The intensification of competition in the industry has led to the company's "enemies on three sides", and major shareholders and funds have repeatedly reduced their holdings.
Text/Daily Financial Report Chu Wen
On May 28, BYD Qin L was officially launched, equipped with the fifth-generation DM-i technology, the NEDC fuel consumption is only 2.9L per 100 kilometers, the comprehensive range of full fuel and full power reaches 2100 kilometers, and the starting price is only 99,800! This has made the auto industry, which is already full of information about factory shutdowns and layoffs, even more unstable. Since the cost of lithium motorcycles has dropped in 2023, the competition between new energy vehicle companies has become more and more intense. While improving the performance of the three-electric system, car companies are also constantly involuting in price, trying to seize more market share by reducing costs and improving cost performance. Compared with the three-electric system, the intelligent cockpit and intelligent driving assistance system are intuitive and easy to use, which is highly related to the convenient, comfortable and safe driving experience of customers, and has naturally become an important direction for car companies.
As a leading third-party supplier of intelligent cockpit domain control and intelligent driving domain control, Desay SV has fully enjoyed the feast of automotive intelligence in the past five years, even in 2023, when car companies set off a price war, the company still achieved a total operating income of 21.908 billion yuan, a year-on-year increase of 46.71%; The net profit attributable to the parent company was 1.547 billion yuan, a year-on-year increase of 30.57%, which was a proper winner.
However, behind this brilliant achievement, there are also hidden concerns such as the company's main business relying on a small number of customers, accounts receivable and inventory rising year by year, and gross profit margin under pressure. At the same time, with the advent of the era of frantic involution and cost reduction of OEMs, in the context of fierce competition in the industry and uncertain business prospects, Desay SV has been "attacked on three sides", and the company's major shareholders and funds have long been restless, and have repeatedly reduced their holdings in the secondary market.
The stock price of Nvidia and the new car-making force rose nearly 9 times
Founded in 1986, the predecessor of Desay SV, "CEIBS", is mainly engaged in traditional automotive electronics, such as audio navigation systems, instrument panels and air conditioning controllers, etc., Philips, Siemens, and Continental were all shareholders of the company, and after several developments, Desay Group completed the acquisition of foreign shares in 2007 and established Desay SV. Since 2010, automobiles have entered thousands of households, which has also led to the explosive growth of the automotive electronics industry, and with the accumulation of German technology and rich customer resources, Desay SV has caught up with the wind and become a supplier of navigation audio systems for many car companies, and landed in the capital market in 2017.
After the listing, Desay SV invested most of the raised funds in automotive electronics smart factories and Internet of Vehicles integration projects. In 2018, Desay SV took intelligent cockpit, intelligent driving and Internet of Vehicles as the three major business groups, accelerating the focus on intelligence, although the company's revenue growth slowed down from 2017 to 2019, or even declined slightly, Desay SV began to provide in-vehicle systems and display screens for new car-making forces such as Ideal. In 2019, the company mass-produced the first generation of cockpit domain controller for Ideal ONE for the first time. After the Ideal ONE, Desay SV developed the cockpit domain control based on the Qualcomm 8155 chip, which is installed in the Ideal L series models, etc., and the second-generation cockpit domain control platform based on the Renesas M3 chip, and won the order for Chery Tiggo 8PLUS. In 2018, Desay SV became one of the six global licensees of NVIDIA's Xavier chip for autonomous driving, and the only Chinese company among them. In 2020, the Xpeng P7 equipped with Xavier chip and Desay SV intelligent driving domain controller was successfully mass-produced. By 2020, when NVIDIA launched the Orin chip with higher computing power, Desay SV became an unavoidable choice for new car-making forces and traditional automakers to land high-end driving solutions.
Note: The chart data is from Straight Flush iFind
In the second half of 2023, the delivery of new energy new power car companies will begin to grow explosively, and continue until 2024. During this period, a number of new car companies such as NIO, Li and Xpeng have achieved rapid growth in deliveries and hit a record high. This growth trend is mainly due to the continuous expansion of the new energy vehicle market, the increasing acceptance of new energy vehicles by consumers, and the continuous innovation and optimization of new power car companies in technology research and development, product design, supply chain management, etc., and the help of many suppliers such as Desay SV. With the explosion of Li Auto's sales, the compound growth rate of Desay SV's operating income and net profit reached an astonishing 47.70% and 43.99% respectively, and the stock price has risen eight or nine times since 2020.
The main engine factory is crazy about involution and cost reduction, and the "middleman" Desay SV is very hurt
In the automotive industry, in order to cope with fierce market competition and reduce costs, OEMs have taken measures such as reducing prices, improving product quality, and speeding up the launch of new models. These measures have undoubtedly put a lot of pressure on any automotive supplier, including Desay SV. On the one hand, Desay SV needs to continuously increase investment to improve product performance and quality, and on the other hand, it has to face the requirements of downstream car companies to reduce prices and extend the account period. In addition, it is also facing the possibility of price increases for upstream chips and raw materials due to the decline in the procurement scale of downstream customers, which undoubtedly increases the company's operating pressure.
Note: The chart data is from Straight Flush iFind
Desay SV's accounts receivable and inventory also showed an upward trend. According to the data, the company's accounts receivable increased from 1.927 billion yuan in 2020 to 7.168 billion yuan in 2023, and the inventory also increased from a low level of 1.101 billion yuan in 2020 to 3.260 billion yuan in 2023. The rise of these two indicators not only increased the company's financial pressure, but also had a negative impact on the gross profit margin.
With the intensification of market competition and the fluctuation of raw material prices, Desay SV's gross profit margin has shown a downward trend in recent years. Although the company strives to reduce costs by optimizing the supply chain, improving production efficiency, and binding joint ventures with car companies, the decline in the value of single vehicles and gross profit margin is still inevitable, with the gross profit margin of the intelligent cockpit falling from 24.60% in 2021 to 20.44% at present, and the intelligent driving business falling to 16.22% at present. The decline in the value of bicycles and gross profit margin not only affected the company's profitability, but also exacerbated the company's operating risks.
In addition, Desay SV is also facing competitive pressure from other suppliers. In the field of automotive electronics, many domestic and foreign companies are actively deploying and investing in research and development to compete for market share. In order to win orders and market share, suppliers often need to engage in price wars and quality competition, and the most direct way is public bidding, the consequence of bidding is to reduce prices, reduce prices, and reduce prices again, which also brings greater operating pressure to Desay SV.
The upstream should curry favor with chip manufacturers and obtain more development support and procurement discounts, while the downstream must always rely on the sales volume of host manufacturers to drive its own growth, and the gross profit margin is under pressure and the profit margin is squeezed, and the current competitive environment is extremely unfavorable to Desay SV. Desay SV insiders have also publicly stated that the worst case the company can think of is to become a foundry. This pessimism is not unfounded, in the NVIDIA Xavier chip stage, Desay SV is still supplying intelligent driving domain controllers for Xpeng P7, after the release of NVIDIA Orin chips, Xpeng self-developed intelligent driving domain controller and underlying software, and Desay SV is only responsible for foundry.
Intensified competition in the industry Major shareholders and funds have repeatedly reduced their holdings
According to the statistics of Gasgoo Automotive Research Institute, in 2023, among the suppliers of intelligent cockpit domain control, Desay SV will have an installed capacity of more than 601,000 sets, making it the third-party supplier with the largest market share. In the intelligent driving domain control market, Desay SV took 25% of the Chinese market, ranking first except for foundries Pegatron and Quanta. With the advancement of automotive intelligence, more and more companies have poured into this field, intensifying market competition, and intelligent cockpit domain control and intelligent driving domain control have become a must for all manufacturers.
At CES 2024, Bosch has launched the world's first new cross-domain computing platform, using Qualcomm's latest generation Snapdragon Ride™ Flex SoC to support the simultaneous operation of many intelligent cockpit and intelligent driving functions on a single SoC, including automatic parking, lane detection, intelligent personalized navigation, voice assistance, and driving assistance functions. Compared with the detached cockpit fusion solution with two SoCs and two controllers, the total cost can be reduced by up to 30%. Bosch has mass production and development experience of 300 ADAS projects and nearly 70 intelligent cockpit domain control projects in China, and it is foreseeable that high-quality and low-cost solutions can consolidate customer cooperation, which also means that the cost and difficulty of customer acquisition will further increase for Desay SV, and there is also a risk of losing key customers.
Secondly, domestic traditional auto parts manufacturers and cross-border manufacturers are also making efforts in the intelligent cockpit, such as Joyson Electronics, whose intelligent cockpit business covers intelligent cockpit domain controllers, intelligent human-computer interaction systems, cockpit intelligent physical controllers and other software and hardware integrated products, and its customers cover Volkswagen, BMW, Mercedes-Benz, Audi, Porsche, Ford and other global leading car companies, with obvious comprehensive competitive advantages in the market. Another example is BOE Varitronix, since 2020, BOE Varitronix has established a cooperative relationship with Xpeng Motors, and has successively launched a variety of sizes such as 12.3 inches, 14.96 inches and 15.6 inches, such as instrument clusters, central control screens and customized display assembly solutions. It has to be mentioned that Huawei's intelligent vehicle solution BU, Baidu Apollo, and DJI Automotive have all received a large number of orders from OEMs, which will also bring subversive changes to the industry.
Third, car companies themselves should not only differentiate their competitive advantages to attract customers, but also vertically integrate to reduce costs and acquire customers, so when intelligent cockpit and intelligent driving domain control are becoming more and more key to competition, car companies tend to develop their own products or directly cut suppliers, so as to create differentiated competitive advantages and reduce costs. For example, BYD, Qin L's latest DiLink intelligent cockpit vehicle machine system and DiPilot intelligent driving assistance system are all self-developed, which is also one of the reasons why Qin L dares to set low prices; Another example is Xiaomi's direct stake in PATEO Internet of Vehicles, Kunshan Ruixiang Xuntong Communications and Chaifeng Automobile (car audio and car acoustic system) and other companies, Baoyuan intelligent cockpit enterprises early financing, just to build their own ecology, and a number of car companies have begun to walk on the road of self-development. For Desay SV, the more successful the cooperation with Li Auto in the past, the more difficult it is to break into the supply chain of competing models of downstream car companies.
Note: The chart data comes from Li Auto, which shows that Li Auto's sales in April minus the sales of new cars MEGA that sold less than expected, the L series barely increased, and the sales in May minus the sales of the newly launched L6 (15,000 units), the sales of the L7-L8-L9 series have been negative year-on-year.
Note: The chart data is from Straight Flush iFind
At present, more than 7% of Desay SV's revenue and profit are concentrated in the intelligent cockpit, and more than 9% of the revenue and profit come from China. If the key domestic downstream customers fall behind in the competition of new energy vehicles (such as the ideal MEGA is less than expected, the sales of the L series are weak this year), or if the high-quality and low-price competition of manufacturers such as Bosch and Huawei car BU steals existing and potential customers, it will bring a huge blow to Desay SV. The company's current success stems from the changes of the past, but the smart car market is changing with each passing day, whether it is the company's competitors or the competitors of the company's downstream customers, it is rising, and the car replacement time is measured in months, and everything is full of uncertainty.
In order for the company to maintain growth, it is nothing more than to increase the unit price level, or expand more customers to obtain installed capacity, which is very contradictory in the current environment of extreme involution of new energy vehicles. It seems that the company's major shareholders, minority shareholders, and management have long understood this truth, so they have joined the ranks of reducing their holdings in the secondary market, and the shareholding platform representing the company's management has begun to reduce their holdings since 2021; In 2023, under the reduction of tens of millions of shares by the major shareholder Huizhou Innovation Investment Co., Ltd., the company's stock price has almost halved and has not stopped falling. In 2024, the shareholding reduction plan will be thrown out, and the funds have also chosen to reduce their holdings of the company's shares.