Challenges mount for BYD

BYD Company began to promote the electric battery technology in China four years ago; it was the company’s way of helping China transform the automobile. Warren E. Buffett, one of the world’s richest men, bought a 10% stake and boasted about the company’s prospects. But things have not gone well for BYD. Stock is down 43% from a high reached on February 8. Investors and analysts are now questioning the company’s ability to endure as a competitor in the Chinese market. As Chinese buyers moved toward more expensive, yet higher-quality cars from its rivals, BYD’s sales of its commercial mainstay–gasoline-powered cars–have dropped this spring. New questions have arisen following an accident wherein a Nissan GT-R sports car slammed into the back of one of BYD’s electric taxis and set the vehicle aflame. The e6 battery-electric sedan taxi, spun across three lanes of traffic before hitting a tree, turning into an inferno which killed all three occupants. BYD issued a long statement emphasizing that the Nissan sports car was travelling at 110 miles per hour and no car, electric or otherwise, could have survived such an impact. “We don’t know what happened—the battery pack burned or the high-voltage gear burned or the fabric was lit or maybe some other reason,” said Paul Lin, the company’s marketing director. Neither the police nor the company has yet determined whether it was the high-speed impact or the ensuing fire which caused the deaths. Fortunately for BYD, its shares bounced back within two days as investors accepted the company’s explanation.
More challenges for BYD
But the company’s longer-term challenges remain as its plans to import electric cars to the U.S. have not materialized; partly due to the global economic slowdown, but also because consumers have shown a preference for gasoline-electric hybrids. “More and more companies are certainly going to do it like this,” Wang Chuanfu, BYD’s founder and chairman, said, although he did not rule out a future for electric cars in China. BYD’s biggest problems though have been in the market for gasoline-powered cars. It had grown rapidly over the last five years because it manufactured cheap and very basic cars for China’s rapidly growing middle class. But middle-class car buyers in China have, over the past few years, become more discerning and have shown a preference for the offerings of multinationals over locally designed cars. BYD has been one of the hardest hit among local carmakers. Car sales fell 8% in the first four months of this year while the overall Chinese car market grew by 6%. In April, the company’s sales fell by 19% even as the market grew by 18%. (May 30, 2012)