Text/Wu Di
Editor/Zhao Yanqiu
BYD Electronics' stock price returned to calm after rising yesterday. As of the close on May 27, BYD Electronics fell 1.4% to close at HK$49.3. Affected by the positive news that "BYD Electronics is about to mass-produce e-cigarettes", BYD Electronics' stock price surged by more than 22% during the session yesterday, and closed up by nearly 12%.
People who don’t know the truth on the Internet misunderstood “BYD Electronics produces e-cigarettes” as “BYD produces e-cigarettes” and criticized BYD for “not doing a good job in making cars and going to make e-cigarettes” as it is not doing its job properly. . In fact, BYD is a giant with complex and huge businesses, and it carried out business spin-offs as early as 2007. The automobile business belongs to the listed company BYD Co., Ltd., while the electronic product OEM business that BYD started belongs to the independently listed BYD Electronics.
In order to survive, BYD Electronics, which is an OEM, just buys whatever products are popular. BYD responded that its e-cigarette business only focuses on brand OEM and “has no independent listing plan.” After all, the e-cigarette business is one of its many growth tracks.
Why BYD Electronics chose e-cigarettes
According to public information, BYD Electronics’ e-cigarette business has entered the trial production stage and is expected to enter large-scale mass production in June. According to external estimates, its full production value may be close to 10 billion levels.
In recent years, automobile-related businesses have become the main driving force for BYD's revenue growth. But from the perspective of profit growth, BYD's main profit growth still comes from mobile phone product OEM, that is, from its controlled BYD Electronics. These businesses include mobile phone parts manufacturing, mobile phone design and assembly. Although the revenue scale of the automobile business has expanded year by year, it is still in a state of loss due to huge investment in research and development and market price factors. In other words, it is BYD Electronics that maintains BYD's profit growth. After clarifying the relationship behind this, it can be said that BYD Electronics launches e-cigarette OEM business.
BYD Electronics has strong R&D capabilities. Combining the agency's survey data, BYD has a team of 12,000 electronic engineers. And it began to lay out the electronic atomization required for e-cigarettes in 2018, and achieved a breakthrough in ceramic atomization technology in the fourth quarter of 2020. Other data show that BYD Electronics owns nearly 10,000 patents in the e-cigarette industry.
But the plan could not keep up with the changes. The development of the e-cigarette industry has been full of twists and turns. Due to their potential harm to teenagers, e-cigarettes were banned from online sales in 2019, which was a serious blow to the entire industry. But compared to the traditional tobacco industry, which has mature regulation, e-cigarettes are like weeds that “can’t be burned out and grow again”.
On March 22 this year, the Ministry of Industry and Information Technology publicly solicited opinions on the "Decision on Amending the Implementation Regulations of the Tobacco Monopoly Law of the People's Republic of China (Draft for Comments)" mentioned that new products such as electronic cigarettes Tobacco products are implemented with reference to the relevant provisions on cigarettes in these regulations, which means that e-cigarettes may be included in the scope of tobacco. For a long time, the biggest controversy about e-cigarettes is whether they should be regarded as general electronic consumer goods or should they be treated as "tobacco" and subject to the same taxation and supervision as tobacco.
A report also indirectly interrupted the continued rise in BYD Electronics’ stock price. On May 26, the National Health Commission released the "Report on the Health Hazards of Smoking in China 2020", which clearly pointed out the harmful substances produced by heating e-cigarettes and clarified the health hazards of e-cigarettes. Affected by the report, the stock price of Smore International, known as the "Foxconn" of e-cigarettes, plunged by more than 15%. The momentum of BYD Electronic's stock price climbing on the news of its e-cigarette business also stopped instantly.
As for BYD Electronics, which is famous for its electronic product OEM, an electronics industry person told AI Finance that the industry attributes of the OEM industry require that these OEM companies must be "rolling forward" and seize any possibility. market opportunities are needed for development.
Market data shows that the e-cigarette market has huge space. The e-cigarette market size reached US$42.4 billion in 2020, with a year-on-year growth rate of 15.6%. Even if it reaches tens of billions of dollars, the industry estimates that the penetration rate of electronic atomization in China is still less than 1%.
This means that there is a huge opportunity to make money here.
The art of survival of foundries is "doing everything"
"Doing everything" is, to some extent, the art of survival of foundries.
A senior manager from a foundry told AI Finance that both BYD and Foxconn have relatively diversified and complete industrial chains. "Just like exams, we are improving the comprehensive ability to answer questions in various subjects."
In this person's view, OEM companies must be diversified. "This industry, such as mobile phone assembly, will have ups and downs. During peak seasons, During the off-season, the pace of decline in orders is likely to exceed the rate of staff turnover, and so many workers cannot be idle. It is best to find other orders to do. "Some things sound like they are crossing the border. , but in fact, in the final analysis, OEM products are almost the same thing.
Based on this, the factory where this person worked in the past had a concept, which is likened to "off-peak electricity use" to keep the factory running and the workers to have something to do. "Some may not be doing it to make money, but just to support people." ".
For a foundry, the ideal situation is that fixed orders correspond to fixed personnel, and there is always something to do and money to make. However, in reality, this state is difficult to achieve. It is often necessary to allocate manpower and resources according to customer needs, and customer orders are usually in an uncontrollable state.
BYD Electronic’s development path also reflects its behavioral model. The company first started with mobile phone batteries, and then reverse-integrated into mobile phone assembly and other electronic product foundry. BYD has seized historical opportunities at every critical time point in its electronics business.
While making batteries, BYD began engaging in integrated circuit design in 2002 and concentrated on research and development in the field of mobile phones, which later helped it get into the spotlight of mobile phones. From battery transformation to feature phones, and later to smartphones and laptops, BYD Electronics has gradually expanded to the current three major business segments, using smartphones as its foundation to develop new smart products and automotive smart system markets.
In 2008, during the economic crisis, BYD also spent a huge sum of approximately 200 million yuan to acquire Ningbo Zhongwei Semiconductor, which was on the verge of bankruptcy at the time, to strengthen its semiconductor layout. This also laid the foundation for its subsequent entry into various electronic supply chains.
The industry estimates that BYD Electronics’ revenue from new smart products is expected to exceed 15 billion yuan in the next three years. Some analysts believe that BYD Electronics will have relatively good growth prospects in the field of automotive electronics in the future.
To a large extent, BYD's behavior model also constitutes its strong survival adaptability and market adaptability. In 2020, BYD Electronics quickly increased its mask production lines during the epidemic. It took three days to produce equipment drawings and seven days to complete the R&D and manufacturing of mask machines. It quickly mobilized 100,000 employees and built 2,000 mask production lines. The mask business has provided growth momentum for BYD Electronics in the past period of time, demonstrating the "BYD speed".
According to AI Finance, Foxconn will also take orders for "filler" products such as rice cookers and electric baking pans during the off-season for mobile phone products.
For BYD Electronics, the e-cigarette business is just one of its many growth tracks.