BYD, China's Electric-Car Star, Faces Steeper Challenges

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Chinese carmaker BYD is facing tough times ahead, following reports that its stock has fallen 43 percent since its February high.

As China's figurehead for electric vehicles, BYD is best-known in the U.S. for its e6 electric crossover, and being part-owned by billionaire entrepreneur Warren Buffett.

Read our first drive of the BYD e6 crossover

Buffett bought a 10 percent stake in BYD back in September 2008, and the company initially seemed to be heading towards electric vehicles, pre-empting the moves of several other manufacturers.

Falling stock

The New York Times reports that BYD's stock has fallen as China's increasing middle classes buy more prestigious vehicles from other makes, and the slow-growing electric car industry has resulted in lower-than-expected sales.

BYD is turning its attention to hybrid vehicles instead, but manufacturers from other countries--notably Japan--have had a sigificant head-start on the technology. That decision has also stalled plans to import the e6 and other electric vehicles to the U.S.

The recent fatal accident involving an e6 taxi and Nissan GT-R also cast doubts over the car's safety, the sheer severity of the 110 mph impact doing little to quell fears that the ensuing fireball was due to problems related to the battery or electrical system. All the taxi's passengers died in the impact.

Though the share price has risen a little since the accident, BYD's sales are still down by 8 percent from January to April, despite market growth of 6 percent over the same period.

Much of the problem lies with doubts that BYD can compete in a market where increasingly wealthy consumers are moving away from cheap, basic vehicles to more aspirational products. Sales have been hit harder by the government's lottery of licence plates, many of which are being put on more expensive cars from foreign brands.

Subsidy difficulties

Two of China's biggest BYD dealer chains have also stopped paying advance subsidies of $18,850 on the maker's electric cars, according to Reuters.

The subsidy makes up over a third of the cost of the vehicle, but buyers will now have to pay full price for the cars and then claim the subsidy back from the government themselves--making it just a little less attractive in the showroom.

Some of the dealers claim that it takes as much of a year to claim back the subsidy, which impacts on their liquidity. Others say the turnaround is only two months, but the net result is that the consumer now has to pay more and wait longer to claim back the subsidy--further harming sales.

With poor sales, subsidy problems and high-profile accidents, BYD's troubles don't look set to end any time soon.

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