In recent weeks, BYD has been making headlines for various reasons, showcasing both its achievements and the significant challenges it facesOn January 9, a peculiar issue arose when numerous BYD vehicle owners, going about their daily routines, discovered that they could not connect to the BYD application on their smartphonesThis glitch resulted in an inability to unlock their vehicles, leading many to forget their car keys and end up walking to workSocial media was abuzz with complaints from users stating that both the Dynasty and Ocean series models were experiencing app outagesIn response to this incident, BYD's customer service attributed the problem to a "cloud service system anomaly," which they assured had been resolved.

Adding to its recent troubles, BYD has also come under scrutiny for labor rights concernsReports surfaced from Brazil, where a labor inspection team found that workers at BYD’s facility in Camaçari, Bahia, were living under harsh conditions, with serious deficiencies in infrastructure and sanitation in their accommodations

In response, Jinjiao Group, a service provider for BYD, denied allegations of forced labor, claiming there was a misunderstandingBYD stated that it had relocated the affected workers to hotels.

Despite these issues, BYD has been flourishing in terms of performance, scoring notable successes in the marketHowever, hidden beneath this veneer of success lie certain blemishes that could foreshadow deeper issues within the company.

The Collapse of Systems Behind Intelligent Driving

BYD's ascent to prominence and impressive market position can largely be credited to its proactive shift toward renewable energy and its strategic deployment in this sectorInitially founded as a battery manufacturer specializing in nickel-cadmium batteries, BYD gradually transitioned to lithium batteries starting in 1997, thereby integrating into the supply chains of global brands such as Sony and Philips

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By July 2002, BYD went public in Hong Kong, marking the beginning of its foray into the automotive sector through the acquisition of the Xi’an Qinchuan Car Factory and subsequently shifting focus to researching and manufacturing electric vehicles.

This transformational journey culminated in a historical milestone when, as it celebrated its 30th anniversary, BYD exceeded Tesla in quarterly revenue for the first timeThe third quarter report for 2024 revealed that BYD had generated revenues of 502.25 billion yuan, representing an 18.94% year-on-year increase, and reported a net profit of 25.238 billion yuan, also up 18.12%. Notably, in just the third quarter, BYD recorded revenues of 201.125 billion yuan and a net profit of 11.607 billion yuan, marking respective increases of 24.04% and 11.47%. In comparison, Tesla announced total revenue of approximately 180 billion yuan for the same period, highlighting BYD's impressive growth trajectory.

Nevertheless, as competition in the electric vehicle sector fiercely escalates, BYD seems poised to encounter a second transformation journey.

Technological breakthroughs in battery power have ushered in a new era for automotive intelligence

Given the extensive patent barriers in traditional automotive technologies and the stagnation in hardware advancements, many companies are now vying for dominance in the realm of intelligent drivingThis segment is emerging as a critical driver for the future of the automotive industry, effectively reshaping the landscape and calling for a new evaluation of existing players.

However, BYD, owing perhaps to its inherent legacy as a traditional auto manufacturer, has struggled to keep pace with advancements in intelligent driving technologyThe company’s management mindset and product development strategies largely reflect entrenched practices from its formative yearsThe skepticism toward autonomous driving has been echoed within BYD’s executive ranks, where public comments on the viability of such technologies have raised eyebrows.

For instance, on March 29, 2023, Wang Chuanfu, the company’s leader, called attention to his disapproving stance during a financial report discussion, dismissing autonomous driving as mere nonsense, likening it to "the emperor's new clothes." Further reinforcing this sentiment, Yu Kai, the CEO of Horizon Robotics, expressed doubts about the feasibility of high-level autonomous driving during a forum, predicting that true L3-level autonomy would not be achieved even a decade later.

Wang Chuanfu even remarked that the pricing of driver assistance features should be seen as luxury items aimed solely at reducing accident rates, with prices around three to five thousand yuan, beyond which consumers are typically unwilling to pay

This perspective starkly contrasts with the burgeoning demand and market potential highlighted by numerous studies.

Research firm Business Research Insights estimates that the global autonomous vehicle market will reach USD 43.87 billion by 2024, expanding to USD 245.1 billion by 2032, with an anticipated compound annual growth rate of 23.5%. In China, the penetration rate for passenger cars equipped with L2-level or higher autonomous driving capabilities is projected to be 55.7% in 2024, potentially climbing to 65% by 2025, reflecting a paradigm shift toward smarter automotive solutions.

In customer decision-making processes, the significance of intelligent features has surged to 14%, positioning them as the third key factor behind vehicle quality and performance, surpassing considerations of brand loyalty and pricingWith BYD’s rivals intensifying research and development investments in advanced intelligent driving technologies, BYD’s nonchalant approach threatens to put it at a competitive disadvantage.

The recent app issues further underscore BYD’s vulnerabilities in interconnected smart driving technologies

The failure of the app to facilitate basic functions points to alarming deficiencies in its software development infrastructure, server stability, and cybersecurity measuresIn an environment increasingly reliant on seamless app connections for functionalities such as remote controls, smart navigation, and vehicle diagnostics, the app's performance lapse raises serious concerns regarding BYD's readiness to compete in the future.

In 2024, it appears BYD has acknowledged its missteps, leading to organizational restructuring within its intelligent driving divisionThe establishment of the “Intelligent Technology Research Institute” consolidating various smart driving departments was a significant move, followed by the launch of development teams aiming at internal innovations in intelligent drivingNotably, in November, reports indicated an ambitious push to streamline engineering talent across the entire organization, hinting at a commitment to revitalizing and advancing BYD’s approach to intelligent technologies.

Supply Chain Quarrels Amid Cost Pressures

Another salient issue revolves around BYD's cash flow situation and its debt repayment capabilities

On the surface, BYD appears to be under little immediate strainIts reported liabilities consist largely of short-term loans, long-term borrowings, and payable bonds; as of the third quarter of 2024, BYD's totals in these categories amounted to approximately 30.35 billion yuan, accounting for only about 5.1% of its total liabilitiesMeanwhile, BYD generated a commendable net cash flow from operating activities of 56.273 billion yuan.

However, deeper scrutiny reveals contradictory evidenceIn the same financial report, BYD disclosed a staggering net cash flow of -11.961 billion yuan from financing activities between January and September 2024, a dramatic change from previous years, attributed primarily to increases in debt repayments and dividend distributionsAlarmingly, the net increase of cash and cash equivalents totaled -42.702 billion yuan during this period, raising uncomfortable questions about the origin of BYD's cash flow challenges.

Examining the balance sheet, as of September 30, 2024, BYD's accounts payable and notes payable stood at an enormous 240.46 billion yuan, making up nearly 46.96% of its current liabilities—a figure that signifies a significant reliance on its network of suppliers for operational liquidity.

In fact, when compared to industry benchmarks, BYD’s payables are notably high

This appears to indicate a strategy of utilizing its suppliers as a means of relieving financial pressure, which has led to tumultuous reactions—especially when rumors circulated in late 2023 about BYD’s intentions to cut prices by 10%, sparking widespread debateThough such price reductions are often seen as industry norms, they reflect a deeper trend within BYD, revealing a long-standing pattern of delaying payments to partners through mechanisms like the Di Chain platformAffected suppliers have reported substantial spikes in their receivables since partnering with BYD, stoking concerns over their operational viability.

Take Guangdong Huazhuang Technology Co., for example, which counts BYD as its largest customer, with 24.79% of its revenue stemming from BYD in the first half of 2023. By December 31, 2020, the balances held on the “Di Chain” were merely 3.53 million yuan, but by June 30, 2023, Huazhuang's receivables had soared to 264 million yuan, with 110 million yuan on the Di Chain alone, indicating a substantial growth rate in their indebtedness to BYD.

BYD’s push for price concessions ultimately tightens the squeeze on suppliers' profit margins, compelling them to resort to increased borrowing and trimming internal R&D funds to maintain cash flow, which endangers their innovation capacities and long-term growth potential