BYD Reaches Intelligent Driving Strategic Inflection Point, Self-developed Chip and Data Flywheel Build Advantages

Overview

Morgan Stanley released research report pointing out that recent moves by BYD in the intelligent driving field mark an important strategic inflection point. Through launching intelligent driving safety guarantee policy, downgrading advanced AD systems to mass-market vehicle models, and releasing high-compute self-developed chips, BYD is accelerating construction of its autonomous driving data flywheel. The report maintains 'Overweight' rating on BYD with target price 120 yuan, believing its scale advantage in intelligent driving will effectively cope with fierce market competition.

Core views

Intelligent Driving Strategy Reaches Important Inflection Point: BYD announced 1-year 'Safety Guarantee' policy for City NOA (Urban Navigate on Autopilot) users, and allowed mass market vehicles to upgrade to 'Divine Eye B' intelligent driving system for 12,000 RMB. This financial safety net is expected to significantly accelerate City NOA activation rate on its huge base of 3 million units held. Expanding advanced AD hardware options to wider model matrix will provide powerful 'data flywheel' effect to train AD models, giving BYD significant scale advantage compared to mass-market peers. Self-developed Chip Highlights Long-term Ambition: BYD released self-developed 'Xuanji A3' chip, with compute power exceeding 2100 TOPS in 3-chip configuration, capable of supporting L3/L4 level autonomous driving platforms. Active shift towards self-developed chips and platforms brings not only scaled cost advantages but also highlights ambition to keep pace with top intelligent driving enterprises against Tesla FSD entry into China. In the long term, structural migration from NVIDIA to self-developed or domestic chip substitution is already underway, which will further reshape the laser radar supply chain. Short-term Sales Constrained by Battery Capacity: Although intelligent driving measures are very attractive, the report believes domestic sales short-term recovery will still highly depend on release of new models below 150k RMB supporting super-fast charging. Due to supply bottleneck of second-generation Blade Battery, possibility of explosive sales surge in short term is somewhat suppressed.

Analysis framework

Institution's analysis main thread revolves around 'Intelligent Driving Penetration Rate and Data Scale Effect'. First, starting from consumer pain points, analyze how 'Safety Guarantee' and 'Low-cost Upgrade' break adoption threshold for advanced AD; Second, apply 'Data Flywheel' logic to argue how massive fleet base feeds back into algorithm iteration after activating intelligent driving; Finally, combine supply chain perspective to analyze strategic significance of self-developed chip for cost control and long-term tech autonomy. On valuation layer, employ Scenario Analysis, treating ADAS penetration rate increase and trade-in policies as incremental factors to offset negative impact of price war in mass market.

Methodology notes

• Industry/Industrial Analysis FrameworkAdoption S-Curve

  Intelligent Driving Penetration Rate and Data Flywheel Effect

  Report implicitly contains S-curve logic of new technology penetration: via 'Safety Guarantee' and 'Price Drop 12k Upgrade' strategies, BYD attempts to cross early chasm of City NOA popularity in mass market. Once activation rate crosses critical point, massive real-world road conditions data will form 'Data Flywheel', accelerating algorithm iteration, thus拉开 gap in intelligent driving experience compared to competitors.

• Valuation Method

  Scenario-Weighted Valuation Method

  When giving target price, institution did not adopt single absolute valuation, but set Bull Market, Base, Bear Market three scenarios, assigning weights 25%, 50%, 25% respectively for weighted average. This method commonly used to cope with environment where industry competition is fierce and future uncertainty is high, smoothing bias brought by single prediction through probability distribution.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• BYD (002594.SZ)

  Core Beneficiary Target. Builds data flywheel and cost advantage through intelligent driving downsizing and self-developed chip.

  Strengths

  Possesses huge base of 3 million vehicles held, possessing extremely strong data flywheel potential; Self-developed chip brings scale cost advantage; Strong vertical integration ability.

  Weaknesses

  Gen 2 Blade Battery capacity bottleneck may suppress short-term sales surge; Mass-market price competition is fierce.

  Comparison

  Possess significant intelligent driving scale advantage compared to mass-market peers; Accelerating catch-up and keeping pace with top enterprises in intelligent driving field.

  Risks

  Rising protectionism leads to lack of progress in overseas expansion; NEV demand weaker than expected; Margins worse than expected.

Key data

• Target Price120.00 RMBImplies 25% upside space (based on 95.88 closing price)
• 2026 Net Profit Forecast380.14 Billion RMBCorresponding to 2026 P/E approx 22.8x
• Intelligent Driving Upgrade Fee12,000 RMBPrice for mass-market vehicles upgrading to Divine Eye B system
• Xuanji A3 Chip Compute PowerExceed 2100 TOPSUnder 3-chip config, supports L3/L4 autonomous driving platform

Impact & implications

Report believes BYD downgrading advanced intelligent driving features originally limited to 200k+ RMB vehicles to popular 12,000 RMB price will produce extremely strong attraction for mass-market buyers. This not only helps improve BYD's own intelligent labeling and product premium but will also promote reshaping of entire supply chain, e.g. accelerating LiDAR penetration and domestic/self-developed chip substitute process for NVIDIA. Under expectation of Tesla FSD entering China, BYD's active defense and offense posture will consolidate its top-tier position in smart electric vehicle era.

Risks

• Lack of overseas expansion progress due to rising protectionism
• Global NEV demand weaker than expected
• Increased industry competition resulting in margins worse than expected
• New model launch schedule falling short of expectations

What to watch

• Launch of new models below 150k RMB supporting super-fast charging and listing rhythm
• Capacity ramp-up of Gen 2 Blade Battery and alleviation of supply bottlenecks
• Actual activation rate of City NOA within 3 million units held and data flywheel operation effect
• Specific installation plan and mass production progress of Xuanji A3 chip