UPDATE 2-BYD warns of slower H2, says dealer pullouts overstated

* BYD braces for H2 slowdown, will launch new models

* Sluggish sales, inventory blamed for dealer pullout

* BYD says dealer churn at normal levels, report
exaggerated

* Aims to list A-shares in Shenzhen in H2 – chairman

* Shares down 3.8 pct on disappointing quarterly earnings
(Recasts lead with chairman comments)

By Alison Leung and Fang Yan

HONG KONG/BEIJING, Aug 23 (BestGrowthStock) – China’s BYD Co Ltd
(1211.HK: ), backed by U.S. billionaire Warren Buffett, warned on
Monday of a slowdown in car sales during the second half of the
year and said it will launch new models to lessen the impact.

Sluggish sales in the past few months and high inventory
have seen several dealers in Beijing and other areas pulling
out of BYD’s sales network, a setback for the high-flying
carmaker, the China Business News reported on Monday.

BYD joins the ranks of its rivals in terms of expectations
for a slowdown in the second half, largely as the result of
Beijing applying the brakes to the economy’s breakneck
expansion in 2009.

The month of July saw the the slowest growth for Chinese
car sales in 15 months as the fading effects of Beijing’s
policy initiatives, the slower economy and widespread natural
disasters kept buyers from showrooms.

But BYD Chairman Wang Changfu said the China Business News
report was exaggerated, adding that dealer churn rates at the
automobile firm were at normal levels.

“We have dealers joining and leaving the network all the
time,” he told reporters on Monday after BYD reported
disappointing second-quarter results.

Shares of BYD, 10 percent owned by Buffett’s Berkshire
Hathaway (BRKa.N: ), were down 3.8 percent in Monday afternoon
trade after BYD reported a lower-than-expected 2.6 percent rise
in second-quarter net profit. The second-quarter profit (Read more your timing to make a profit.) was
down substantially from the previous quarter. [ID:nTOE67J02B]

China surpassed the United States last year to become the
world’s No. 1 auto market as sales took off, fuelled by a raft
of policy incentives from Beijing to boost consumption during
the global economic slowdown.

That growth is expected to ease to more normal levels in
the second half of the year.

Wang said BYD would focus on developing overseas markets
and expand its production capacity of electric vehicles to meet
market demand.

Starting next year, the company plans to export large
quantities of its E6 electric car to the United States to
compete with the likes of Nissan’s (7201.T: ) Leaf and GM’s
[GM.UL] Volt.

BYD, which previously cut its 2010 sales target to 600,000
units from a previous target of 800,000, has prepared for a
slowdown in China’s auto market, Wang said. But he would not
comment on how likely the company is to meet the new target.

“We will launch several new models later this year.” he
said. “The fourth quarter traditionally is a peak season and
sales should pick up.”

Among BYD’s rivals, carmakers who have more aggressively
pushed out new models or have a wider product portfolio, such
as Chinese top automaker SAIC Motor Corp Ltd (600104.SS: ) and
Dongfeng Motor Group Co (0489.HK: ), are set to hold up
relatively well.

BYD aims to seek an A-share listing this year in Shenzhen,
Wang said. The size of the fundraising will depend on the
company’s need and market conditions.

The company plans to issue up to 100 million A shares to
fund its lithium-ion and solar battery production and the
expansion of automobile products and accessories.
[ID:nHKG253004]

FLEEING DEALERS

A large number of BYD’s departing dealers have recently
left the Chinese automaker’s sales network because high
inventory tied up their cash, the China Business News reported
on Monday.

The departures follow that of Ping Tong, BYD’s flagship
dealer in the southwestern city of Chengdu. Ping Tong, set up
in June last year, sold 1,500 of BYD’s F0 car that year, but
its inventory for the model surged to as high as about 1,000
units a year later, locking up more than 35 million yuan ($5.15
million) as BYD continued to ship cars despite a market
slowdown, it said.

“The growth of car sales in China will continue to slow
down and the high inventory of BYD with dealers should take
some time to digest,” said Alfred Chan, chief dealer at Cheer
Pearl Investment Ltd.

Fast expansion of BYD’s sales network was also blamed for
the closure of BYD dealers in Chengdu and other provinces,
including Zhejiang, Shandong and Henan.

BYD has about 14 dealerships in Chengdu, while the best
performer in the city, Shanghai Volkswagen, has 13. Shanghai
Volkswagen is a car venture between Volkswagen AG (VOWG.DE: ) and
SAIC Motor Corp Ltd.

“Because of high inventory levels, many dealers are
competing to cut prices. We were forced to sell cars even at a
loss,” the China Business News quoted an unnamed BYD dealer as
saying.

Normal inventory is equivalent to sales for 1-