BYD reported an 84 percent drop in first-quarter profit

Article by Christian A., on June 29, 2011

BYD Co. reported an 84 percent drop in first-quarter profit, the steepest decrease that the company has experienced in more than three months in Hong Kong trading. The company, which is a China-based vehicle manufacturer backed by Warren Buffett, decreased as much as 7 percent after a surge in financing expenses and declining sales.

Its first-quarter net income fell from 1.7 billion yuan a year earlier to 266.7 million yuan ($41 million). The company’s car sales decreased for 10 straight months through May due to the slow growth in demand as well as the introduction of new vehicle models by competitors such as Nissan Motor Co. and General Motors Co.

The company’s F3 sedan, which was launched in 2005, dropped from first to fourth in rank as the bestselling vehicles in China for this year, forcing the company to reduce prices for its lineup in February.

According to auto-analyst Johnny Wong at Hong Kong-based Yuanta Securities HK Co., what BYD needs is a revamp of the F3 or a new product range. He commented that the company did not have many new vehicle models during the first six months of this year.

The stock closed today down 4.6 percent at HK$23.90, while the benchmark Hang Seng Index gained 0.3 percent. In the first five months, BYD sold 97,300 units of F3 sedans, 30 percent less than a year earlier, making the model rank fourth in sales behind Volkswagen AG's Jetta and Lavida, and GM's Excelle, according to the China Association of Automobile Manufacturers.

In addition, BYD disclosed that its finance expenses increased more than double in the first quarter to 118 million yuan due to the increased borrowing and rising interest costs. The company's earnings are based on Chinese accounting standards.

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