Buffett ‘Backed’ BYD Company Sees FY14 Profit Drop 22 Percent

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BYD Company Limited (HKG:1211), the Chinese  automaker “backed” by Warren Buffett expected its fiscal 2014 net profit to decline as much as 22% due to increased competition.

Berkshire Hathaway Energy, a subsidiary of Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) owns 10% stake in BYD Company Limited (HKG:1211).

The Chinese automaker estimated that its net profit this year will be around 430 million to 500 million yuan. BYD Company Limited (HKG:1211) recorded 555 million yuan in net profit last year.

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BYD Company faces increased competition

BYD Limited Company (HKG:1211) reported that its net profit for the third quarter declined 26%. The company said that it is experiencing continued pressure due to the stronger competition in the conventional cars market.

Jochen Siebert, managing director of consultancy JSC Automotive said BYD Company Limited (HKG:1211) like many other domestic automakers are struggling in the conventional gasoline cars market because “they do not know how to compete. Siebert said, “BYD needs to work on creating memorable car designs and brand building.”

During the quarter, the company reported 28.2 million yuan in net profit compared with its 38.2 million yuan net profit in the same period a year ago. In China, third quarter is normally a weak car sales season.

BYD Company Limited (HKG:1211) said its revenue was 13.69 billion yuan, an increase of 8% from 12.66 billion yuan in the year-ago quarter.

Prior to the release of its financial results, Macquarie analyst Janet Lewis said BYD Company Limited (HKG:1211) failed to address the lack of automation in its production process. Lewis said, “This will impact the longer-term durability of BYD cars and presents a longer-term concern because to address this will require more capital expenditure.”

BYD Company expects positive momentum for green car business

According to BYD Company Limited (HKG:1211), its green car business is expected to maintain a positive momentum in the fourth quarter. The company did not provide details regarding its sales performance for the business.

In a regulatory filing, the company stated, “The domestic auto market is still competitive, putting pressure on sales of traditional vehicles. New energy vehicle business is expected to continue rapid growth.”

BYD Company Limited (HKG:1211) signed a joint-venture agreement with Daimler AG (ETR:DAI) (OTCMKTS:DDAIF) to manufacture premium electric cars in China.

The sales of new energy vehicles in China are accelerating slowly. During the first nine months of this year, the auto industry sold 23,000—60% were pure electric vehicles and the remaining 40% were hybrid vehicles that run on gasoline or battery power.