BYD profit rises for first time in five quarters on exports

BYD is navigating an increasingly hostile trade environment that risks slowing its overseas expansion plans. Photo by Sean Gallup/Getty Images

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Second-quarter net income climbed 30 per cent from a year earlier to 8.2 billion yuan (US$1.2 billion), according to figures derived from first-half earnings reported on Friday. Earnings were slightly above the average analyst estimate compiled by Bloomberg, while revenue unexpectedly slipped about three per cent to 194.6 billion yuan.

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The results bring a much-needed boost for BYD as intense competition with nimble rivals like Xiaomi Corp. and Xpeng Inc. resulted in a yearlong profit slump. That underpinned the Chinese auto giant’s aggressive push into South America and Europe, where a rollout of new models and a refresh of some popular offerings are driving sales upward — at higher profitability.

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In a milestone for the company, sales from overseas rose 34 per cent to 181.3 billion yuan in the first half, accounting for 53 per cent of the total and surpassing revenue generated in Greater China for the first time.

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At home, the world’s largest car market, the prolonged industry downturn persisted. Most carmakers, including BYD, saw their July revenue fall from a year earlier as fierce discounting of car prices continued, according to Bloomberg Intelligence. Overall, total passenger vehicle sales fell 21 per cent last month in the country, according to China’s Passenger Car Association.

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Meanwhile, the government is stepping up scrutiny on the industry, vowing to take a close look at automakers’ rapid development cycles to make sure they aren’t cutting corners related to safety with new models.

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BYD sold 1.81 million cars in the first six months of the year, leaving it well behind its annual goal of 5 million to 5.5 million.

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Investors are now focused on BYD’s second half.

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Though deliveries in July fell short of putting the company on track to meet its annual target, analysts predict BYD’s earnings rebound will accelerate for the rest of the year as the carmaker works out its production issues and exports continue to climb. Estimates compiled by Bloomberg even call for profits and revenue to hit record highs in the fourth quarter.

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Overseas markets have been the growth driver for Chinese carmakers all year, with July being no exception. Total overseas sales of passenger vehicles from China surged 88 per cent last month, according to PCA.

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However, the international push has also caused some bloating. BYD’s inventory at the end of June increased to 109 days’ worth of vehicle sales, up from 79 days a year earlier, because of a “long shipping cycle,” the company said.

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BYD is also having to navigate an increasingly hostile trade environment that risks slowing its overseas expansion plans.