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China's BYD has reported annual profit that missed analyst estimates. Bloomberg's Juan Wong has the story from Hong Kong.
Nettagum for twenty twenty three was four point one six billion dollars. That compares to an estimate of four point two nine billion dollars. BYD's old just over three million electric and hybrid vehicles last year. It overtook Tesla in the final quarter of twenty twenty three as the world's biggest seller of evs, but it may struggle to hold the title early this year. That's due to seasonal factors tied to the Lunar New Year holiday. In addition, BYD
has kicked off a second round of price cuts. It has discounted most of its product range as it seeks to convince drivers to switch from gas guzzling cars to evs in Hong Kong.
Joined one Bloomberg Radio.
All right, it's eight minutes past the hour for a little further discussion on BYD. Were joined by Linda lu who is Bloomberg's China cars reporter. So these earnings, you know, weren't great, but they weren't too bad. BYD reporting net income for the full year that came in in the middle of the forecast range. As you look at these numbers, what stands out the most? I mean, the price war I guess is dominating, right.
Yeah, I guess to take things into perspectives, BYD's profits the break record for the company you know, managed to sell also another record breaking three million vehicles last year.
So overall is.
Doing well, but obviously anothers have higher expectations for the company, and the bottom line has been impacted by the price war which BYD is intensifying, discounting many of its popular models since late last year and continuing well into this year.
So when you look at a company like Tesla, to what extent is Tesla being impacted by the way in which BYD is doing business in China?
Tesla even though you know, they're quite a special brand and a lot of the electric vehicle buyers in China, they've not been able to escape the impact from the price war. Our Bloomberg colleagues have reported that Tesla actually started to trim its production output in its Shanghai plants, so it shows that they are also experiencing a weakening demand from this really fierce evy market in China.
What a lot of investors might be curious about is whether or not they get too far out over theirs with some of.
These global expansion plans.
I'm not sure whether or not they added much, and I know that there's a call this morning from which we'll probably get a lot more questions answered. But anything in these earnings that stand out with the thinking about setting up a plant in Mexico and expanding in Europe and ultimately trying to get into the US.
Market, Yeah, BYD is definitely going to continue as international expansion because you know, although China is the world's largest ev market, given this fares priceword that's happening, the margins are from cast sold in China actually isn't as high as BID would like to hope, So by exporting to overseas markets like Europe, they can actually command higher pricing and that in turn can help lift their bottom line.
And it was noted by analysts that their margins wasn't actually as bad as expected, maybe from some of this effect of exporting overseas and having higher pricing for those cars.
I was looking at the FT. They had an article in the most recent edition, the digital edition, talking about how about a quarter twenty five percent of the EV sold in the European Union this year will be manufactured in China. This is creating a bit of tension with the companies in particularly in Germany that manufacturer vehicles. Is there a way out? Is there a way to kind of dial down the tension and perhaps a lot more of it.
That's a really good question.
It's not very clear how this tension can be kind of alleviated because China right now is experiencing this problem of weakening demand and over capacity, so a lot of these automakers kind of have nowhere to go but to
export their vehicles. But on the other hand, you see it in Europe of these new probably cheaper vehicles coming into their market as going to hit the local automakers so, like you said, the firms in Germany, he probably aren't very happy with this, and we know the French have also lobbied the EU two kind of launched this anti subsidy investigation. So it remains to be seen how China
is going to have to manage the geopolitics. And I think with this coming year, when the results of the anti subsidy investigation comes out, we're going to have a clearer picture.
I think we have to say.
With BID now offering its most inexpensive car at less than ten thousand US dollars, and with this price war that we've seen, they're going for volume here and this must really spook some of the other automakers in China, particularly as Doug mentioned at the beginning.
Tesla precisely after Bid kind of kicked off this latest round of price cuts in the beginning of this year, we've seen other carmakers followed and close brands like Jelly Leap Motor, a lot of EV makers kind of have no choice but to follow. And the interesting thing is these price cuts have also impacted gasoline vehicles, which can usually are cheaper than EV's, But now byd has his
goal of making EV's cheaper than gasoline carts. So that's forced companies like Toyota and Volkswagen to kind of have to join in and try to counter this offensive.
Yeah, we were talking earlier in the program about this move on the part of China to file a complaint essentially with the World Trade Organization over some of the EV subsidies that exist here in the States as the result of the Inflation Reduction Act, one of the President's signature pieces of legislation, and his Trade rep cat and sizing basically holding up the mirror to Beijing and saying that China continues to use unfair policies and practices to
undermine fair competition and dominate global markets. It doesn't sound like free trade without protectionism is going to continue to exist when you look at the electric vehicle industry.
No, it's definitely NOTTS. I think this follows this greater trend of the globalization, basically countries kind of erecting these barriers up again to protect domestic industries that may have been dismantled decades ago, especially since China joined the WTO. And I think the US has a fair points in that China did install quite a lot of rules to protect its auto industry, especially in its kind of growing
up phase. When foreign automakers entered the Chinese market, they weren't able to do so without forming a joint venture where they cannot own more than fifty percent of that business, so essentially having to kind of share profits and technology with a local Chinese partner. And in that process, the Chinese domestic car makers, you know, got to benefit from
these know how of the foreign car makers. So now the table kind of has turned, and so yeah, I think it would be really interesting to watch how these kind of trade tensions will continue to unfold.
Yeah, I was struck by the irony and the answers to one of the earlier questions where you said, BYD, you know, it's not making as much money in China as you would like because it has to sell the cars too cheap, and it can sell them at higher prices in Europe. But then the European car makers are worried that those prices are too low for Europe.
So it's quite ironic.
And then it raises the question, you know, why is BYD expanding in Japan? I mean, this would seem to be almost like a bottomless pit, but they are very ambitious, and they are expanding in Japan. What's the ultimate strategy.
There BYD does seem to have a very global kind of expansion in mind right now, you know, kind of no market would be off limits. I would say it depends on, you know, how they plan to continue to go into new markets. So Japan definitely is an interesting case given that it has such an established auto market already. It already has you know, some of the world's biggest automakers like Toyota, and the Japanese consumers actually don't take
to evs, haven't taken to evs yet. Hybrids are still selling really well over there, and that's something that BYD doesn't have a strong offering of. BYD probably has a lot of tough time ahead of it trying to educate the local consumers about EV's and get the to kind of take on as products. But I think if BYD can crack the Japanese market, then that's all the more beneficial for BYD as it continues to expand.
Last question, I'll give you twenty seconds to answer at Linda. I mean, are you expecting a lot in the way of failures Here are some of these smaller ev makers in China. Just given the macro that we've just laid out, you've done a beautiful job of helping us understand what's it work here? Are we going to expect bankruptcies and failures now some of these smaller ev makers?
Sure answer is yes.
We're already seeing quite a few players are pushed to the brink by such a fierce compeition, and I think we're going to continue to see more of that.
You know, Doug, we often hear a great question from our guests, but we don't often say great answer, but we should say to to Linda, great answers there. You really filled out the scene quite nicely for us. Linda, Thank you for joining us. Linda lu Bloomberg China Cars.
Reporter with US Live. This is Bloomber.
Well. Let's pick up on a story that Doug mentioned a few moments ago. Ali Baba has called off its IPO for its logistics arm Siginiow and joining us now in our studios is Sarah Jung, who is Bloomberg China Technology Reporter. Sarah, this speaks to many issues, but two really come to the four one. It's not a very
good environment, I guess for selling assets. So we heard that from Joseph Sai that the market is pretty depressed, and secondly that this kind of brings into question the whole restructuring of Ali Baba.
What else stands out.
I think that's exactly right. So Joseph Thai last night in a call with analysts, was trying to explain their move. He was saying that one, it's the pretty depressed market. They can't get the kind of valuation that they believed
he now should be strategically valued at. And the other is that they're trying to say that they because of their phone on their core businesses, which is e commerce and cloud computing, they wanted better expand Tinel internationally to be able to service their core e commerce business so that they can compete better in what's a very intensive and highly competitive market.
So this is the second time that Baba has next to high profile debut. Take me back to win the plan to split into six separate units was unveiled. I'm trying to remember that this really was to try to appease the government in some ways so that Boba's assets were not so concentrated and they wanted to try to diversify that am I remembering that correctly?
Well, that the company itself would probably dispute that, but yes, they were. They did announce this restructuring spinoff plan earlier last year, and part of that, people analysts were saying, was to allow the business, which had gotten a little bit too big for its bridges in terms of from the government's personerspective, to lay a little bit more low profile and to be able to spin off independently. Of course, since then, in the past few months, we've seen a
lot of hiccups in the restructuring process. Last November Ali Baba also mixing the a debut for their cloud arm we saw a lot of leadership reshuffling and shake ups, their longtime.
CEO Daniel Jeong being.
Sort of stepping down quite abruptly and having new leadership come on and including Joe's High and also the new CEO Eddie Wu and then now Eddie Woo taking the helme directly of cloud and commerce and really restructuring and mixing things up in those units.
It looks on the surface a little bit like disarray and investors obviously you know they're they're selling down the stock a little bit today, but there could be some positives to it, and we still don't know. I mean, they so they pull fresh ship ball when they pull now sign you out. But do we know much about what's ahead for Ali Baba Cloud, because that's one that a lot of investors would have been very interested in.
Exactly.
I think Ali Baba Cloud was the big, high profile IPO spin off that everyone was excited for. It seems like now, given you know, market conditions and the rationale into their decision to pull back on tight now and also Fresh Hippo, it seems like that's not going to happen now or in the foreseeable future. And and so definitely that's something that investors would would it would give
it would give pause to them. And Joe actually last night was quite explicit and saying that their original conception of this avenue where they could unlock shareholder value through the capital markets, that's no longer viable, at least in the short term, and now they're going to focus on just trying to drive value through things like buybacks and selling off their noncore business assets and just focusing in on commerce and cloud.
Well, that was part of my next question. When I think of this company, I think of e commerce obviously the major player in China. How is that business doing well?
They're under a lot of pressure domestically from other rivals, including upstarts like ByteDance with their Doing, which is the Chinese equivalent of TikTok, and also other short video platforms like Kwaisho really getting into live streaming e commerce, which is eating into Alibaba's market share, and also of course from their traditional rivals like JD dot Com and also Pingodo, which is more of like a budget type of e commerce platform. And then internationally we're also seeing their under
pressure from Pingodo's Timu Shean also TikTok shop abroad. So it's really you know, putting a lot of pressure on the commerce side to perform better. And that's part of why they're saying they want to double down their investment on site now so that they can better service the logistics part of this commerce business.
We know that the chairman and Joseph Sai is a very good operator, very sensible and strong operator.
And Jackmaw obviously is a legend.
They always, you know, in all the conferences that I went too over the thirty odd years. Here, I mean the Ali Baba people were always among the smartest in the room. So it's hard to imagine what's happened to this company, and it's also hard to bet against in a big way. But it seems like they're in trouble.
I think that's the confusing part or difficult part for a lot of investors to understand. When they initially announced the spinoff plan last year and the restructuring, there was a lot of promise from the investors side. They did feel like, Okay, maybe this is a way where this sort of struggling e commerce empire, coming off of the regulatory crackdown from the government, that would be a way that they can reinvigorate growth and unlock that kind of
shareholder value. Unfortunately, we haven't really seen that play out in the same way. Part of that is from external factors, like just the increasing competition in the market and also just the depressed IPO market, which makes capital markets not a very good path for the company. But at the same time, it does start to raise questions about like what is the management thinking exactly, Were there certain missteps or things that could have done differently in the rollout of this restructuring.
Or is the political pressure just that great, and we don't know, you know, it's almost impossible to say everything on that level is kind of black box stuff in China, but we have seen Jack Mawk come a little bit more into the spotlight. So it's a story that continues to unfold. Sarah, thanks for helping us understand it. Sarah Cheng, Bloomberg China Technology Reporter. We thought it was a good time to take a closer look at the banks as
earnings are nigh in China. Bloomberg Intelligence says that icbc's margin and loan quality in twenty twenty three in the results could set the tone for the industry's fundamental prospects. And joining us now in our studios is Shoo Jin Chen, who's head of China Financial and Property research over at Jeffries. So is that right, Hu Jin, that we could see some margin pressures here for the leading banks in these latest numbers.
Definitely, So for almost all SOOE banks we would probably see around like a ten base point decline in year for last year's margin, and also for like going forward, we do see netting just margin pressure mainly due to the AIRPR cut as well as the very weak demand.
So it reflects the interest rate environment. I understand that maybe you could make the argument that if loan demand or stronger, it may be okay to sacrifice a little bit of margin. But when I look at the data, at least the numbers for China in the month of February, a loan growth was probably the slowest on record, as I recall, So what can the government do? What can anyone do to kind of revive the demand part of the story.
So first, if we only look at February long growth, it was largely affected by the seasonal issue. You know that last year the Chinese New Year was in January and there's not no no long issues during the new during the festival. What this year is in February, So that results like very slow long growth for the overall long growth this year we expected to slow slow down a little bit, but the new loan could be like
similar amount of last year. On the second is that well, although the new one could be like similar to last year's scale, but we think the individual the household demand was quite a weak.
Well.
Banks may like because they're trying to reach the growth long growth target, they may lend to those like central s e with very low long yield, so that also I mean sacrifice. They are sacrificed, they are not just margin. So regarding to like boosting credit demand, I would say that the key focus today is still on the policy side.
But because in our base case scenario we don't exp China to conduct like Basuga stimulus, Therefore it could be a long time for this especially household to recover demands for infrastructure and the property secual We probably will see like more investment following the special government issuance. And also as you know that China is conducting the white list for projects for projects and that helps.
That's the big thing is with this white list, you would expect, I suppose the banks to be directing a lot more funding in that direction. What does that mean for the others who aren't on the white list?
Very good question first is that actually if we look at the rule for the white list, one of the key role is that the project need to have sufficient collateral. But for China banks, if the project has sufficient collateral, then banks probably are very happy to lend to it, whether it's not it's our or not on a white list.
So I think for like for for the projects like outside the white list, banks use I mean bank where used there like screening those projects and see whether they have sufficient projects, sufficient cultural But for those on a whire list that I doubt that they may have some issue regarding to either the like collateral or other issue. Otherwise, I mean, if they have sufficient colateral, I don't think that local government need to like push them so hard to banks.
Right, we know the real estate story. We know the property prices have been slumping and how that is kind of rippled through the entire economy. The question is how long will it take to recover in your view, and in the interim, is it possible for the government to make up that lack of a powerful driver a growth driver. Could it be made up for an industrial policy? Do you think? Very good question.
So if we look at the property sector, I'm so of On one hand is that the transaction volume, including both the primary market and the secondary market, may recover earlier. Currently we see actually the secondary market account for around almost close to like fifty percent of total transaction in China, which is significantly increased from like twenty percent several years ago.
And the second is seid. But the key issue is that mainly the I mean the primary market sales is the mainly it's the main contribution to create a main contribution to the GDP growth. So regarding to the primary market sales, we still see a very long way to go, especially the pricing the primary market. We still see some like downward pressure both in this year and going forward.
It's a little surprising to see the stock prices of some of the banks have actually not been too bad. ICBC, for instance, over the last six seven months has trended higher. I'm wondering whether our investors were hoping for an increase in dividend, but given the climate, is it not very reasonable to expect an increase in dividends?
Very good question. So actually we do expect a dividend increase for some joint stock banks whose dividend payout was less than thirty percent before and also for like CMB, they also increased their dividend payout racial from thirty to thirty five percent. But for large SOE banks as who just mentioned, we don't expect that they would increase their dividend payout because they need to balance between the long growth, the asset growth versus the quartier one capital and the
quincider racial. You know that the long growth last year for SOE banks was like more than thirteen percent, so it definitely they need to pay attention to that.
All right, Shan Sho jin Shi, thank you very much for coming in into our studios.
From Jeffries with a S Live. This is Bloomberg.
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