Attendees speak next to BYD vehicles at the North American International Auto Show (NAIAS). The company's net profit in the third quarter plummeted to 11.34 million yuan compared with 1.16 billion a year ago. Andrew Harrer / Bloomberg

Dismal Q3 result takes shine off the carmaker

The share price of Shenzhen-based carmaker BYD Ltd has dropped nearly 20 percent in the past two trading days after a dismal third quarter performance.

Shares of the Hong Kong-listed company fell 8.6 percent Wednesday to close at HK$46.65 after a 10 percent slump on Tuesday.

The company released figures Tuesday which showed that net profit in the quarter ended September 30 plummeted to 11.34 million yuan compared with 1.16 billion a year ago. It was also down markedly from a net profit of 717.05 million in the second quarter. Sluggish sales of its most popular model, the F3, did not help matters.

And although the company has made a lot of noise about promoting the development of battery-powered or hybrid cars, investors have realized that its short-to-medium term prospects lies in the performance of the traditional car business.

"BYD's new models have failed to stand out in a competitive auto environment," said Chen Xiaoxia, a Shenzhen-based analyst at First Shanghai Securities. "It has been surpassed by many peers as the whole industry is still growing."

According to a report provided by Chen, auto sales on the mainland in the first nine months have risen almost 36 percent this year, far exceeding the projected 20 percent target.

BYD, nevertheless, lowered its sales goal in August from 800,000 units to 600,000 for the year, even though the group's car sales in the first half increased by more than 40 percent from the same period last year.

The poor third quarter results surprised investors as the automaker is constantly under the media spotlight. Not only is it backed by US billionaire Warren Buffett, but it has also been very active in promoting green cars in the industry.

Launched in 2003, the auto arm of BYD has long claimed that its future plans will focused on electric or hybrid vehicles, building on the experience of its battery-making parent group.

Buffett also expects the company to "play a key role in the future of new energy technology". He made the remarks during his first official visit to the company's Shenzhen base in late September this year. Buffett's firm, Berkshire Hathaway Inc, has a 10 percent stake in BYD.

"With the government's strong support for new energy, the demand appetite for electric car and energy storage stations appears to be rising quickly. Nevertheless, battery capacity constraints remains a key near-term obstacle for BYD to benefit from such opportunities," Charles Guo from JP Morgan wrote in a report earlier this year commenting on BYD's business prospects.

However, the BYD production goal for its green cars is only 1,000 units in 2010. And nor is it planning to shift to mass production this year, according to Wang Chuanfu, the company chairman.

"The green car industry will definitely boom eventually, but it won't contribute to the group in the near term," said First Shanghai's Chen.

"Since competition between low-end automobile makers is heating up, pressures on traditional car sales in the market are also escalating," she added.

In the first nine months to September 30, BYD made 2.43 billion yuan in profit, up 4 percent from 2.34 billion yuan a year earlier. The company almost quadrupled earnings last year as robust demand for its F3 car made it the best-selling model on the mainland in 2009.

China Daily

(HK Edition 10/28/2010 page2)