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China's BYD to ditch petrol power

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BYD Qin hybrid sedan.

Shanghai - BYD, one of the better known Chinese brands thanks to a stake held by billionaire US investor Warren Buffett, may stop making conventional petrol-fuelled cars within two years and focus on 'new energy' battery models as part of a “re-birth plan” to arrest a slump in sales.

Shares in BYD, which once harboured long-term ambitions to be as big as Toyota, have tumbled by almost three quarters since a late-2009 peak.

Now the company is poring over internal plans to radically adjust and possibly streamline its business - which sprawls across batteries, cellphone assembly, solar panels, LED light bulbs, and electric and petrol-powered cars and buses.

At the heart of the 're-birth' is a plan to ditch petrol-fuelled cars, and maybe offload its solar panel business, and concentrate on new greener battery technologies, said two senior BYD executives, who asked not to be named as the plans have not been finalised.

The company is expected to unveil its Green Hybrid Technology at the Shanghai Motor Show on Saturday.

“We're trying to reposition ourselves around what we do best” - producing advanced but affordable iron-phosphate lithium-ion batteries, one of the executives said. BYD is a world leader in rechargeable batteries.

It's a bold move, and not without risk. But the executives said BYD recognises it needs to find an edge in its business, which has suffered as vehicle sales, which accounted for around half the company's revenue, slumped. BYD last year sold 457 700 cars.

GOING GREENER

The executives said BYD would likely in future only design 'green' electrified cars, phasing out selling petrol cars over the next couple of years. The migration of the product line-up will likely start late this year, they said, leaving BYD with a range of conventional petrol-electric hybrid cars similar to Toyota's Prius - combining a turbocharged petrol engine with an electric motor propulsion system.

That technology could shave up to a fifth off fuel costs, though the cars could be priced above similar conventional petrol-powered cars, the executives said. Some of the new hybrids and other models could hit US showrooms by as early as 2016.

A smaller part of the new line-up will see pricier all-electric battery cars, as well as heavily electrified, so-called 'plug-in' electric hybrid cars. Both these green technologies are promoted by China's central government through generous purchase incentives as an industrial policy.

The main risk in promoting gasoline-electric hybrids is that the government currently does not recognise them as a 'new energy' car, so BYD hybrids would not benefit from the generous handouts that an electric battery car buyer would enjoy .

Beijing's 3-year programme to promote new-energy cars with incentives ended last year. BYD and others hope the government will broaden the definition of new-energy cars to include hybrids as and when the programme is renewed.

BEATEN UP

The 're-birth' plan follows a series of setbacks at BYD, which has more than 150 000 employees.

“The last three years have been tough, and painful at times. Everybody beat us up,” said one of the executives. “A lot of long-term investors and friends of the company lost patience with us.”

BYD consistently over-promised and failed to deliver on many objectives it set itself. Its e6 all-electric battery car - an image builder as a green company - was intended for private use in China and the United States, but never quite caught on. Now, the executives said BYD is pushing the e6 only as a taxi or rental car, and plans to launch two or three new all-electric battery cars in the coming years.

The company also stumbled in its petrol car business, once a cash cow, as it sought to expand sales too fast without improving vehicle quality, and brought in too many inexperienced dealer operators to spur sales.

The executives said BYD's new direction would be more “measured”. One said BYD had been too concerned in the past with volume and growth, at the expense of quality. Now, the executive said BYD Chairman Wang Chuanfu spends more time guiding and pressing managers to improve, and invest in, quality.

BYD's initial vehicle quality, as measured by U.S. consultant J.D. Power, is “below industry average” in China, as are all local manufacturers, but it has “dramatically improved quality,” said Jacob George at J.D. Power in Shanghai, predicting the firm's initial quality rating could rise above the industry average at least by 2018.

The BYD redirection, though, is a high-risk move that could drive the company into “serious trouble,” said Yale Zhang, head of Shanghai-based consulting firm Automotive Foresight.

“They either know something we don't or they're actually going to take a long time, over 5-10 years, to make this radical transition so that there's little risk,” Zhang said, referring in part to the possibility of big government incentives for conventional hybrids. -Reuters


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