Investigation
BYD Co Ltd, the Chinese electric vehicle and battery manufacturer, faced a challenging year in 2010, with increased selling expenses, a drop in average selling price, and missed auto sales targets.
In a media conference, BYD's president, Wang Chuanfu, acknowledged the challenges ahead, predicting that China's auto market would face growth limitations in 2011, with growth likely to be between 10-15%.
Despite these challenges, BYD reported a 10% increase in auto sales in 2010, reaching over 500,000 units. However, the company missed its 600,000 auto sales target, which was already lowered from 800,000.
The company's fourth-quarter earnings dropped by 94%, and analysts were surprised when BYD reported a profit of only 90.9 million yuan for the final quarter of 2010, a tenth of what analysts had expected.
In response to the drop in sales, BYD cut prices up to 19% in February, and the company's shares decreased up to 10% on Monday, reaching their lowest in about two weeks.
Johnny Wong, an analyst at Yuanta Research, predicts further downside earnings revisions for BYD after the analyst meeting on Monday morning.
BYD is 10% owned by Warren Buffett's Berkshire Hathaway Inc., and the company's shares are more than three-fifths off their record of HK$88.4 ($11.34) hit in October 2009, sparking speculation about Buffett's investment in the company.
Despite the challenges, BYD is not standing still. The company is applying for the issue of the Chinese mainland listed A shares and exploring other new financing channels. One of the new financing sources BYD is seeking for its expansion in Europe includes partnerships with local financial institutions such as Raiffeisen-Leasing in Austria. This collaboration supports BYD’s growth and production plans in Europe, including the establishment of a manufacturing plant in Hungary.
BYD expects a 15% increase in auto sales in 2011, aligning with the market. However, with the challenges in the auto market and the pressure on profit margins, it remains to be seen whether BYD can meet its sales targets and turn its fortunes around in 2011.
