August 31, 2016 ACTION Buy BYD Co. (1211.HK)

Return Potential: 15% Equity Research Electrifying the world’s largest new market; reinstate at Buy

Source of opportunity Investment Profile

Electrification is set to reshape ’s auto market and we expect BYD to Low High lead this trend given its strong product portfolio, vertically integrated model Growth Growth and high OPM vs. peers. A comparative analysis with Tesla shows many Returns * Returns * strategic similarities but BYD’s new energy business trades at a sizable Multiple Multiple discount, which we see as unjustified given its large cost savings, capacity Volatility Volatility utilization, and front-loaded investment. China’s new energy vehicle market is Percentile 20th 40th 60th 80th 100th poised to deliver c.30% CAGR (vs. 4% for traditional ) over the next decade. BYD Co. (1211.HK) We have removed the RS designation from BYD. It is on the Buy List with a Asia Pacific Autos & Autoparts Peer Group Average * Returns = Return on Capital For a complete description of the investment 12-m TP of HK$61.93, implying 15% upside. Our scenario analysis, flexing profile measures please refer to the disclosure section of this document. sales volume and margin assumptions, implies a further 30% valuation upside.

Catalyst Key data Current Price (HK$) 54.00 1) More cities in China are likely to announce local preferential policies in 12 month price target (HK$) 61.93 Market cap (HK$ mn / US$ mn) 110,705.4 / 14,270.1 the new energy vehicle (NEV) segment once the result of the subsidy fraud Foreign ownership (%) -- probe is announced. 2) BYD plans to launch electric versions of the

Song/Yuan SUVs and its e-logistic product this year. 3) Increased battery 12/15 12/16E 12/17E 12/18E EPS (Rmb) New 1.14 1.87 2.51 3.23 capacity should remove the bottleneck of recent years. 4) Our 2016E-18E EPS revision (%) 55.6 45.7 33.8 -- EPS are up to 41% above Bloomberg consensus (we believe the street has EPS growth (%) 537.9 63.7 34.7 28.4 EPS (dil) (Rmb) New 1.14 1.87 2.51 3.23 not sufficiently factored in BYD’s unique competitive edge in new energy P/E (X) 28.7 24.9 18.5 14.4 P/B (X) 2.5 2.5 2.3 2.1 ), and strong FY2016 earnings would be a positive catalyst. 5) EV/EBITDA (X) 12.9 10.1 9.2 8.0 Stricter fuel consumption standards for passenger cars in China. Dividend yield (%) 0.0 1.3 1.4 1.7 ROE (%) 9.8 11.7 13.1 15.1 Valuation CROCI (%) 14.1 12.8 13.7 13.7

Our 12-m TP of HK$61.93 is based on a sum-of-the-parts valuation, with the Price performance chart lion’s share contributed by BYD’s NEV business (using a 10-year DCF). We 55 12,500 see BYD’s current valuations as attractive given: 1) its 20X 12-m fwd. P/E is 50 11,500 below historical median -1std; 2) the NEV business (incl. EV battery) trades 45 10,500 at 1.1X 2020E P/S and 11.0X 2020E P/E, well below Tesla’s 1.4X and 20.0X respectively, and we expect this gap to narrow given the strong medium- 40 9,500 term revenue/earnings growth outlook for BYD’s business; 3) completion of 35 8,500

its recent private placement has improved balance sheet/cash flow metrics. 30 7,500 Sep-15 Dec-15 Mar-16 Jun-16 Key risks Scaling down of purchase subsidy; lower market share/OPM as competition BYD Co. (L) Hang Seng China Ent. Index (R) increases; disruptive battery technologies impacting competitive edge. INVESTMENT LIST MEMBERSHIP Share price performance (%) 3 month 6 month 12 month Absolute 20.1 39.9 70.6 Asia Pacific Buy List Rel. to Hang Seng China Ent. Index 9.6 16.1 74.2

Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 8/31/2016 close.

Coverage View: Neutral

Yipeng Yang +86(10)6627-3189 [email protected] Gao Hua Securities Company Limited Goldman Sachs does and seeks to do business with companies Yuqian Ding covered in its research reports. As a result, investors should be +86(10)6627-3327 [email protected] Beijing Gao Hua Securities Company Limited aware that the firm may have a conflict of interest that could Longjin Li affect the objectivity of this report. Investors should consider +65-6654-5141 [email protected] Goldman Sachs (Singapore) Pte this report as only a single factor in making their investment

decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by non- US affiliates are not registered/qualified as research analysts with FINRA in the U.S. The Goldman Sachs Group, Inc. Global Investment Research August 31, 2016 BYD Co. (1211.HK)

BYD Co.: Summary Financials

Profit model (Rmb mn) 12/15 12/16E 12/17E 12/18E Balance sheet (Rmb mn) 12/15 12/16E 12/17E 12/18E

Total revenue 77,612.0 103,214.1 132,373.6 159,351.5 Cash & equivalents 6,010.9 15,318.1 11,321.1 7,591.1 Cost of goods sold (60,439.1) (77,538.0) (100,105.5) (120,666.5) Accounts receivable 27,164.7 35,277.3 44,155.7 53,154.7 SG&A (8,659.2) (11,773.7) (15,761.8) (19,133.4) Inventory 15,750.6 20,206.5 26,087.7 31,445.9 R&D ------Other current assets 5,592.9 6,152.2 6,459.8 6,782.8 Other operating profit/(expense) 499.7 664.6 720.0 675.5 Total current assets 54,519.1 76,954.1 88,024.3 98,974.5 EBITDA 9,013.4 14,567.0 17,226.3 20,227.1 Net PP&E 39,039.0 43,599.3 48,475.2 53,078.0 Depreciation & amortization (5,313.6) (6,492.1) (7,005.9) (7,499.9) Net intangibles 7,168.7 5,927.7 4,686.8 3,445.8 EBIT 3,699.8 8,074.9 10,220.5 12,727.3 Total investments 4,960.1 4,834.3 4,720.2 4,643.0 Interest income 53.4 120.2 306.4 226.4 Other long-term assets 9,798.8 10,778.7 11,317.7 11,883.5 Interest expense (1,517.0) (1,591.8) (1,407.6) (1,284.5) Total assets 115,485.8 142,094.2 157,224.1 172,024.7 Income/(loss) from uncons. subs. 3.0 0.0 0.0 0.0 Others 1,555.8 (267.5) (139.4) (102.6) Accounts payable 30,655.8 36,142.2 45,290.1 52,939.4 Pretax profits 3,795.0 6,335.8 8,979.8 11,566.6 Short-term debt 26,412.9 27,412.9 27,212.9 26,512.9 Income tax (656.8) (1,110.1) (1,663.1) (2,257.9) Other current liabilities 9,041.4 10,684.0 10,756.0 11,242.5 Minorities (314.8) (400.6) (458.3) (504.3) Total current liabilities 66,110.1 74,239.1 83,259.0 90,694.8 Long-term debt 11,229.9 11,229.9 11,229.9 11,029.9 Net income pre-preferred dividends 2,823.4 4,825.1 6,858.4 8,804.4 Other long-term liabilities 2,116.5 2,539.8 3,047.7 3,504.9 Preferred dividends 0.0 0.0 0.0 0.0 Total long-term liabilities 13,346.4 13,769.7 14,277.6 14,534.8 Net income (pre-exceptionals) 2,823.4 4,825.1 6,858.4 8,804.4 Total liabilities 79,456.5 88,008.8 97,536.6 105,229.6 Post-tax exceptionals 0.0 0.0 0.0 0.0 Net income 2,823.4 4,825.1 6,858.4 8,804.4 Preferred shares 0.0 0.0 0.0 0.0 Total common equity 32,294.4 49,950.0 55,093.7 61,697.0 EPS (basic, pre-except) (Rmb) 1.14 1.87 2.51 3.23 Minority interest 3,734.8 4,135.4 4,593.8 5,098.1 EPS (basic, post-except) (Rmb) 1.14 1.87 2.51 3.23 EPS (diluted, post-except) (Rmb) 1.14 1.87 2.51 3.23 Total liabilities & equity 115,485.8 142,094.2 157,224.1 172,024.7 DPS (Rmb) 0.000.600.630.81 Dividend payout ratio (%) 0.0 32.3 25.0 25.0 BVPS (Rmb) 13.04 18.31 20.19 22.62 Free cash flow yield (%) (2.6) (5.3) (1.5) (0.4)

Growth & margins (%) 12/15 12/16E 12/17E 12/18E Ratios 12/15 12/16E 12/17E 12/18E Sales growth 40.2 33.0 28.3 20.4 CROCI (%) 14.1 12.8 13.7 13.7 EBITDA growth 46.8 61.6 18.3 17.4 ROE (%) 9.8 11.7 13.1 15.1 EBIT growth 91.8 118.3 26.6 24.5 ROA (%) 2.7 3.7 4.6 5.3 Net income growth 551.3 70.9 42.1 28.4 ROACE (%) 7.1 8.9 10.0 11.1 EPS growth 537.9 63.7 34.7 28.4 Inventory days 77.7 84.6 84.4 87.0 Gross margin 22.1 24.9 24.4 24.3 Receivables days 117.3 110.4 109.5 111.4 EBITDA margin 11.6 14.1 13.0 12.7 Payable days 170.6 157.2 148.5 148.6 EBIT margin 4.8 7.8 7.7 8.0 Net debt/equity (%) 87.8 43.1 45.4 44.8 Interest cover - EBIT (X) 2.5 5.5 9.3 12.0

Cash flow statement (Rmb mn) 12/15 12/16E 12/17E 12/18E Valuation 12/15 12/16E 12/17E 12/18E Net income pre-preferred dividends 2,823.4 4,825.1 6,858.4 8,804.4 D&A add-back 5,313.6 6,492.1 7,005.9 7,499.9 P/E (analyst) (X) 28.7 24.9 18.5 14.4 Minorities interests add-back 314.8 400.6 458.3 504.3 P/B (X) 2.5 2.5 2.3 2.1 Net (inc)/dec working capital (5,915.3) (7,082.2) (5,611.6) (6,707.9) EV/EBITDA (X) 12.9 10.1 9.2 8.0 Other operating cash flow 1,305.6 (864.7) (99.2) (229.1) EV/GCI (X) 1.3 1.4 1.3 1.2 Cash flow from operations 3,842.1 3,770.9 8,611.8 9,871.6 Dividend yield (%) 0.0 1.3 1.4 1.7

Capital expenditures (6,072.5) (10,321.4) (10,589.9) (10,357.8) Acquisitions 0.0 0.0 0.0 0.0 Divestitures 1,808.6 904.3 452.1 0.0 Others (6,472.5) (519.7) (628.3) (629.2) Cash flow from investments (10,736.5) (9,936.8) (10,766.1) (10,987.1)

Dividends paid (common & pref) 0.0 0.0 (1,642.6) (1,714.6) Inc/(dec) in debt 10,465.6 1,000.0 (200.0) (900.0) Common stock issuance (repurchase) 0.0 14,473.0 0.0 0.0 Other financing cash flows (1,510.7) 0.0 0.0 0.0 Cash flow from financing 8,954.9 15,473.0 (1,842.6) (2,614.6) Total cash flow 2,060.5 9,307.1 (3,996.9) (3,730.1) Note: Last actual year may include reported and estimated data. Source: Company data, Goldman Sachs Research estimates.

Analyst Contributors

Yipeng Yang [email protected]

Yuqian Ding [email protected]

Longjin Li [email protected]

Goldman Sachs Global Investment Research 2 August 31, 2016 BYD Co. (1211.HK)

Table of contents

A letter to investors 3 Our investment thesis in six charts 4 PM Summary: NEV market leader with strong pipeline, Buy 5 Setting the scene: China’s NEV market set to grow tenfold by 2025 7 BYD profile: The world’s biggest NEV/battery maker in 2015 21 Investment case: BYD’s unique competitive edge to drive stronger-than-consensus earnings 26 Vs. Tesla: Similarities in strategy but BYD’s NEV business trades at a significant valuation discount 37 BYD valuation: Attractive with clear near-term catalysts 41 Introducing M&A rank for BYD 49 Risks: China NEV market fluctuations, increased competitive pressures, technological disruption 52 Appendix 1: NEV battery capacity, lithium supply, and battery makers’ valuation 53 Appendix 2: Glossary of key terms and acronyms 58 Disclosure Appendix 59

Prices in the body of this report are based on the market close of August 31, 2016, unless otherwise stated. For a full ‘Glossary of terms’ used in this report please see Appendix 2.

A letter to investors

Dear Investors,

Why did we write this The future is not what it used to be. We expect China’s passenger car market to grow at report? mid-single digits over 2015-2025E, much lower than the c.20% CAGR over 2005-2015. Auto electrification looks set to be one of the biggest changes in the coming decade, reshaping the auto industry and driving the new energy vehicle market to grow tenfold, driven by stricter emission standards and the continuation of preferential government policies.

Why do you need to 2015 saw BYD become the world’s biggest new energy vehicle maker in terms of sales read it? volume and it is also the biggest battery maker for these vehicles. We believe its unique competitiveness is rooted in a strong product portfolio, vertically integrated business model, flexible manufacturing footprint, and sustainable operating margin. In the wave of auto electrification, we expect BYD to be one of the companies that benefits most.

How is our view As well as articulating on both near-term and long-term market trends for the new energy different? vehicle market, this report also provides a deep dive into BYD’s history, strategic direction, competitive edge and financial results. We provide a unique dimension by comparing the business strategy and key operating assumptions of BYD with U.S. leader Tesla. With our earnings forecasts well above consensus, we believe the street has not sufficiently factored in BYD’s competitive edge in new energy vehicles.

What should you do? We firmly believe in the secular growth for the new energy vehicle market in China over the next decade (28% CAGR), despite potential near-term fluctuations in growth and uncertainty with the timing of policy announcements, with clear positive catalysts for BYD in the coming 12 months (policy tailwinds, new products, battery capacity expansion, strong FY16 earnings, etc.). We reinstate a rating on BYD at Buy.

The Goldman Sachs China Autos Research Team

Goldman Sachs Global Investment Research 3 August 31, 2016 BYD Co. (1211.HK)

Our investment thesis in six charts

Exhibit 1: We expect 28% CAGR in China’s new energy Exhibit 2: BYD has a strong product portfolio in the NEV vehicle (NEV) market over 2015-2025E space, especially in the SUV-NEV sub-segment Sales volume of new energy vehicles in China (‘000) Summary of BYD product portfolio in the NEV space

4,500 SUV MPV 4,000 3,500 Small Yuan (PHEV, 2H16) 3,000 2015‐2025E CAGR: 27.9% 2,500 Compact Qin (PHEV, Dec 13) Song (PHEV, 2H16) Shang (PHEV, 2,000 2H16/1H17) 1,500 Qin 300 (EV, 1H16) 1,000 e5 (EV, 1H16) 500

‐ Midsize Tenza (EV, Oct 14) Tang (PHEV, 1H15) e6 (EV, 2011) 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E Han (PHEV, 17) Ming (PHEV, 1H17) New energy CV sales volume ('000) PHEV car sales volume ('000) EV car sales volume

Notes: CV = commercial vehicle, PHEV = plug-in hybrid , EV = Notes: SUV = sports utility vehicle, MPV = multi-purpose vehicle. electric vehicle.

Source: China Association of Automobile Manufacturers (CAAM), Gao Hua Source: Company data. Securities Research.

Exhibit 3: BYD’s battery bottleneck has been removed Exhibit 4: BYD already has a market leading position in since 2015 on continuous investment in battery capacity China with c.20% market share BYD battery capacity (GWh) and utilization rate (%) BYD NEV sales volume (‘000) and market share (%)

450 30% 40 90% 400 35 80% 25% 350 30 70% 300 20% 60% 25 250 50% 20 15% 40% 200 15 30% 150 10% 10 20% 100 5 5% 10% 50 0 0% ‐ 0% 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

Battery capacity Utilization rate (RHS) BYD NEV vol. BYD NEV MS (RHS)

Source: Company data, Gao Hua Securities Research. Source: Company data, Gao Hua Securities Research.

Exhibit 5: We expect BYD’s nominal OPM to be higher Exhibit 6: BYD’s NEV business valuation looks attractive than that of Tesla, but comparable OPM to be lower at a 20% discount vs. Tesla in terms of 2020E P/S OPM and comparable OPM (excl. subsidy, CO2 credit and 2020E price to sales valuation multiple (X) comparison battery profit) comps between BYD NEV business and Tesla between BYD’s NEV business and Tesla

18% 1.5 1.37 15%

12% BYD‐NEV OPM 1.3 9% 1.11 1.1 6% Tesla OPM 3% 0.9 0% 2015 2016E 2017E 2018E 2019E 2020E ‐3% 0.7 ‐6%

‐9% BYD‐NEV comparable OPM 0.5 ‐12% Tesla comparable OPM BYD Tesla ‐15%

Source: Company data, Goldman Sachs Global Investment Research, Gao Hua Source: Goldman Sachs Global Investment Research, Gao Hua Securities Securities Research. Research.

Goldman Sachs Global Investment Research 4 August 31, 2016 BYD Co. (1211.HK)

PM Summary: NEV market leader with strong pipeline, Buy

China’s new energy vehicle (NEV) market1 has shown strong momentum in recent years, becoming the world’s No. 1 by volume in 2015 with 331k units sold vs. 129k in the U.S. Strong sales volume growth seen in 2015 (+343%) has continued into 2016, with NEV sales Explore more “New volumes in China achieving >120% yoy growth in January-July 2016. In this report we raise China” ideas from our industry estimates for the China NEV market in the coming decade by 10%-20%, related research below. articulating on expected market trends for both the near-term and long-term. Or visit our portal to see the full series on Cars Founded in in 1995 and originally principally engaged in the IT industry, BYD (its 2025, Building name is an acronym of “Build Your Dream”) has since transformed not only into the Shenzhen and Low world’s biggest NEV maker but also the biggest NEV battery maker, with c.50% of its total Carbon Economy: revenues coming from these segments in 2015. Against a strong backdrop for the NEV Cars 2025 vol.4 - market, BYD’s unique competitive edge and its c.20% market share in China (in 2015) mean Disruption in China’s the company is well placed to benefit, in our view. We reinstate a rating on BYD at Buy new car market with our SOTP-based 12-m target price of HK$61.93 implying 15% upside potential. Building Shenzhen - Incubating a “New China NEV market set to grow tenfold in the coming decade China” Based on our updated industry model, we now expect China’s NEV market to sustain 28% Low Carbon China CAGR (2015-2025E), reaching 3.9mn units in 2025E, more than 10X higher than the units sold in 2015. We believe this demand will be driven by: 1) stricter 2020/2025 fuel consumption standards for passenger cars from the Ministry of Industry and Information Technology (MIIT) of China; 2) continuation of preferential government policies beyond 2020E after the current phase-out of the NEV purchase subsidy, with the focus likely to shift from purchase to usage (license plate, charging infrastructure rewards, etc.) and total cost of ownership (TCO) to remain an advantage; and 3) demand in the new energy commercial vehicles (CV) space from electric logistic vehicles.

In the near-term, we see the following as driving positive NEV growth in China: 1) NEV volume targets from pilot cities underpinning strong 2016 demand; 2) announcement on the final result of the NEV subsidy fraud probe (expected in the next 1-2 months, per the government) could clear the uncertainty regarding NEV-related policy trends and also encourage more pilot cities to stipulate detailed local supportive policies. On the other hand, high comps in 4Q15 could lead to lower yoy growth in 4Q16E which may impact investor sentiment, while new entrants/new business models raising competition could somewhat temper the considerable potential NEV demand seen to date.

Our BYD earnings forecasts are up to 41% above consensus Over 2015-2020E, we expect BYD’s NEV division to achieve 44% revenue and 36% OP CAGR, driving consolidated revenue CAGR of 22% and consolidated net income CAGR of 36% (versus 11% and 2% respectively over the past five years). Our 2016E-18E EPS are 13%-41% above Bloomberg consensus as we believe the street has not sufficiently factored in: 1) the strong NEV market growth in China; 2) BYD’s robust market share given its current NEV product portfolio; 3) BYD’s vertically integrated business model, which enables it to conduct R&D of NEV and ramp-up NEV/battery manufacturing capacity quicker via better coordination of the R&D, quality control, and capacity expansion of different key supply chain components; 4) the company’s flexible manufacturing footprint, which should ensure a strong order book from outside its home turf; and 5) BYD’s ability to sustain its operating margin at the double-digit level, due to continuing preferential NEV policies, cost savings on a larger scale, high capacity utilization, and front-loaded R&D/CAPEX.

1Based on the Chinese government definition, the NEV market includes PHEV, EV, and fuel-cells but excludes HEV (please see Appendix 2 for a full ‘Glossary of key terms and acronyms’).

Goldman Sachs Global Investment Research 5 August 31, 2016 BYD Co. (1211.HK)

BYD vs. Tesla: Similarities in NEV strategies but BYD’s OPM higher When we compare BYD and Tesla, we see two companies that share a number of similarities with their respective NEV strategies, in particular regarding the vertical integration of battery and solar business, expansion of the NEV product offering from passenger car to commercial vehicles, and also expansion into car sharing & autonomous driving business. Differences arrive in the form of terms of inclusion of ICE/PHEV, pricing/branding strategy, manufacturing and organization style, etc. In 2015, the NEV business of BYD enjoyed an OPM of 16.5% vs. -4.0% for Tesla. We believe this is mainly due to the higher government subsidy received by BYD, as well as the inclusion of battery OPM (BYD consolidates EV battery business profit in the NEV divisional profit). This OPM gap is likely to gradually close by 2020E, with our US automobiles analyst expecting Tesla’s OPM to increase to c.10% after the inclusion of its battery business and a ramp up of production scale to c.300k units.

Attractive valuation and clear catalysts, with NEV contributing the lion’s share of our 12-month target price We use a sum-of-the-parts (SOTP) valuation methodology for BYD given the different nature and growth profile for each of its distinct business divisions (automobiles, handset components & assembly services, and rechargeable batteries & others). With nearly 90% of the value contributed by the NEV business (using a 10-year DCF) given secular growth of the NEV market in China and BYD’s long-term competitive edge in the space, our SOTP- based 12-m target price of HK$61.93 implies 15% potential upside, among the highest in our H-share OEMs coverage, and we reinstate a rating on BYD at Buy. The company currently trades on a 20X 12-month fwd. P/E (below the historical median minus 1 STD) and a 2.3X 12-month fwd. P/B (in-line with its historical median).

While our comparative analysis vs. Tesla showed a number of similarities in the strategic direction of the companies, the NEV business of BYD currently trades at 1.1X 2020E P/S and 11.0X 2020E P/E, well below Tesla’s 1.4X and 20.0X respectively. Although we believe part of this valuation premium can be attributed to Tesla’s technological leadership, higher brand recognition & pricing power, as well as its more diversified geographic presence, we expect this gap to narrow given the strong medium-term revenue/earnings growth outlook for BYD’s NEV business. That said, our BYD 12-month target price implies its NEV business trading at a 12.6X 2020E P/E, a level still lower than Tesla.

We also conduct a scenario analysis where we flex our assumptions on market share/OPM for BYD’s different divisions. In our bull case, with NEV sales volume assumptions for BYD increased by 5%-10% vs. our base case and OPM to sustain at a level above mid-teen digits before 2020E, this implies earnings upside of 6%-17% in 2016E-20E vs. our base case and 30% further valuation upside. On the other hand, our bear case has BYD’s NEV sales volume assumptions lowered by 8%-13% vs. our base case and OPM gradually lowered to 9.6% by 2020E, the same level as Tesla’s by then, thus earnings are 14%-30% lower vs. our base case, with 27% implied valuation downside from the latest market close.

Goldman Sachs Global Investment Research 6 August 31, 2016 BYD Co. (1211.HK)

Setting the scene: China’s NEV market set to grow tenfold by 2025

China is the No.1 NEV player globally and strong growth continues The Chinese government’s definition of a new energy vehicle (NEV), which thus qualifies for a subsidy, includes plug-in hybrid electric vehicles, electric vehicles, and fuel-cell vehicles but excludes hybrid electric vehicles. We apply this government definition for NEV when estimating the market opportunities for car electrification in China given: 1) progress to date has been primarily driven by preferential government policies (purchasing subsidies, free license plates in Beijing/, etc.), which play a key role in promoting NEV sales; and 2) globally, auto emission regulations are tightening (e.g., the Zero Emission Vehicle (ZEV) credit will exclude hybrid electric vehicles from 2018).

In 2015, China claimed the world No. 1 market position in the NEV industry, with 331k units sold. As shown in Exhibit 9, we exclude hybrid electric vehicles in the scope of our analysis, in-line with the government definition; otherwise US/Japan would have higher volume than China. In January-July 2016, we have continued to see strong growth in the China NEV market, which recorded >120% yoy growth.

Exhibit 7: Electrified vehicles could reach 20% of new car Exhibit 8: Rising tide of tighter fuel economy regulations sales in 2025 (incl. hybrid electric vehicles) CO2 emissions (gCO2/km) regulations Demand forecasts by power train

(Mix) 250 100%

90% 200

80%

150 70% FCV

60% EV 100

50% PHEV

40% HEV 50 30% Internal combustion 20% 0

10% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

0% US Japan China

2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E Notes: FCV = fuel cell vehicles, EV = electric vehicles, PHEV = plug-in hybrid electric vehicles, HEV = hybrid electric vehicles.

Source: IHS, Goldman Sachs Global Investment Research. Source: Japan Automobile Manufacturers Association (JAMA), U.S. Department of Energy (DOE), Goldman Sachs Global Investment Research.

Exhibit 9: China was the biggest NEV market in the world Exhibit 10: Strong growth (>120%) in NEV sales in China (excl. HEV) in 2015 continued in the first seven months of 2016 NEV sales volume (‘000 units) in China, the US and Japan NEV monthly sales volume growth rate in China, Jan 2015- July 2016 (% yoy)

1,200 800% 700% 1,000 +18% 600% 800 500% HEV 600 400% PHEV 1,013 857 EV 300% 400 +8% 200% +343% 84 209 200 189 100% 247 48 53 30 0% 45 77 76 13 13 0 17 17 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec CY2014 CY2015 CY2014 CY2015 FY2013 FY2014 2015 2016 China US JP

Source: IHS, CAAM, Autodata, U.S. Energy Information Administration (EIA) Source: CAAM

Goldman Sachs Global Investment Research 7 August 31, 2016 BYD Co. (1211.HK)

Exhibit 11: Top 10 new energy passenger car players in China New energy passenger car sales volume (unit) by OEMs

70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 BYD BAIC SAIC Zotye Kandi Jiangling Jianghuai

2015 2014

Source: China Passenger Car Association (CPCA)

Long-term outlook: NEV volumes to grow >10X in coming 10 years We expect China’s NEV market to sustain 27.9% CAGR (2015-2025E) to reach 3.9mn units sold in 2025, more than 10X higher than the 331k units sold in 2015. In this report, we raise our estimates for the NEV market in China over 2016-2025 by 11%-21% vs. our previous assumptions. These volume revisions are primarily driven by: 1) stricter 2020/2025 passenger car fuel consumption standards from MIIT; 2) our expectation that the continuation of preferential policies and sustained total cost of ownership should remain an advantage for NEV beyond 2020E after expiration of the current purchase subsidy scheme; and 3) new demand from electric logistic (e-logistic) vehicles which we believe is the fastest growing sub-segment in the new energy commercial vehicle space.

Exhibit 12: We expect NEV sales volume to grow at a CAGR of 27.9% during 2015-2025 in China Sales volume of new energy CV, PHEV cars and EV cars (‘000) in China

4,500

4,000

3,500

3,000 2015‐2025E CAGR: 27.9%

2,500

2,000

1,500

1,000

500

‐ 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E

New energy CV sales volume ('000) PHEV car sales volume ('000) EV car sales volume

Source: CAAM, Gao Hua Securities Research.

Goldman Sachs Global Investment Research 8 August 31, 2016 BYD Co. (1211.HK)

Exhibit 13: We raise our China NEV volume estimates by 11%-21% for 2016-2025 China NEV market sales volume forecasts from 2016E-2025E

2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2015‐25E CAGR New forecasts New energy CV Sales Volume ('000) 6 20 131 215 277 339 407 467 515 555 580 613 647 17.3% PHEV Car Sales Volume ('000) 0 24 60 103 164 271 407 700 840 958 1,082 1,212 1,339 36.4% EV Car Sales Volume ('000) 11 31 140 217 282 409 511 700 910 1,138 1,365 1,611 1,890 29.7% Total Sales Volume ('000) 18 75 331 535 724 1,020 1,325 1,867 2,265 2,650 3,027 3,436 3,876 27.9% Growth Rate (YoY) 327% 341% 62% 35% 41% 30% 41% 21% 17% 14% 14% 13%

Old forecasts New energy CV Sales Volume ('000) 6 20 131 144 159 174 192 211 222 233 244 256 269 7.5% PHEV Car Sales Volume ('000) 0 24 60 96 154 230 346 518 648 810 1,013 1,164 1,339 36.4% EV Car Sales Volume ('000) 11 31 140 210 315 441 617 864 1,037 1,245 1,494 1,680 1,890 29.7% Total Sales Volume ('000) 18 75 331 450 627 846 1,155 1,594 1,907 2,287 2,750 3,101 3,499 26.6% Growth Rate (YoY) (RHS) 327% 341% 36% 39% 35% 37% 38% 20% 20% 20% 13% 13%

Var (%) New energy CV Sales Volume 49% 75% 95% 112% 122% 132% 138% 137% 139% 140% 9.8% PHEV Car Sales Volume 7% 7% 18% 18% 35% 30% 18% 7% 4% 0% 0.0% EV Car Sales Volume 3% ‐10% ‐7% ‐17% ‐19% ‐12% ‐9% ‐9% ‐4% 0% 0.0% Total Sales Volume 19% 15% 21% 15% 17% 19% 16% 10% 11% 11% 1.3%

Source: CAAM, Gao Hua Securities Research.

Industry driver #1: Strict 2020/2025 fuel consumption standard for passenger cars According to the Ministry of Industry and Information Technology (MIIT) of China, the passenger car fuel consumption standard target is for average fuel consumption to reach 5.0/4.0 liter per 100 km respectively in 2020/2025, which implies a 29% fuel consumption cut from 2015 levels (industrial actual fuel consumption at 7.04 liter/100k) by 2020, with another 20% cut by 2025.

In order to meet the strict fuel consumption target by 2020, i.e., fill the 29% fuel consumption gap between 2015 to 2020, we believe OEMs would need to adopt both of the following measures:

 Improve fuel efficiency of internal combustion (ICE) cars: Fuel efficiency improvement would be driven via light-weighting, turbo-charging, engine-downsizing, optimization, and other related technologies; and

 Introduce more NEV to lower the weighted average fuel consumption levels: As per the fuel consumption calculation method in the China Phase III Fuel Consumption Standard (issued by MIIT in March 2013), the Chinese government allocates a “super credit” for NEV cars, with: 1) 5X credit weighting given to PHEV/EV/fuel cell vehicles with mileage of more than 50km per charge (fuel consumption counted as 0); and 2) 3X credit weighting given to passenger cars (excluding EV/fuel cell vehicles) with fuel consumption of less than 2.8 liter/100km (most likely to be achieved by PHEV). This “super credit” will gradually decline to 2X by 2020 for both PHEV/EV. As the costs of complying with the required improvement in fuel efficiency for ICE cars become higher and higher, we believe that increasing the amount of NEV in the sales mix (with the help of the “super credit”) would make sense to OEMs in term of cost-efficiency.

Goldman Sachs Global Investment Research 9 August 31, 2016 BYD Co. (1211.HK)

In Exhibit 15, we consider two additional factors which could influence the evolution of car industry fuel consumption between 2015 and 2020:

 Consumption preferences for SUV leading to higher fuel consumption: In China, the SUV volume mix increased from 11% in 2010 to 34% in 1H16, and we expect it to increase further to ~40% in 2020 on consumer preference and more new product offerings. Comparing a SUV sharing the same chassis as a sedan, we observe that fuel consumption is higher for the SUV. For example, FAW ’s RAV 4 SUV is equipped with a 2.0L/2.5L engine and its fuel consumption is 7.3-8.7 liter/100km, while the Corolla sedan (based on a similar platform) is equipped with a 1.6L/1.8L engine and its fuel consumption is 5.9-6.3 liter/100km. Hence, we expect that a consumption trend towards an SUV preference will increase fuel consumption of the industry by 0.17 liter/100km over 2015-2020.

 A potential buffer for compliance: With reference to the practices in developed countries, e.g., the US which provides a scheme of TLAAS (Optional Temporary Lead- time Allowance Alternative Standards) to give more time for certain OEMs to meet the

CO2 emission standard, it is possible that China may provide some buffer to selective OEMs (e.g., importers) before their full compliance. This may be around the 5% level, in-line with the number of imported passenger cars in 2015 as a percentage of the total new car market in China, as these cars tend to be high in fuel consumption and may need longer to comply.

Our forecast of 1.4mn units of NEV passenger car sales volume in 2020 is primarily based on the 0.88 liter/100km fuel consumption reduction needed from NEV roll-out for the auto industry to meet the MIIT fuel consumption target.

Exhibit 14: MIIT targets imply a 29% fuel consumption Exhibit 15: …and we expect the reduction to mainly be cut by 2020 followed by another 20% cut by 2025… driven by ICE improvement and NEV roll-out Fuel consumption target, liter/100km, 2012-2025E Walkthrough from 2015 actual fuel consumption to 2020 target, liter/100km

7.50 7.33 8 8 7.22 7.04 +0.17 ‐1.08 6.70 7.04 6.40 7 7 6.00 ‐0.88 6 5.50 6 29% 5.00 ‐0.25 5.0 5 4.00 5 4 20% 4

3 3 2 2 1 1 ‐ 0 2015 fuel Consumption ICE car NEV roll‐out Buffer 2020 fuel 2012 2013 2014 2015

2016E 2017E 2018E 2019E 2020E 2025E consumption trend improvement consumption level traget

Source: MIIT, Gao Hua Securities Research estimates. Source: MIIT, Gao Hua Securities Research estimates.

Goldman Sachs Global Investment Research 10 August 31, 2016 BYD Co. (1211.HK)

Industry driver #2: Sustaining preferential policies/TCO advantage beyond 2020E We believe that government policy is one of the most influential factors in the development of a new industry in China, as shown by the solar and high-speed railway industries since 2007 and 2004 respectively, and also in the NEV industry since 2013. In Exhibit 16, we summarize the incentives, challenges, and major directions taken by China’s government policies with respect to the NEV industry, and highlight the following:

 Three key incentives: i) To increase national industrial competitiveness by incubating a strong local NEV industry; ii) to promote energy security by reducing dependency on imported petroleum (in 2015, China imported 61% of its petroleum needs and the auto sector consumed the majority of this incremental petroleum); and iii) to promote environmental protection via the reduction of air pollutants (e.g., NOx and PM) as well CO2 emissions.

 Three key challenges to address: We see current policies as addressing the three key challenges to the mass roll-out of new energy vehicles: i) cost-benefit, ii) mileage anxiety, and iii) local & national protectionism concerns. Additionally, the Chinese government is adopting various policies like granting free license plates for NEV and building more charging infrastructure to promote NEV sales.

Exhibit 16: We see current government policies as addressing major challenges and enabling achievement of targets in the mass roll-out of new energy vehicles Summary of current government incentives and policies on NEV market

Govt. incentives Energy security National competitiveness Environmental protection

Cost-Benefit Mileage anxiety Protectionism Challenges Extra costs for e-powertrain/ Density of and Local & national battery/BMS different cars for different usages

Gov. Subsidy & cost down Build more charging Promote open market; Potential solutions via bigger scales infrastructure; new remove obstacles in market business model; change entrance of import /non Cross subsidy by customer behaviors locally-made NEVs OEM/petrol companies

Subsidy from central & Set target on no. of To expand beneficial Policies local government charging stations scope to include import or non locally-made Tax/fee exemption Encourage car vehicles Free license sharing/leasing/rental model Use national product No usage restriction Standardization of EV category replacing local ones Fuel consumption std. chargers

Promote Government direct purchase

Bus/fleet users Private buyers Types of customers Buyers incl. government

Source: Government websites.

Goldman Sachs Global Investment Research 11 August 31, 2016 BYD Co. (1211.HK)

We believe the NEV purchase subsidy has been one of the most persuasive measures from the government for potential NEV buyers. In Exhibit 17, we summarize changes to the central government’s NEV purchase subsidy per unit amount in the coming five years for different types of vehicles. We observe that NEV purchase subsidy is scaling down (with bus subsidy declining most and special purpose vehicle/fuel cell vehicle amount remaining unchanged) and is due to fully expire by the end of 2020. While shrinking purchase subsidy may lead to investor concerns on the sustainability of NEV market growth in China, we believe the impact should be limited given we expect: i) subsidy to shift from purchase to usage, and ii) the price of NEV to drop with declining battery costs and the introduction of a fuel consumption credit trading system.

Exhibit 17: Central government purchase subsidy is scaling down (with bus subsidy declining most and special purpose vehicle/fuel cell unchanged) and is due to fully expire by the end of 2020 Summary of central government purchase subsidy, 2013-2020

Subsidy (Rmb '000) 2013 2014 2015 2016 2017 2018 2019 2020 2015-20 CAGR Passenger car Mileage under EV mode (km) EV 80≤R<150 (100≤R<150 from 2016) 35.0 33.3 31.5 25.0 20.0 20.0 15.0 15.0 -13.8% 150≤R<250 50.0 47.5 45.0 45.0 36.0 36.0 27.0 27.0 -9.7% R≥250 60.0 57.0 54.0 55.0 44.0 44.0 33.0 33.0 -9.4% PHEV R≥50 35.0 33.3 31.5 30.0 24.0 24.0 18.0 18.0 -10.6% Bus 2013-2015 EV(6≤L<8) 300 300 300 -22.8% EV(8≤L<10) 400 400 400 -19.9% EV(L≥10) 500 500 500 -18.4% PHEV(L≥10) 250 250 250 -9.3% 2016-2020 EV*(10＜L≤12) 6≤R＜20 176 141 141 106 106 20≤R＜50 208 166 166 125 125 Declining most 50≤R＜100 236 189 189 142 142 100≤R＜150 280 224 224 168 168 150≤R＜250 336 269 269 202 202 R≥250 408 326 326 245 245 PHEV(10＜L≤12) 50≤R＜100 200 160 160 120 120 100≤R＜150 230 184 184 138 138 150≤R＜250 250 200 200 150 150 R≥250 250 200 200 150 150 EV & PHEV L≤66

Source: Ministry of Finance (MoF), Ministry of Technology (MoT), MIIT, National Development and Reform Commission (NDRC), National Energy Administration (NEA).

Goldman Sachs Global Investment Research 12 August 31, 2016 BYD Co. (1211.HK)

The key question is whether the NEV market will be negatively impacted by the diminishing purchasing subsidy? Our analysis shows that the impact should be limited. In Exhibit 18, we summarize eight different types of subsidy/preferential benefits that NEV buyers/OEMs might receive from either the government in China or other sources such as a fuel consumption credit trading system. We expect the negative impact of declining NEV purchase subsidy to be gradually offset by increasing other subsidies/benefits like NEV license plate value, charging infrastructure rewards, etc. In total, we estimate that NEV government subsidies/benefits reach RMB200bn in 2025E, accounting for ~0.5% of the government budget. We also expect benefits from fuel consumption credit trading (i.e., the OEMs who can’t meet the fuel consumption standard could buy ‘credit’ from the OEMs who have a surplus in meeting the standard) to reach RMB18bn in 2025E, which would partially offset the negative impact of declining NEV purchase subsidy. The consideration of fuel consumption credit trading is not paid by government but by the OEMs who fail to comply (as the penalty) to the OEMs who achieve better than required fuel consumption levels (as the bonus).

Exhibit 18: We expect subsidy to shift from purchase to usage, with total NEV subsidy/benefit reaching RMB200bn in 2025 (~0.5% of govt. budget); we also expect benefits from fuel consumption credit trading (RMB18bn in 2025) Summary of government subsidy/benefit for the NEV industry, 2015-2025E

NEV subsidy (RMB mn) 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E NEV purchase subsidy 94,295 62,713 65,178 79,558 74,078 93,588 ‐ ‐ ‐ ‐ ‐ NEV license plate value 6,691 11,053 15,229 18,764 23,413 28,242 30,920 33,988 37,530 42,150 47,200 13th FYP on NEV charging infrastructure reward policy 4,164 5,413 6,583 7,959 8,997 10,134 12,161 14,593 16,052 17,657 18,540 Local EV charging infrastructure subsidy program 2,668 3,495 4,578 5,997 7,856 10,291 12,864 15,437 16,981 18,679 19,613 New energy bus operating subsidy 2,948 6,949 12,699 19,024 24,499 28,937 39,599 44,835 48,547 50,840 53,268 Purchase tax exemption 1,500 2,295 7,029 10,071 14,445 20,741 25,278 30,820 37,592 42,670 48,441 R&D and other subsidies 10,000 10,000 11,000 11,000 12,000 13,000 14,000 15,000 15,000 16,000 16,000 Total 122,266 101,918 122,296 152,373 165,288 204,933 134,822 154,674 171,702 187,997 203,062 Growth (yoy) ‐17% 20% 25% 8% 24% ‐34% 15% 11% 9% 8% Total NEV subsidy as % of govt. budget 0.7% 0.6% 0.6% 0.7% 0.7% 0.8% 0.5% 0.5% 0.5% 0.5% 0.5%

Benefit from fuel consumption credit trading system 7,281 10,443 14,996 13,768 16,787 14,173 16,088 18,264

Note: From 2017E-25E, we expect govt. budget growth rates to be 2-3% higher than GDP growth rate forecasts from our China Macro Research team.

Source: MIIT, MoT, MoF, NEA, NDRC, Tesla, Gao Hua Securities Research, Goldman Sachs Global Investment Research.

For car buyers, we expect total cost of ownership (TCO) of an EV car to still be c.20% lower than an ICE car in 2025E even after the expiration of purchase subsidies, assuming battery costs are 50% lower vs. 2015 levels, the introduction of fuel consumption credit trading system, etc.

Goldman Sachs Global Investment Research 13 August 31, 2016 BYD Co. (1211.HK)

Exhibit 19: Total cost of ownership of an EV car still likely to be ~20% lower than an ICE car in 2025E, even after all the government purchase subsidies expire TCO comparison of BYD E5 EV and BYD Suri, 2016 and 2025E

2016 2025E

RMB BYD E5 EV BYD Suri RMB BYD E5 EV BYD Suri Purchase cost Purchase cost MSRP 229,800 95,900 MSRP 172,350 95,900 +Purchase tax 4,795 + Purchase tax 9,590 ‐ Government purchase subsidy (central + local) 99,000 ‐ Government purchase subsidy (central + local) ‐ Benefit from fuel consumption credit trading system ‐Benefit from fuel consumption credit trading system 5,655 Actual price paid 130,800 100,695 Actual price paid 166,695 105,490

License subsidy License subsidy ‐ Free license plate 40,000 ‐ Free license plate 50,000 Total cost before operation cost 90,800 100,695 Total cost before operation cost 116,695 105,490

Operation cost Operation cost +Fuel cost 6,300 +Fuel cost 4,500 + Electricity cost 3,000 + Electricity cost 2,250 +Maintenance cost 2,000 4,000 + Maintenance cost 2,000 4,000 + Annual vehicle tax 500 + Annual vehicle tax 500 ‐ Savings from mobility fees with use restriction 1,714 ‐ Savings from mobility fees with use restriction 1,714 Annual operation cost 3,286 10,800 Annual operation cost 2,536 9,000 Total operation cost (8 years) 26,285 86,400 Total operation cost (8 years) 20,285 72,000

Scrappage Scrappage ‐ Scrappage value 10,341 19,180 ‐ Scrappage value 13,214 19,180

Total cost of ownership Total cost of ownership TCO (assuming 8 years of usage) 106,744 167,915 TCO (assuming 8 years of usage) 123,766 158,310 Cost difference ‐36% Cost difference ‐22%

Assumptions: Assumptions: Driving distance/year (km) 15,000 15,000 Driving distance/year (km) 15,000 15,000 Fuel consumption (L/100km) 7.0 Fuel consumption (L/100km) 5.0 Gasoline price (RMB/L) 6.0 Gasoline price (RMB/L) 6.0 Electricity consumption (kwh/100km) 20.0 Electricity consumption (kwh/100km) 15.0 Electricity price (RMB/kwh) 1.0 Electricity price (RMB/kwh) 1.0 Maintenance cost (RMB) 2,000 4,000 Maintenance cost (RMB) 2,000 4,000 Years of usage 88 Years of usage 88

Assumptions: 1) Battery cost accounts for 50% of the total cost of an EV car, and battery cost to halve in 2025E vs. 2016; 2) without usage restriction, an EV car can drive one more day per week vs. an ICE car; 3) benefit from fuel consumption credit trading system per EV car is 50% of Tesla’s NEV credit revenue per EV car in 2018E.

Source: Autohome.com, MIIT, Tesla, BYD, CEIC, Gao Hua Securities Research.

Exhibit 20: We expect the total cost of ownership of an EV car to increase by ~16% by 2025E vs. 2015, as the decreasing government purchase subsidy is mostly offset by battery cost reduction Walkthrough of BYD E5 EV TCO changes from 2015 to 2025E (in RMB)

160,000 99,000 5,655 10,000 140,000 6,000 2,873 123,766 120,000 106,744 57,450 100,000

80,000

60,000

40,000

20,000

0 TCO (2016) Battery cost Government Benefit from fuel Free license plate Electricity cost Higher scrappage TCO (2025E) reduction purchase subsidy consumption credit value increase reduction on better value on better end trading system battery efficiency battery quality

Note: For comparison purposes, we expect BYD Suri (a compact ICE car comparable to the E5 EV in size) TCO to decrease by 6% in 2025E, mainly on improved fuel consumption efficiency.

Source: Autohome.com, MIIT, Tesla, BYD, CEIC, Gao Hua Securities Research.

Goldman Sachs Global Investment Research 14 August 31, 2016 BYD Co. (1211.HK)

Industry driver #3: New demand for electric logistics vehicles The biggest driver of the change in our current NEV market size vs. our previous estimation is new demand for electric logistics (e-logistic) vehicles, which is growing fast within the new energy commercial vehicle space. These vehicles might be less suitable for intra-city long-haul purposes but more so for inter-city logistics with fixed routes in certain areas (more convenient to plan and install charging infrastructure), with limited mileage and high frequency of usage, and are likely to be mostly purchased by the government or corporates as a fleet. We estimate that by 2025E 22.5% of total logistic vehicles sold might be electrified, which would contribute to more than 500k units of sales volume.

Exhibit 21: We expect the penetration rate of e-logistic vehicles to reach 22.5% in 2025E Sales volume (‘000 units) and penetration rate (%) of e-logistic vehicles

Annual sales volume ('000 units) 2015 2020E 2025E Total logistics vehicles 2,909 2,755 2,891 Total logistics vehicles that could be electrified 2,524 2,269 2,386 Electric logistics vehicles penetration rate 1.8% 15.0% 22.5%

Total electric logistics vehicles 46 340 537

Source: CAAM, Gao Hua Securities Research.

Exhibit 22: Government policies in China to boost the Exhibit 23: Orders for electric logistics vehicles have development of electric logistics vehicles exceeded 90k YTD, already representing 99% growth vs. Summary of government policies on e-logistics vehicles 2015 sales Electric logistics vehicles sales volume, 2015-2016E

Government Policies 140,000 2016E sales volume The percentage of NEV in newly purchased special purpose vehicles by govt. institutions Central government 114,371 should be higher than 50% 120,000 Shanghai Shanghai plans to add about 10k logisitics NEV by 2017 and 18k by 2020 GHe for the 100,000 rest of 2016 Shenzhen plans to deploy 4000 logistics NEV in 2016; it plan to add 500 logistics NEV each 22,621 Shenzhen +149% yoy year and deploy 25000 in total till 2020 The percentage of NEV in newly purchased special purpose vehicles should be higher than 80,000 province 30% Nanjing Nanjing plans to deploy 400 logistics NEV in 2016 60,000 Orders Qingdao Qingdao plans to deploy 1000 logistics NEV by 2017 and 7000 by 2020 received ytd 91,750 40,000 Shanxi Shanxi plans to deploy 5000 logistics NEV by the end of 2016 2015 actual Hebei Hebei plans to deploy 3330 logistics NEV in 2016 sales volume 20,000 46,000 Huzhou Huzhou plans to deploy 300 logistics NEV in 2016

0 2015 2016E

Source: Government websites Source: CAAM, Company data, Gao Hua Securities Research.

Goldman Sachs Global Investment Research 15 August 31, 2016 BYD Co. (1211.HK)

Near-term trends in China’s NEV market: Focus on policy direction Demand for NEV continues to show strong momentum in China (>120% yoy growth in January-July 2016), a situation we expect to continue in the near-term driven by government policies and resolution of an investigation into NEV subsidies fraud. On the other hand, demand could be slightly tempered by market sentiment due to high comps and also intensified competition given more new entrants and also new business models.

Trend #1: NEV volume targets from pilot cities to underpin strong 2016 demand Since 2009 the central government has encouraged city-level local governments to join a NEV pilot programme to demonstrate and popularize energy conservation and new energy vehicle development. While 88 cities joined the pilot programme, only 23 announced detailed supportive policies (concrete volume targets, local NEV purchase subsidy schemes on top of the subsidy from central government, etc.) to date. We believe more local supportive policies are crucial to the development of China’s NEV market given the following:

 For those cities that have announced supportive policies, the local purchase subsidy amounts to c. 80% of the central government subsidy on average, a strong consideration for potential NEV buyers as they would get a subsidy from both the local and central government;

 The pilot cities are likely to contribute significantly to the volume of NEV sales directly. If we sum up the 23 pilot cities’ NEV volume targets for 2016 announced so far this year to date, the total volume would imply 28% yoy growth in 2016. If we assume that a number of additional pilot cities announce volume targets, and that there are also some sales from non-pilot cities, we estimate the NEV market in China could see over 60% yoy growth in 2016E.

Exhibit 24: Pilot cities’ 2016E NEV sales volume targets Exhibit 25: Government-led purchases (especially in the announced YTD imply 28% growth vs. 2015’s total NEV commercial vehicle space) are likely to remain strong in sales volume the NEV volume mix in the coming three years Government NEV sales volume target in all pilot cities and Breakdown of new energy CV and PV sales, 2013-2025E total NEV sales volume (‘000 units), 2015-2016E

2015 2016E 100% Govt. NEV sales volume target in all pilot cities 220 423 90% Growth 93% 80% Total NEV sales volume 331 535 70% 64% 60% 60% 62% 67% Growth 62% 73% 69% 75% 60% 77% 79% 81% 82% 83% Govt. NEV sales vol. target in all pilot cities as % of total NEV sale vol. 66% 79% 50% 40% Govt. 2016E NEV sales vol. target announced ytd implying growth vs. 2015 total NEV sales vol. 28% 30% 20% 36% 40% 40% 38% 33% 27% 31% 25% 10% 23% 21% 19% 18% 17% 0% 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E

New energy CV New energy PV

Source: CAAM, Government websites, Gao Hua Securities Research. Source: CAAM, Gao Hua Securities Research.

Goldman Sachs Global Investment Research 16 August 31, 2016 BYD Co. (1211.HK)

Exhibit 26: Local government purchase subsidies for those cities that have announced supportive policies amount to ~ 80% of the central government subsidy on average Summary of local govt. purchase subsidy for NEV in those cities that have announced supportive policies

RMB 000 Passenger Car BusSpecially-used Vehicles/ Fuel cell

Small Medium/Big Note EV PHEV EV PHEV EV PHEV PC Bus/Freight Bus/Freight wagon wagon City/Province 100≤R<150 150≤R<250 R≥250 R≥50Maximum Per unit Per unit Per unit Per unit Per unit Beijing 25 45 55 0 500 (EV only) 0 1.8/kwh 0 200 0 0 Local govt. subsidy equal to central govt. subsidy; subsidy only for EV For a PHEV, another 14k will be subsidized if: 1) engine size<=1.6L; 2) fuel Shanghai 10 30 30 24/10 300 50 1.5/kwh 1.5/kwh 300 400 600 consumption/100km<=5.9L; 3) fuel tank capacity<=40L Shenzhen 35 50 60 35 500 250 0.6/kwh 0.6/kwh 200 300 500 Guangzhou 25 45 55 30 500 250 1.8/kwh 1.8/kwh 200 300 500 Local govt. subsidy equal to central govt. subsidy Hangzhou 30 30 30 20 500 250 0.9/kwh 0.9/kwh 200 300 500 Tianjin 25 45 55 30 500 250 1.8/kwh 1.8/kwh 200 300 500 Local govt. subsidy equal to central govt. subsidy Nanjing 15 23 30 15 150 80 0.4/kwh 15 60 80 100 Haerbin 25 45 55 24 500 200 1.8/kwh 1.44/kwh 200 300 500 For EV/PHEV, local govt. subsidy equal to 100%/80% of central govt. subsidy For EV/PHEV Bus, local govt. subsidy equal to 70% of central govt. subsidy; for Shenyang 22.5 40.5 49.5 27 350 175 1.62/kwh 1.62/kwh 180 270 450 the rest, local govt. subsidy equal to 90% of central govt. subsidy Xi'an 25 45 55 30 500 250 1.08/kwh 1.08/kwh 200 300 500 Local govt. subsidy equal to central govt. subsidy Haikou 15 27 33 18 300 150 1.08/kwh 1.08/kwh 120 180 300 Local govt. subsidy equal to 60% of central govt. subsidy Xining 12.5 22.5 27.5 15 300 150 0.9/kwh 0.9/kwh 100 150 250 Local govt. subsidy equal to 50% of central govt. subsidy Shijiazhuang 12.5 22.5 27.5 15 250 125 0.9/kwh 0.9/kwh 100 150 250 Local govt. subsidy equal to 50% of central govt. subsidy Changchun 25 45 55 30 500 250 1.8/kwh 1.8/kwh 200 300 500 Local govt. subsidy equal to central govt. subsidy Wuhan 25 45 55 30 500 250 1.8/kwh 1.8/kwh 200 300 500 Local govt. subsidy equal to central govt. subsidy Guiyang 12.5 22.5 27.5 15 250 125 0.9/kwh 0.9/kwh 100 150 250 Local govt. subsidy equal to Guizhou province subsidy Wuxi 10 15 20 10 150 80 0.4/kwh 15 60 80 100 Local govt. subsidy equal to Jiangsu province subsidy Nantong 10 15 20 10 150 80 0.4/kwh 15 60 80 100 Jiangsu*10152010150800.4/kwh156080100 Hainan* 25 45 55 30 500 250 1.8/kwh 1.8/kwh 200 300 500 Local govt. subsidy equal to central govt. subsidy Shanxi* 25 45 55 30 500 250 1.8/kwh 1.8/kwh 200 300 500 Local govt. subsidy equal to central govt. subsidy Hebei* 25 45 55 30 500 250 1.8/kwh 1.8/kwh 200 300 500 Local govt. subsidy equal to central govt. subsidy Guizhou* 12.5 22.5 27.5 15 250 125 0.9/kwh 0.9/kwh 100 150 250 Local govt. subsidy equal to 50% of central govt. subsidy Henan* 80 40 (public bus) 60 (public bus) * 80 40 (public bus) 60 (public bus) Inner Mongolia* 80 40 (public bus) 60 (public bus)

Note: * represents the name of a province

Source: Government websites.

Exhibit 27: Only 23 out of 88 NEV pilot cities (25%) have implemented the supportive policies, although we expect more will announce favorable local policies this year Summary of NEV pilot cities that currently have supportive policies implemented

Beijing, Shanghai, Guangzhou, Shenzhen, Tianjin, Hangzhou, Nanjing, Chongqing, Chengdu, Qingdao, Wuhan, Xi'an, Haikou, Changsha, Haerbin, Shenyang, Shijiazhuang, Changchun, Guiyang, Xiamen, Foshan, Luzhou, Nantong 23

65

Cities with implemented promotion policies Cities with unimplemented promotion policies

Note: The number of cities with NEV promotion policies that have implemented the policies has now increased to 23, from 15 at the beginning of this year.

Source: Government websites.

Goldman Sachs Global Investment Research 17 August 31, 2016 BYD Co. (1211.HK)

Trend #2: High comps may lead to low yoy growth in 4Q16 In January-July 2016, the China NEV market recorded >120% yoy growth. Nevertheless, as shown in Exhibit 28 the high comps seen in 4Q15 could lead to low yoy growth in 4Q16, potentially hurting NEV market sentiment.

Exhibit 28: High comps in 4Q15 could lead to low yoy growth in 4Q16 Monthly NEV sales volume (unit) and growth rate (%)

90,000 800%

80,000 700% 70,000 600% 60,000 500% 50,000 400% 40,000 300% 30,000 200% 20,000

10,000 100%

‐ 0% 2016/1 2016/3 2016/5 2016/7 2015/1 2015/3 2015/5 2015/7 2015/9 2014/1 2014/3 2014/5 2014/7 2014/9

2015/11 2014/11

New Energy Passenger Vehicles New Energy Commercial Vehicles Growth (yoy) (RHS)

Source: CAAM, CPCA

Trend #3: Result of subsidy fraud probe may clear uncertainty regarding policy In January 2016, the Ministry of Finance (MoF), Ministry of Technology (MoT), Ministry of Industry and Information Technology (MIIT), and National Development and Reform Commission (NDRC) jointly announced an investigation into NEV subsidies fraud. On-site inspections led by the MoF started from February and had finished by the end of May. Then, in early July, an official supervision report was released and Premier Li Keqiang instructed regulatory institutions to penalize corporates and persons committing fraud (including the elimination of related auto models from the national NEV recommendation catalog, cancellation of the NEV subsidy, auto production disqualification, etc.) and to improve the NEV subsidy granting system. To date, the list of those likely to be penalized has not been released.

The final result of the subsidy fraud probe could be announced in the coming 1-2 months, according to a government announcement, which we believe should clear up uncertainty surrounding NEV-related policy trends as well as encourage more pilot cities to release detailed local supportive policies. According to the announcement, it will punish the low- quality NEV OEMs and favor the NEV industrial leaders with stronger technologies and quality assurance capabilities. Overall, we expect the upcoming final probe result to be a positive move that will help sustainable development of the NEV industry.

Goldman Sachs Global Investment Research 18 August 31, 2016 BYD Co. (1211.HK)

Exhibit 29: The result of the NEV subsidy fraud probe may be announced soon Timeline of NEV subsidies fraud probe

Time Events Jan 2016 MoF, MoT, MIIT and NDRC announced to investigate on the NEV subsidy fraud

Feb 2016 On‐site inspection led by MoF started

MoF announced that on‐site inspection had finished while hearing and trials were May 2016 being held A supervision report was released and Premier Li Keqiang instructed related Jul 2016 institutions to penalize corporates and persons committing fraud , but the list of

fraud was not released

Source: Government websites.

Trend #4: New entrants and new business models to fuel competition In addition to the existing OEMs who are increasingly paying more attention to the NEV market given continued strong demand, we have also seen a number of new entrants, including:

 Internet giants: Google is actively developing driverless EV cars; Alibaba.com has formed a partnership with SAIC to launch an “internet car” (and could launch an EV version in future according to SAIC); cooperates with Foxconn and Harmony on making EVs; Baidu is developing Advanced Driver Assistance System (ADAS) and Autonomous Vehicles (AV) and aims at mass production in five years; Apple is also widely reported (WSJ, , etc.) to be developing a car, potentially an EV.

 Electronic OEMs: Foxconn cooperates with Tencent and Harmony on making EVs; household electronic goods maker Gree announced the acquisition of Zhuhai Yinlong and its entrance into the NEV market in August 2016.

 Other EV specialists: Letv.com and its subsidiary Faraday announced the development of a “super car” and further development of a “complete new energy eco-system”; NextEV is to cooperate with JAC in developing EV; there are many other small EV makers in China that have also entered into the NEV space recently.

Over the last 1-3 years, we have also seen new business models emerging, including: i) a combination of EV/autonomous vehicle (AV)/shared mobility which could become the ultimate solution for future mobility; ii) autonomous diving technologies that remove mileage anxiety as an EV can automatically allocate a charging location when needed; and iii) the car sharing business model which reduces cost-benefit concerns of potential NEV users as they just use the car when needed but don’t own the car thus reducing concerns on the high cost of EV battery, etc.

Goldman Sachs Global Investment Research 19 August 31, 2016 BYD Co. (1211.HK)

Exhibit 30: New business models: Combination of EV/AV/shared mobility could be the ultimate solution for future mobility The evolving mobility solution

1

Electrification

Ultimate mobility 3 solution 2

Car Autonomous sharing driving

Source: Gao Hua Securities Research.

Overall, we expect competition in the NEV market in China to gradually intensify given more new entrants and also new business models. We believe these could be positive for NEV demand as product offerings become more extensive and the price of NEV or cost of using them could be lowered.

Goldman Sachs Global Investment Research 20 August 31, 2016 BYD Co. (1211.HK)

BYD profile: The world’s biggest NEV/battery maker in 2015

Autos the primary business, with NEV the future focus BYD has three major business divisions – handset components & assembly services, automobiles, and rechargeable batteries & others – among which automobiles is the largest, accounting for ~50% of revenue and assets in 2015, with NEV contributing 49% of the automobiles segment revenue.

The company has indicated that NEV business is its future focus, given the relatively ‘turbo-charged’ growth of NEV in the autos space. In April 2015, BYD released its “7+4” NEV strategy to explore all related sub-segments in the NEV space, ranging from PHEV, E- bus, E-taxi, E-truck etc., to e-forklift, e-airport vehicles, etc. We also see significant synergies among the different divisions of BYD, especially benefiting its NEV business. For example, the NEV and ICE business can share the chassis, exteriors, and some powertrain tech (especially for PHEVs); battery can be used in powertrain for NEV and also in energy storage; solar is a clean energy source for NEV; and electronics products can be used in ICE/NEV cars.

Exhibit 31: BYD has 50% of its revenue contributed by the Exhibit 32: BYD’s vision in “solar + storage + NEV” and auto (ICE+NEV) business its “7+4” NEV strategy BYD revenue breakdown, 2015 Summary of the BYD development strategy

Synergy among different divisions

• NEV + ICE: sharing the chassis, exteriors, and some powertrain 7% tech esp. for PHEVs

ICE NEV, • Battery: as powertrain for NEV and also used in energy storage 50% 42% Vehicles, 49% 51% • Solar: clean energy source for NEV • Electronics used in ICE/New Energy Vehicles “7+4” strategy to explore all related segments in NEV • The 7 major target segments include: E-bus, E-taxi, PHEV, Automobiles Environmental sanitation vehicles, E-bus for inter-city public Handset components & Assembly services transportation, E-truck, and selective construction machinery Rechargeable batteries and others • The 4 special vehicles/machinery segments include: e-forklift, e-airport vehicle, e-mining vehicle, and e-harbor vehicles

Source: Company data Source: Company data

Exhibit 33: Financial overview of BYD’s three divisions BYD revenue/PBT/total assets breakdown by division (2015, in Rmb mn)

Breakdown Revenue PBT Total assets PBT as % of revenue Asset turnover Handset components & Assembly services 32,928 1,277 25,953 3.9% 126.9% Automobiles 38,934 3,691 67,189 9.5% 57.9% Rechargeable batteries and others 5,750 988 16,769 17.2% 34.3% Subtotal 77,612 5,955 109,911 7.7% 70.6% Financing cost & others (2,160) 5,574 n/a n/a Total 77,612 3,795 115,486 4.9% 67.2%

Source: Company data

Goldman Sachs Global Investment Research 21 August 31, 2016 BYD Co. (1211.HK)

No. 1 market share in both NEV sales and NEV battery BYD was the biggest NEV maker globally in 2015, selling 58k units and capturing 11% market share. BYD Qin and BYD Tang both ranked in the Top 10 most popular NEV models globally in 2015. In China’s NEV market, BYD is a clear leader, with 18% market share in 2015. We expect the company to sustain its leadership and that its market share expands to 20% in 2020E thanks to its strong product cycle in the NEV space and also its first mover advantage.

Exhibit 34: BYD is the largest NEV maker globally with Exhibit 35: BYD Qin/Tang ranked in Top 10 most popular 11% market share in 2015 NEV models globally NEV sales volume (‘000 units) and market share (%) by OEM, NEV sales volume (‘000 units) and market share (%) by 2015 model, 2015

Rank OEM 2015 Sales Volume ('000) Market Share (%) Rank Model 2015 Sales Volume ('000) Market Share (%) Type 1 BYD 58.00 11 1Tesla Model S 50.34 9 EV 2Nissan Leaf 43.87 8 EV 2 Tesla 50.56 9 3Mitsubishi Outlander PHEV 43.26 8 PHEV 3 Mitsubishi 48.20 9 4BYD Qin 31.90 6 PHEV 4 47.67 9 5BMW i3 24.08 4 EV 5 40.15 8 6Kandi K11 Panda EV 20.39 4 EV 6 BMW 33.41 6 7Renault Zoe 18.85 3 EV 7 Kandi 28.06 5 8BYD Tang 18.38 3 PHEV 8 27.28 5 9Chevrolet Volt 17.51 3 PHEV 10 GTE 17.28 3 PHEV 9 Zotye 24.52 4 10 Ford 21.33 4 11 20.23 4 12 BAIC 17.04 3 13 Chery 14.16 3 14 12.12 2 15 SAIC 11.12 2 16 10.87 2 17 JAC 10.42 2 18 Volvo 10.16 2 19 7.63 1 20 6.53 1

Source: Company data, EVObsession Source: Company data, EVObsession

As well as its leading position in NEV globally, BYD also has leading EV battery capacity and market share in China as well. We expect its battery capacity to expand to 34 GWh in 2020E (vs. 10 GWh currently), taking 26% share in China.

Exhibit 36: BYD is a clear NEV leader in China Exhibit 37: BYD has leading auto battery capacity and BYD NEV sales volume (‘000) and market share (%) in China market share in China as well BYD battery capacity (GWh) and market share (%) in China

450 30% 40 30%

400 35 26% 26% 25% 25% 350 30 300 20% 21% 20% 25 250 16% 15% 20 15% 200 13% 34.0 34.0 15 12% 10% 10% 150 10% 24.0 10 100 16.0 5% 5% 5 10.0 50 1.6 4.0 0 0% ‐ 0% 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2014 2015 2016E 2017E 2018E 2019E 2020E

BYD NEV vol. BYD NEV MS (RHS) BYD battery capacity (GWh) Market Share (%) (RHS)

Source: Company data, CAAM, Gao Hua Securities Research. Source: Company data, Gao Hua Securities Research.

Goldman Sachs Global Investment Research 22 August 31, 2016 BYD Co. (1211.HK)

Company history overview: “Build Your Dream (BYD)” step by step Founded in 1995 in Shenzhen, BYD began manufacturing Li-ion battery in 1997 and was principally engaged in the IT industry, mainly related to business, handset and computer components, and assembly services in the beginning. The company listed on the Stock Exchange in 2002 and acquired Qinchuan Auto (located in Xi’an) in 2003. With BYD having entered the auto market, its first car model – the F3 – launched in April 2005. We look at BYD’s three phases of development in the auto space:

1. Fast growth in the ICE space before 2009 By launching a series of popular ICE models, with the help of reverse engineering, vertical integration, labor replacing machinery, as well as aggressive dealer development, BYD’s ICE auto business grew very fast (from 63k units in 2006 to 448k in 2009), becoming one of the leading local brands in China in 2009 based on market share. In September 2008, the company announced that had invested in a 10% stake, which pushed the stock price to a historical high.

2. Adjustment between 2010-2013 As a result of launching too many new models at the same time, expanding capacity aggressively, a lack of strong product quality controls, and channel over-stuffing, BYD’s auto business came under pressure, suffering a drop in profits in 2010 (its auto business operating margin was half in 2010 vs. the 2009 level), and the stock price fell. The BYD Chairman, , announced a 3-year adjustment period from 2010-2013, during which it gradually rebuilt brand and channel, improving product quality, and invested into technologies, launching the 1st generation of EV/PHEV car as well as the e-bus.

3. Refocusing on NEV since 2014 Since 2014, BYD has been refocusing on NEV business, by realigning different business divisions and investing in NEV technologies & battery. In April 2015, BYD released its “7+4” NEV strategy to explore all related sub-segments in NEV space. In July 2016, BYD announced it had completed a private placement, raising Rmb14.473bn capital to invest in EV battery capacity expansion and NEV R&D. With its vision in “Solar + storage + NEV”, BYD also actively develops solar and storage business that has synergies with its NEV business. In January 2015, the first PHEV SUV Model Tang was launched. Now BYD takes the lion’s share in the PHEV space in China and its product cycle in the EV space is gaining strength. The company in 2015 was the biggest NEV maker (excluding HEV) in both the world and in China, while it also has leading EV battery capacity and market share in China as well.

Goldman Sachs Global Investment Research 23 August 31, 2016 BYD Co. (1211.HK)

Exhibit 38: BYD’s historical path BYD H stock price (HK$) and key events summary

Stock price rallied on Jul, 2016: private 2009 revenue/net profit 90 placement raised went up 47.3%/271% BYD suffered from 2010 Rmb15bn capital to revenue/net income drop invest in battery capacity and NEV 80 (-0.7%/-45.1%) Dec, 2008: First NEV F3DM came out Jan, 2015: first 70 PHEV SUV Model Tang was Sep, 2008: Buffett launched 60 invested in BYD

Dec, 2007: BYD 50 Electronic listed on HK stock exchange Jun 2011: BYD A 40 Jan, 2003: BYD listed on SZ Stock acquired Qinchuan Auto Exchange and entered car market 30

Jul, 2002: Listed on the Apr, 2005: First 20 Apr, 2015: BYD HK Stock car model F3 released “7+4” NEV Exchange was launched strategy to explore all 10 Sep 2011: Chairman related sub-segments Wang announced a 3 in NEV space year adjustment period 0 8/15/2002 8/15/2004 8/15/2006 8/15/2008 8/15/2010 8/15/2012 8/15/2014 8/15/2016

BYD (H) Stock Price (HK$)

Source: Company data, Datastream.

Current strategic focus is on NEV and re-connecting the dots of different business divisions BYD began its strategic refocus on NEV in 2014, and is adopting a vertically integrated business model (e.g., including battery capacity) and re-connecting the dots of its different business divisions (EV, battery, solar, electronics) to fully utilize synergies between them. We see significant synergies among different divisions for BYD, and believe that in particular it could benefit the NEV business. The vertically integrated business model of BYD differentiates itself and increases its competitiveness to a large extent in the NEV space compared to other NEV manufacturers.

From a sub-segment point of view, BYD targets its pure electric vehicle business (i.e., e-bus and e-taxi) for public transportation, its plug-in hybrid vehicles for the private space, and plans to enter the new market in e-commercial vehicle/machinery, etc. We think BYD’s strategy fits well into the demand from different buyers in China.

On the one hand, private buyers care more about cost and availability of charging infrastructures; PHEV has lower battery size hence lower total cost, and can still run on ICE if the battery is running out of power; thus PHEV cars ease the mileage anxiety as well as cost-benefit concerns and fit well with the demand for private buyers at the current stage of the NEV cycle in China. For example, Qin (BYD’s PHEV sedan) was launched over two years ago and is still seeing sales volume of 2k-3k units per month in 2016. Tan (PHEV SUV) was launched in January 2015 targeting the “NEV+SUV” space, and three more PHEV SUVs (Song/Yuan/Ming) are due to be launched in 2016-2017.

Goldman Sachs Global Investment Research 24 August 31, 2016 BYD Co. (1211.HK)

On the other hand, buyers in the public transportation space are usually less price-sensitive (most city bus companies are state-owned in China), have their own charging infrastructure (less concerned about mileage anxiety), and have dedicated drivers (can schedule for time of charging); therefore, we believe BYD is correctly positioning itself by selling more pure EVs (both e-bus and e-taxi) to the public sector. For example, BYD launched the K9 e-bus for public bus transport, and the e-5/e-6 for taxi transport, which are now running in Shenzhen, Nanjing, Hong Kong, etc. The pure electric version of Qin with improved drivability was launched in 1H16 for the Beijing market.

Exhibit 39: BYD is strategically focusing on NEV and re-connecting the dots of its different business divisions Summary of BYD business and strategy focus

Handset components & Assembly Pure electric vehicles (EV) for public sector services

• Provision of electronic equipment for • Buyers in public transportation space are less NEV. price-sensitive, have their own charging Strategically infrastructure, and have dedicated drivers. focusing on NEV with bigger vision Automobiles of “NEV + Plug-in Hybrid vehicles (PHEV) for private energy space storage + • ICE platform, powertrain, dealer networks Solar” • Private buyers care more about cost and and other tech/infrastructure sharing with availability of charging infrastructures; NEV. • PHEV has lower cost; and can still run on ICE if battery is running out of power.

Rechargeable batteries Potential new market in e-commercial vehicle/machinery

• Provision of power batteries for NEV; • BYD released its “7+4” NEV strategy to explore all related sub-segments in the NEV space in • Development of solar panel to provide Apr 2015. clean energy for NEV.

Source: Company data, Gao Hua Securities Research.

Goldman Sachs Global Investment Research 25 August 31, 2016 BYD Co. (1211.HK)

Investment case: BYD’s unique competitive edge to drive stronger- than-consensus earnings

Earnings for 2016E-18E are 13%-41% above consensus We expect BYD to achieve significant EPS growth of 28%-64% in 2016E-18E, primarily driven by strong NEV business growth (we expect NEV sales volume to grow at a CAGR of 66% in 2015-18E). With our 2016E-18E EPS currently 13%-41% above Bloomberg consensus, we believe the street has not sufficiently factored in: 1) the strong NEV market growth in China; 2) BYD’s robust market share given its current NEV product portfolio; 3) the vertically integrated business model of BYD, which enables it to produce both NEV income and quickly ramp-up battery capacity; 4) the flexible manufacturing footprint of BYD, which should ensure a strong order book from outside its home turf; and 5) BYD’s ability to sustain operating margin at the double-digit level, due to continuing preferential NEV policies, cost savings on a larger scale, high capacity utilization, and front-loaded R&D/CAPEX.

Exhibit 40: Our 2016E-18E earnings for BYD are up to 41% above consensus Gao Hua estimates vs. Bloomberg consensus (in Rmb mn)

2016E 2017E 2018E GH BBG Diff. GH BBG Diff. GH BBG Diff. Revenue 103,214 100,886 2% 132,374 116,694 13% 159,352 130,284 22% Gross profit (excl. D&A) 19,184 18,166 6% 25,262 21,118 20% 31,185 23,073 35% EBIT 8,075 7,430 9% 10,220 8,323 23% 12,727 9,367 36% Pretax profit 6,336 5,699 11% 8,980 7,012 28% 11,567 8,068 43% Reported net profit 4,825 4,246 14% 6,858 5,283 30% 8,804 6,135 44% Reported EPS (Rmb) 1.87 1.66 13% 2.51 1.98 27% 3.23 2.29 41% Note: Consensus data as of August 29, 2016.

Source: Bloomberg, Gao Hua Securities Research.

Driver #1: Impressive secular total NEV market growth to 2025E We expect China’s NEV market to sustain 27.9% CAGR (2015-2025E) to reach 3.9mn units sold in 2025, more than 10X higher than the 331k units sold in 2015. As discussed earlier in this report, we have raised our estimates for the NEV market in China over 2016-2025 by 11%-21%, primarily reflecting: i) strict 2020/2025 fuel consumption standard for passenger cars; ii) sustaining preferential policies/TCO advantage beyond 2020E; and iii) new demand for the electric logistics vehicles.

Goldman Sachs Global Investment Research 26 August 31, 2016 BYD Co. (1211.HK)

Exhibit 41: We expect NEV to grow at a CAGR of 27.9% during 2015-2025E in China Sales volume of new energy CV, PHEV cars and EV cars (‘000) in China

4,500

4,000

3,500

3,000 2015‐2025E CAGR: 27.9%

2,500

2,000

1,500

1,000

500

‐ 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E

New energy CV sales volume ('000) PHEV car sales volume ('000) EV car sales volume

Source: CAAM, Gao Hua Securities Research.

Driver #2: Attractive product cycle driving strong NEV market share BYD has a strong new product cycle in the NEV space, especially in the new energy SUV sub-segment. It plans to launch three new models of PHEV/EV SUV, one PHEV sedan, and one PHEV MPV in the coming 12 months.

Exhibit 42: BYD has a strong product cycle in the NEV space, especially in the new energy SUV sub-segment Summary of BYD product portfolio in the NEV space

Sedan SUV MPV

Small Yuan (PHEV, 2H16)

Compact Qin (PHEV, Dec 13) Song (PHEV, 2H16) Shang (PHEV, 2H16/1H17) Qin 300 (EV, 1H16) e5 (EV, 1H16) Midsize Tenza (EV, Oct 14) Tang (PHEV, 1H15) e6 (EV, 2011) Han (PHEV, 17) Ming (PHEV, 1H17)

Source: Company data.

Meanwhile, the new energy SUV products to be launched by BYD will share the same platform as ICE SUV models, hence we believe BYD can win market share in both sub- segments of NEV and SUV with a product offering similar to Great Wall (the SUV leader in China with 10.3% market share in 2015, partly due to its extensive product offering). We expect BYD to gain market share via providing a full range of SUV products, especially adding the compact SUV (Song) and small SUV (Yuan) into its current product portfolio.

Goldman Sachs Global Investment Research 27 August 31, 2016 BYD Co. (1211.HK)

Exhibit 43: BYD’s SUV product offering structure should get it close to that of Great Wall in 2016-2017 Comparison of BYD and Great Wall SUV product portfolios

OEM BYD Great Wall Model S6 S7 Tang S3/Song S1/Yuan S9/Ming H1 H2 H6 Coupe CH7H8H9 Powertrain ICE ICE PHEV ICE/PHEV ICE/PHEV ICE/PHEV ICE ICE ICE ICE ICE ICE ICE Length (mm) 4810 4835 4815 4565 4360 5100 3898 4335 4640 4545 4700 4806 4856 Width (mm) 1855 1855 1855 1830 1785 2000 1729 1814 1825 1835 1925 1975 1926 Height (mm) 1680 1720 1720 1720 1690 1750 1621 1695 1690 1700 1718 1794 1900 (mm) 2720 2730 2720 2660 2595 3000 2460 2560 2680 2720 2850 2915 2800 No. of 5 7 5 5 5 7 5 5 5 5557 Engine size 1.5T/2.0T/2.4T 1.5T/2.0T 2.0T 1.5T/2.0T 1.5T 2.0T 1.5L 1.5T 1.5T/2.0T/2.4T 1.5T/2.0T 2.0T 2.0T 2.0T Transmission DCT/MT DCT DCT/Hybrid DCT/Hybrid DCT/Hybrid DCT/Hybrid MT/AMT MT MT/AT DCT MT/AT AT AT MSRP (Rmb'000) 79.9‐123.9 106.9‐146.9 251.3‐518.8 96.9‐280 59.9‐249.8 n/a 54.9‐82.9 88.8‐128.8 85.3‐162.8 118.8‐163.8 149.8‐169.8 179.8‐242.3 209.8‐272.8 Launching Time Sep, 2010 Oct, 2015 Jan, 2015 Oct, 15 Apr, 2016 2017E Nov, 2014 Jul, 2014 Aug, 2011 Apr, 2015 Apr, 2016 Apr, 2015 Nov, 2014 Retail vol 2015 (unit) 15,362 90,038 18,375 13,080 n/a n/a 74,571 168,467 373,229 30,000 n/a 8,985 14,011

Source: Company data, Autohome.com, CPCA.

Goldman Sachs Global Investment Research 28 August 31, 2016 BYD Co. (1211.HK)

Exhibit 44: We believe BYD could take the lion’s share in the PHEV space as its product cycle in the EV space becomes stronger NEV models by price/max mileage/sales volume (size of bubble), FY2015 background plus to-be-launched models in 2016-18

Price (in RMB)

800,000 Luxury PHEV Luxury EV

700,000

BMW 530Le

600,000

500,000 Volvo S60L

BMW i3 400,000 Audi A3 e‐tron

Denza Mainstream PHEV BAIC ES210

Mainstream EV BYD E6 300,000 E950

BYD Tang BYD Song PHEV BYD Qin EV BAIC EU 260 SGM Sail Springo Roewe E550 Changan Eado EV EV BYD Han PHEV Geely EC EV BAIC E150 BAIC EX200 BYD Qin PHEV BYD E5 BAIC EV200 Jingyi S50 EV 200,000 GA5 PHEV Fengshen E30L Chery Arrizo 7e Zoyte E200 BYD Yuan PHEV JAC iEV6S BAIC E160 Fengshen A60E Zoyte Yun 100 Sonata 9 PHEV Zoyte Sesame E30 JAC iEV Kandi K11 Geely ZD D2 Chery eQ EV BYD Shang PHEV Jiangling E100 Kandi K10 Trumpchi GS4 EV Low‐speed EV Changan Benben EV Zoyte E20 100,000

Chery QQ EV

‐ 0 50 100 150 200 250 300 350 400 450

Max Mileage (km) PHEV EV PHEV new model EV new model XXX BYD models

Source: Company data, Autohome.com, CPCA, Gao Hua Securities Research.

Goldman Sachs Global Investment Research 29 August 31, 2016 BYD Co. (1211.HK)

Exhibit 45: BYD also has a strong product cycle in the ICE SUV space SUV models by price/length/sales volume (size of bubble)/local (white bubble) or int’l brands (shadowed bubble); A0=small; A=compact; B=mid-sized; FY2015 background plus to-be-launched models in 2016-18E

Price (in RMB) SUV 300,000 Segment A0 Segment A Segment B

280,000 New BMW X1 260,000 Edge UR-V 240,000 Highlander Envision CDX QX30L 220,000 Tiguan

200,000 Kuga RAV 4 Outlander X-TRAIL 180,000 CR-V

160,000 Peugeot 3008 ix35 7 CS95 BYD Ming ICE Encore New Sportage 140,000 Qashqai Renegade XR-V Vezel Besturn X80 120,000 ix25 Fengshen AX7 NL-3 C3-XR CS75 GS4 BYD S7 100,000 Haval H2 NL-4 BYD Song ICE Ecosport Tiggo 5 Haval 6 GS Tiggo CX70 Venutia T70 Haima S5 80,000 CS35 T600 Jingyi SUV BYD S6 Haval H1 CS15 V3 S3 Baojun560 60,000 GX7 530 BYD yuan ICE 40,000

20,000

0 3,500 3,700 3,900 4,100 4,300 4,500 4,700 4,900 5,100

International brand BYD models New models Length (in mm) Domestic brand Source: Company data, Autohome.com, CPCA, Gao Hua Securities Research.

As a result of its strong product cycle in both the NEV and SUV space in China, we expect BYD to sustain a high market share in these segments, as shown in Exhibits 46 and 47.

Exhibit 46: Strong new product cycle to boost BYD’s Exhibit 47: ……as well as in the SUV space market share in the NEV space… BYD SUV (incl. ICE & NEV) volume (‘000 units) and market BYD NEV sales volume (‘000 units) and market share (%), share (%), 2013-20E 2013-20E

450 30% 350 3.0%

400 25% 300 2.5% 350 250 300 20% 2.0%

250 200 15% 1.5% 200 150 150 10% 1.0% 100 100 5% 50 0.5% 50

‐ 0% ‐ 0.0% 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

BYD NEV vol. BYD NEV MS (RHS) BYD SUV vol. BYD SUV MS (RHS)

Source: Company data, Gao Hua Securities Research. Source: Company data, Gao Hua Securities Research.

Goldman Sachs Global Investment Research 30 August 31, 2016 BYD Co. (1211.HK)

Driver #3: Vertically integrated business model (esp. sufficient battery capacity) underpin NEV leadership In China, most NEV makers rely on external suppliers for EV batteries (Exhibit 48). Although there has been a big capacity ramp-up of EV lithium-ion batteries in China since 2014, we believe it takes times for battery makers to gain the capability to consistently supply lithium-ion batteries with satisfactory quality standards suitable for NEV on a big scale. We see BYD’s integration of its EV battery business as a key competitive advantage for its NEV business given:

 Extensive experience in lithium-ion battery manufacturing: BYD started the business of manufacturing lithium-ion batteries for consumer electronic goods in 1997 and has been producing lithium-ion batteries for EV since 2009;

 Scale/cost advantage: By the end of 2015, BYD had built EV battery capacity of 10GWh, the biggest in the world. We expect its battery capacity to expand further to 34 GWh in 2020E and that this big scale should help it obtain a cost advantage;

 Speed in R&D: The vertically integrated business model of producing both the NEV unit and the EV battery in-house can lower the barriers of communication and increase the speed of R&D. Hence, we believe BYD is quicker than most competitors in launching new products.

Exhibit 48: Most OEMs in China rely on battery Exhibit 49: BYD battery bottleneck (less battery capacity outsourcing than needed for NEV demand) has been removed since Summary of EV makers and their battery makers 2015 BYD battery capacity (GWh) and utilization rate (%)

EV makers EV battery makers 40 90% BYD (BYD and Tenza) BYD 35 80% SAIC Jiexin, , LG 30 70% 60% Jianghuai Lishen, Guoxuan Hi-tech, Samsung 25 50% Lishen, CATL, Wanxiang, SK 20 40% 15 Dongfeng Lishen, Guoxuan Hi-tech, CALB 30% Changan CALB 10 20%

Zhongtai Lishen, CALB, BAK, Wina Battery 5 10% 0 0% BAIC CATL, BESK, Coslight, Microvast, BAK, SK 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E Geely/Kandi Lishen, Wanxiang, LG Battery capacity Utilization rate (RHS) Wuzhoulongi Coslight, OptiumNano

Source: Company data Source: Company data, Gao Hua Securities Research.

Goldman Sachs Global Investment Research 31 August 31, 2016 BYD Co. (1211.HK)

Driver #4: Flexible production footprint ensures strong orders outside home turf BYD’s auto business has three primary manufacturing bases, in Shenzhen, Xian and Changsha. Historically, local government pilot cities in China have generally favored local manufacturers when sourcing NEV (especially for e-bus/e-taxi vehicles used in the public sector), and we believe BYD’s flexible production footprint around China should ensure strong orders from cities outside its home turf.

Exhibit 50: Flexible manufacturing footprint of BYD should ensure strong orders outside its home turf BYD production base and orderbook by key cities in China

Cities 2015 EV bus order book (unit) Shenzhen 3,600

Chengde Shanwei 200 Guangzhou 400 Tianjin Changsha 400 Chengde 217 Tianjin 500 Wuhan 80 Nanjing 470 Xi’an Nanjing Hangzhou 750 Wuhan Dalian 625 Hangzhou Total 7,242

Changsha

Shantou Shenzhen

Manufacturing base NEV CKD base Orders received in 2015

Source: Company data, Gao Hua Securities Research.

Goldman Sachs Global Investment Research 32 August 31, 2016 BYD Co. (1211.HK)

Exhibit 51: BYD also underpins its order book from various countries outside China BYD overseas production base and order book by key cities

Order book (unit) 2015 e‐bus 51 Cuba 719 Long beach California 60 Canada London, Tokyo 5 UK Washington 750 Netherland Long Beach Paris, Netherland 35 California, France Campinas, Brazil 10 USA Tokyo, Washington, Japan TOTAL 1630 USA Antelope Valley California, USA Cuba 2016 Singapore e‐bus Canada 200 Indonesia 500

Indonesia Paris 16 Campinas, Antelope Valley California 85 Brazil e‐taxi Singapore 100 TOTAL 901

e‐bus plant Campinas, Brazil

Orders received in 2015 Orders received in 2016 NEV production base

Source: Company data, Gao Hua Securities Research.

Driver #5: OPM for NEV to sustain at double-digit level to 2020E In spite of the margin headwind as a result of intense competition in the NEV space in China (as discussed on page 19), we believe BYD can sustain its OPM at the double-digit level over our forecast period due to:

 Sustained preferential policy: As discussed in Exhibits 17 and 18, we expect government preferential policy on NEV will sustain (with a subsidy shift from purchase to usage) and that the TCO advantage of NEV over ICE vehicles will remain, which should help NEV makers like BYD to sustain OPM;

 Cost savings on larger NEV scale: We estimate BYD’s NEV revenues will grow at a CAGR of 44% from 2015-2020E. Also from Exhibit 54 we observe a positive correlation between BYD’s historical NEV OPM and NEV revenue. Hence, we believe there is potential cost savings to come from larger NEV scale;

 High capacity utilization: As shown in Exhibit 49 we expect BYD’s EV battery capacity utilization to sustain at a level between 55%-70% over our forecast period, broadly in- line with the levels seen since 2014 and much higher than the 20%-30% utilization rate seen during 2011-13;

Goldman Sachs Global Investment Research 33 August 31, 2016 BYD Co. (1211.HK)

 Front-loaded R&D/CAPEX: We believe that BYD’s relatively high operating leverage vs. peers could be explained by its front-loaded R&D and CAPEX in both the NEV and battery business. On July 25, 2016, BYD completed a private placement amounting to Rmb14.473bn and the company stated that the majority of the proceeds would be used to increase production capacity of lithium-ion batteries and to expand its NEV R&D operations. The company has proposed new LFP (lithium iron phosphate) battery capacity of 6.0GWh to be built at a cost of ~Rmb6.0bn (i.e., Rmb1.0bn per GWh). By the end of 2015, BYD had committed LFP capacity of 10.0GWh, thus implying that c.Rmb10.0bn of investment had already been made in NEV battery capacity before 2016. While limited disclosure means we do not know the exact NEV R&D investment to date by BYD, the scale of its proposed Rmb5.0bn NEV R&D project announced in the private placement plan, and the fact that BYD already has 10+ NEV models developed or in development, leads us to believe that a significant amount of investment had already been made in the NEV business before 2016.

Exhibit 52: BYD’s new energy vehicle OPM remains Exhibit 53: In 2016E, NEV OPM for BYD still looks high vs. higher than for closest peer Tesla peers due to high subsidy & vertical integration OPM comparison between BYD NEV business and Tesla OPM comparison between BYD’s NEV business and Tesla, as well as ICE car peers

20.0% 20% 17.1% 15.0% 15% 10.0% 12.1% 12.0% 10.70% 10% 5.0% 7.63%

0.0% 5% 2013 2014 2015 2016E 2017E 2018E 2019E 2020E ‐0.1% ‐5.0% 0% BYD NEV Tesla Great Wall BYD car ‐ Brilliance Geely ‐10.0% blended BMW ‐5%

BYD NEV OPM Tesla OPM EV ICE car

Source: Company data, Gao Hua Securities Research, Goldman Sachs Global Source: Gao Hua Securities Research, Goldman Sachs Global Investment Investment Research. Research.

Exhibit 54: We can see a positive correlation between Exhibit 55: High operating leverage for BYD, as shown by NEV OPM and revenue the positive correlation between its NEV OPM and BYD NEV OPM vs. NEV revenue, 1H2014-2H2015 revenue, might be explained by the front-loaded investment into battery capacity and NEV Usage of proceeds from private placement in 2016

25% y = 5E‐06x + 0.1149 Total Proposed amount of (%)

R² = 0.3072 No. Project Name Investment proceeds to be applied 1H16 (RMB mn) (RMB mn)

OPM 20% 1H15 1 LFP battery capacity expansion 6,023 6,000 1H14

NEV 2H15 2 NEV R&D 5,000 5,000 15% 3 Adding liquidity and repayment of bank borrowings 4,000 4,000 Total 15,023 15,000 10% 2H14 5%

0% ‐ 5,000 10,000 15,000 20,000 NEV revenue (RMB mn)

Source: Company data, Gao Hua Securities Research. Source: Company data

Goldman Sachs Global Investment Research 34 August 31, 2016 BYD Co. (1211.HK)

When comparing the OPM of BYD’s NEV business with Tesla (Exhibit 56), we found that excluding the government subsidy/ZEV credit income, as well as the EV battery OPM (BYD consolidates the EV battery business profit in the NEV divisional profit), the two companies actually had a similar OPM loss at minus low double-digits in the NEV business.

Exhibit 56: Why can the OPM of BYD sustain at higher levels than Tesla? We believe government subsidy/battery profitability/cost sharing with other business might be the key reasons OPM comparison between BYD NEV business and Tesla, 2015

BYD NEV Tesla EV Note Unit of sales 000 unit 58 51 ASP Rmb'000/unit 327 641 Revenue Rmb'mn 18,975 32,413

Government purchase subsidy per unit Rmb'000/unit 141 49 Assuming US$7,500 per unit ZEV subsidy for Tesla Subsidy goes to OEMs Rmb'000/unit 71 24 Assuming 50% of government subsidy goes to OEM Amount of purchase subsidy goes to OEMs Rmb'mn 4,090 1,232 CO2/ZEV credit Rmb'000/unit n/a 22 CO2/ZEV credit amount Rmb'mn n/a 1,097 As per Tesla financial report Total subsidy/credit amount Rmb'mn 4,090 2,329 as % revenue 21.6% 7.2%

OP Rmb'mn 3,134 (1,281) OPM% % 16.5% ‐4.0%

OP excl. subsidy/CO2 credit Rmb'mn (956) (3,610) OPM% excl. subsidy/CO2 credit % ‐5.0% ‐11.1%

EV battery revenue Rmb'mn 6,215 n/a EV battery OP Rmb'mn 654 n/a EV battery OP margin % 10.5% n/a Based on a listed EV battery maker's financial report

OP excl. subsidy/CO2 credit/battery profitability Rmb'mn (1,610) (3,610)

OPM% excl. subsidy/CO2 credit/battery profitability % ‐12.6% ‐11.1% Tesla OPM higher on premium pricing potentially

Notes: In the US, Tesla buyers directly receive a US$7,500 per car tax rebate from the federal government, while in China the government pays the NEV purchase subsidy to OEMs first then to the customer indirectly. In our analysis, we assume 50% of the government purchase subsidy goes to the OEMs (refer to Exhibit 86), but if there is no government subsidy on purchase (no matter if directly or indirectly to customers) then OEMs would need to pay out of their own pocket for about 50% of the money to customers to achieve a similar level of sales volume.

Source: Company data, Gao Hua Securities Research, Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 35 August 31, 2016 BYD Co. (1211.HK)

Exhibit 57: We expect BYD’s comparable OPM to be lower than that of Tesla, even though both are increasing OPM (excl. government subsidy, CO2 credit and battery profitability) comparison between the BYD NEV business and Tesla, 2015-2020E

12%

9%

6%

3%

0% 2015 2016E 2017E 2018E 2019E 2020E ‐3%

‐6%

‐9%

‐12%

‐15%

Tesla BYD‐NEV

Source: Company data, Goldman Sachs Global Investment Research, Gao Hua Securities Research.

Gearing down significantly in 2016E, operating cash inflow up We expect BYD’s gearing to gradually decline while operating cash inflow increases in the coming five years, in the main thanks to: i) strong growth of its NEV business (which enjoys a double-digit OPM), ii) the extra capital raised (amounting to Rmb14.473bn) in its recent private placement, and iii) front-loaded CAPEX and R&D – we expect total CAPEX to decline from its 2015 peak after the completion of its R&D related to multiple new NEV models launched/to be launched in 2015/16 and also the construction of its large LFP battery plant (end-2015).

Exhibit 58: BYD’s gearing should decline given its improving cashflow BYD net debt/equity (%) and cashflow from operations (Rmb bn), 2013-2020E

16 100%

90% 14 80% 12 70% 10 60%

8 50%

40% 6 30% 4 20% 2 10%

0 0% 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

Cash flow from operations (RMB bn) Net debt/equity (RHS)

Source: Company data, Gao Hua Securities Research.

Goldman Sachs Global Investment Research 36 August 31, 2016 BYD Co. (1211.HK)

Vs. Tesla: Similarities in strategy but BYD’s NEV business trades at a significant valuation discount

Tesla (TSLA; Buy; Overall, BYD and Tesla have similar business strategies but not US$211.34 as of without difference August 30, 2016 close) is covered by Strategy similarities: our US Automobiles analyst David  Vertically integrated as “NEV + Battery”; Tamberrino, CFA.  Inclusion of solar as source of clean energy to power NEV;  Expansion of NEV product offering from passenger car to commercial vehicles;  Expansion into car sharing & autonomous driving business.

Strategy differences:  BYD has an ICE car business as well as the PHEV business, which is suitable for individual Chinese buyers who currently have high mileage anxieties;  Tesla developed a more premium brand image/product with a higher price and advanced features like Autopilot;  BYD has some legacy businesses, like its handset assembly business which has limited relevance to the core NEV business;  The way the two companies organize their operations is different, with BYD having a more traditional industrial style and Tesla adopting a different approach. – Tesla founder Elon Musk in his “Master Plan, Part Deux” (July 20, 2016) mentioned that “Tesla engineering has transitioned to focus heavily on designing the machine that makes the machine -- turning the factory itself into a product”. He also claimed that even the world’s best automotive factories today — including Tesla’s own factory in Fremont — are hampered by outmoded and inefficient systems. He suggested that Tesla’s new Model 3 factory will be able to improve the efficiency “by 5-10 fold by version 3 on a roughly 2 year iteration cycle”. – The evolving manufacturing concept Tesla unveiled is very different from the traditional practice of car industry which is more the model BYD currently follows. Nevertheless, we see the potential for BYD to move towards a ‘smarter manufacturing’ model as the whole auto industry starts to pursue higher automation levels.

Goldman Sachs Global Investment Research 37 August 31, 2016 BYD Co. (1211.HK)

Exhibit 59: Business strategies of BYD and Tesla are similar Comparison between BYD and Tesla

Business BYD Tesla Auto Car EV Yes, core Yes, core HEV Yes, core N/a ICE Car Yes, scaling down N/a Bus e‐bus Yes, core Announced as part of Master Plan: Part Deux Truck e‐logistic truck Product launched Announced as part of Master Plan: Part Deux

e‐machinery To be launched N/a

Battery Car battery Yes, core Yes, core Energy storage battery Yes, core Yes, core Mobile phone battery Yes, used to be the core business N/a

Solar panel Yes Proposed acquisition of SolarCity

Car sharing Strategic cooperation with Didi Announced as part of Master Plan: Part Deux

Offers Autopilot semi‐autonomous features Strategic cooperation with Baidu Yes, core

Others Handset components and assembly Yes n/a Other electronic goods Yes n/a

Source: Company data.

We compare the outlook for the two companies’ NEV development While we expect BYD’s NEV sales volume to grow at a similar pace as Tesla over our forecast period, its ASP is much lower. Although BYD’s revenue is lower than Tesla through to 2020E, we believe the OPM of BYD’s NEV business will remain higher than Tesla, primarily due to higher subsidies.

Exhibit 60: BYD NEV sales volume to grow at a similar Exhibit 61: ……but the ASP is much lower at BYD… pace as Tesla… Average selling price (Rmb), 2015-20E Sales volume (unit), 2015-20E

800,000 800,000

700,000 700,000

600,000 600,000

500,000 500,000

400,000 400,000

300,000 300,000

200,000 200,000

100,000 100,000

‐ ‐ 2015 2016E 2017E 2018E 2019E 2020E 2015 2016E 2017E 2018E 2019E 2020E

Tesla BYD ‐auto blended BYD‐NEV Tesla BYD ‐auto blended BYD‐NEV

Source: Company data, Goldman Sachs Global Investment Research, Gao Hua Source: Company data, Goldman Sachs Global Investment Research, Gao Hua Securities Research. Securities Research.

Goldman Sachs Global Investment Research 38 August 31, 2016 BYD Co. (1211.HK)

Exhibit 62: …and its revenue is slightly lower than Tesla Exhibit 63: OPM of BYD’s NEV business is higher than Sales revenue (Rmb mn), 2015-20E Tesla, which we believe is mainly due to higher subsidy Operating profit margin (%), 2015-20E

160,000 20.0%

140,000 15.0% 120,000

100,000 10.0%

80,000 5.0% 60,000

40,000 0.0% 2015 2016E 2017E 2018E 2019E 2020E 20,000 ‐5.0% ‐ 2015 2016E 2017E 2018E 2019E 2020E ‐10.0% Tesla BYD ‐auto blended BYD‐NEV Tesla BYD ‐auto blended BYD‐NEV

Source: Company data, Goldman Sachs Global Investment Research, Gao Hua Source: Company data, Goldman Sachs Global Investment Research, Gao Hua Securities Research. Securities Research.

BYD’s NEV business trades at a much lower valuation vs. Tesla In Exhibit 64, we compare the valuation of BYD’s NEV business with that of Tesla and find that BYD is currently trading at 11.0X 2020E P/E, at around half the level of Telsa on 20.0X. Our 12-month SOTP-based target price of HK$61.93 for BYD implies its NEV business trades at 12.6X 2020E P/E, still well below Tesla’s current level in terms of 2020E P/E.

We believe part of this valuation premium could be attributed to Tesla’s technological leadership, higher brand recognition & pricing power and also its more diversified geographic presence. However, we believe this valuation gap could gradually close in terms of seeing BYD generate strong profitability and cash returns in the mid-to-long term. With BYD trading at a significant discount to Telsa on 2020E P/E, we believe its current valuation underappreciates this strong mid-term revenue/earnings growth.

Goldman Sachs Global Investment Research 39 August 31, 2016 BYD Co. (1211.HK)

Exhibit 64: BYD’s NEV business is at a much lower valuation than Tesla’s BYD and Tesla valuation comparison

Total company NEV and Battery BYD Tesla BYD Tesla Market cap US$mn 22,261 30,168 Market cap US$mn 19,808 28,513 Enterprise Value US$mn 27,644 31,569 Enterprise Value US$mn GCI 2016E US$mn 14,657 5,374 GCI 2016E US$mn NEV volume 2016E unit NEV volume 2016E unit 120,000 76,212 NEV volume 2020E unit NEV volume 2020E unit 396,483 285,966 Market cap/vol. 2016E US$'000/unit Market cap/vol. 2016E US$'000/unit 165.07 374.13 Market cap/vol. 2020E US$'000/unit Market cap/vol. 2020E US$'000/unit 49.96 99.71 Revenue 2016E US$mn 15,879 8,099 Revenue 2016E US$mn 5,983 7,655 Revenue 2020E US$mn 32,170 21,512 Revenue 2020E US$mn 17,850 20,744 P/S 2016E X 1.40 3.72 P/S 2016E X 3.31 3.72 P/S 2020E X 0.69 1.40 P/S 2020E X 1.11 1.37 Net income 2016E US$mn 742 (164) Net income 2016E US$mn 798 (155) Net income 2020E US$mn 2,011 1,477 Net income 2020E US$mn 1,801 1,424 P/E 2016E X 29.99 P/E 2016E X 24.83 P/E 2020E X 11.07 20.42 P/E 2020E X 11.00 20.02 EBITDA 2016E US$mn 2,241 703 EBITDA 2016E US$mn EBITDA 2020E US$mn 4,116 3,925 EBITDA 2020E US$mn EV/EBITDA 2016E X 9.87 44.91 EV/EBITDA 2016E X EV/EBITDA 2020E X 5.79 9.73 EV/EBITDA 2020E X CROCI 2016E % 16.9% ‐0.1% CROCI 2016E % CROCI 2020E % 19.9% 6.0% CROCI 2020E % EV/GCI/CROCI 2016E X 10.70 EV/GCI/CROCI 2016E X EV/GCI/CROCI 2020E X 7.36 47.69 EV/GCI/CROCI 2020E X

Notes: Gray area represents the data that is not available/applicable.

Source: Datastream, Goldman Sachs Global Investment Research, Gao Hua Securities Research.

Goldman Sachs Global Investment Research 40 August 31, 2016 BYD Co. (1211.HK)

BYD valuation: Attractive with clear near-term catalysts

NEV business contributes the lion’s share of our 12-m target price We use a sum-of-the-parts (SOTP) valuation methodology for BYD given the different nature and growth profile for each of its distinct business divisions (automobiles, handset components & assembly services, and rechargeable batteries & others). Our SOTP-based 12-m target price of HK$61.93 implies 15% upside potential, among the highest in our H- share OEMs coverage.

Exhibit 65: Nearly 90% of BYD’s 12-m target price of HK$61.93 is contributed by its NEV business BYD SOTP walkthrough with summary of bear/base/bull case analysis (in HK$)

Bear case Key assumptions Base case Key assumptions Bull case Key assumptions

Calculated from 2016E PB = 0.27X Assuming 10% EPS decrease vs. Assuming 30% EPS increase vs. 1. ICE car/car assembly valuation 5.52 5.58 (using 2016E PB vs. 2018E ROE 5.79 base base industry regression line). DCF, NEV vol. decreased by 8%- DCF, NEV vol. increased by 5%- 13% and OPM gradually lowered to DCF, NEV valuation implies 2016E 10% and OPM to sustain at a level 2. NEV valuation 33.57 9.6% by 2020E, the same level as 53.97 P/Sales = 3.3X, vs. Tesla valuation 68.64 above mid-teen digits before Tesla by then, NEV valuation @3.9X 2020E, NEV valuation implies implies 2016E P/Sales = 2.2X 2016E P/Sales = 4.2X 3. Handset components and 5.06 20% EPS decrease vs. base case 6.33 7.28 15% EPS increase vs. base case assembly service

3.1 BYDE 4.04 same as above 5.05 on actual price 5.80 same as above

3.2 Other handset components 1.03 same as above 1.28 1.0X 2016E P/B, same as BYDE 1.47 same as above

4. Rechargeable batteries and others 3.78 5.36 7.61

4.1 handset batteries 2.93 same as above 3.66 2016E P/B 1.0X, same as BYDE 4.21 same as above

2016E P/E of China battery average 4.2. Energy storage battery 0.85 Half on weaker demand 1.70 3.40 Double on stronger demand @22.3X

4.3 Solar panel - - loss making, 0 valuation -

5. MI/Financing costs (8.57) (9.30) (11.45)

5.1 MI - BYDE (1.41) 35% of BYDE value (1.77) 35% of BYDE value (2.03) 35% of BYDE value

5.2 other MI and financing costs (7.16) 5% less vs. base case (7.53) 1.0X 2016E P/B (9.42) 25% more vs. base case

SUM - HKD 39.37 61.93 77.86

Potential upside/downside (%) -27.1% 14.7% 44.2%

Notes: BYDE = BYD Electronics (0285.HK). Priced as of close on August 31, 2016.

Source: Company data, Gao Hua Securities Research.

Goldman Sachs Global Investment Research 41 August 31, 2016 BYD Co. (1211.HK)

From Exhibit 66 we can see that HK$53.97 of our BYD base case value per share of HK$61.93 is contributed by its NEV/EV battery business, making it the most significant contributor. We apply a DCF valuation methodology for the NEV/EV battery business with the following key assumptions:

 NEV sales volume to reach 608k units by 2025E, ~10 times higher than in 2015;

 OPM to sustain at ~13% level till 2020E, then gradually drop to ~11% by 2025E due to expiration of purchase subsidy as well as tougher competition;

 Terminal growth of 5% given increasing penetration of NEV in auto space beyond 2025E.

 Our discount rate at 8.7% is based on 6.0% equity market premium, 4.0% risk-free rate, 1.1X beta, 4.8% cost of debt, 8.3% effective tax rate, as well as long-run debt-to-capital ratio at 30%.

Exhibit 66: Our DCF analysis of BYD’s NEV business imputes a value of HK$53.97/share, 87% of our base case valuation BYD NEV business DCF walkthrough

NEV business DCF 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E

NEV Volume (unit) 58,000 120,000 196,125 264,050 319,059 396,483 445,753 500,401 560,453 585,418 607,980

ASP (RMB) 327,147 324,106 307,069 294,760 296,838 292,641 280,935 272,507 267,057 261,716 256,481

Total Revenue (RMB mn) 18,975 38,893 60,224 77,831 94,709 116,027 125,228 136,363 149,673 153,213 155,936

OPM% 5.0% 10.0% 16.5% 17.1% 15.4% 14.2% 13.3% 12.6% 12.1% 11.6% 11.1% 11.0% 10.8% EBIT (RMB mn) 59 725 3,134 6,635 9,267 11,017 12,615 14,651 15,186 15,855 16,654 16,818 16,883

D&A as % of revenue -6.7% -5.8% -5.1% -4.4% -3.9% -3.8% -3.6% -3.5% -3.4% -3.3% -3.2% -3.2% D&A (RMB mn) 1,097 1,979 2,623 3,057 3,594 4,196 4,403 4,659 4,964 4,928 5,015

Tax% 6.7% 15.3% 17.3% 17.5% 18.5% 19.5% 20.5% 20.5% 20.5% 20.5% 20.5% 20.5% 20.5%

Net Income (RMB mn) 55 614 2,592 5,472 7,550 8,866 10,026 11,644 12,070 12,601 13,236 13,367 13,418 As % of total company 113% 110% 101% 94% 89% Share count (mn shares) 2,728

EPS (RMB/share) 0.02 0.23 0.95 2.01 2.77 3.25 3.68 4.27 4.42 4.62 4.85 4.90 4.92

DCF Evaluation

Discount rate 8.7% Terminal growth 5.0%

Phase I Phase II Terminal value EV business DCF 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E Cash inflow per year (OPM after Tax + D&A) (RMB mn) 7,451 10,173 11,923 13,620 15,840 16,473 17,260 18,200 18,295 18,434 493,877 Cash outflow per year (CAPEX) (RMB mn) (7,741) (7,942) (7,768) (8,871) (9,410) (9,786) (10,253) (10,812) (10,868) (10,951) (293,387) Discount factor 1.00 1.09 1.18 1.29 1.40 1.52 1.65 1.80 1.95 2.12 2.12 Discount year - 1 2 3 4 5 6 7 8 9 9 DCF (RMB mn) (290) 2,052 3,514 3,695 4,600 4,400 4,240 4,112 3,801 3,523 94,376

Sum DCF (RMB mn) 128,022

Valuation per share (HK$) 53.97

Source: Company data, Gao Hua Securities Research.

Bull case scenario implies 44% upside potential to BYD We construct a bull case scenario with BYD NEV sales volume increased by 5%-10% vs. our base case and OPM to sustain at a level above mid-teen digits before 2020E which implies earnings upside of 6%-17% vs. our base case in 2016-2020E and a 30% further valuation upside vs. that implied by our base case. In our bull case we assume BYD obtains higher market share in the NEV space vs. our base case via its strong product pipeline underpinned by sufficient NEV battery supply. Extra cost savings from better scale is a key driver of our OPM assumption.

Goldman Sachs Global Investment Research 42 August 31, 2016 BYD Co. (1211.HK)

Bear case scenario implies 27% downside potential to BYD We also construct a bear case scenario with BYD NEV sales volume decreased by 8%-13% vs. our base case and OPM gradually lowered to 9.6% by 2020E, the same level as Tesla by then, which implies 27% valuation downside from the latest close. Our bear case assumptions are driven by more intense competition in the NEV space which could lead to weaker market share and margin erosion.

Exhibit 67: BYD NEV volume up 5%-10% in the bull case Exhibit 68: OPM of BYD NEV is kept at a level above mid- and down 8%-13% in the bear case vs our base case teen digits in our bull case while it is lowered gradually NEV sales volume (unit), 2015-20E to 9.6% (the same as Tesla in 2020E) in the bear case vs our base case Operating profit margin (%), 2015-20E

500,000 20.0%

450,000 18.0%

400,000 16.0%

350,000 14.0%

300,000 12.0%

250,000 10.0%

200,000 8.0%

150,000 6.0%

100,000 4.0%

50,000 2.0%

‐ 0.0% 2015 2016E 2017E 2018E 2019E 2020E 2015 2016E 2017E 2018E 2019E 2020E BYD‐NEV bull case BYD‐NEV base case BYD‐NEV bear case BYD‐NEV bull case BYD‐NEV base case BYD‐NEV bear case

Source: Company data, Gao Hua Securities Research. Source: Company data, Gao Hua Securities Research.

Exhibit 69: Earnings in the bull case scenario are 6%-17% Exhibit 70: Valuation upside in our bull case scenario is higher than our base case while they are 14%-30% lower another 30% on top of our base case, while the bear case in our bear case scenario implies 27% downside potential to BYD Net income comparison of bull/bear vs. base case, 2016E-20E Valuation comparison between bull/bear vs. base case

RMB mn 2016E 2017E 2018E 2019E 2020E HK$ per share Base case Bull case Bull vs. Base var% Bear case Bear vs. Base var% Net income - Base case 4,825 6,858 8,804 10,626 13,069 Implied Valuation-NEV 53.97 68.64 27.2% 33.57 -37.8% Net income - Bull case 5,099 7,613 9,913 12,130 15,257 Implied Valuation-Total 61.93 77.86 25.7% 39.37 -36.4% NI difference: Bull vs Bear 274 755 1,108 1,504 2,188 Upside/downside 14.7% 44.2% 29.5% -27.1% -41.8% NI difference % 5.7% 11.0% 12.6% 14.2% 16.7% Net income - Bear case 4,162 5,594 6,920 8,052 9,171 NI difference: Bear vs base (664) (1,265) (1,884) (2,574) (3,898) NI difference % -13.8% -18.4% -21.4% -24.2% -29.8%

Source: Gao Hua Securities Research. Source: Gao Hua Securities Research.

BYD trades below historical median-1STD in terms of 12m fwd. P/E The company currently trades on a 20X 12-month fwd. P/E (below the historical median minus 1 STD) and a 2.3X 12-month fwd. P/B (in-line with its historical median). Justified in our view by a 2015-18E EPS CAGR of 41% vs. 21% for our H-share OEM coverage, BYD trades at 21X 2017E P/E vs. peers on 13X. On the other hand, its new energy vehicle business (including EV battery) looks attractive vs. peers at 1.1X 2020E P/S and 11.0X 2020E P/E, well below Tesla’s 1.4X and 20.0X respectively.

Goldman Sachs Global Investment Research 43 August 31, 2016 BYD Co. (1211.HK)

Exhibit 71: BYD is trading at 20X 12-m fwd. P/E, below Exhibit 72: BYD is trading at 2.3X 12-m fwd. P/B, in line historical median –1STD with historical median 12-month forward P/E 12-month forward P/B vs. ROE

100 10.0X 30%

90 9.0X 25% 80 8.0X

70 7.0X 20% 60 6.0X

50 5.0X 15% Median P/E = 54.3 X 40 4.0X 10% 30 3.0X

20 2.0X Median P/B = 2.3 X 5% 10 1.0X

0 0.0X 0% Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15

12m Fwd P/E Median P/E 12m Fwd P/B (LHS) Median P/B ROE (RHS)

Source: Company data, Datastream, Gao Hua Securities Research. Source: Company data, Datastream, Gao Hua Securities Research.

Exhibit 73: Valuation summary: Global auto companies

Valuation Summary - Ticker Company name Currency Close Rating Market cap EPS P/E P/B ROE Dividend yield CROCI % 15-18E 8/31/2016 USD'mn CAGR 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 600104.SS SAIC CNY 22.08 Neutral 28,150 3% 7.6X 7.6X 7.5X 1.3X 1.2X 1.1X 17% 16% 15% 7% 7% 7% 22% 21% 20% 0489.HK Dongfeng HKD 8.29 Neutral 9,207 3% 4.9X 5.1X 4.8X 0.6X 0.6X 0.5X 14% 12% 12% 3% 3% 3% 16% 15% 16% 2238.HK GAC HKD 10.68 Buy 4,818 32% 7.3X 6.5X 6.1X 1.3X 1.2X 1.0X 19% 19% 18% 4% 5% 5% 8% 6% 4% 1114.HK Brilliance HKD 8.87 Neutral 5,746 11% 12.3X 10.7X 8.1X 1.7X 1.5X 1.3X 14% 15% 17% 1% 1% 2% 15% 17% 20% 000625.SZ Changan (A) CNY 15.60 Neutral 9,811 0% 6.6X 7.0X 7.3X 1.8X 1.6X 1.4X 29% 24% 20% 6% 6% 6% 32% 26% 24% 2333.HK Great Wall (H) HKD 7.53 Neutral 3,987 0% 6.4X 6.9X 7.3X 1.3X 1.2X 1.0X 22% 18% 15% 5% 4% 4% 25% 21% 19% 601633.SS Great Wall (A) CNY 10.50 Neutral 13,271 0% 10.5X 11.3X 11.8X 2.1X 1.9X 1.7X 22% 18% 15% 3% 3% 3% 25% 21% 19% 0175.HK Geely HKD 6.22 Buy* 7,057 39% 13.6X 9.2X 7.8X 2.1X 1.7X 1.5X 16% 21% 20% 1% 1% 2% 22% 26% 24% 1211.HK BYD HKD 54.00 Buy 14,270 41% 28.9X 21.5X 16.7X 2.9X 2.7X 2.4X 12% 13% 15% 1% 1% 2% 13% 14% 14% 600418.SS JAC CNY 11.61 Neutral 2,240 16% 12.8X 13.2X 12.6X 1.8X 1.7X 1.5X 15% 13% 13% 2% 2% 2% 30% 26% 22% 000800.SZ FAW Car CNY 10.40 Sell 2,534 92% NA NA 45.0X 2.2X 2.3X 2.2X -11% -4% 5% 0% 0% 0% 0% 3% 6% 2338.HK Weichai (H) HKD 9.79 Neutral 2,523 18% 18.5X 16.0X 14.7X 1.0X 1.0X 0.9X 6% 6% 6% 1% 2% 2% 14% 13% 12% 000338.SZ Weichai (A) CNY 8.86 Neutral 2,652 18% 19.8X 16.8X 15.4X 1.1X 1.0X 1.0X 6% 6% 6% 1% 1% 2% 14% 13% 12% 3808.HK HKD 3.80 Neutral 1,352 25% 31.1X 25.5X 22.3X 0.5X 0.5X 0.5X 1% 2% 2% 1% 1% 2% 7% 7% 7% China Average 22% 12.6X 11.3X 13.1X 1.4X 1.3X 1.2X 13% 13% 13% 3% 3% 3% 17% 16% 16% China Average (excl. FAW Car) 15% 13.9X 12.1X 10.9X 1.5X 1.4X 1.2X 15% 14% 13% 3% 3% 3% 19% 18% 17% China A share Average (excl. FAW Car) 8% 11.5X 11.2X 10.9X 1.6X 1.5X 1.3X 18% 15% 14% 4% 4% 4% 25% 21% 19% China H average 21% 15.4X 12.7X 11.0X 1.4X 1.3X 1.1X 13% 13% 13% 2% 2% 3% 15% 15% 15%

Valuation Summary - Global Peers Ticker Company name Currency Close Rating Market cap EPS P/E P/B ROE Dividend yield CROCI % 15-18E 8/31/2016 USD'mn CAGR 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E MRTI.BO Maruti INR 5,053 Buy 22,762 31% 27.1X 21.9X 18.3X 4.6X 4.6X 3.9X 18% 23% 23% 1% 1% 1% 16% 17% 19% TAMO.BO INR 537 Neutral 24,736 -8% 17.4X 16.3X 16.5X 2.3X 2.1X 1.9X 15% 13% 12% 0% 0% 0% 15% 14% 13% India Average 12% 22.3X 19.1X 17.4X 3.4X 3.3X 2.9X 17% 18% 17% 1% 1% 1% 15% 16% 16% 005380.KS Hyundai Motor KRW 133,000 Neutral 31,907 -3% 5.7X 6.0X 6.1X 0.5X 0.5X 0.5X 10% 9% 8% 3% 3% 3% 12% 12% 11% 000270.KS Kia Motors KRW 41,950 Sell 15,018 -2% 5.6X 6.9X 6.9X 0.6X 0.6X 0.5X 12% 9% 8% 3% 3% 3% 8% 7% 6% Korea Average -3% 5.7X 6.4X 6.5X 0.6X 0.5X 0.5X 11% 9% 8% 3% 3% 3% 10% 9% 9% PEUP.PA Peugeot EUR 13.45 Buy 12,974 15% 5.6X 6.1X 5.8X 0.9X 0.8X 0.8X 19% 15% 14% 4% 4% 4% 10% 7% 7% VOLVb.ST Volvo SEK 91.80 Neutral 23,559 0% 15.8X 13.8X 12.5X 2.1X 1.9X 1.8X 14% 14% 15% 3% 4% 4% 11% 11% 11% RENA.PA Renault EUR 73.36 Neutral 24,192 10% 5.6X 5.2X 5.0X 0.6X 0.6X 0.5X 12% 12% 11% 4% 4% 5% 8% 8% 8% BMWG.DE BMW EUR 78.46 Neutral 56,727 2% 7.6X 7.5X 7.7X 1.1X 1.0X 0.9X 15% 14% 12% 4% 5% 5% 14% 12% 11% FCHA.MI FCA EUR 6.21 Buy 10,485 22% 4.6X 3.4X 3.1X 0.5X 0.5X 0.4X 13% 15% 14% 0% 0% 0% 12% 12% 11% DAIGn.DE Daimler AG EUR 62.31 Buy 74,335 2% 7.9X 7.1X 7.5X 1.1X 1.0X 1.0X 15% 15% 13% 5% 5% 5% 15% 17% 16% VOWG_p.DEVolkswagen EUR 124.80 Sell 71,756 23% 7.7X 5.5X 5.1X 0.7X 0.6X 0.5X 11% 11% 11% 2% 3% 4% 7% 7% 7% Europe Average 10% 7.8X 6.9X 6.7X 1.0X 0.9X 0.8X 14% 14% 13% 3% 4% 4% 11% 11% 10% 7203.T Toyota Motor JPY 6,238 Buy 192,198 -7% 10.1X 12.7X 11.4X 1.4X 1.1X 1.0X 14% 9% 9% 3% 3% 3% 14% 11% 11% 7269.T Suzuki Motor JPY 3,429 Buy* 18,590 13% 16.0X 11.7X 13.8X 2.0X 1.7X 1.5X 10% 15% 12% 1% 1% 1% 11% 13% 15% 7201.T Nissan Motor JPY 1,015 Neutral 41,239 4% 9.5X 8.3X 8.3X 1.1X 0.8X 0.8X 11% 10% 10% 4% 5% 5% 5% 7% 7% 7261.T Mazda Motor JPY 1,706 Buy 9,916 -8% 10.0X 9.7X 8.2X 1.4X 1.0X 0.9X 15% 11% 12% 1% 2% 2% 13% 10% 11% 7202.T Motors JPY 1,191 Buy 9,730 2% 10.2X 8.4X 8.0X 1.6X 1.2X 1.0X 15% 14% 14% 2% 3% 3% 9% 9% 10% 7267.T Motor JPY 3,170 Buy 55,585 3% 19.8X 12.1X 10.7X 1.0X 0.8X 0.8X 5% 7% 8% 2% 3% 3% 10% 8% 6% 7205.T JPY 1,146 Neutral 6,364 -7% 12.5X 12.4X 11.0X 1.9X 1.4X 1.3X 15% 12% 12% 3% 2% 3% 8% 7% 8% 7270.T Fuji Heavy JPY 4,098 Neutral 31,116 6% 7.9X 11.7X 10.4X 2.6X 2.1X 1.9X 37% 19% 19% 3% 4% 4% 38% 22% 21% Japan Average 1% 12.0X 10.9X 10.2X 1.6X 1.3X 1.2X 15% 12% 12% 2% 3% 3% 13% 11% 11% F Ford USD 12.55 Neutral 49,861 -5% 6.8X 6.5X 7.7X 1.5X 1.3X 1.2X 24% 22% 17% 7% 5% 5% 17% 15% 11% GM GM USD 31.67 Neutral 49,025 -6% 5.2X 5.5X 7.5X 1.1X 1.0X 0.9X 22% 18% 12% 5% 5% 5% -3% 20% 15% TSLA Tesla Motors USD 211.34 Buy 30,168 NA 80.3X 11.5X 12.7X 12.2X -9% -2% 16% 0% 0% 0% -6% 9% 15% American Average -5% 6.0X 6.0X 31.8X 4.7X 5.0X 4.8X 13% 13% 15% 4% 3% 3% 3% 14% 14% American Average (excl. Tesla) -5% 6.0X 6.0X 7.6X 1.3X 1.1X 1.0X 23% 20% 14% 6% 5% 5% 7% 17% 13% Note: *denotes the stock is on our regional Conviction List. NA=Not Applicable. All target prices are on a 12-month basis, except for Tesla on a 6-month basis.

Source: Datastream, Company data, Goldman Sachs Global Investment Research, Gao Hua Securities Research.

Goldman Sachs Global Investment Research 44 August 31, 2016 BYD Co. (1211.HK)

We see clear positive catalysts for BYD in the coming 12 months In addition to our view of secular NEV market growth and stronger-than-consensus earnings for BYD, we see clear positive catalysts for the company in the coming 12 months, listed as below:

 More cities in China to announce local preferential NEV policies post the expected release of the result of the probe into NEV subsidy fraud (announcement due in the next few months) – see Exhibit 27 which shows that only 23 out of 88 NEV pilot cities (25%) have implemented the supportive policies to date;

 BYD plans to launch EV/PHEV versions of the Song/Yuan SUVs in 2H2016 and its e- logistic product by the end of 2016;

 Power battery capacity likely to increase further from 10GWh as of end-2015 to 16GWh in 2017, based on company guidance;

 Strong FY2016 (to be reported in March 2017) earnings versus consensus expectations.

Goldman Sachs Global Investment Research 45

August 31, 2016 Goldman Sachs Global Investment Research Exhibit 74: BYD – summary income statement, 2005-2020E (in Rmb mn, except per share in Rmb)

High growth driven Growth stagnant, started to High COGS on weak Automotive business growth Higher D&A by auto/handset refocus on quality, rebuild pricing, lower volumes, resumed due to NEV/SUV, on car battery assembly the channel, launch more label cost increase more handset assembly capacity & upgraded/SUV models at business on metal casing & NEV R&D competitive prices other new tech improvement

Income statements 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

Total sales/revenues 6,498 12,939 21,211 26,788 39,469 46,685 46,312 44,381 49,768 55,366 77,612 103,214 132,374 159,352 181,966 209,106 yoy % 99% 64% 26% 47% 18% (1%) (4%) 12% 11% 40% 33% 28% 20% 14% 15%

COGS (ex-depreciation) (4,506) (9,412) (16,032) (20,187) (29,174) (36,239) (36,768) (35,998) (39,719) (43,531) (60,439) (77,538) (100,105) (120,666) (137,518) (157,715) Others ------Total COGS (4,506) (9,412) (16,032) (20,187) (29,174) (36,239) (36,768) (35,998) (39,719) (43,531) (60,439) (77,538) (100,105) (120,666) (137,518) (157,715)

Gross profit 1,993 3,526 5,179 6,601 10,295 10,446 9,545 8,382 10,049 11,836 17,173 25,676 32,268 38,685 44,448 51,391

SG&A (820) (1,562) (2,161) (3,623) (4,143) (5,802) (5,476) (4,713) (5,764) (6,615) (8,659) (11,774) (15,762) (19,133) (22,031) (25,526) Other operating income/(expense) 39 132 251 242 280 504 431 373 481 921 500 665 720 675 771 886 Total operating expense (781) (1,430) (1,911) (3,382) (3,863) (5,298) (5,045) (4,341) (5,283) (5,694) (8,159) (11,109) (15,042) (18,458) (21,259) (24,639) EBITDA 1,212 2,097 3,268 3,220 6,432 5,148 4,499 4,042 4,766 6,142 9,013 14,567 17,226 20,227 23,189 26,752

Depreciation (346) (477) (840) (1,211) (1,594) (2,017) (2,516) (3,020) (3,209) (3,704) (4,486) (5,251) (5,765) (6,259) (6,905) (7,562) Amortization (10) (49) (58) (120) (136) (165) (162) (236) (324) (509) (828) (1,241) (1,241) (1,241) (1,241) (1,241) EBIT (operating profit) 856 1,571 2,370 1,889 4,702 2,966 1,822 786 1,233 1,929 3,700 8,075 10,220 12,727 15,043 17,949

Interest income 7 14 28 91 18 27 55 51 70 105 53 120 306 226 152 117 Interest expense (143) (247) (388) (492) (255) (281) (742) (862) (1,017) (1,397) (1,517) (1,592) (1,408) (1,285) (1,113) (943) Net interest income/expense (136) (233) (360) (401) (237) (254) (687) (812) (947) (1,292) (1,464) (1,472) (1,101) (1,058) (961) (826) Profit/loss on disposal of assets (pre-tax) ------503 - (95) (103) 1,438 - - - - - Foreign exchange gain/(loss) (10) (24) (74) (279) (19) 101 40 31 175 62 126 - - - - - Net income from associates ------(6) 0 (12) (1) 3 - - - - - Share of results in jointly controlled entities - - - - - 26 7 (25) (36) (121) (246) (251) (239) (203) (167) (123) Impairment loss of assets - - (103) (5) ------Other non-operating income/expense (117) (133) (90) 161 63 303 50 310 514 400 237 (16) 100 100 140 160 Non-operating income/(loss) (263) (390) (627) (525) (193) 176 (94) (495) (401) (1,055) 95 (1,739) (1,241) (1,161) (988) (788) Pre-tax profit (income before tax) 593 1,181 1,743 1,364 4,509 3,142 1,727 291 832 874 3,795 6,336 8,980 11,567 14,054 17,161

Income taxes (90) (53) (41) (88) (431) (224) (132) (78) (56) (134) (657) (1,110) (1,663) (2,258) (2,884) (3,521) Minority interest 0 (11) (91) (254) (285) (395) (210) (132) (223) (306) (315) (401) (458) (504) (544) (570) Preferred dividends ------Extraordinary gain/(loss) ------Net income 503 1,117 1,612 1,021 3,794 2,523 1,385 81 553 434 2,823 4,825 6,858 8,804 10,626 13,069

EPS - basic 0.93 2.07 2.99 0.59 1.85 1.11 0.60 0.03 0.23 0.18 1.14 1.87 2.51 3.23 3.90 4.79 EPS - fully diluted 0.25 0.54 0.79 0.50 1.85 1.11 0.60 0.03 0.23 0.18 1.14 1.87 2.51 3.23 3.90 4.79

Most incremental profit coming from Car profit declined significantly on High gearing Car profitability resumes, battery

auto business, with strong volumes weaker volumes per model and and thus high business profitability turnaround, BYD Co. (1211.HK) per model, cost advantage on reverse price erosion. Higher loss on solar financing cost financing cost to stabilize/decline engineering, vertical integration, as panel business. Heightened on improved cash flow well as strict labor cost control financing cost on high gearing

46 Source: Company data, Gao Hua Securities Research.

August 31, 2016 Goldman Sachs Global Investment Research Exhibit 75: BYD – summary balance sheet, 2005-2020E (in Rmb mn)

High growth driven Investment remainedPrepaid lease Investment refocusing by auto/handset strong on solar, autopayment and other on NEV and power assembly assets and NEV/battery deferred assets mainly battery capacity business expansion

Balance sheets 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

Cash and equivalents 682 1,617 5,540 1,701 2,317 1,979 3,737 3,487 4,511 3,950 6,011 15,318 11,321 7,591 5,849 3,931 Net receivables 2,124 2,994 5,433 5,566 9,793 8,299 10,067 10,280 13,524 22,727 27,165 35,277 44,156 53,155 59,202 68,033 Inventory/stocks 2,232 3,157 4,549 6,916 4,408 6,538 6,596 7,345 8,221 9,978 15,751 20,207 26,088 31,446 35,837 41,101 Other current assets 354 346 779 717 679 1,737 2,380 2,213 3,710 4,179 5,593 6,152 6,460 6,783 7,122 7,478 Current assets 5,391 8,114 16,300 14,900 17,197 18,553 22,780 23,324 29,966 40,835 54,519 76,954 88,024 98,974 108,011 120,542

Gross PP&E/Fixed assets 6,149 8,937 12,501 18,015 23,800 31,954 41,320 47,878 50,589 56,572 62,883 72,694 83,335 94,197 106,558

119,691 Less accumulated depreciation (885) (1,344) (2,159) (3,299) (4,893) (6,910) (9,426) (12,446) (15,655) (19,358) (23,844) (29,095) (34,860) (41,119) (48,024) (55,586) Net PP&E/Fixed assets 5,264 7,593 10,342 14,716 18,907 25,044 31,894 35,432 34,935 37,213 39,039 43,599 48,475 53,078 58,534 64,105 Gross intangibles 407 599 853 1,117 1,293 1,917 3,271 4,696 6,345 8,232 9,855 9,855 9,855 9,855 9,855 9,855 Accumulated amortization (79) (128) (208) (328) (463) (629) (790) (1,027) (1,350) (1,859) (2,687) (3,928) (5,169) (6,410) (7,651) (8,892) Net intangibles 329 471 645 789 829 1,289 2,481 3,669 4,995 6,373 7,169 5,928 4,687 3,446 2,205 964 Total investments - 2 2 2 2 59 587 952 1,093 1,449 4,960 4,834 4,720 4,643

4,601 4,604 Other long-term assets 230 206 2,000 2,485 3,801 8,930 9,139 6,630 7,026 8,140 9,799 10,779 11,318 11,884 12,478 13,102 Total assets 11,213 16,387 29,288 32,891 40,736 53,875 66,881 70,008 78,015 94,009 115,486 142,094 157,224 172,025 185,829 203,317

Accounts payable 1,986 3,322 5,715 6,849 11,519 11,033 17,236 18,952 22,293 25,851 30,656 36,142 45,290 52,939 58,449 64,873 Short-term debt and current portion of long-term debt 2,214 4,228 6,872 4,371 547 11,003 11,342 11,288 16,172 19,172 26,413 27,413 27,213 26,513 26,013 26,013 Other current liabilities 944 1,945 2,994 3,176 6,312 6,638 6,050 6,988 4,879 7,998 9,041 10,684 10,756 11,243 12,229 12,962 Current liabilities 5,144 9,494 15,581 14,395 18,377 28,675 34,628 37,228 43,344 53,022 66,110 74,239

83,259 90,695 96,691 103,848

Long-term debt 1,830 1,517 1,295 4,792 3,107 3,049 7,079 7,341 8,652 10,979 11,230 11,230 11,230 11,030 10,330 10,330 Other long-term liabilities/creditors - 8 2 367 225 999 1,194 1,294 1,162 1,113 2,116 2,540 3,048 3,505 4,031 4,635 Total long-term liabilities 1,830 1,525 1,297 5,159 3,331 4,048 8,273 8,635 9,814 12,092 13,346 13,770 14,278 14,535 14,361 14,965 Total liabilities 6,974 11,019 16,878 19,554 21,708 32,724 42,901 45,863 53,158 65,114 79,457 88,009 97,537 105,230 111,051 118,813

Preferred shares ------1 ------Common stock 540 540 540 2,050 2,275 2,275 2,354 2,354 2,354

2,476 2,476 16,949 16,949 16,949 16,949 16,949 Treasury stock ------Retained earnings 3,636 4,753 10,169 9,235 14,407 16,185 18,770 18,843 19,356 22,890 26,618 29,801 34,945 41,548 48,986 58,135 Other common equity ------3,200 3,200 3,200 3,200 3,200 3,208 Total common equity 4,175 5,292 10,708 11,286 16,682 18,460 21,125 21,197 21,710 25,366 32,294 49,950 55,094 61,697 69,135 78,291 Minority interest (balance sheet) 64 75 1,702 2,052 2,345 2,691 2,856 2,947 3,147 3,529 3,735 4,135 4,594 5,098 5,642 6,213 Total shareholders funds/equity 4,240 5,368 12,410 13,337 19,027 21,151 23,980 24,144

24,856 28,895 36,029 54,085 59,687 66,795 74,778 84,504 Total liabilities and equity 11,213 16,387 29,288 32,891 40,736 53,875 66,881 70,008 78,015 94,009 115,486 142,094 157,224 172,025 185,829 203,317 BYD Co. (1211.HK)

Long A/P days via Sizeable borrowing Gradually reimburse squeezing suppliers in 2010 due to cash some loans as cash constraints flow improves

47 Source: Company data, Gao Hua Securities Research.

August 31, 2016 Goldman Sachs Global Investment Research Exhibit 76: BYD – summary cash flow statement, 2005-2020E (in Rmb mn)

Investment remainedInvestment refocusing Investment strong on solar, autoon NEV and power gradually slows as and NEV/battery battery capacity NEV/battery business expansion business set up

Cash flow statements 2005 2006Cash flow 2007 peaked 2008on 2009 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E strong car sales/profit, Income pre-preferred share dividendsas well 503 as squeezing 1,117 1,612 1,021 3,794 2,523 1,385 81 553 434 2,823 4,825 6,858 8,804 10,626 13,069 Minority interest add-back (0) 11 91 254 285 395 210 132 223 306 315 401 458 504 544 570 Depreciation and amortization add-backdealers/suppliers 356 526 on 898 1,331 1,730 2,182 2,678 3,256 3,533 4,212 5,314 6,492 7,006 7,500 8,146 8,803 NI from associates and jointly controlled entitiespayment - terms - - - - (26) (1) 25 48 122 243 251 239 203 167 123 Net loss/(gain) on asset sales 11 (1) 154 38 136 52 (164) 244 221 252 (1,100) - - - - - (Increase)/decrease in working capital : 376 467 (1,585) (1,023) 2,716 (995) 2,383 1,441 (1,933) (8,455) (5,915) (7,082) (5,612) (6,708) (4,930)

(7,670) Accounts receivable 101 (1,176) (2,868) (279) (4,232) 1,661 (2,168) 21 (3,345) (10,326) (6,195) (8,113) (8,878) (8,999) (6,048) (8,830) Inventory (780) (1,014) (1,424) (2,412) 2,278 (2,171) (245) (966) (986) (1,918) (6,224) (4,456) (5,881) (5,358) (4,391) (5,264) Accounts payable 1,055 2,658 2,708 1,668 4,670 (485) 4,796 2,386 2,398 3,789 6,503 5,486 9,148 7,649 5,509 6,424 Other operating cash flow items 268 381 576 194 3,355 (992) (507) 377 (208) 3,166 2,162 (1,116) (339) (432) (408) (375) Cash flow from operations 1,514 2,501 1,746 1,816 12,016 3,139 5,985 5,555 2,436 37 3,842 3,771 8,612 9,872 14,146 14,519

Capital expenditure (1,883) (3,007) (5,708) (6,430) (7,310) (13,436) (9,412) (7,150) (5,808) (4,241) (6,073) (10,321) (10,590)

(10,358) (11,828) (12,546) (Acquisitions)/divestitures (24) 13 656 117 37 80 85 134 272 797 1,809 904 452 - - - Investments - - - 436 128 653 404 (140) (160) (194) (125) (125) (125) (125) (125) (125) Other investment cash flow items (23) (35) 40 (558) (29) 20 - 2,547 (155) (4,262) (6,347) (394) (503) (504) (534) (578) Cash flow from investing (1,931) (3,029) (5,012) (6,435) (7,174) (12,683) (8,923) (4,610) (5,851) (7,901) (10,736) (9,937) (10,766) (10,987) (12,487) (13,250)

Dividends paid (common and preferred) - - (216) (701) - (751) ------(1,643) (1,715) (2,201) (3,188) Share repurchase/issue (change In common stock) - - 5,411 - - - 1,368 - - 3,342 - 14,473

- - - - Increase/(decrease) in short-term debt 886 1,712 2,387 1,039 (5,519) 10,391 3,733 (3,085) 3,232 5,314 5,774 1,000 (200) (700) (500) Increase/(decrease) in long-term debt ------993 2,968 2,988 - 4,692 (200) (700) Increase/(decrease) in preferred shares ------Change in minority interest - - (4) (149) (1) (52) 1 (41) - 100 ------Other financing cash flow items (470) (249) (389) 592 1,294 (383) (1,399) (1,038) (1,781) (1,454) (1,511) - - - - - Cash flow from financing 416 1,463 7,188 781 (4,227) 9,206 4,697 (1,197) 4,440 7,303 8,955 15,473 (1,843) (2,615) (3,401)

(3,188)

Effect of foreign exchange rate changes ------

Total cash flow (0) 935 3,922 (3,838) 615 (338) 1,759 (251) 1,024 (561) 2,061 9,307 (3,997) (3,730) (1,742) (1,919)

H-share SignificantA-share H-share A-share private BYD Co. (1211.HK) private increasedual in listing private placement completed placement gearing placementin July 2016

Source: Company data, Gao Hua Securities Research. 48

August 31, 2016 BYD Co. (1211.HK)

Introducing M&A rank for BYD

As discussed in our “Introducing M&A framework; highest potential for M&A – FAW Car, Harmony, July 12, 2016” report, we examine stocks across our coverage universe using an M&A framework, considering both quantitative factors (size, shareholding, growth exposures, and potential cost synergies) and qualitative factors (attractiveness of assets, probability of anti-trust regulation, and company announcements on M&A activities) to incorporate the potential that certain companies could be acquired at a premium to current share prices.

Quantitative factors:  Size: We believe that the smaller the company is, the more feasible it becomes as an M&A target;

 Shareholding structure: We believe that privately owned (i.e., non-SOE) companies are more attractive M&A targets due to potential veto from SOE controlling shareholders. Also, in general, the more fragmented the shareholder structure of one company is, the more feasible it becomes as an M&A target;

 Growth exposure: We believe the higher the sales growth a company has, the more feasible it becomes as an M&A target; and

 Potential cost synergies: We focus on the EBITDA margin level of the companies and believe that the lower the EBITDA margin a company has, the higher the feasibility it might become an M&A target due to higher potential cost synergies.

Qualitative factors:  Asset attraction: We combine two factors – an industry positioning (CAP) score and R&D as a percentage of revenue – in determining the attractive of the assets of a certain company and believe that the higher the asset attractiveness, the higher the feasibility it might become an M&A target;

 Regulation and anti-trust rules: We believe companies with lower market share may face a lower possibility of triggering an anti-trust regulatory probe, which could suggest a higher M&A probability; and

 Company announcement on potential M&A plan: We see higher certainty of M&A if a company has announced the possibility it could be acquired in the foreseeable future.

Scoring method: Mean of seven metrics, with two dominant factors We then assign an M&A score as a means of ranking companies under coverage from 1 to 4, with 1 representing high (30%-50%) probability of M&A activity, 2 representing medium (15%-30%) probability, 3 representing low (10%-15%) probability and 4 representing minimal to no probability (0%-10%). However, to take into consideration the dominant factors which could be key impediments or key accelerators, such as ownership structure and the level of M&A activity, we overlaid our M&A framework for the China auto industry with the following:

 If a company is an SOE and there has been no announcement on any potential M&A deal for that company, we assign an M&A Rank of 4 as potential M&A activity has ‘minimal to no probability’ as a result of potential veto from its controlling SOE; and

 If a company has made a clear announcement on any potential M&A deal for that company, we assign an M&A Rank of 1 as potential M&A activity has ‘high probability’.

Goldman Sachs Global Investment Research 49

August 31, 2016 Goldman Sachs Global Investment Research Exhibit 77: We consider seven metrics and two dominant factors in our M&A framework for the China auto space Summary of scoring method in our M&A framework for the China auto space

Metrics Metric 1 Metric 2 Metric 3 Metric 4 Metric 5 Metric 6 Metric 7 Final Regulation & anti‐ Company Shareholding Asset Cost synergies trust in the announcement on Details Size structure attractiveness Growth exposure potential sector/company M&A Final M&A Rank

The lower the EBITDA margin a The more The more company has, the If there has been a fragmented the attractive the higher the potential The more impactful clear The bigger the shareholding product/technolog The higher the synergies that could the regulatory/anti‐ announcement company size, the structure is, the y a company has, growth a company be gained from trust in certain from the company lower the higher the the higher the has, the higher the M&A, hence the sectors, the lower on potential M&A possibility of it possibility of it possibility of it possibility of it higher the the possibility of a activities, the becoming the becoming the becoming the becoming the possibility of it company becoming possibility of it target of target of target of target of becoming the target the target of being acquired General logic acquisition acquisition acquisition acquisition of acquisition acquisition should be high Average score of 7 metrics

1) Potential veto from an SOE where there has Possibility is low been no announcment on that SOE Potential activities any potential M&A deal companies get including: for that company ‐ final involved in 1) Target of an M&A rank of '4'; potential M&A acquisition; 2) If a company makes a activities, unless 2) Group clear announcement on the company has listing/asset any potential M&A deal China auto specific made an injection; for that company ‐ final logic/adjustment announcement 3) A/H dual listing. M&A rank of '1'.

Source: Gao Hua Securities Research

BYD Co. (1211.HK) 50

August 31, 2016 Goldman Sachs Global Investment Research Exhibit 78: BYD scores 2.6 in our M&A framework and is assigned a final M&A Rank of 3 Summary of scoring method in our M&A framework for BYD

Metric 1 Metric 2 Metric 3 Metric 4 Metric 5 Metric 6 Metric 7

Growth Regulation & Shareholding structure Asset exposure Cost Size anti-trust in Company (Framengted, SOEs, attractiveness (e.g. TAM, synergies Final M&A Rank feasibility the announcemen Ticker BBG Company Name blocking shareholder (product/ regional potential Avg score (1= high prob; 4 = (1= high; sector/compa t on M&A (1= etc.) (1=favorable; technology) exposure) (1= high; 4= low) 4 = low) ny (1= high; high; 4= low) 4=unfavorable) (1=high; 4=low) (1=high; 4= low) 4= low) low)

1211.HK 1211 HK BYD (H) 4 2 1 1 3 3 4 2.6 3

Notes: On final M&A Rank, 1 represents a high (30%-50%) probability of M&A activity (i.e. that a company could be acquired at a premium to the current share price), 2 represents medium (15%-30%) probability, 3 represents low (10%-15%) probability, and 4 represents minimal to no probability (0%-10%).

Source: Company data, Gao Hua Securities Research.

We assign a final M&A Rank of 3 to BYD in our M&A framework, indicating low (10%-15%) probability of becoming an M&A target. Hence, we do not incorporate an M&A value into our 12-month target price.

BYD Co. (1211.HK) 51

August 31, 2016 BYD Co. (1211.HK)

Risks: China NEV market fluctuations, increased competitive pressures, technological disruption

We see the following as key risks to the NEV market in China as well as to our investment thesis and 12-month target price on BYD.

 Slower-than expected China NEV market growth China’s NEV market growth might be negatively impacted by the scale-down of purchase subsidy, high comps, technology uncertainty regarding NEV quality/safety/durability, etc.

 Lower-than-expected market share of BYD BYD could record a lower-than-expected market share in the NEV space as more OEMs launch competing NEV models to fulfill the upgrade fuel consumption requirement from MIIT (5.0/4.0 liter per 100 km of fuel consumption on average by 2020E/2025E).

 Lower-than-expected NEV OPM of BYD In order to maintain its market share and technological leadership, BYD might continue investing into R&D and capacity in the NEV/battery business, which could lower its OPM. We also see risks from potential price erosion in the NEV segment due to intense competition.

 Disruptive battery technologies New disruptive battery technologies (e.g., all-solid lithium battery or fuel cell technologies) might hurt BYD’s competitive edge/cost advantage in the NEV battery business as existing R&D and CAPEX investment in lithium-ion battery technologies might not be competitive any longer.

 Lower-than-expected result from other business BYD might have lower earnings from its other businesses, like ICE car, consumer electronic goods, and its solar panel business on potential total demand slowdown, policy uncertainty and more intense competition.

 Limited disclosure Given BYD’s intricate business setup (different divisions cover handset component & assembly, other electronics goods component & assembly, ICE cars & component, NEV & battery, electronic goods & other energy storage battery, solar panel handset, etc.), there is limited disclosure from the company on financial information by division. For example, the ICE car business is reported together with NEV business, and the NEV business combines the profit of its vehicle battery. Hence, given limited disclosure of historical data, there could be a risk our model assumptions do not fully reflect the accurate performance by sub-segment.

 Higher investment into innovation in the long-term BYD may face greater competition in the longer term and therefore may need to increase its investment in innovation from new NEV models to new battery technologies (e.g., in its FY2015 analyst briefing, BYD’s chairman unveiled that the company is investing into R&D for an all-solid-state lithium battery, a new type of lithium battery that has higher power density than its current LFP battery). The potential for higher-than-expected R&D investment due to intensified competition could pose downside risk to BYD’s margin as well as cash flow.

Goldman Sachs Global Investment Research 52 August 31, 2016 BYD Co. (1211.HK)

Appendix 1: NEV battery capacity, lithium supply, and battery makers’ valuation

China NEV battery capacity and utilization rate

Exhibit 79: NEV battery capacity doubled in 2015 and we Exhibit 80: We see overcapacity and the utilization rate expect the growth to be 93%/35%/16% in 2016/17/18 decreasing in NEV battery in 2016E-17E NEV battery capacity (GWh) and growth rate (%), 2014-20E NEV battery capacity (GWh) and utilization rate (%), 2014-20E

140 250% 140 60% 198% 120 120 50% 200% 100 100 40% 80 150% 80 30% 93% 60 100% 60 20% 40 40 35% 50% 10% 20 16% 11% 20 1% 0 0% 0 0% 2014 2015 2016E 2017E 2018E 2019E 2020E 2014 2015 2016E 2017E 2018E 2019E 2020E

BYD The rest Growth (RHS) Total EV battery capacity utilization rate (RHS)

Source: Company data, Gao Hua Securities Research. Source: Company data, Gao Hua Securities Research.

Globally, lithium supply and demand should be reasonably balanced until 2020E (per our US Chemicals analyst Robert Koort)

Exhibit 81: The growing demand for NEVs could help Exhibit 82: Limited near-term supply growth expected triple lithium demand by 2025E (12% CAGR) (64% expansion by 2020E), but supply and demand to be Lithium (LCE) demand forecast (kmt) reasonably balanced until 2020E Lithium (LCE) supply forecast (kmt)

600 350 Stationary Storage

500 E Bus/Truck 300 BEV Lithium Americas 250 400 PHEV Mt Cattlin JV kmt

kmt Mt Marion JV HEV 200 300 E‐Scooters/Motorcycles ALB La Negra 2 demand, 150 E‐Bikes demand, ALB La Negra 1

LCE 200

Power Tools LCE Orocobre Phase 1 100 Notebook 100 Talison Expansion Tablet 50 Existing Capacity 0 Smartphone Non Energy 0

2014 2015 2014 2015 2016E 2017E 2018E 2019E 2020E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E

Source: Company data, Goldman Sachs Global Investment Research. Source: Company data, Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research 53 August 31, 2016 BYD Co. (1211.HK)

Exhibit 83: We expect EVs to move increasingly towards Exhibit 84: Price per watt-hour to halve toward 2025 a mix of higher-power batteries that enable longer Estimated price of automotive Li-ion batteries (US$/g) effective vehicle range, increasing demand for lithium on a per vehicle basis Average BEV battery size (kWh)

60 1.60 400 50 Price per Wh ($/g, LHS) 1.40 350

size Energy density (Wh/kg, RHS)

40 1.20 300 battery 30 1.00 250 BEV

20 0.80 200

0.60 150

Average 10

0.40 100 ‐

0.20 50 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 0.00 0 kWh per BEV 2009 2011 2013 2015 2017E 2019E 2021E 2023E 2025E

Source: IHS, Goldman Sachs Global Investment Research. Source: IHS, Goldman Sachs Global Investment Research.

BYD production capacity of NEV by site

Exhibit 85: BYD’s NEV production capacity by site

NEV production capacity 2016 expected capacity Timeline e‐bus electric utility vehicles e‐car TOTAL Started construction in the end of 2015 2,000 2,000 4,000 Shanwei Started construction in the end of 2015 Guangzhou Aug, 2014; Partnered with GAC 5,000 5,000 Baotou Started construction in Apr, 2015 2,000 2,000 Xi'an Phase II was put into use in 2014 70,000 70,000 Nanjin Put into use in 2014 1,000 1,000 Qingdao Phase I was put into use in Jun, 2016 1,000 1,000 Dalian Started construction in the end of 2014 Changsha Started Phase II construction in May, 2015 2,500 2,500 Chengde Started construction in Oct, 2014 2,000 2,000 Hangzhou Started construction in 2014 3,000 3,000 Wuhan Started construction in Apr, 2015 2,000 2,000 Shaoguan Put into use in Aug, 2013 50,000 50,000 Tianjin Started construction in 2012; partnered with Tianjin Bus Company TOTAL 18,500 54,000 70,000 142,500

*Beijing, Kunming, etc., announced construction plan but did not disclose any specific information

Source: Company data.

Goldman Sachs Global Investment Research 54 August 31, 2016 BYD Co. (1211.HK)

We estimate that c.50% of the government NEV purchase subsidy goes to the OEM while the rest goes to the customer

Exhibit 86: ~50% of govt. purchase subsidy goes to the OEM while the rest goes to the customer

RMB Geely EC7 EV Geely EC7 Purchase cost MSRP 249,800 100,800 ‐ Battery cost 103,058 ‐ ICE cost 19,500 ‐ Other costs associated with EV 12,490 Total cost excl. battery/ICE 134,253 81,300 Difference 52,953 Government purchase subsidy (central + local) 99,000

% of govt. subsidy that goes to OEM 53.5%

Notes: We assume: 1) the battery pack cost is US$350/kwh, and the ICE cost is US$3,000/unit; 2) other extra costs associated with EV is 5% of MSRP.

Source: Autohome.com, MIIT, BYD, CEIC, Gao Hua Securities Research.

Goldman Sachs Global Investment Research 55

August 31, 2016 Goldman Sachs Global Investment Research Global battery makers’ valuation summary

Exhibit 87: Valuation summary: Global battery makers

Valuation Summary - Global Auto Suppliers/Component Companies Ticker Company name Currency Close Rating Market cap EPS P/E P/B ROE EV/EBITDA CROCI % 15-18E 8/31/2016 USD'mn CAGR 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 6752.T Panasonic JPY 1,061 Neutral 23,957 1% 16.4X 18.2X 13.1X 1.9X 1.4X 1.3X 11% 8% 10% 4.3X 3.6X 3.2X 5% 9% 10% 6701.T NEC JPY 263 Buy* 6,649 20% 13.9X 8.7X 6.8X 1.2X 0.8X 0.8X 9% 10% 12% 7.2X 5.1X 4.2X 4% 8% 7% 5333.T NGK Insulators, Inc JPY 2,244 Neutral 7,130 13% 16.4X 13.4X 12.3X 2.3X 1.8X 1.6X 13% 13% 13% 8.1X 6.8X 5.9X 12% 12% 12% Japan average 11% 15.6X 13.4X 10.8X 1.8X 1.3X 1.2X 11% 10% 11% 6.5X 5.2X 4.4X 7% 9% 10% 006400.KS Samsung SDI KRW 115,500 Neutral 7,244 106% 21.2X 26.8X 17.2X 0.7X 0.7X 0.7X -6% 3% 4% NA 13.0X 11.2X 14% 5% 5% 051910.KS LG Chem KRW 270,500 Buy* 17,762 10% 12.6X 11.6X 11.1X 1.4X 1.3X 1.2X 12% 12% 11% 6.0X 5.3X 4.7X 12% 12% 12% Korea average 58% 16.9X 19.2X 14.2X 1.1X 1.0X 0.9X 3% 7% 8% 6.0X 9.2X 7.9X 13% 9% 9% SEDG SolarEdge USD 17.60 Neutral 783 36% 14.1X 9.1X 11.6X 4.2X 2.4X 2.0X 36% 27% 17% 12.1X 5.9X 5.8X 59% 38% 34% US average 36% 14.1X 9.1X 11.6X 4.2X 2.4X 2.0X 36% 27% 17% 12.1X 5.9X 5.8X 59% 38% 34% 0819.HK Tianneng Power HKD 6.34 Not covered 922 24% 7.9X 6.3X 5.2X 1.4X 1.2X 1.1X 22% 24% 29% NA NA NA NA NA NA 002074.SZ Guoxuan High-Tech CNY 36.54 Not covered 4,794 57% 27.6X 19.8X 15.1X 7.7X 5.5X 4.2X 27% 28% 28% NA NA NA NA NA NA 300274.SZ Sungrow CNY 23.92 Buy 2,798 27% 25.7X 20.5X 18.2X 3.0X 2.7X 2.4X 16% 14% 14% 16.9X 13.7X 11.4X 36% 32% 29% 600884.SH Shanshan CNY 16.74 Not covered 2,814 -15% 31.2X 25.5X 21.0X 2.8X 2.6X 2.4X 10% 11% 12% NA NA NA NA NA NA China average 23% 23.1X 18.0X 14.9X 3.7X 3.0X 2.5X 19% 19% 21% 16.9X 13.7X 11.4X 36% 32% 29% Global average 28% 18.7X 16.0X 13.2X 2.7X 2.0X 1.8X 15% 15% 15% 9.1X 7.6X 6.6X 20% 17% 16%

Notes: 1) *denotes stock is on our regional Conviction List; 2) data for Not Covered stocks comes from Bloomberg.

Source: Datastream, Bloomberg, Company data, Goldman Sachs Global Investment Research, Gao Hua Securities Research.

BYD Co. (1211.HK) 56

August 31, 2016 BYD Co. (1211.HK)

Summary of recent government NEV policies in China

Exhibit 88: Recent NEV policies from central and local government to address sustainability of mid-to-long term growth

Govt. Exemption Govt. Govt. purchase Fuel Higher Protection target, of Charging/f Policies Date Key points Impact direct subsidy/subsid consumpti industry/s ism/Stand pilot cities purchase acilities purchase y fraud probe on std. afety std. ardization etc. tax National planning for Jun 28, Total NEV ownership targeted at 500k and 5mn in 2015 and 2020 Government endorses the high growth of NEV √ New Energy Vehicles 2012 respectively industry

Dec 06, MIIT, MoT, MoF and NDRC announced the first batch of 28 NEV pilot cities; To develop NEV industry step by step (there are List of NEV pilot cities √ 2013 the list of second batch was announced in Jan 2014 88 cities in the list currently)

Requirement on 30% of Jul 14, Chinese government required that NEV make up at least 30% of government government cars using Promote government direct purchase √ 2014 vehicle purchases by 2016 NEV

Released by NDRC: 1) battery switch/charging hubs is eligible for electricity This might lower EV/PHEV usage cost, thus likely price discount, applying industrial electricity pricing, exempt of base charge; to drive more EV/PHEV volume and usage. Also, Electricity price Jul 22, 2) charging facilities in individual property and residential property is eligible charging pile/station operators are also allowed √ guidance on EV usage 2014 for residential electricity price; 3) charging pile/station operators are to charge a service fee on top of electricity allowed to charge service fee on top of electricity expenses. 27 expense, thus ease the concern that it is not provinces/cities have announced service fee standards profitable to operate charging stations

Exemption of purchase Aug 01, Effective during Sep 01, 2014 to Dec 31, 2017; purchase tax exemption for tax for new energy Increase cost‐benefit of new energy vehicles √ 2014 PHEV/EV/Fuel Cell (purchase tax at ~10% of car price) vehicle

New energy vehicle Released by MIIT, MoT, MoF and NDRC; central government grants charging This might drive local governments to promote Nov 18, charging facilities facilities subsidy to cities/city clusters that are qualified to meet its new construction of charging facilities and reduce √ 2014 subsidy energy vehicle promotion target users' concern of lacking charging facilities

Released by NDRC; EV manufacturers are required to meet EV manufacturing This might raise the entry bar for EV R&D/manufacturing/servicing criteria; select base qualification for EV model enterprises investment Nov 26, manufacturing vs. previous regulations; It might includes: 1) max speed should exceed 100km/h; 2) acceleration time from 0 √ project and production 2014 boost EV development in the long run by to 50km/h should be less 5 seconds; 3) purely‐on‐battery mileage should be permit regulation draft ensuring EV product quality above 100km Detailed annual target might help OEMs to Passenger car phase IV Released by MIIT. Effect in Jan01, 2016; government sets the 2015E‐2020E Jan 05, formulate detailed R&D/product development fuel consumption passenger car fuel consumption annual target at √ 2015 pipeline to introduce PHEV/EV models as well as detailed target 6.9L/6.7L/6.4L/6.0L/5.5L/5.0L, respectively improved ICE engine Released by MIIT, MoT, MoF and NDRC; central government subsidy will be Purchase subsidy is fading out, but replaced by NEV purchase subsidy Apr 22, scaling down (2017‐18: ‐20% vs. 2016, 2019‐20: ‐40% vs. 2016). Many local preferential treatment in usage and transfer √ scaling down 2015 governments have subsequently released their respective NEV purchase payment, etc., to boost the long‐term subsidy policies development of NEV industry

Released by the State Council: 1) 100% of residential parking lots and 10% of Guidelines to promote public parking lots should have reserved space for EV charging piles; 2) Boost the construction of charging facilities and the construction of Sep 29, requiring local governments to build at least one public charging station for reduce users' concern of lacking charging √ charging infrastructure 2015 every 2,000 units of NEV ownership; 3) continuing to encourage private facilities for NEV investment and commercialized operations of charging stations; 4) applying preferential tariffs to commercial electric charging stations

Target on charging Boost the construction of charging facilities and Oct 9, Released by NDRC, MIIT, NEA and MOHURD: to construct 12,000 charging facilities construction reduce users' concern of lacking charging √ 2015 stations and 4.8mn charging piles by 2020 nationwide facilities

MIIT announced the first batch of NEV battery maker catalog that includes Attach importance to battery safety, build up NEV battery maker Nov 11, 10 companies (Currently four batches of catalog have been released with 57 industry standard and regulation, and ease √ catalog 2015 companies in total) safety concern on battery

Released by MIIT, MoT, MoF, NEA and NDRC: The policy prioritizes 10 key provinces located in pan‐Bohai gulf, Yangtze River Delta and Pearl River 13th Five Year Plan on Delta, as well as another six central China provinces. The central government NEV charging Dec 15, will directly provide a Rmb5.4 billion subsidy for EV charging piles in 2016, Support NEV charging infrastructure investment √ infrastructure reward 2015 and will increase the subsidy to Rmb6.1/6.9/7.8/8.8 billion in policy (2016‐2020) 2017/18/19/20. Many local governments have subsequently released their respective EV charging subsidy policies and 2020 targets National standard on Released by MIIT and MoT: to set a national standard on charging interface charging interface and Dec 28, Standardization of NEV chargers and reduce and communication protocols, to increase charging infrastructure √ communication 2015 local protectionism compatibility and security protocols

Jan 20, MoF and MIIT announced that related institutions would investigate on the Probe result of subsidy fraud to clear policy Subsidy fraud probe √ 2016 cheating on NEV subsidies, and penalize related companies and persons uncertainties and favor local leaders

Low‐speed EV technical Apr 19, SAC released Low‐speed EV technical conditions draft, aiming to set up Boost the sustainability of the industry’s long‐ √ conditions 2016 industry standard and regulation system for low‐speed EV market term development

National protectionism: good to safety of NEV, MIIT announced that only the new energy vehicles that use battery National protectionism Apr 27, but bad to NEV makers as a result of less battery produced by those battery makers in the catalog (excl. foreign battery √ on NEV battery 2016 supply/higher cost; also, it is harmful for long‐ makers such as LG Chem and Samsung) would be subsidized term development of NEV industry

A supervision report was released and Premier Li Keqiang instructed related Overall, we expect the upcoming final probe Supervision report on Jul 6, institutions to penalize corporates and persons committing fraud, but the result to be a positive move that will help √ subsidy fraud 2016 list of fraud was not released sustainable development of the NEV industry

Source: Government websites.

Goldman Sachs Global Investment Research 57 August 31, 2016 BYD Co. (1211.HK)

Appendix 2: Glossary of key terms and acronyms

BEV: , a type of electric vehicle that only uses electricity stored in its rechargeable battery to power its for propulsion.

CV: Commercial Vehicle, a vehicle used for either moving paid passengers (like a bus) or transporting goods (like a truck). In China’s national standard, a commercial vehicle is defined as either a bus with no less than nine seats or a truck.

EV: Electric Vehicle, usually referred to as a BEV.

FCV: Fuel Cell Vehicle, a type of vehicle using a fuel cell in combination with a storage device (like a battery), to power its electric motor for propulsion.

HEV: , a type of vehicle that uses a combination of the internal combustion engine system and electric powertrain system (i.e., using electricity stored in its rechargeable battery or sometimes another storage device, to power its electric motor) for propulsion.

ICE: Internal Combustion Engine, an engine where the combustion of a fuel (usually gasoline or diesel, after mixing with air) occurs in its cylinder to propel the piston to power the vehicle.

NEV: New Energy Vehicle, a concept introduced by the Chinese government to define the scope of government subsidy, which includes BEV, FCV, and PHEV but excludes HEV.

PHEV: Plug-In Hybrid Electric Vehicle, is a hybrid electric vehicle using rechargeable batteries that can be recharged by plugging it into an external source of electricity power.

TCO: Total Cost of Ownership, a financial estimate intended to help vehicle owners determine the total direct and indirect costs of a vehicle throughout the period of ownership, usually calculated as: cost of purchase (including car price, sales tax, and etc.) + cost of usage (fuel/charging, parking, maintenance costs and etc.) – resales value (used car price).

ZEV: Zero Emission Vehicle, a type of vehicle that generates no polluting emission from its onboard source of power.

Goldman Sachs Global Investment Research 58 August 31, 2016 BYD Co. (1211.HK)

Disclosure Appendix Reg AC We, Yipeng Yang, Yuqian Ding and Longjin Li, hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

Unless otherwise stated, the individuals listed on the cover page of this report are analysts in Goldman Sachs' Global Investment Research division. Investment Profile The Goldman Sachs Investment Profile provides investment context for a security by comparing key attributes of that security to its peer group and market. The four key attributes depicted are: growth, returns, multiple and volatility. Growth, returns and multiple are indexed based on composites of several methodologies to determine the stocks percentile ranking within the region's coverage universe. The precise calculation of each metric may vary depending on the fiscal year, industry and region but the standard approach is as follows: Growth is a composite of next year's estimate over current year's estimate, e.g. EPS, EBITDA, Revenue. Return is a year one prospective aggregate of various return on capital measures, e.g. CROCI, ROACE, and ROE. Multiple is a composite of one-year forward valuation ratios, e.g. P/E, dividend yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book. Volatility is measured as trailing twelve-month volatility adjusted for dividends. Quantum Quantum is Goldman Sachs' proprietary database providing access to detailed financial statement histories, forecasts and ratios. It can be used for in-depth analysis of a single company, or to make comparisons between companies in different sectors and markets. GS SUSTAIN GS SUSTAIN is a global investment strategy aimed at long-term, long-only performance with a low turnover of ideas. The GS SUSTAIN focus list includes leaders our analysis shows to be well positioned to deliver long term outperformance through sustained competitive advantage and superior returns on capital relative to their global industry peers. Leaders are identified based on quantifiable analysis of three aspects of corporate performance: cash return on cash invested, industry positioning and management quality (the effectiveness of companies' management of the environmental, social and governance issues facing their industry). Disclosures Coverage group(s) of stocks by primary analyst(s) Yipeng Yang: China Autos. Yuqian Ding: China Autos. China Autos: Anhui Jianghuai Automobile Co., Baoxin Auto Group, Brilliance China Automotive, BYD Co., China Harmony New Energy Auto, Chongqing Changan Auto (A), Dongfeng Motor, FAW Car, Fuyao Glass Industry Group (A), Fuyao Glass Industry Group (H), Geely Automobile Holdings, Great Wall Motor Co. (H), Great Wall Motor Co.(A), Guangzhou Automobile Group, Huayu Automotive Systems, Minth Group, Group, SAIC Motor, Sinotruk (Hong Kong), (A), Weichai Power (H), Weifu High-Technology Group (A), Zhengtong Auto Services Holdings, . Company-specific regulatory disclosures The following disclosures relate to relationships between The Goldman Sachs Group, Inc. (with its affiliates, "Goldman Sachs") and companies covered by the Global Investment Research Division of Goldman Sachs and referred to in this research. Goldman Sachs beneficially owned 1% or more of common equity (excluding positions managed by affiliates and business units not required to be aggregated under US securities law) as of the month end preceding this report: BYD Co. (HK$54.00) Goldman Sachs has received compensation for investment banking services in the past 12 months: BYD Co. (HK$54.00) Goldman Sachs expects to receive or intends to seek compensation for investment banking services in the next 3 months: BYD Co. (HK$54.00) Goldman Sachs had an investment banking services client relationship during the past 12 months with: BYD Co. (HK$54.00) Goldman Sachs had a non-securities services client relationship during the past 12 months with: BYD Co. (HK$54.00) Goldman Sachs makes a market in the securities or derivatives thereof: BYD Co. (HK$54.00) Distribution of ratings/investment banking relationships Goldman Sachs Investment Research global Equity coverage universe

Rating Distribution Investment Banking Relationships Buy Hold Sell Buy Hold Sell Global 31% 54% 15% 66% 60% 50% As of July 1, 2016, Goldman Sachs Global Investment Research had investment ratings on 2,963 equity securities. Goldman Sachs assigns stocks as Buys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell for the purposes of the above disclosure required by the FINRA Rules. See 'Ratings, Coverage groups and views and related definitions' below. The Investment Banking Relationships chart reflects the percentage of subject companies within each rating category for whom Goldman Sachs has provided investment banking services within the previous twelve months.

Goldman Sachs Global Investment Research 59 August 31, 2016 BYD Co. (1211.HK)

Price target and rating history chart(s)

BYD Co. (1211.HK) Stock Price Currency : Hong Kong Dollar Goldman Sachs rating and stock price target history 80 16,000 50.82 70 44.75 61.15 15,000 42.04 46.69 14,000 60 32.79 35.17 13,000 50 13 61.66 12,000 40 11,000 30 10,000 9,000 20 44.47 36.2 8,000 10 39.71 7,000 0 6,000 Sep 27 Feb 10 Aug 13 S N B RS A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J 2013 2014 2015 2016 Index Price Stock Price Source: Goldman Sachs Investment Research for ratings and price targets; FactSet closing prices as of 6/30/2016. Rating Covered by Yipeng Yang Pric e tar get Price target at removal Not covered by current analyst Hang Seng China Ent. Index

The price targets show n should be considered in the context of all prior published Goldman Sachs research, which may or may not have included price targets, as w ell as developments relating to the company, its industry and financial markets.

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