China's BYD looks to triple sales of electric vehicles

The Wall Street Journal (Shenzhen) - BYD Co is taking a fresh look at its green-car strategy, betting that the wider adoption of its electric vehicles for public transportation will boost sales significantly.

The Shenzhen-based company, which has struggled for years to develop its green-cars business, aims to more than triple its electric-vehicle sales this year to 8,000 units, including 2,000 buses, with the bulk of the cars targeted at the taxicab industry. BYD., Warren Buffett's highest-profile investment in China, sold just 1,700 electric cars and 700 electric buses last year.

"We feel that the use of electric vehicles in public transport is the first step and a more realistic way to promote and popularize the products," said Liu Xueliang, general manager for Asia-Pacific auto sales at BYD, during a tour of the company's production facilities in southern China.

"With the more widespread use of our electric cars in public transport, we can further promote them to government organizations and retail car buyers," Mr. Liu said. BYD has several hundred electric taxicabs and buses operating in Shenzhen under partnerships with local companies, and hopes to expand the program elsewhere.

Mr. Liu said the company next month would announce plans regarding the introduction of BYD's green vehicles in Hong Kong, the company's first major market for electric cars outside mainland China. BYD also is looking at introducing all-electric taxicabs in London the year, Mr. Liu said, and other cities in Europe, Southeast Asia and South America also are being considered.

The company aims to sell 500,000 gasoline-powered cars this year, up 9.6% from last year, lifted by new models and improved consumer sentiment.

BYD had sought to promote its green cars through celebrity endorsements and adoption by government and corporate fleets, but the efforts failed to raise the mass appeal of the company's first all-electric car, the e6, after the model's October 2011 Shenzhen unveiling. Electric cars accounted for less than 1% of BYD's total car sales last year.

BYD's background in battery production caught the attention of Mr. Buffett in 2008 as interest in electric vehicles grew in the face of high oil prices and a push to reduce emissions. A subsidiary of Mr. Buffett's Berkshire Hathaway Inc. BRKB 1.04% bought a 10% stake in the company in 2008, banking that income from BYD's operations in batteries and affordable gasoline-powered cars could help fund the development of green cars.

But intense competition in China's auto market has continued to hurt the company's earnings. BYD has warned that its 2012 net profit could fall by up to 98% because of continued weakness in car demand and lower sales at the batteries business. Meanwhile, plans to sell BYD's electric cars abroad remain years behind schedule.

"BYD is a company that has a high-level visionary idea that is not rooted in the everyday reality of the auto industry and battery industry," said John Jullens, a partner in the Shanghai office of consulting firm Booz & Co.

He said BYD is too optimistic about the time horizon for widespread proliferation of electric vehicles. "We're not talking four or five years from now," Mr. Jullens said. "It's well beyond any reasonable business planning horizon of 10 years."

Analysts expect consumer appetite for all-electric cars to remain weak because of underdeveloped infrastructure for charging facilities and concerns over affordability.

BYD's plan to boost electric-car sales comes as China has set a goal of reducing emissions by putting 500,000 electric and plug-in hybrids on the road by 2015 and five million by 2020. To achieve that goal, the Chinese government is offering incentives for green-car purchases. For the e6, the government is providing a subsidy of 120,000 yuan, or roughly $19,000, for each car sold, about a third of the car's listed retail price of 370,000 yuan.

Chinese auto makers are gearing up green-vehicle development. Zhejiang Geely Holdings Group Co. and Dongfeng Motor Group Co. 0489.HK -2.88% are bidding for a stake in U.S.-based battery-powered sports car maker Fisker Automotive Inc. A subsidiary of China-based auto-parts company Wanxiang America Corp. this month received U.S. regulatory approval to buy A123 Systems, AONEQ -12.12% a U.S. government-backed maker of lithium-ion batteries that has filed for bankruptcy.

Apart from electric cars it has developed on its own, BYD is joining with Germany's Daimler AG, DAI.XE 1.13% owner of luxury-car brand Mercedes-Benz, to develop a brand new electric car, the Denza, for China. Meanwhile, Shanghai-based SAIC Motor Corp. 600104.SH -3.21% in November introduced its first all-electric car, the Roewe E50.