BYD net profit slumps as competition mounts

BYD Co, the Chinese car and battery maker backed by Warren Buffett, confirmed Wednesday that its 2011 net profit fell 44 percent, mainly due to intensifying auto market competition that forced the company to offer large discounts and sharply lower the prices of solar power products.

The Shenzhen- and Hong Kong-listed company said its net profit for the year ended December 31 totaled 1.4 billion yuan ($222 million), down from 2.52 billion yuan in 2010.

Affected by factors such as intense market competition and changes in the product mix, the gross profit margin of the company dropped compared to the same period of last year, BYD said in a preliminary earnings statement to the Shenzhen Stock Exchange.

Global photovoltaic product prices declined drastically in 2011, which had a greater impact on the BYD, who also engaged in photovoltaic business, ultimately resulting in a drop in the company's net profit, said the statement.

"Stronger sales during the second half of more upscale models the company launched last year, such as the new S6 car-SUV crossover with an average monthly sales of 150 vehicles, helped boost our auto business and cover losses," Li Yunfei, a BYD spokesman, told the Global Times Wednesday.

The sharp fall of profit was partly brought by BYD's large discounts to spur sales of some of its older models for up to 4,000 yuan per car and an extensive restructuring of BYD's automobile sales and marketing division to jump-start auto sales, including large layoffs of sales staff, analysts said.

"The Chinese government's purchase incentives for small cars, lower-than-expected auto demand, competition from affordable joint venture brands and raw material inflation have hurt margins and created systematic risks," Liu Fen, an auto analyst at Minsheng Securities, told the Global Times.

However, "BYD's investment in R&D of electric cars, solar panels and other green technologies will create new profits in the long run," Bai Xiaolan, an auto analyst at Guotai Jun'an Securities, told the Global Times, predicting the company's car sales to grow at 10 percent to 500,000 vehicles in 2012, with its new energy vehicles contributing more than 15 percent.

BYD, which stands for Build Your Dreams, said it has unveiled plans to focus on fleet sales of its electric car model E6 over the next 18 months in the US. Last year, the company delivered around 300 E6 in China, mostly to taxi companies.

The company's revenue rose 1.2 percent year-on-year to 49.04 billion yuan in 2011, 5 percent higher than Goldman Sachs' expectation.

Investor confidence in BYD has been waning steadily as sales of its automobiles remain weak, standing at around 448,000 last year, down nearly 14 percent year-on-year.

BYD's A shares slumped 0.91 percent to close at 26.14 yuan while its H-share prices jumped 3.6 percent to HK$3.16 Wednesday.