BYD Q2 net up 2.6 percent

BYD Co Ltd (1211.HK), a Chinese carmaker backed by U.S. billionaire Warren Buffett, posted lower-than-expected second quarter earnings, which fell substantially from the previous quarter as China's booming car sales lost steam in a slowing economy.

The company, 10 percent owned by Buffett's Berkshire Hathaway (BRKa.N), said the sales growth in China's automobile market slowed down in the second quarter.

"The domestic automobile industry is expected to keep modest growth in the future," it said in a statement.

The homegrown auto maker has cut its car sales target by 25 percent to 600,000 for 2010 and lowered prices by more than 5 percent in June following weak sales as dealers cleared inventory and it experienced constraints in capacity.

China's booming economy, boosted in part by government stimulus measures, last year pushed China ahead of the United States to become the world's top auto market as sales rose 46 percent. But growth is likely to slow to 15-20 percent this year.

Analysts say momentum could improve into September, the traditional peak sales season, but high inventory at BYD's dealers and an oversupply in the world's largest auto market could remain a near-term drag on the company's stock.

BYD also makes and sells batteries and handset components and has recently diversified into the grid storage and solar battery businesses. But car manufacturing and sales account for more than two-thirds of its profit.

BYD Electronic (0285.HK), the handset components and assembly unit of BYD, said it was facing price reduction pressure continuously from customers, lowering profitability despite achieving increase in overall sales.

BYD posted a net profit of 716 million yuan ($105.4 million) for the April to June quarter, up 2.6 percent from 698 million a year earlier.

That was below an average forecast of 1.1 billion yuan from four analysts polled by Reuters and substantially lower than profit of 1.7 billion in the first quarter.

It sold 123,000 cars in the second quarter, down 24.5 percent from the previous quarter. But for the first six months, it sold a total of 286,000 vehicles, up 57.5 percent from the same period last year.

Headed by Chinese entrepreneur Wang Chuanfu, BYD has seen its share price fall 32 percent this year, after rising more than five-fold in 2009 as investors banked on its development of green cars and new energy products.

BYD planned to start shipping its E6 electric car to the United States by the end of the year to compete with the likes of Nissan's (7201.T) Leaf and GM's GM.UL Volt.

The company said it intended to establish regional sales offices in North America and western Europe to seize greater market share and generate more revenue.

But analysts said it would take a few more years for the company to see a meaningful profit from its green cars and solar battery business.

Its dual-mode car FD3M sells for nearly 167,000 yuan in China, although government subsidies would cut the price tag to about 100,000 yuan. But that level is still about 40 percent higher than a comparable gasoline car.