Investment Summary

BYD has actively opened up the supply chain system to promote the outside supply of power batteries and spare parts, thereby inspiring the vitality of enterprises and enhancing their competitiveness. With the breakthrough and accelerated implementation of the transformation project, the company’s future development momentum is expected to be strengthened. We hold the judgement that 2018 H1 will be a low point for BYD’s automotive business and the new energy vehicles and conventional fuel vehicles will exert their power in H2, which will help the company’s profit bottom out. We give BYD BUY rating (Closing price as at 8 August).

Joining hands with Changan Automobile, and making breakthroughs in power battery outside supply

On July 5, BYD signed a strategic cooperation agreement and a battery joint venture cooperation framework agreement with Changan Automobile. According to the agreement,

a. the two parties will integrate their respective resource superiorities in new energy, intelligence, overseas market and shared mobility to carry out all-round cooperation.

b. The two parties will jointly establish a new energy power battery joint venture company, jointly invest RMB5 billion to build 10Gwh battery capacity in Chongqing, and implement it in phases. It will reach 5-6GWh in the first phase and 4-5GWh in the second phase, supporting the power battery demand of Changan Automobile.

c. Changan Automobile will become a shareholder of BYD’s battery business, and work together via in-depth technical cooperation in the subdivisions such as new energy vehicle industry chain, intelligent network, intelligent interaction, and unmanned driving in the future.

While in April of this year, Changan Automobile has already reached a cooperation with BYD to jointly develop a three-in-one product for the new energy vehicle electric drive. The product is expected to be launched with a new certain model of Changan Automobile next year.