Most car companies have unveiled stonking first-half results and bullish
prognoses. Take Toyota. Despite an embarrassing recall of close to 10m cars
worldwide, the Japanese manufacturer is lifting its full-year net
profitsforecast by 10 per cent to $4bn. But in China – the world’s biggest
car market by volume and source of much of western carmakers’ optimism –
local manufacturer BYD is slashing sales estimates by a quarter.
It would be easy to dismiss BYD as a darling stock that got ahead of itself.
It began life producing batteries in the tawdry boomtown of Shenzhen across
the Hong Kong border, then branched out into electric cars.
Drivers snapped up the motors – nearly 500,000 last year – and investors
grabbed the stock. Warren Buffett bought a 10 per cent stake in 2008; at its
peak last year BYD was worth some $25bn, or more than four times sales. Last
year, it generated a near 20 per cent return on capital.
But this is not just about BYD. The Chinese carmaker is simply saying what
others prefer to keep quiet: China is not so different from developed
markets after all. China’s strong first half mirrored every other country
that benefited from government stimuli.
Now these are being unwound, once-rapacious lenders are more circumspect,
consumers less flush and car showrooms less frantic.
BYD is not the only carmaker feeling the pinch. This week Ford of the US said
its July sales were down 6 per cent year on year.
Carmakers, accustomed to slashing production and prices in China, will be
quick to adjust. Now that China accounts for a bigger slice of sales,
however, they will find it tougher to deal with the subsequent margin
erosion.
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