Just when you thought things couldn’t get any worse for sputtering auto maker BYD (HKEx: 1211; Shenzhen: 002594), the company has come out with a warning saying its profit fell by up to 95 percent in the first half of the year as sales tanked. (English article) That announcement means that BYD probably slipped into the red in the second quarter, since it reported a $42 million profit in the first quarter but only expects its first-half profit to come in at around $19 million. The slip into the loss column marks a culmination in the fall from grace for BYD, which shot to fame after billionaire investor Warren Buffett purchased 10 percent of the company but has seen its fortunes tumble over the last year. BYD’s shares shot up by many times after Buffett’s original investment, and have given much of those gains over the last two years as it struggled with fading popularity for its traditional cars even as it hyped an expensive electric car program which, at best, is still years from contributing to its top line. This latest warning comes just days after BYD scrapped an auto financing joint venture that had potential to help it boost its flagging sales, which have now fallen for 11 straight months. (English article) France’s Societe Generale pulled out of that joint venture after expressing doubts about the Chinese auto market, and I have no doubt it was particularly concerned by BYD’s own poor performance. BYD shares were down 3 percent in early Wednesday trade in Hong Kong, and are down much more than that this year. Unless the company can return quickly to the black by rolling out some popular new models, which seems unlikely, I see more tough times ahead for BYD. In the meantime, Buffett must surely be wondering about his investment in the company and considering a sale of his stake, which, if it happened, would deal another large blow to BYD.
Bottom line: BYD’s move into the red is the latest negative milestone for this once-promising company, with no signs of near-term improvement on the horizon.
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