One of the major players in the electric car industry in China – BYD, reported an astounding 89 per cent drop in net profit for the most recently ended quarter. This resulted in the shares of the company dropping by 5.8 per cent in Hong Kong and a drop of 6.8 per cent Shenzhen.

The company reported a net profit of 119.7 million yuan ($17 million) for the third quarter compared to a profit of the nearly $1.1 billion yuan ($156 million) that the company, backed by investor Warren Buffett, had raked in during the same time period a year ago. A reduction in subsidies for new energy vehicles and fluctuating fuel prices — the company also makes gas-powered vehicles, were identified ot be the major causes of the huge decline in profits.

Following the dismal third quarter performance, BYD has issued a warning to its shareholders about a possible 43 per cent drop in its profits for the full year in comparison to the profits that it had reported last year.

That could be bad news for the Oracle of Omaha because with a 8.25 per cent stake in the company, Buffett’s Berkshire Hathaway is one of BYD’s biggest shareholders.

A large government subsidies and tax incentives in recent years has pushed the sale of electric vehicles in China. Beijing wants the total number of vehicles running on clean energy sold to touch 7 million annually by 2025. However at the same time the government is also phasing out subsidies and tax benefits.

According to China’s Association of Automobile Manufacturers, there was a 34 per cent year on year drop in the sale of new energy vehicles in China in September.

BYD reported at the Shenzhen Stock Exchange that it had recorded a 3.1 per cent year on year growth in net profits at 1.57 billion yuan ($224 million) in the nine months since January while it also reported a 5.4 per cent year on year growth in revenues for the same period at 93.8 billion yuan.

This company that churns out the latest domestically built electric car models has been a stand out firm in the otherwise dismal performing auto industry in China. However its drop sale of new energy vehicle sales in the latest quarter has impacted its profits and earnings.

The company reported a drop of 88.6 per cent in net profit in the third quarter at 119.7 million yuan while there was a 9.2 per cent decline in revenues also year on year at to 31.6 billion yuan.

The company forecast that for the entire year for net profit would see a plunge of between 36 per cent and 43 per cent and will be in the range of 1.58 billion yuan and 1.77 billion yuan.

The company said that automobile demand, scaled-back subsidies and more fierce competition from gasoline-powered vehicles will offset its efforts to push demand and sale of new energy vehicle in the fourth quarter and it said that the numbers are likely to miss forecasts.

(Adapted from CNN.com & ChinaDaily.com)

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