Thursday, September 1, 2011

As Sales Slump, BYD Exec Says Auto Maker is Going Upscale



Forbes Conrad/Bloomberg
Stella Li, senior vice president of BYD Co, poses in a BYD e6 electric car at the company’s headquarters in Shenzhen, Guangdong Province, China, on Friday, June 17, 2011.

BYD
A promotional image shows BYD’s S6 sedan-SUV crossover.
Thanks to a nagging slump in car sales, Warren Buffett-backed Chinese battery producer and auto maker BYD appears to berunning short of funds to carry out its ambitious plans for electric cars and other “green” technologies. The big question: When will BYD’s sales of gasoline cars rebound?
While most industry observers are doubtful about the prospects for an early recovery, Stella Li, a key BYD executive now based in the U.S., said the company expects sales of gasoline cars to start posting year-on-year growth again by the end of the second quarter next year.
Of course, that is well at least half a year from now, and in the mean time BYD is likely to continue to report dismal business results. Sales of BYD’s gasoline cars have slipped every month since August last year.
Still, Ms. Li expects the turnaround to happen because Chinese consumers are responding positively to new cars BYD launched recently – most notably a new car-SUV crossover called the S6. The company also has high hopes for an upcoming sedan called G6. Both are larger and supposedly more upscale than compact cars BYD has focused on since they entered the car business in 2003 when it took over a small car maker in Xian.
“Our strategy is to focus more on premium-feel cars, and we are also focusing on introducing more green cars,” Mr. Li said in a recent telephone interview from Los Angeles, where BYD’s U.S. operations are headquartered. “Our target is to turn vehicle sales around by Q2 next year,” she said, referring to the second quarter of 2012.
Ms. Li said the reason why BYD is recalibrating its product strategy and is refocusing its product lineup on more upscale cars is because more and more Chinese consumers are now replacing their first cars, which they purchased several years ago, and are spending a bit more to buy new cars. Those consumers have tended to buy cars from foreign makers producing vehicles here with local Chinese partners – a trend that has depressed sales of cars from the country’s home-grown brands such as BYD, Chery and Geely. By coming up with more upscale cars such as the S6 and the G6, BYD is trying to keep those consumers from deserting the BYD brand.
BYD says it still plans to make an all-electric car called the e6 widely available to private buyers in China and the U.S. over the next couple of years. The company is also expected to launch another all-electric car in China it has been developing jointly with Germany’s Daimler AG by 2013. A Daimler spokeswoman said last week that project “is on track.”
Industry insiders and analysts say strategic cars like the S6 crossover and the G6 sedan aren’t likely to save BYD. “They lost momentum in terms of traditional vehicles because even though they have done well with compact cars, they have not had any other breakthrough products,” said Yale Zhang, head of automotive consulting company Automotive Foresight in Shanghai.
Take the S6 for instance. “The car looks like a copy of the Lexus RX. BYD’s brand image simply cannot support the type of more luxurious product they’re trying to promote,” Mr. Zhang said.
Ms. Li said she expects sales of those new cars to gain more momentum toward the end of this year. Banking on the “popularity” of the S6, BYD is setting aside enough capacity to produce by the last quarter of this year 10,000 S6 crossover cars a month, or 120,000 of them a year.
“The car is very popular and demand is very strong,” Ms. Li said.
While BYD doesn’t lack for optimism, history suggests the company and its investors may want to temper their expectations.
Google