EV subsidiary cuts and heavy R&D spending led to drop in profits, says BYD

The Shenzhen Stock Exchange had queries.

Chinese automaker BYD, which manufactures both new energy vehicles (NEVs) and cars with internal combustion engines, filed its 2018 annual report in late March. The company disclosed that its total revenue of reached RMB 130 billion (USD 18.9 billion), up 22.79% year-on-year, but its net profits decreased by 31.63% compared to the 2017 financial year. Its profits after deducting one-off gains even dropped by 80.39% to RMB 586 million.

The mixed performance drew attention from the Shenzhen Stock Exchange, which asked the company to explanation the irregularities and fluctuations.

BYD filed a response with the bourse on Tuesday, stating that its sales of NEVs doubled, leading to a revenue of RMB 52.4 billion, marking a year-on-year increase of 34.21%.

However, under the Chinese government’s NEV subsidiary policy for 2018, which kicked in on Feb 12 last year and were phased in in the following four months, subsidiaries for NEV buyers and EV makers were much lower than 2017’s rates, curtailing the company’s gross margin from 24.31% in 2017 to 19.78% last year.

In addition to top-down changes, research and development as well as financing costs shot up from RMB 2.45 billion in 2017 to RMB 16.48 billion in 2018, further draining net profits, said BYD.

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