 Neutral 41,239 4% 9.5X 8.3X 8.3X 1.1X 0.8X 0.8X 11% 10% 10% 4% 5% 5% 5% 7% 7%
7261.T Mazda Motor JPY 1,706 Buy 9,916 -8% 10.0X 9.7X 8.2X 1.4X 1.0X 0.9X 15% 11% 12% 1% 2% 2% 13% 10% 11%
7202.T Isuzu Motors JPY 1,191 Buy 9,730 2% 10.2X 8.4X 8.0X 1.6X 1.2X 1.0X 15% 14% 14% 2% 3% 3% 9% 9% 10%
7267.T Honda Motor JPY 3,170 Buy 55,585 3% 19.8X 12.1X 10.7X 1.0X 0.8X 0.8X 5% 7% 8% 2% 3% 3% 10% 8% 6%
7205.T Hino Motors JPY 1,146 Neutral 6,364 -7% 12.5X 12.4X 11.0X 1.9X 1.4X 1.3X 15% 12% 12% 3% 2% 3% 8% 7% 8%
7270.T Fuji Heavy JPY 4,098 Neutral 31,116 6% 7.9X 11.7X 10.4X 2.6X 2.1X 1.9X 37% 19% 19% 3% 4% 4% 38% 22% 21%
Japan Average 1% 12.0X 10.9X 10.2X 1.6X 1.3X 1.2X 15% 12% 12% 2% 3% 3% 13% 11% 11%
F Ford USD 12.55 Neutral 49,861 -5% 6.8X 6.5X 7.7X 1.5X 1.3X 1.2X 24% 22% 17% 7% 5% 5% 17% 15% 11%
GM GM USD 31.67 Neutral 49,025 -6% 5.2X 5.5X 7.5X 1.1X 1.0X 0.9X 22% 18% 12% 5% 5% 5% -3% 20% 15%
TSLA Tesla Motors USD 211.34 Buy 30,168 NA 80.3X 11.5X 12.7X 12.2X -9% -2% 16% 0% 0% 0% -6% 9% 15%
American Average -5% 6.0X 6.0X 31.8X 4.7X 5.0X 4.8X 13% 13% 15% 4% 3% 3% 3% 14% 14%
American Average (excl. Tesla) -5% 6.0X 6.0X 7.6X 1.3X 1.1X 1.0X 23% 20% 14% 6% 5% 5% 7% 17% 13%
P/E P/B ROE Dividend yield CROCI
P/E P/B ROE Dividend yield CROCI
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 45
We see clear positive catalysts for BYD in the coming 12 months
In addition to our view of secular NEV market growth and stronger-than-consensus
earnings for BYD, we see clear positive catalysts for the company in the coming 12 months,
listed as below:
More cities in China to announce local preferential NEV policies post the expected
release of the result of the probe into NEV subsidy fraud (announcement due in the
next few months) – see Exhibit 27 which shows that only 23 out of 88 NEV pilot cities
(25%) have implemented the supportive policies to date;
BYD plans to launch EV/PHEV versions of the Song/Yuan SUVs in 2H2016 and its e-
logistic product by the end of 2016;
Power battery capacity likely to increase further from 10GWh as of end-2015 to 16GWh
in 2017, based on company guidance;
Strong FY2016 (to be reported in March 2017) earnings versus consensus expectations.
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 46
Exhibit 74: BYD – summary income statement, 2005-2020E (in Rmb mn, except per share in Rmb)
Source: Company data, Gao Hua Securities Research.
Income statements
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E
Total sales/revenues 6,498 12,939 21,211 26,788 39,469 46,685 46,312 44,381 49,768 55,366 77,612 103,214 132,374 159,352 181,966 209,106
yoy % 99% 64% 26% 47% 18% (1%) (4%) 12% 11% 40% 33% 28% 20% 14% 15%
COGS (ex-depreciation) (4,506) (9,412) (16,032) (20,187) (29,174) (36,239) (36,768) (35,998) (39,719) (43,531) (60,439) (77,538) (100,105) (120,666) (137,518) (157,715)
Others - - - - - - - - - - - - - - - -
Total COGS (4,506) (9,412) (16,032) (20,187) (29,174) (36,239) (36,768) (35,998) (39,719) (43,531) (60,439) (77,538) (100,105) (120,666) (137,518) (157,715)
Gross profit 1,993 3,526 5,179 6,601 10,295 10,446 9,545 8,382 10,049 11,836 17,173 25,676 32,268 38,685 44,448 51,391
SG&A (820) (1,562) (2,161) (3,623) (4,143) (5,802) (5,476) (4,713) (5,764) (6,615) (8,659) (11,774) (15,762) (19,133) (22,031)
(25,526)
Other operating income/(expense) 39 132 251 242 280 504 431 373 481 921 500 665 720 675 771 886
Total operating expense (781) (1,430) (1,911) (3,382) (3,863) (5,298) (5,045) (4,341) (5,283) (5,694) (8,159) (11,109) (15,042) (18,458) (21,259) (24,639)
EBITDA 1,212 2,097 3,268 3,220 6,432 5,148 4,499 4,042 4,766 6,142 9,013 14,567 17,226 20,227 23,189 26,752
Depreciation (346) (477) (840) (1,211) (1,594) (2,017) (2,516) (3,020) (3,209) (3,704) (4,486) (5,251) (5,765) (6,259) (6,905) (7,562)
Amortization (10) (49) (58) (120) (136) (165) (162) (236) (324) (509) (828) (1,241) (1,241) (1,241) (1,241) (1,241)
EBIT (operating profit) 856 1,571 2,370 1,889 4,702 2,966 1,822 786 1,233 1,929 3,700 8,075 10,220 12,727
15,043 17,949
Interest income 7 14 28 91 18 27 55 51 70 105 53 120 306 226 152 117
Interest expense (143) (247) (388) (492) (255) (281) (742) (862) (1,017) (1,397) (1,517) (1,592) (1,408) (1,285) (1,113) (943)
Net interest income/expense (136) (233) (360) (401) (237) (254) (687) (812) (947) (1,292) (1,464) (1,472) (1,101) (1,058) (961) (826)
Profit/loss on disposal of assets (pre-tax) - - - - - - 503 - (95) (103) 1,438 - - - - -
Foreign exchange gain/(loss) (10) (24) (74) (279) (19) 101 40 31 175 62 126 - - - - -
Net income from associates - - - - - - (6) 0 (12) (1) 3 - -
- - -
Share of results in jointly controlled entities - - - - - 26 7 (25) (36) (121) (246) (251) (239) (203) (167) (123)
Impairment loss of assets - - (103) (5) - - - - - - - - - - - -
Other non-operating income/expense (117) (133) (90) 161 63 303 50 310 514 400 237 (16) 100 100 140 160
Non-operating income/(loss) (263) (390) (627) (525) (193) 176 (94) (495) (401) (1,055) 95 (1,739) (1,241) (1,161) (988) (788)
Pre-tax profit (income before tax) 593 1,181 1,743 1,364 4,509 3,142 1,727 291 832 874 3,795 6,336 8,980 11,567 14,054 17,161
Income taxes (90) (53) (41) (88) (431) (224) (132) (78) (56) (134) (657)
(1,110) (1,663) (2,258) (2,884) (3,521)
Minority interest 0 (11) (91) (254) (285) (395) (210) (132) (223) (306) (315) (401) (458) (504) (544) (570)
Preferred dividends - - - - - - - - - - - - - - - -
Extraordinary gain/(loss) - - - - - - - - - - - - - - - -
Net income 503 1,117 1,612 1,021 3,794 2,523 1,385 81 553 434 2,823 4,825 6,858 8,804 10,626 13,069
EPS - basic 0.93 2.07 2.99 0.59 1.85 1.11 0.60 0.03 0.23 0.18 1.14 1.87 2.51 3.23 3.90 4.79
EPS - fully diluted 0.25 0.54 0.79 0.50 1.85 1.11 0.60 0.03 0.23
0.18 1.14 1.87 2.51 3.23 3.90 4.79
High growth driven
by auto/handset
assembly
Most incremental profit coming from
auto business, with strong volumes
per model, cost advantage on reverse
engineering, vertical integration, as
well as strict labor cost control
Growth stagnant, started to
refocus on quality, rebuild
the channel, launch more
upgraded/SUV models at
competitive prices
Car profit declined significantly on
weaker volumes per model and
price erosion. Higher loss on solar
panel business. Heightened
financing cost on high gearing
Automotive business growth
resumed due to NEV/SUV,
more handset assembly
business on metal casing &
other new tech improvement
Car profitability resumes, battery
business profitability turnaround,
financing cost to stabilize/decline
on improved cash flow
High COGS on weak
pricing, lower volumes,
label cost increase
High gearing
and thus high
financing cost
Higher D&A
on car battery
capacity &
NEV R&D
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 47
Exhibit 75: BYD – summary balance sheet, 2005-2020E (in Rmb mn)
Source: Company data, Gao Hua Securities Research.
Balance sheets
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E
Cash and equivalents 682 1,617 5,540 1,701 2,317 1,979 3,737 3,487 4,511 3,950 6,011 15,318 11,321 7,591 5,849 3,931
Net receivables 2,124 2,994 5,433 5,566 9,793 8,299 10,067 10,280 13,524 22,727 27,165 35,277 44,156 53,155 59,202 68,033
Inventory/stocks 2,232 3,157 4,549 6,916 4,408 6,538 6,596 7,345 8,221 9,978 15,751 20,207 26,088 31,446 35,837 41,101
Other current assets 354 346 779 717 679 1,737 2,380 2,213 3,710 4,179 5,593 6,152 6,460 6,783 7,122 7,478
Current assets 5,391 8,114 16,300 14,900 17,197 18,553 22,780 23,324 29,966 40,835 54,519 76,954 88,024 98,974 108,011 120,542
Gross PP&E/Fixed assets 6,149 8,937 12,501 18,015 23,800 31,954 41,320 47,878 50,589 56,572 62,883 72,694 83,335 94,197 106,558
119,691
Less accumulated depreciation (885) (1,344) (2,159) (3,299) (4,893) (6,910) (9,426) (12,446) (15,655) (19,358) (23,844) (29,095) (34,860) (41,119) (48,024) (55,586)
Net PP&E/Fixed assets 5,264 7,593 10,342 14,716 18,907 25,044 31,894 35,432 34,935 37,213 39,039 43,599 48,475 53,078 58,534 64,105
Gross intangibles 407 599 853 1,117 1,293 1,917 3,271 4,696 6,345 8,232 9,855 9,855 9,855 9,855 9,855 9,855
Accumulated amortization (79) (128) (208) (328) (463) (629) (790) (1,027) (1,350) (1,859) (2,687) (3,928) (5,169) (6,410) (7,651) (8,892)
Net intangibles 329 471 645 789 829 1,289 2,481 3,669 4,995 6,373 7,169 5,928 4,687 3,446 2,205 964
Total investments - 2 2 2 2 59 587 952 1,093 1,449 4,960 4,834 4,720 4,643
4,601 4,604
Other long-term assets 230 206 2,000 2,485 3,801 8,930 9,139 6,630 7,026 8,140 9,799 10,779 11,318 11,884 12,478 13,102
Total assets 11,213 16,387 29,288 32,891 40,736 53,875 66,881 70,008 78,015 94,009 115,486 142,094 157,224 172,025 185,829 203,317
Accounts payable 1,986 3,322 5,715 6,849 11,519 11,033 17,236 18,952 22,293 25,851 30,656 36,142 45,290 52,939 58,449 64,873
Short-term debt and current portion of long-term debt 2,214 4,228 6,872 4,371 547 11,003 11,342 11,288 16,172 19,172 26,413 27,413 27,213 26,513 26,013 26,013
Other current liabilities 944 1,945 2,994 3,176 6,312 6,638 6,050 6,988 4,879 7,998 9,041 10,684 10,756 11,243 12,229 12,962
Current liabilities 5,144 9,494 15,581 14,395 18,377 28,675 34,628 37,228 43,344 53,022 66,110 74,239
83,259 90,695 96,691 103,848
Long-term debt 1,830 1,517 1,295 4,792 3,107 3,049 7,079 7,341 8,652 10,979 11,230 11,230 11,230 11,030 10,330 10,330
Other long-term liabilities/creditors - 8 2 367 225 999 1,194 1,294 1,162 1,113 2,116 2,540 3,048 3,505 4,031 4,635
Total long-term liabilities 1,830 1,525 1,297 5,159 3,331 4,048 8,273 8,635 9,814 12,092 13,346 13,770 14,278 14,535 14,361 14,965
Total liabilities 6,974 11,019 16,878 19,554 21,708 32,724 42,901 45,863 53,158 65,114 79,457 88,009 97,537 105,230 111,051 118,813
Preferred shares - - - - - - - - - 1 - - - - - -
Common stock 540 540 540 2,050 2,275 2,275 2,354 2,354 2,354
2,476 2,476 16,949 16,949 16,949 16,949 16,949
Treasury stock - - - - - - - - - - - - - - - -
Retained earnings 3,636 4,753 10,169 9,235 14,407 16,185 18,770 18,843 19,356 22,890 26,618 29,801 34,945 41,548 48,986 58,135
Other common equity - - - - - - - - - - 3,200 3,200 3,200 3,200 3,200 3,208
Total common equity 4,175 5,292 10,708 11,286 16,682 18,460 21,125 21,197 21,710 25,366 32,294 49,950 55,094 61,697 69,135 78,291
Minority interest (balance sheet) 64 75 1,702 2,052 2,345 2,691 2,856 2,947 3,147 3,529 3,735 4,135 4,594 5,098 5,642 6,213
Total shareholders funds/equity 4,240 5,368 12,410 13,337 19,027 21,151 23,980 24,144
24,856 28,895 36,029 54,085 59,687 66,795 74,778 84,504
Total liabilities and equity 11,213 16,387 29,288 32,891 40,736 53,875 66,881 70,008 78,015 94,009 115,486 142,094 157,224 172,025 185,829 203,317
Long A/P days via
squeezing suppliers
High growth driven
by auto/handset
assembly assets
Sizeable borrowing
in 2010 due to cash
constraints
Investment remained
strong on solar, auto
and NEV/battery
business
Investment refocusing
on NEV and power
battery capacity
expansion
Prepaid lease
payment and other
deferred assets mainly
Gradually reimburse
some loans as cash
flow improves
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 48
Exhibit 76: BYD – summary cash flow statement, 2005-2020E (in Rmb mn)
Source: Company data, Gao Hua Securities Research.
Cash flow statements
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E
Income pre-preferred share dividends 503 1,117 1,612 1,021 3,794 2,523 1,385 81 553 434 2,823 4,825 6,858 8,804 10,626 13,069
Minority interest add-back (0) 11 91 254 285 395 210 132 223 306 315 401 458 504 544 570
Depreciation and amortization add-back 356 526 898 1,331 1,730 2,182 2,678 3,256 3,533 4,212 5,314 6,492 7,006 7,500 8,146 8,803
NI from associates and jointly controlled entities - - - - - (26) (1) 25 48 122 243 251 239 203 167 123
Net loss/(gain) on asset sales 11 (1) 154 38 136 52 (164) 244 221 252 (1,100) - - - - -
(Increase)/decrease in working capital : 376 467 (1,585) (1,023) 2,716 (995) 2,383 1,441 (1,933) (8,455) (5,915) (7,082) (5,612) (6,708) (4,930)
(7,670)
Accounts receivable 101 (1,176) (2,868) (279) (4,232) 1,661 (2,168) 21 (3,345) (10,326) (6,195) (8,113) (8,878) (8,999) (6,048) (8,830)
Inventory (780) (1,014) (1,424) (2,412) 2,278 (2,171) (245) (966) (986) (1,918) (6,224) (4,456) (5,881) (5,358) (4,391) (5,264)
Accounts payable 1,055 2,658 2,708 1,668 4,670 (485) 4,796 2,386 2,398 3,789 6,503 5,486 9,148 7,649 5,509 6,424
Other operating cash flow items 268 381 576 194 3,355 (992) (507) 377 (208) 3,166 2,162 (1,116) (339) (432) (408) (375)
Cash flow from operations 1,514 2,501 1,746 1,816 12,016 3,139 5,985 5,555 2,436 37 3,842 3,771 8,612 9,872 14,146 14,519
Capital expenditure (1,883) (3,007) (5,708) (6,430) (7,310) (13,436) (9,412) (7,150) (5,808) (4,241) (6,073) (10,321) (10,590)
(10,358) (11,828) (12,546)
(Acquisitions)/divestitures (24) 13 656 117 37 80 85 134 272 797 1,809 904 452 - - -
Investments - - - 436 128 653 404 (140) (160) (194) (125) (125) (125) (125) (125) (125)
Other investment cash flow items (23) (35) 40 (558) (29) 20 - 2,547 (155) (4,262) (6,347) (394) (503) (504) (534) (578)
Cash flow from investing (1,931) (3,029) (5,012) (6,435) (7,174) (12,683) (8,923) (4,610) (5,851) (7,901) (10,736) (9,937) (10,766) (10,987) (12,487) (13,250)
Dividends paid (common and preferred) - - (216) (701) - (751) - - - - - - (1,643) (1,715) (2,201) (3,188)
Share repurchase/issue (change In common stock) - - 5,411 - - - 1,368 - - 3,342 - 14,473
- - - -
Increase/(decrease) in short-term debt 886 1,712 2,387 1,039 (5,519) 10,391 3,733 (3,085) 3,232 5,314 5,774 1,000 (200) (700) (500)
Increase/(decrease) in long-term debt - - - - - - 993 2,968 2,988 - 4,692 (200) (700)
Increase/(decrease) in preferred shares - - - - - - - - - - - - - - - -
Change in minority interest - - (4) (149) (1) (52) 1 (41) - 100 - - - - - -
Other financing cash flow items (470) (249) (389) 592 1,294 (383) (1,399) (1,038) (1,781) (1,454) (1,511) - - - - -
Cash flow from financing 416 1,463 7,188 781 (4,227) 9,206 4,697 (1,197) 4,440 7,303 8,955 15,473 (1,843) (2,615) (3,401)
(3,188)
Effect of foreign exchange rate changes - - - - - - - - - - - - - - - -
Total cash flow (0) 935 3,922 (3,838) 615 (338) 1,759 (251) 1,024 (561) 2,061 9,307 (3,997) (3,730) (1,742) (1,919)
A-share private
placement completed
in July 2016
A-share
dual listing
Significant
increase in
gearing
H-share
private
placement
Investment refocusing
on NEV and power
battery capacity
expansion
Investment
gradually slows as
NEV/battery
business set up
H-share
private
placement
Cash flow peaked on
strong car sales/profit,
as well as squeezing
dealers/suppliers on
payment terms
Investment remained
strong on solar, auto
and NEV/battery
business
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 49
Introducing M&A rank for BYD
As discussed in our “Introducing M&A framework; highest potential for M&A – FAW Car,
Harmony, July 12, 2016” report, we examine stocks across our coverage universe using an
M&A framework, considering both quantitative factors (size, shareholding, growth
exposures, and potential cost synergies) and qualitative factors (attractiveness of assets,
probability of anti-trust regulation, and company announcements on M&A activities) to
incorporate the potential that certain companies could be acquired at a premium to current
share prices.
Quantitative factors:
Size: We believe that the smaller the company is, the more feasible it becomes as an
M&A target;
Shareholding structure: We believe that privately owned (i.e., non-SOE) companies
are more attractive M&A targets due to potential veto from SOE controlling
shareholders. Also, in general, the more fragmented the shareholder structure of one
company is, the more feasible it becomes as an M&A target;
Growth exposure: We believe the higher the sales growth a company has, the more
feasible it becomes as an M&A target; and
Potential cost synergies: We focus on the EBITDA margin level of the companies and
believe that the lower the EBITDA margin a company has, the higher the feasibility it
might become an M&A target due to higher potential cost synergies.
Qualitative factors:
Asset attraction: We combine two factors – an industry positioning (CAP) score and
R&D as a percentage of revenue – in determining the attractive of the assets of a
certain company and believe that the higher the asset attractiveness, the higher the
feasibility it might become an M&A target;
Regulation and anti-trust rules: We believe companies with lower market share may
face a lower possibility of triggering an anti-trust regulatory probe, which could
suggest a higher M&A probability; and
Company announcement on potential M&A plan: We see higher certainty of M&A if
a company has announced the possibility it could be acquired in the foreseeable future.
Scoring method: Mean of seven metrics, with two dominant factors
We then assign an M&A score as a means of ranking companies under coverage from 1 to
4, with 1 representing high (30%-50%) probability of M&A activity, 2 representing medium
(15%-30%) probability, 3 representing low (10%-15%) probability and 4 representing
minimal to no probability (0%-10%). However, to take into consideration the dominant
factors which could be key impediments or key accelerators, such as ownership structure
and the level of M&A activity, we overlaid our M&A framework for the China auto industry
with the following:
If a company is an SOE and there has been no announcement on any potential M&A
deal for that company, we assign an M&A Rank of 4 as potential M&A activity has
‘minimal to no probability’ as a result of potential veto from its controlling SOE; and
If a company has made a clear announcement on any potential M&A deal for that
company, we assign an M&A Rank of 1 as potential M&A activity has ‘high probability’.
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 50
Exhibit 77: We consider seven metrics and two dominant factors in our M&A framework for the China auto space
Summary of scoring method in our M&A framework for the China auto space
Source: Gao Hua Securities Research
Metrics
Metric 1 M etric 2 Metric 3 Metric 4 Metric 5 Metric 6 M etric 7 Final
Details Size
Shareholding
structure
Asset
attractiveness Growthexposure
Costsynergies
potential
Regulation&anti‐
trustinthe
sector/company
Company
announcementon
M&A FinalM&ARank
Generallogic
Thebiggerthe
companysize,the
lowerthe
possibilityofit
becomingthe
targetof
acquisition
Themore
fragmentedthe
shareholding
structureis,the
higherthe
possibilityofit
becomingthe
targetof
acquisition
Themore
attractivethe
product/technolog
yacompanyhas,
thehigherthe
possibilityofit
becomingthe
targetof
acquisition
Thehigherthe
growthacompany
has,thehigherthe
possibilityofit
becomingthe
targetof
acquisition
Thelowerthe
EBITDAmargina
companyhas,the
higherthepotential
synergiesthatcould
begainedfrom
M&A,hencethe
higherthe
possibilityofit
becomingthetarget
ofacquisition
Themoreimpactful
theregulatory/anti‐
trustincertain
sectors,thelower
thepossibilityofa
companybecoming
thetargetof
acquisition
Iftherehasbeena
clear
announcement
fromthecompany
onpotentialM&A
activities,the
possibilityofit
beingacquired
shouldbehigh Averagescoreof7metrics
Chinaautospecific
logic/adjustment
Possibilityislow
thatSOE
companiesget
involvedin
potentialM&A
activities,unless
thecompanyhas
madean
announcement
Potentialactivities
including:
1)Targetofan
acquisition;
2)Group
listing/asset
injection;
3)A/Hduallisting.
1)Potentialvetofroman
SOEwheretherehas
beennoannouncmenton
anypotentialM&Adeal
forthatcompany‐final
M&Arankof'4';
2)Ifacompanymakesa
clearannouncementon
anypotentialM&Adeal
forthatcompany‐final
M&Arankof'1'.
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 51
Exhibit 78: BYD scores 2.6 in our M&A framework and is assigned a final M&A Rank of 3
Summary of scoring method in our M&A framework for BYD
Notes: On final M&A Rank, 1 represents a high (30%-50%) probability of M&A activity (i.e. that a company could be acquired at a premium to the current share price), 2 represents medium (15%-30%) probability, 3
represents low (10%-15%) probability, and 4 represents minimal to no probability (0%-10%).
Source: Company data, Gao Hua Securities Research.
We assign a final M&A Rank of 3 to BYD in our M&A framework, indicating low (10%-15%) probability of becoming an M&A target.
Hence, we do not incorporate an M&A value into our 12-month target price.
Metric 1 Metric 2 Metric 3 Metric 4 Metric 5 Metric 6 Metric 7
Ticker BBG Company Name
Size
feasibility
(1= high;
4 = low)
Shareholding structure
(Framengted, SOEs,
blocking shareholder
etc.) (1=favorable;
4=unfavorable)
Asset
attractiveness
(product/
technology)
(1=high; 4=low)
Growth
exposure
(e.g. TAM,
regional
exposure)
(1=high; 4=
low)
Cost
synergies
potential
(1= high; 4=
low)
Regulation &
anti-trust in
the
sector/compa
ny (1= high;
4= low)
Company
announcemen
t on M&A (1=
high; 4= low)
Avg score
Final M&A Rank
(1= high prob; 4 =
low)
1211.HK 1211 HK BYD (H) 4 2 1 1 3 3 4 2.6 3
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 52
Risks: China NEV market fluctuations, increased competitive
pressures, technological disruption
We see the following as key risks to the NEV market in China as well as to our investment
thesis and 12-month target price on BYD.
Slower-than expected China NEV market growth
China’s NEV market growth might be negatively impacted by the scale-down of
purchase subsidy, high comps, technology uncertainty regarding NEV
quality/safety/durability, etc.
Lower-than-expected market share of BYD
BYD could record a lower-than-expected market share in the NEV space as more OEMs
launch competing NEV models to fulfill the upgrade fuel consumption requirement
from MIIT (5.0/4.0 liter per 100 km of fuel consumption on average by 2020E/2025E).
Lower-than-expected NEV OPM of BYD
In order to maintain its market share and technological leadership, BYD might continue
investing into R&D and capacity in the NEV/battery business, which could lower its
OPM. We also see risks from potential price erosion in the NEV segment due to intense
competition.
Disruptive battery technologies
New disruptive battery technologies (e.g., all-solid lithium battery or fuel cell
technologies) might hurt BYD’s competitive edge/cost advantage in the NEV battery
business as existing R&D and CAPEX investment in lithium-ion battery technologies
might not be competitive any longer.
Lower-than-expected result from other business
BYD might have lower earnings from its other businesses, like ICE car, consumer
electronic goods, and its solar panel business on potential total demand slowdown,
policy uncertainty and more intense competition.
Limited disclosure
Given BYD’s intricate business setup (different divisions cover handset component &
assembly, other electronics goods component & assembly, ICE cars & component,
NEV & battery, electronic goods & other energy storage battery, solar panel handset,
etc.), there is limited disclosure from the company on financial information by division.
For example, the ICE car business is reported together with NEV business, and the NEV
business combines the profit of its vehicle battery. Hence, given limited disclosure of
historical data, there could be a risk our model assumptions do not fully reflect the
accurate performance by sub-segment.
Higher investment into innovation in the long-term
BYD may face greater competition in the longer term and therefore may need to
increase its investment in innovation from new NEV models to new battery
technologies (e.g., in its FY2015 analyst briefing, BYD’s chairman unveiled that the
company is investing into R&D for an all-solid-state lithium battery, a new type of
lithium battery that has higher power density than its current LFP battery). The
potential for higher-than-expected R&D investment due to intensified competition
could pose downside risk to BYD’s margin as well as cash flow.
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 53
Appendix 1: NEV battery capacity, lithium supply, and battery
makers’ valuation
China NEV battery capacity and utilization rate
Exhibit 79: NEV battery capacity doubled in 2015 and we
expect the growth to be 93%/35%/16% in 2016/17/18
NEV battery capacity (GWh) and growth rate (%), 2014-20E
Exhibit 80: We see overcapacity and the utilization rate
decreasing in NEV battery in 2016E-17E
NEV battery capacity (GWh) and utilization rate (%), 2014-20E
Source: Company data, Gao Hua Securities Research. Source: Company data, Gao Hua Securities Research.
Globally, lithium supply and demand should be reasonably
balanced until 2020E (per our US Chemicals analyst Robert Koort)
Exhibit 81: The growing demand for NEVs could help
triple lithium demand by 2025E (12% CAGR)
Lithium (LCE) demand forecast (kmt)
Exhibit 82: Limited near-term supply growth expected
(64% expansion by 2020E), but supply and demand to be
reasonably balanced until 2020E
Lithium (LCE) supply forecast (kmt)
Source: Company data, Goldman Sachs Global Investment Research. Source: Company data, Goldman Sachs Global Investment Research.
198%
93%
35%
16% 11% 1%
0%
50%
100%
150%
200%
250%
0
20
40
60
80
100
120
140
2014 2015 2016E 2017E 2018E 2019E 2020E
BYD Therest Growth(RHS)
0%
10%
20%
30%
40%
50%
60%
0
20
40
60
80
100
120
140
2014 2015 2016E 2017E 2018E 2019E 2020E
Total EV battery capacity utilization rate (RHS)
0
100
200
300
400
500
600
2014
2015
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
LCEdemand,kmt
StationaryStorage
EBus/Truck
BEV
PHEV
HEV
E‐Scooters/Motorcycles
E‐Bikes
PowerTools
Notebook
Tablet
Smartphone
NonEnergy
0
50
100
150
200
250
300
350
2014 2015 2016E 2017E 2018E 2019E 2020E
LCEdemand,kmt
LithiumAmericas
MtCattlinJV
MtMarionJV
ALBLaNegra2
ALBLaNegra1
OrocobrePhase1
TalisonExpansion
ExistingCapacity
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 54
Exhibit 83: We expect EVs to move increasingly towards
a mix of higher-power batteries that enable longer
effective vehicle range, increasing demand for lithium on
a per vehicle basis
Average BEV battery size (kWh)
Exhibit 84: Price per watt-hour to halve toward 2025
Estimated price of automotive Li-ion batteries (US$/g)
Source: IHS, Goldman Sachs Global Investment Research. Source: IHS, Goldman Sachs Global Investment Research.
BYD production capacity of NEV by site
Exhibit 85: BYD’s NEV production capacity by site
Source: Company data.
‐
10
20
30
40
50
60
2015
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
AverageBEVbatterysize
kWhperBEV
0
50
100
150
200
250
300
350
400
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
2009
2011
2013
2015
2017E
2019E
2021E
2023E
2025E
Price per Wh ($/g, LHS)
Energy density (Wh/kg, RHS)
NEVproductioncapacity
Timeline e‐bus electricutilityvehicles e‐car TOTAL
Taiyuan Startedconstructionintheendof2015 2,000 2,000 4,000
Shanwei Startedconstructionintheendof2015
Guangzhou Aug,2014;PartneredwithGAC 5,000 5,000
Baotou StartedconstructioninApr,2015 2,000 2,000
Xi'an PhaseIIwasputintousein2014 70,000 70,000
Nanjin Putintousein2014 1,000 1,000
Qingdao PhaseIwasputintouseinJun,20161,000 1,000
Dalian Startedconstructionintheendof2014
Changsha StartedPhaseIIconstructioninMay,2015 2,500 2,500
Chengde StartedconstructioninOct,2014 2,000 2,000
Hangzhou Startedconstructionin2014 3,000 3,000
Wuhan StartedconstructioninApr,2015 2,000 2,000
Shaoguan PutintouseinAug,2013 50,000 50,000
Tianjin Startedconstructionin2012;partneredwithTianjinBusCompany
TOTAL 18,500 54,000 70,000 142,500
*Beijing,Kunming,etc.,announcedconstructionplanbutdidnotdiscloseanyspecificinformation
2016expectedcapacity
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 55
We estimate that c.50% of the government NEV purchase subsidy
goes to the OEM while the rest goes to the customer
Exhibit 86: ~50% of govt. purchase subsidy goes to the OEM while the rest goes to the
customer
Notes: We assume: 1) the battery pack cost is US$350/kwh, and the ICE cost is US$3,000/unit; 2) other extra costs
associated with EV is 5% of MSRP.
Source: Autohome.com, MIIT, BYD, CEIC, Gao Hua Securities Research.
RMB GeelyEC7EV GeelyEC7
MSRP 249,800 100,800
‐Batterycost 103,058
‐ICEcost 19,500
‐OthercostsassociatedwithEV 12,490
Totalcostexcl.battery/ICE 134,253 81,300
Difference 52,953
Governmentpurchasesubsidy(central+local) 99,000
%ofgovt.subsidythatgoestoOEM 53.5%
Purchasecost
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 56
Global battery makers’ valuation summary
Exhibit 87: Valuation summary: Global battery makers
Notes: 1) *denotes stock is on our regional Conviction List; 2) data for Not Covered stocks comes from Bloomberg.
Source: Datastream, Bloomberg, Company data, Goldman Sachs Global Investment Research, Gao Hua Securities Research.
V
aluation Summary - Global Auto Suppliers/Component Companies
Ticker Company name Currency Close Rating Market cap EPS
8/31/2016 USD'mn
%
15-18E
CAGR 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E
6752.T Panasonic JPY 1,061 Neutral 23,957 1% 16.4X 18.2X 13.1X 1.9X 1.4X 1.3X 11% 8% 10% 4.3X 3.6X 3.2X 5% 9% 10%
6701.T NEC JPY 263 Buy* 6,649 20% 13.9X 8.7X 6.8X 1.2X 0.8X 0.8X 9% 10% 12% 7.2X 5.1X 4.2X 4% 8% 7%
5333.T NGK Insulators, Inc JPY 2,244 Neutral 7,130 13% 16.4X 13.4X 12.3X 2.3X 1.8X 1.6X 13% 13% 13% 8.1X 6.8X 5.9X 12% 12% 12%
Japan average 11% 15.6X 13.4X 10.8X 1.8X 1.3X 1.2X 11% 10% 11% 6.5X 5.2X 4.4X 7% 9% 10%
006400.KS Samsung SDI KRW 115,500 Neutral 7,244 106% 21.2X 26.8X 17.2X 0.7X 0.7X 0.7X -6% 3% 4% NA 13.0X 11.2X 14% 5% 5%
051910.KS LG Chem KRW 270,500 Buy* 17,762 10% 12.6X 11.6X 11.1X 1.4X 1.3X 1.2X 12% 12% 11% 6.0X 5.3X 4.7X 12% 12% 12%
Korea average 58% 16.9X 19.2X 14.2X 1.1X 1.0X 0.9X 3% 7% 8% 6.0X 9.2X 7.9X 13% 9% 9%
SEDG SolarEdge USD 17.60 Neutral 783 36% 14.1X 9.1X 11.6X 4.2X 2.4X 2.0X 36% 27% 17% 12.1X 5.9X 5.8X 59% 38% 34%
US average 36% 14.1X 9.1X 11.6X 4.2X 2.4X 2.0X 36% 27% 17% 12.1X 5.9X 5.8X 59% 38% 34%
0819.HK Tianneng Power HKD 6.34 Not covered 922 24% 7.9X 6.3X 5.2X 1.4X 1.2X 1.1X 22% 24% 29% NA NA NA NA NA NA
002074.SZ Guoxuan High-Tech CNY 36.54 Not covered 4,794 57% 27.6X 19.8X 15.1X 7.7X 5.5X 4.2X 27% 28% 28% NA NA NA NA NA NA
300274.SZ Sungrow CNY 23.92 Buy 2,798 27% 25.7X 20.5X 18.2X 3.0X 2.7X 2.4X 16% 14% 14% 16.9X 13.7X 11.4X 36% 32% 29%
600884.SH Shanshan CNY 16.74 Not covered 2,814 -15% 31.2X 25.5X 21.0X 2.8X 2.6X 2.4X 10% 11% 12% NA NA NA NA NA NA
China average 23% 23.1X 18.0X 14.9X 3.7X 3.0X 2.5X 19% 19% 21% 16.9X 13.7X 11.4X 36% 32% 29%
Global average 28% 18.7X 16.0X 13.2X 2.7X 2.0X 1.8X 15% 15% 15% 9.1X 7.6X 6.6X 20% 17% 16%
P/E P/B ROE EV/EBITDA CROCI
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 57
Summary of recent government NEV policies in China
Exhibit 88: Recent NEV policies from central and local government to address sustainability of mid-to-long term growth
Source: Government websites.
Nationalplanningfor
NewEnergyVehicles
Jun28,
2012
TotalNEVownershiptargetedat500kand5mnin2015and2020
respectively
GovernmentendorsesthehighgrowthofNEV
industry
√
ListofNEVpilotcities Dec06,
2013
MIIT,MoT,MoFandNDRCannouncedthefirstbatchof28NEVpilotcities;
thelistofsecondbatchwasannouncedinJan2014
TodevelopNEVindustrystepbystep(thereare
88citiesinthelistcurrently)
√
Requirementon30%o
f
governmentcarsusing
NEV
Jul14,
2014
ChinesegovernmentrequiredthatNEVmakeupatleast30%ofgovernment
vehiclepurchasesby2016 Promotegovernmentdirectpurchase
√
Electricityprice
guidanceonEVusage
Jul22,
2014
ReleasedbyNDRC:1)batteryswitch/charginghubsiseligibleforelectricity
pricediscount,applyingindustrialelectricitypricing,exemptofbasecharge;
2)chargingfacilitiesinindividualpropertyandresidentialpropertyiseligible
forresidentialelectricityprice;3)chargingpile/stationoperatorsare
allowedtochargeservicefeeontopofelectricityexpenses.27
provinces/citieshaveannouncedservicefeestandards
ThismightlowerEV/PHEVusagecost,thuslikely
todrivemoreEV/PHEVvolumeandusage.Also,
chargingpile/stationoperatorsarealsoallowed
tochargeaservicefeeontopofelectricity
expense,thuseasetheconcernthatitisnot
profitabletooperatechargingstations
√
Exemptionofpurchase
taxfornewenergy
vehicle
Aug01,
2014
EffectiveduringSep01,2014toDec31,2017;purchasetaxexemptionfor
PHEV/EV/FuelCell(purchasetaxat~10%ofcarprice) Increasecost‐benefitofnewenergyvehicles
√
Newenergyvehicle
chargingfacilities
subsidy
Nov18,
2014
ReleasedbyMIIT,MoT,MoFandNDRC;centralgovernmentgrantscharging
facilitiessubsidytocities/cityclustersthatarequalifiedtomeetitsnew
energyvehiclepromotiontarget
Thismightdrivelocalgovernmentstopromote
constructionofchargingfacilitiesandreduce
users'concernoflackingchargingfacilities
√
EVmanufacturing
enterprisesinvestment
projectandproduction
permitregulationdraft
Nov26,
2014
ReleasedbyNDRC;EVmanufacturersarerequiredtomeet
R&D/manufacturing/servicingcriteria;selectbasequalificationforEVmodel
includes:1)maxspeedshouldexceed100km/h;2)accelerationtimefrom0
to50km/hshouldbeless5seconds;3)purely‐on‐batterymileageshouldbe
above100km
ThismightraisetheentrybarforEV
manufacturingvs.previousregulations;Itmight
boostEVdevelopmentinthelongrunby
ensuringEVproductquality
√
PassengercarphaseIV
fuelconsumption
detailedtarget
Jan05,
2015
ReleasedbyMIIT.EffectinJan01,2016;governmentsetsthe2015E‐2020E
passengercarfuelconsumptionannualtargetat
6.9L/6.7L/6.4L/6.0L/5.5L/5.0L,respectively
DetailedannualtargetmighthelpOEMsto
formulatedetailedR&D/productdevelopment
pipelinetointroducePHEV/EVmodelsaswellas
im
p
rovedICEen
g
ine
√
NEVpurchasesubsidy
scalingdown
Apr22,
2015
ReleasedbyMIIT,MoT,MoFandNDRC;centralgovernmentsubsidywillbe
scalingdown(2017‐18:‐20%vs.2016,2019‐20:‐40%vs.2016).Manylocal
governmentshavesubsequentlyreleasedtheirrespectiveNEVpurchase
subsid
y
p
olicies
Purchasesubsidyisfadingout,butreplacedby
preferentialtreatmentinusageandtransfer
payment,etc.,toboostthelong‐term
develo
p
mentofNEVindustr
y
√
Guidelinestopromote
theconstructionof
charginginfrastructure
forNEV
Sep29,
2015
ReleasedbytheStateCouncil:1)100%ofresidentialparkinglotsand10%of
publicparkinglotsshouldhavereservedspaceforEVchargingpiles;2)
requiringlocalgovernmentstobuildatleastonepublicchargingstationfor
every2,000unitsofNEVownership;3)continuingtoencourageprivate
investmentandcommercializedoperationsofchargingstations;4)applying
preferentialtariffstocommercialelectricchargingstations
Boosttheconstructionofchargingfacilitiesand
reduceusers'concernoflackingcharging
facilities
√
Targetoncharging
facilitiesconstruction Oct9,
2015
ReleasedbyNDRC,MIIT,NEAandMOHURD:toconstruct12,000charging
stationsand4.8mnchargingpilesby2020nationwide
Boosttheconstructionofchargingfacilitiesand
reduceusers'concernoflackingcharging
facilities
√
NEVbatterymaker
catalog
Nov11,
2015
MIITannouncedthefirstbatchofNEVbatterymakercatalogthatincludes
10companies(Currentlyfourbatchesofcataloghavebeenreleasedwith57
companiesintotal)
Attachimportancetobatterysafety,buildup
industrystandardandregulation,andease
safetyconcernonbattery
√
13thFiveYearPlanon
NEVcharging
infrastructurereward
policy(2016‐2020)
Dec15,
2015
ReleasedbyMIIT,MoT,MoF,NEAandNDRC:Thepolicyprioritizes10key
provinceslocatedinpan‐Bohaigulf,YangtzeRiverDeltaandPearlRiver
Delta,aswellasanothersixcentralChinaprovinces.Thecentralgovernment
willdirectlyprovideaRmb5.4billionsubsidyforEVchargingpilesin2016,
andwillincreasethesubsidytoRmb6.1/6.9/7.8/8.8billionin
2017/18/19/20.Manylocalgovernmentshavesubsequentlyreleasedtheir
res
p
ectiveEVchar
g
in
g
subsid
y
p
oliciesand2020tar
g
ets
SupportNEVcharginginfrastructureinvestment
√
Nationalstandardon
charginginterfaceand
communication
p
rotocols
Dec28,
2015
ReleasedbyMIITandMoT:tosetanationalstandardoncharginginterface
andcommunicationprotocols,toincreasecharginginfrastructure
compatibilityandsecurity
StandardizationofNEVchargersandreduce
localprotectionism
√
SubsidyfraudprobeJan20,
2016
MoFandMIITannouncedthatrelatedinstitutionswouldinvestigateonthe
cheatingonNEVsubsidies,andpenalizerelatedcompaniesandpersons
Proberesultofsubsidyfraudtoclearpolicy
uncertaintiesandfavorlocalleaders
√
Low‐speedEVtechnical
conditions
Apr19,
2016
SACreleasedLow‐speedEVtechnicalconditionsdraft,aimingtosetup
industrystandardandregulationsystemforlow‐speedEVmarket
Boostthesustainabilityoftheindustry’slong‐
termdevelopment
√
Nationalprotectionism
onNEVbattery
Apr27,
2016
MIITannouncedthatonlythenewenergyvehiclesthatusebattery
producedbythosebatterymakersinthecatalog(excl.foreignbattery
makerssuchasLGChemandSamsung)wouldbesubsidized
Nationalprotectionism:goodtosafetyofNEV,
butbadtoNEVmakersasaresultoflessbattery
supply/highercost;also,itisharmfulforlong‐
termdevelo
p
mentofNEVindustr
y
√
Supervisionreporton
subsidyfraud
Jul6,
2016
AsupervisionreportwasreleasedandPremierLiKeqianginstructedrelated
institutionstopenalizecorporatesandpersonscommittingfraud,butthe
listoffraudwasnotreleased
Overall,weexpecttheupcomingfinalprobe
resulttobeapositivemovethatwillhelp
sustainabledevelopmentoftheNEVindustry
√
Date Keypoints ImpactPolicies
Protection
ism/Stand
ardization
Govt.purchase
subsidy/subsid
yfraudprobe
Fuel
consumpti
onstd.
G
ovt.
target,
pilotcities
etc.
Higher
industry/s
afetystd.
Charging/f
acilities
Govt.
direct
purchase
Exempt
i
on
of
purchase
tax
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 58
Appendix 2: Glossary of key terms and acronyms
BEV: Battery Electric Vehicle, a type of electric vehicle that only uses electricity stored in its
rechargeable battery to power its electric motor for propulsion.
CV: Commercial Vehicle, a vehicle used for either moving paid passengers (like a bus) or
transporting goods (like a truck). In China’s national standard, a commercial vehicle is
defined as either a bus with no less than nine seats or a truck.
EV: Electric Vehicle, usually referred to as a BEV.
FCV: Fuel Cell Vehicle, a type of vehicle using a fuel cell in combination with a storage
device (like a battery), to power its electric motor for propulsion.
HEV: Hybrid Electric Vehicle, a type of vehicle that uses a combination of the internal
combustion engine system and electric powertrain system (i.e., using electricity stored in
its rechargeable battery or sometimes another storage device, to power its electric motor)
for propulsion.
ICE: Internal Combustion Engine, an engine where the combustion of a fuel (usually
gasoline or diesel, after mixing with air) occurs in its cylinder to propel the piston to power
the vehicle.
NEV: New Energy Vehicle, a concept introduced by the Chinese government to define the
scope of government subsidy, which includes BEV, FCV, and PHEV but excludes HEV.
PHEV: Plug-In Hybrid Electric Vehicle, is a hybrid electric vehicle using rechargeable
batteries that can be recharged by plugging it into an external source of electricity power.
TCO: Total Cost of Ownership, a financial estimate intended to help vehicle owners
determine the total direct and indirect costs of a vehicle throughout the period of
ownership, usually calculated as: cost of purchase (including car price, sales tax, and etc.) +
cost of usage (fuel/charging, parking, maintenance costs and etc.) – resales value (used car
price).
ZEV: Zero Emission Vehicle, a type of vehicle that generates no polluting emission from its
onboard source of power.
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 59
Disclosure Appendix
Reg AC
We, Yipeng Yang, Yuqian Ding and Longjin Li, hereby certify that all of the views expressed in this report accurately reflect our personal views about
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Disclosures
Coverage group(s) of stocks by primary analyst(s)
Yipeng Yang: China Autos. Yuqian Ding: China Autos.
China Autos: Anhui Jianghuai Automobile Co., Baoxin Auto Group, Brilliance China Automotive, BYD Co., China Harmony New Energy Auto,
Chongqing Changan Auto (A), Dongfeng Motor, FAW Car, Fuyao Glass Industry Group (A), Fuyao Glass Industry Group (H), Geely Automobile
Holdings, Great Wall Motor Co. (H), Great Wall Motor Co.(A), Guangzhou Automobile Group, Huayu Automotive Systems, Minth Group, Nexteer
Automotive Group, SAIC Motor, Sinotruk (Hong Kong), Weichai Power (A), Weichai Power (H), Weifu High-Technology Group (A), Zhengtong Auto
Services Holdings, Zhongsheng Group.
Company-specific regulatory disclosures
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covered by the Global Investment Research Division of Goldman Sachs and referred to in this research.
Goldman Sachs beneficially owned 1% or more of common equity (excluding positions managed by affiliates and business units not required to be
aggregated under US securities law) as of the month end preceding this report: BYD Co. (HK$54.00)
Goldman Sachs has received compensation for investment banking services in the past 12 months: BYD Co. (HK$54.00)
Goldman Sachs expects to receive or intends to seek compensation for investment banking services in the next 3 months: BYD Co. (HK$54.00)
Goldman Sachs had an investment banking services client relationship during the past 12 months with: BYD Co. (HK$54.00)
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provided investment banking services within the previous twelve months.
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 60
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13
35.17
32.79 42.04
44.75
44.47
46.69
50.82
36.2
39.71
61.15
61.66
6,000
7,000
8,000
9,000
10,000
11,000
12,000
13,000
14,000
15,000
16,000
0
10
20
30
40
50
60
70
80
BYD Co. (1 211.HK)
Goldman Sachs rating and stock price target histor
y
Stock Price Currency : Hong Kong Dollar
Source: Goldman Sachs Investment Research for ratings and price targets; FactSet closing prices as of 6/30/2016.
The price targets show n should be considered in the contex t of all prior published Goldman Sachs research, w hich may or
may not have included pr ic e targets, as w ell as developments relating to the company, its indus try and financial markets .
Rating
Pric e t ar ge t
Price target at removal
Covered by Yipeng Yang
Not covered by current analyst
Hang Seng China Ent .
Index
Index Price
Stock Price
Sep 27 Feb 10 A ug 13
S N B
A
RS
S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J
2013 2014 2015 2016
August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 61
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August 31, 2016 BYD Co. (1211.HK)
Goldman Sachs Global Investment Research 62
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