Analysis: BYD fights decreasing sales and increasing costs

Gasgoo.com (Shanghai) - BYD's net profits have yet to reach the record 3.79 billion yuan made in 2009. According to statistics from Gasgoo.com, BYD has seen its profits drop 33.5 percent to 2.52 billion yuan in 2010, and then another 88.6 percent to 275 million yuan for the first half of this year.

In 2010 BYD saw its industry returns rise 18.3 percent to 46.49 billion yuan. The growth was compared with a 47.3 percent year-on-year rise in 2009. However, this year BYD has seen its industry returns fall 11.8 percent to 21.48 billion yuan. BYD's automobile business has been the culprit behind both its dramatic rise and fall. In its record growth year of 2009, the manufacturer managed to sell 446,500 vehicles, over double the amount from the previous year and far above the industry average of 48.1 percent. In 2009 BYD's automobile business accounted for 53.6 percent of the group's returns.

The period from last year to this one has been quite a different story. BYD's automobile business has seen a massive drop in sales, decreasing 16.4 percent to 519,800 units sold in 2010. In that year returns from automobile sales totaled 22.7 billion yuan, constituting 46.3 percent of BYD's overall business. As for the first half of this year, BYD's sales have only reached 232,400 vehicles, a further decrease of 19.6 percent from the previous year. The figure is equivalent to only 9.55 billion yuan in returns, a year-on-year decrease of 44.4 percent.

The fate of BYD's returns has been linked with that of its flagship vehicle, the F3. BYD sold 212,400 F3s in 2010 and 107,400 in the first half of this year. It is still by far the manufacturer's top selling model, constituting 40.9 percent and 42.8 percent of BYD's automobile sales in 2010 and 2011, respectively. None of BYD's other models, including its successors, have come close to mimicking the tired F3's sales.

Being an automobile manufacturer, BYD's most expensive problem is sales, which includes production and maintenance costs. BYD's costs increased 9.34 billion yuan to 30.9 billion yuan in 2009. Costs increased a further 7.52 billion yuan the next year, while gross profit fell from 8.56 billion yuan to 8.26 billion yuan in 2010, and to a lower 2.95 billion in the first half of this year. Ratio of net to total profits for BYD fell from 21.7 percent in 2009 to 13.7 percent in the first half of this year. Outside of those costs, the largest expenses for the manufacturer are administrative and research costs. Alongside rising labor costs, these factors helped contribute to the manufacturer's declining performance.