SHANGHAI – Weaker than expected sales are sapping the earnings of China’s automakers, with BYD Co. reporting a sharp drop in profit so far this year, while state-owned FAW recorded a net loss in the third quarter.
The sharp declines reflect both slower sales and thinner profit margins in the world’s largest vehicle market, thanks to rising costs and intense competition on price.
BYD, which is backed by billionaire investor Warren Buffet, is forecasting its profit will fall between 35 per cent and 65 per cent for the full year, though it expects an improvement in the fourth quarter.
The company’s profit fell nearly 86 per cent to 352.7 million yuan ($55.5 million) in January-September, though it jumped nearly sixfold in the third-quarter as sales were energized by the introduction of new models.
Auto sales in China surged in 2009-2010, propelled by subsidies and tax cuts meant to help the industry rebound from the global crisis. Sales rose 32 per cent last year to 18 million vehicles.
But the lacklustre growth seen in recent months has prompted most analysts to slash sales forecasts for this year to below 20 million vehicles, or single-digit growth.
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A tightening of the quota for subsidies for purchases of fuel-efficient vehicles, beginning in October, is likely to slow sales in the fourth quarter, which is usually one of the stronger seasons for auto sales.
BYD’s problems became apparent in the past two years, as its sales failed to keep up with rapid expansion of its dealership network. The company, which also makes batteries, phone handsets and energy storage equipment, attributed the weak results so far this year to a decline in auto sales.
BYD sold 326,379 vehicles in the first three quarters, down 15.5 per cent from a year earlier, but saw sales climb 9.1 per cent in September-July, to 94,024 units.
FAW Car Co., a major state-owned automaker based in the northeast, reported a net loss in the third quarter of 49.9 million yuan ($7.9 million). It said auto restrictions in Beijing and rising oil prices hurt sales.
Dongfeng Motor Group Co., a partner of Nissan Motor Co. and PSA Peugeot Citroen, said its profit fell 3 per cent in the first three quarters, to 8.6 billion yuan ($1.4 billion). Its performance was hit both by slowing sales and by disruptions related to the March 11 tsunami and earthquake in Japan.
Commercial vehicle maker Beiqi Foton Motor Co. said its third quarter profit fell 60 per cent from a year earlier to 211 million yuan ($33.2 million). The company said its sales of light trucks fell 6 per cent while sales of passenger cars dropped 21.4 per cent.
However, not all automakers are suffering such malaise.
Shanghai Automotive Industrial Corp., partner of both General Motors Co. and Volkswagen AG, reported its profit jumped 27 per cent in the third quarter, helped by strong demand for new GM and VW models.
Its sales jumped 12 per cent in the first nine months of the year, to almost 3 million vehicles.
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