Chinese carmaker BYD, backed by billionaire investor Warren Buffett, posted a 94 per cent drop in first-half earnings, underperforming most of its rivals as sales sagged and its solar energy business lost money.
The outlook remains challenging as China's car market, the world's largest, is seeing only sluggish growth, and the solar panel-making operation is under pressure from a euro-zone crisis that has sapped global demand.
"The Buffett halo effect has long faded. BYD has been dragged down by its solar business and the S6 seems to be the only car holding up well," said Sheng Ye, associate research director for Greater China at industry consultancy Ipsos, referring to BYD's sport utility vehicle, which was last year named the mainland's "SUV of the Year".
Ye was speaking before the earnings were announced late yesterday. In a stock exchange filing, BYD blamed the profit slide on slowing car sales, a weak domestic economy and the spreading euro-zone debt crisis, and warned about challenges ahead.
"Our business is fairly directly affected by the changing economic situation at home and abroad," said the company, which is 10 per cent owned by Buffett's Berkshire Hathaway.
"The future downward pressure on the global and Chinese economies may affect demand for our core businesses in key markets, and would affect our performance to a certain extent."
January-June net income plunged to 16.3 million yuan (HK$19.95 million) from 275.4 million yuan a year earlier. BYD had previously warned its profit would slide 75 to 95 per cent. Turnover was flat at 22.6 billion yuan.
Local rivals Geely Automobile Holdings and Great Wall Motor Co, the mainland's leading SUV maker, last week reported first-half profit increases of about 9 per cent and 30 per cent, respectively, helped by export growth.
Overall vehicle sales on the mainland are expected to grow 5 to 8 per cent this year - a far cry from growth of 46 per cent and 32 per cent in 2009 and 2010 respectively, bolstered by government incentives.
BYD chairman Wang Chuanfu said in March that the company could outpace the market this year, but its first-half sales of 199,700 vehicles were down 9.3 per cent from a year earlier, lagging a 2.9 per cent increase in the overall market.
Last week, BYD launched a new sedan, the Su Rui, which is seen as the upgraded F3, the mainland's best-selling car in 2009 and 2010.
Like other Chinese solar companies that ship most of their panels overseas, BYD faces pressure in the United States and Europe, where the Chinese are accused of undercutting the market with cheaper products.