Buffett-Backed BYD’s Profit Plunges as Sales Slump
BYD Co., the Chinese automaker backed by Warren Buffett, said fourth-quarter profit plunged 94 percent after demand for its vehicles slumped in the world’s largest car market.
Net income fell to 90 million yuan ($13.7 million) in the three months ended Dec. 31 from 1.46 billion yuan a year earlier. The fourth-quarter figure was calculated by subtracting nine- month earnings from the full-year results announced by the company in a statement to the Hong Kong stock exchange today. That compares with the 830 million yuan average of 11 analyst estimates compiled by Bloomberg and based on their 12-month projections.
Rising competition from rivals General Motors Co. (GM), Volkswagen AG (VOW) and Nissan Motor Co. led BYD to cut prices on its models last month as sales plunged for seven straight months through February. BYD, whose F3 sedan was China’s best-selling car the last two years, missed sales targets last year even after slashing the target by 25 percent to 600,000 vehicles.
“Last year was a tough year for BYD’s auto business,” Ole Hui, a Hong Kong-based analyst with Daiwa Securities Capital Markets wrote in a report last month. Some of the company’s key models were late to qualify for the government’s 3,000 yuan subsidy for fuel-efficient vehicles, hurting sales, Hui said. The company also cut prices by as much as nine percent mid-2010 in order to clear dealer inventory, he wrote.
BYD fell 1.9 percent to HK$34.30 in Hong Kong as of 2:37 p.m. The stock has plunged 16 percent in 2011.
Falling Sales, Prices
The automaker’s full-year earnings fell 33.5 percent to 2.52 billion yuan. Sales in 2010 increased 18 percent to 46.7 billion yuan from a year earlier.
BYD, headed by chairman Wang Chuanfu, missed its 2010 delivery target by 13 percent, selling 519,806 cars. It cut the target by 25 percent in August from an earlier estimate of 800,000 units. To revive sales growth, BYD slashed prices of five car models by as much as 15,000 yuan last month.
GM, Honda and Nissan are also adding new, lower-priced brands in the world’s largest auto market, while the government in January ended tax incentives that helped boost sales over the last two years.
Xia Zhibing, BYD’s head of sales, wrote on his blog last month that the company, 10 percent owned by Buffett’s Omaha, Nebraska-based Berkshire Hathaway Inc., is “preparing for a price war.”
Cannibalize Sales
The company’s price reductions may “cannibalize the upcoming new models’ sales and lead to deterioration in margins” this year, Rebecca Tang and Don See, Hong Kong-based analysts at Standard Chartered Plc, wrote in a report last month. Tang and See lowered their 2011 earnings per share estimate for BYD by 58 percent to 1.25 yuan on the price cuts and profit erosion.
China’s vehicle sales surged 32 percent to a record 18.06 million in 2010, helping the nation remain the world’s largest auto market for a second year.
BYD has a consensus rating among 27 analysts compiled by Bloomberg of 2.7 out of a possible 5, with “sells” topping “buys” by 12-to-eight. Seven recommend holding the stock.
BYD will bring its E6 pure electric cars to the U.S. this year, Wang said in January, delaying a previous plan to begin deliveries in 2010. Fleet sales of the E6 will start at the end of 2011, while retail deliveries will commence in the first quarter of 2012, he said at the time.
The carmaker said at last year’s Detroit show it would bring the E6, which can run for more than 300 kilometers (186 miles) on a full charge, to the U.S. in 2010.
--Liza Lin, Tian Ying. With assistance from Fox Hu and Fion Li in Hong Kong. Editor: Hugh Chow, Kae Inoue
To contact Bloomberg News staff on this story: Liza Lin in Singapore at +86-21-6104-3047 or llin15@bloomberg.net. Tian Ying in Beijing at +86-10-6649-7571 or ytian@bloomberg.net
To contact the editors responsible for this story: Kae Inoue at kinoue@bloomberg.net
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