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BYD backs away from ‘dream’

Two years ago, BYD Auto announced its ambition with certainty to become the No.1 automaker by sales in China in 2015 and 2025 over the world.

Under the pressure of a weakening auto market in China, the Warren Buffet-backed carmaker has become more and more low-key since August 4 when it slashed its full-year sales target in 2010 by 25 percent to 600,000 units.

The company’s Shenzhen-based spokesman Lin Mi told the Global Times that they had been overconfident in the auto market this year and BYD’s ability to expand capacity. The BYD, whose founder says the name stands for Build Your Dreams, has decided to tap on the breaks to work more on its brand image.

 

Poor sales

In the past five years, BYD’s annual unit sales almost doubled every year, hitting in 2009 448,000 units, nearly tripling the sales over the previous year.

“Sales in 2009 boosted our confidence in hitting our sales targets in 2015 and 2025. However, things are not running as smoothly as we expected,” Lin said.

Lin said the company’s internal sales target for this year was 1 million units, higher than 800,000, the target it made public.

Yet over the first seven months of this year, the company only met less than one third of its internal sales target in 2010.

Lin blamed the unexpected sales on seasonal factors, formidable weather conditions like floods and mudslides, and difficulties in expanding capacity to meet market demand.

“Unlike other automakers that outsource parts manufacturing, BYD produces all auto parts used on vehicles itself. If we expand our vehicle production capacity to 1 million or 800,000, we will have to equip our auto parts plants with proportional staff and production facilities. If we were able to do that, quality could’t be guaranteed,” said Lin.

 

Factory debacle

BYD’s expansion plan also ran into property problems. The Ministry of Land and Resources said July 15 BYD illegally built seven factories on 112 acres of farmland it agreed to buy in Xi’an from a local economic development agency.

BYD planned to spend ¥10 billion ($1.47 billion) this year in expanding production capacity at its new energy production base, Changsha, Xi’an, and headquarters in Shenzhen.

The first batch of buses produced in Changsha have rolled off the assembly line and capacity expansion in Shenzhen also run smoothly.

A government decision on whether to punish BYD for the illegal factory construction will be made by September 30.

BYD’s existing Xi’an factory, built in 2005, can assemble 300,000 cars in the 3 series a year. The company previously planned to finish constructing the factories by 2011.

Increasing dealer pullouts in cities such as Beijing, Southwest China’s Sichuan Province and East China’s Zhejiang Province also held down BYD’s sales to some extent, though the company said its impact had been exaggerated.

Dealers including Ping Yong, BYD’s flagship dealer in Chengdu, the capital of Sichuan, have pulled out of BYD’s sales network this year, saying high inventory and BYD’s demanding management practices dried up their cash flows.

Lin said the public has made a fuss over BYD. “The sales network is a world of the survival of the fittest. Dealers joining and leaving networks is common to all automakers. More dealers joined us than those that left,” said Lin, who declined to provide exact numbers.

Ping Yong joined BYD’s rival Geely after breaking away from BYD, the China Business News reported.

BYD also delayed a mainland listing due to stock market downturn and said it hopes to list on the Shenzhen Stock Exchange later this year. The company planned earlier to raise ¥2.85 billion ($421 million) to finance battery, vehicle and auto parts projects.

 

Rolling out high-price vehicles

When asked whether BYD will readjust its plan to become the largest automaker both in China and the world, Lin provided no direct answer but said that BYD values branding and quality more than quantity.

BYD has been planning to launch five models this year, priced above ¥100,000 ($14,713), to build BYD into a brand covering multiple products instead of remaining synonymous with low-end. These products are also expected to help improve profitability of the company.

BYD launched its first multi-purpose vehicle M6 and a sedan late in August. Their impact on BYD’s sales remains yet to be seen. The company will launch other medium- and high-end models including another sedan and an SUV.

Rivals Geely and Chery are also motoring into the medium- and high-end market, which has long been dominated by joint ventures.

Geely will launch its first luxury multi-purpose vehicle this month. Chery began last year to sell high-priced vehicles under brands Riich and Rely. Analysts say competition between domestic automakers and joint ventures will be fiercer as both are now expanding into each others’ territory.

 

E6 go to U.S. first

BYD founder and chairman Wang Chuanfu said on August 23 that BYD will launch electric vehicles in the U.S. later this year.

China launched a pilot program in June in five cities including Shenzhen to provide subsidies to buyers of electric and hybrid cars. Buyers of plug-in hybrids and electric vehicles could receive up to ¥50,000 ($7,320) and ¥60,000 ($8,826) in subsidies per unit respectively.

The Shenzhen government announced in July it would provide another ¥30,000 ($4,413) and ¥60,000 respectively.

Even with the government support, BYD sold no more than 500 F3DM plug-in hybrids this year in China.

“BYD might sell electric car E6 in the U.S. first. Consumers there are more likely to accept electric vehicles than people in China,” said Lin. BYD said in late April it would open its North American headquarters in Los Angeles.

BYD is also planning to move into the new energy vehicle market in Europe. Lin said the company is visiting several cities right now, and the location of Europe headquarters is yet to be decided.

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