Buffett-Backed Carmaker BYD at Two-Year Low as Profit Drops 99%

Buffett-Backed BYD Shares Fall After Profit Slumps 99%
The Shenzhen-based automaker’s vehicle sales have declined every month in the 12 months to July as the popularity of its best-selling model, the F3 sedan, has waned. Photographer: Forbes Conrad/Bloomberg

BYD Co. plunged to a two-year low in Hong Kong after profit fell 99 percent, extending a slump that has erased $7 billion in market value from the Chinese automaker part-owned by Warren Buffett’s Berkshire Hathaway Inc.

Net income fell to 8.62 million yuan ($1.35 million) in the second quarter from 717 million yuan a year earlier, according to figures derived by subtracting first-quarter from first-half figures. The Shenzhen-based automaker’s vehicle sales declined for a 12th straight month in July as the popularity of its best-selling model, the F3 sedan, waned.

BYD fell 14 percent to HK$16.18 today, the lowest close since April 15, 2009. The stock has tumbled 81 percent from its record close on Oct. 23, 2009, reversing a more than 10-fold surge after Berkshire Hathaway unit MidAmerican Energy Holdings Co. agreed to buy a 9.9 percent stake in September 2008.

“We keep frequent contact with Mr. Buffett and he can see our various operational data,” BYD Chairman Wang Chuanfu said in Hong Kong today when asked whether Buffett plans to reduce his holdings. “I believe we will maintain a good relationship with him.”

Buffett’s stake in BYD has lost about $2 billion of value since its peak. By comparison, he booked a $3.5 billion profit in 2007 selling a stake in PetroChina Co., the country’s largest oil producer, that he acquired for about $500 million.

GM, Honda Models

BYD’s slump adds to losses for Berkshire Hathaway, which has dropped 15 percent in U.S. trading this year as global equity markets retreated. Berkshire Vice Chairman Charles Munger said July 2 that BYD has the ability to recover from missteps because its executives “just put their head down and try harder” when they fail.

Rivals General Motors Co. and Honda Motor Co. added new models, and China’s government phased out buying incentives and imposed purchase restrictions to curb congestion.

“They need to figure out a way to revive sales,” said Chen Xiaoxia, a Hong Kong-based analyst at First Shanghai Securities Ltd., which has a “hold” rating on the stock. “BYD didn’t have another best-selling model like the F3 to beef up sales.”

Wang said he’s confident of selling more vehicles in the second half because more models will be on the market. The automaker will introduce the G6 sedan in September and may step up production of its S6 sport-utility vehicle from 6,000 units in August to 15,000 units a month by year’s end to meet demand that is outpacing supply, he said.

Stimulus Ends

Profit in the first six months of the year dropped 89 percent to 275.4 million yuan as the end of preferential taxes for small cars led to a drop in sales, the company said yesterday in a statement to the Shenzhen Stock Exchange.

First-half revenue declined 12 percent to 22.5 billion yuan as automobile sales fell 27 percent in the same period to 9.54 billion yuan.

BYD’s vehicle sales fell 23 percent in the first seven months of 2011 compared with an increase of 5.9 percent in China’s industrywide passenger-car deliveries.

“The fast growth trend of the domestic automobile industry has slackened” in the first half with the withdrawal of stimulus policies, BYD said in its filing to the stock exchange.

‘Fast Growth’

Domestic automakers saw a decline in market share as they were more sensitive to government policy and a surge in oil prices, it said. Last year, BYD delivered 519,806 cars, missing a 600,000-vehicle forecast.

Profit in the first quarter fell 84 percent to 239.6 million yuan. BYD said its nine-month net income may fall 85 percent to 95 percent from a year earlier to as much as 364.9 million yuan.

BYD will have “fast growth” in the fourth quarter, Wang said. The company will export the all-electric E6 car and electric buses to the U.S. and Europe next year, and a right-hand drive E6 will go on sale in Hong Kong in June 2012, he said.

BYD, which also makes rechargeable batteries for handsets and notebook computers, said demand was affected in the first half by “sluggish” economic growth in Europe and the U.S., according to its stock exchange filing.

Rechargeable battery sales rose 19 percent in the first half to 2.42 billion yuan, while revenue from handset components and assembly gained 3.3 percent to 9.51 billion yuan.

BYD’s Shenzhen-listed shares gained 1.2 percent, erasing an earlier 2.5 percent decline. Paul Lin, a BYD spokesman, said he had no comment on the second-quarter calculations.

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