The Motivation and Economic Consequences of BYD's Vertical Integration Strategy

Abstract

Against the backdrop of rapid development of the global new energy vehicle industry and increasing supply chain risks, Build Your Dream (BYD) is implementing a full chain vertical integration strategy. The main motivation is to ensure supply chain security, including the independent production of blade batteries and automotive-grade chips to address core component supply issues; Strengthen cost control and reduce transaction and unit production costs through internal production; Promote technological collaborative innovation, achieve technology sharing across all links of the industrial chain, and accelerate product iteration. After implementing the vertical integration strategy, BYD's short-term market response has been positive, with a cumulative abnormal return rate of 12.41% during the 2020 blade battery release event window period; Financial indicators continue to optimize, with a significant rebound in net profit margin and other factors after 2021. During the same period from 2020 to 2023, the company's profit performance was better than that of Xiaopeng, which also promoted the upgrading of industry competition and the coordinated development of the industry chain. This article studies BYD's vertical integration strategy, which can provide relevant planning references for the supply chain strategy of the new energy vehicle industry.