In 1H17, BYD recorded a 19.9% YoY decline in passenger new energyvehicle (NEV) sales, and a 22.9% YoY decline in commercial NEV sales,due to cuts in govt subsidies and changes to the official eligibility list forrecommended vehicle types that qualify for subsidies. However, mgmtis positive about the future growth of passenger NEV sales as they willintroduce several new models. Mgmt expects BYD's market share inpassenger NEV to be stable at c.30% over the next three years.    For the NEV model pipeline, BYD will launch the pure-electric (EV) versionof the Yuan SUV in June 2018, with a driving range of more than 250km.    Management expects this value-for-money model to sell c.5,000 unitsper month, mainly in lower-tier cities in Shandong, Hebei and Henan. Inaddition, BYD will introduce the new generation Qin sedan, Tang SUV anda plug-in hybrid EV (PHEV) version of the Song SUV in 2018.    BYD has 17k units of NEV bus orders on hand, and will deliver c.15kunits in 2017. Management is positive about future growth of commercialNEVs, as there are more than 30 cities promoting electric buses. Anotherstrong driver is the conversion of conventional environmental sanitationvehicles, mixer trucks and dump trucks to electric vehicles in the future.    All in all, management expects a c.50% YoY growth rate for commercialNEVs for the next three years, and a gross profit margin of around 20%.    The first 40km Monorail project will be completed in Ningxia Yinchuannext month. BYD is currently negotiating with around 20 cities forpotential 2018 Monorail projects, which will mainly be in public-privatepartnership(PPP) format and have better profitability than the NEVbusiness. According to mgmt, Monorail will record c.RMB5bn in revenuein 2017.    BYD's NEV battery production volume is expected to reach c.10Gwh in2017 (7.6Gwh in 2016). Currently, the total production capacity is 13Gwh.    BYD's Qinghai Salk Lake JV will begin operation in 2H18, with 5Gwhproduction capacity at phase 1 out of total capacity of 10Gwh.

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