One-way street for Manganese Bronze

The Financial Times, October 23, 2012

When Manganese Bronze Holdings, the company that makes London black taxis, said it was entering administration this week, many Britons expressed shock and sadness.

“The black cab is part of Britain’s manufacturing heritage,” says Roger Maddison, an official with the trade union Unite.

Yet for anyone following the company and its string of recent mis-steps and misfortunes, the surprise is that Manganese Bronze did not go under sooner.

Eulogies for the company by its customers, some of them aired via Twitter, have been tinged with resentment caused by years of poor service and quality problems.

“The trade has always had a love-hate relationship with the London Taxi Company,” says Peter Rose, branch secretary of the London cab section of Unite, referring to the name by which Manganese Bronze sells cabs.

The company said it was no longer a going concern on Monday after it failed to secure funding from Geely, the Chinese carmaker that owns 20 per cent. This came after the company suspended sales because of a recall of 400 cabs due to problems linked to a Chinese-built component in their steering boxes.

Managers now say the company always faced tough odds because of its small size in a globally competitive business that values scale. “We were always a one-market, small-volume company with limited ability to fund engineering and development of its product,” says John Russell, chief executive.

Just five years ago, the company was still profitable and on a positive trajectory, with cash in the bank and a new joint venture signed with Geely, which wanted to make London taxis in Shanghai and sell them to international fleet customers such as hotels.

In fact, 2007 was the last year the company turned a profit. The following year, cabbies reported a spate of engine fires, an episode that would cause the company to recall and rework 5,400 of its TX4 flagship taxis.

While Manganese Bronze had updated its cabs over the years, they were still being built on a basic structure that traced its heritage back to the first black taxi, dating from 1948.
Despite its outdated product, the company enjoyed a protected market because of a rule that London taxis have a 28ft turning circle.

But by 2008, the TX4 faced serious competition from Mercedes-Benz’s Vito, which met the 28ft circle rule but was more fuel-efficient and cheaper to run.

In just over four years, the car has captured 38 per cent of the London market. Nissan is also coming to London with its own black taxi next year.

In China, the company faced delays getting its joint venture up and running, then the credit crunch wreaked havoc on its plants for international sales.

Manganese Bronze restructured in 2010 to take costs out of the business, including by outsourcing more parts overseas, especially to China. But in August of this year, it shocked the market by reporting a £3.9m hole in its accounts, which it blamed on a new IT system.

“We had a massive period of change going on in the business,” says Mr Russell. “We introduced a new computer system, and the finance function wasn’t monitoring the business properly.”

As of last week, the company was still a going concern, but would have needed a “large sum of money” to stay in business, he said.

Geely, which also owns the much larger Swedish carmaker Volvo, was unwilling to do this on terms the company could reasonably repay.

“Geely’s decision not to step in to rescue them is likely based on the financial risk that doing so would entail,” said Bill Russo, president of Synergistics, an auto consultancy in Beijing.

Yang Xueliang, Geely’s chief public relations officer, said that production of the black cabs in Shanghai would not be suspended.

“We believe the brand, with a long history, good reputation and unique positioning as a professional cab, still has great market potential,” he said.

Click here to read the article at FT.com

Chinese carmakers to face hard time moving up-market; need to perfect processes and technology

The Economic Times of India, July 7, 2012

Like many Chinese, Zong Zhaoxiang wishes nothing but the best for the Chinese car industry - yet he won't be buying a Chinese car anytime soon. The 52-year-old chairman of a Shanghai chemical company, Zong said he expects Chinese branded cars to have bright prospects.

However, he loves the comfort, quality and image projected by his black Mercedes-Benz S-class, and he said he may buy another Mercedes-Benz model or a BMW in the future.

"If Chinese-made cars were better designed and could demonstrate your status, more people might buy them," Zong said. Not all of Zong's compatriots can afford a Mercedes-Benz, of course. But most of them still prefer foreign brands to domestic ones.

Volkswagen and General Motors sold the greatest number of vehicles in China in 2011, the world's largest car market, followed by Nissan, Hyundai and Kia. All domestic car makers combined captured only about 30% of their home market, the lowest proportion of any major economy.

This is not what Beijing intended. In contrast to other "strategic" industries like telecom and banking, the auto industry has been gradually opened to foreign investment over the past two decades, as Beijing allowed foreign car makers to form joint ventures with domestic partners.

But the goal was always to help Chinese manufacturers acquire the technologies and expertise necessary to build their own strong brands, an outcome that eludes the industry.

Race to the Bottom

State-owned car makers - such as Shanghai Automotive Industry (Group) Corporation (SAIC), First Auto Works (FAW) and Chang'an Automobile Group - have begun paying more attention to building their own brands, at Beijing's urging.

It's been an uphill battle. With shorter histories, inferior technology and smaller marketing budgets, their products are mainly confined to the low-cost segment, where profits are thinner.

Meanwhile, independent Chinese carmakers such as Geely, Chery, BYD and Great Wall have introduced their own lowprice models, intensifying competition. Most Chinese brands continue to trade on the China's traditional forte: driving down manufacturing costs and making money on high volume and thin margins.

In contrast, foreign car brands charge double or more and still sell far more units, all on the strength of their brand, technology and styling. The playing field has tipped further towards foreign players in the past few years. First, Beijing ended a tax break on cars with engines smaller than 1.6 litres last year.

"The companies with smaller vehicles tend to be Chinese-branded carmakers. So they benefitted most from the stimulus and were hurt the most by the removal of the stimulus," said Bill Russo, a senior advisor at consultancy Booz & Co and the former head of Chrysler Asia.

The policy had helped overall vehicle sales to grow 46% year-on-year in 2009 and 32% year-on-year in 2010 - unsustainable rates of expansion, Russo said.

Click here to read the article at The Economic Times

China Still Market to Watch Despite 2012 Slowdown

Ward's Auto, October 24, 2012

Vehicle sales have stalled this year, compared with their past dizzying double-digit growth. But the world’s largest car market still has considerable potential for growth that should keep it in play for the foreseeable future.

Nissan car orders “starting to pick up,” executive says.

With total vehicle sales up a mere 3.4% through September to 14.1 million units, compared with year-ago, and many other developing markets maintaining their momentum, it would be easy to presume China has lost its luster.

But the world’s largest vehicle market still has considerable potential for growth that should keep it in play for the foreseeable future.

“Other markets will undoubtedly see their vehicles grow faster than China in percentage terms, but in terms of growth in absolute numbers, not much can stand in the way of China for awhile,” Tim Dunne, director-global automotive operations for J.D. Power & Associates, tells WardsAuto.

Vehicle sales in China have slowed this year compared with their dizzying double-digit growth before the global recession of 2008-2009.

This mostly is due to the phasing out of government incentives, plus China’s restrictions on the number of cars that can be registered in overcrowded urban areas and the drop in export demand as Western economies struggle with recessionary pressures.

That’s particularly true for the European Union, one of China’s largest trading partners. As a result, China’s own economy is softening.

However, Dunne cites relatively low vehicle ownership of 50 vehicles per 1,000 Chinese, compared with 900 per 1,000 Americans, as a key reason for the country’s likely continued steady growth. “Other markets may grab some headlines in the coming years – Indonesia and Vietnam come to mind because of their large populations, underdeveloped industries and growing economies – but China will still be the central focus of most auto makers’ attention,” he says.

Other analysts agree. “(China’s) continued GDP (gross domestic product) growth and urbanization increases the number of middle-class consumers that can afford to buy cars,” Bill Russo, president of consulting firm Synergistics, tells the Financial Times.

Such potential encourages major auto makers such as General Motors, which has said it plans to introduce more than 60 new vehicles in China over the next five years and intends to increase annual sales in the country from 2.35 million units to 5 million by 2015.

Light-vehicle sales through August, excluding imports, reached 11.7 million, WardsAuto data shows. While that’s only 6.3% ahead of prior-year’s 11.0 million, it’s 9.5 million more than were delivered in India, which was up 12.0% in the first eight months. Thailand’s sales surged 47.6% in the period to 861,951 thanks to a strong recovery from last year’s floods, but its volume is hardly in China’s ballpark.

WardsAuto is forecasting China’s total vehicle sales to grow 5.5% to 19.5 million units for the year, an “astounding number any way you slice it,” Dunne says. But while the news is good, the vehicle mix is changing.

Despite government efforts to boost domestic brands, Chinese car buyers still are flocking to foreign models, albeit many that are built by global auto makers in the country through joint ventures. This remaking of the market could have a lasting influence.

Domestic car companies have taken a bigger hit from the market’s slowdown, Dunne says. Unable to stock dealer lots with as much inventory as their foreign-brand competitors or slash prices on vehicles due to traditionally razor-thin profit margins, deliveries have been falling.

BYD is the poster child, plunging as low as 23.3% in August, while Volvo owner Zhejiang Geely is the exception, with sales still growing.

“Chinese brands are stuck,” Dunne says. “The only lever they have to pull is further price reductions, which exposes them to potentially heavy losses. How long can they sustain the losses? No one knows for sure.”

Losses could go on indefinitely, he says, so long as local governments, the source of most domestic auto makers’ backing, continue their financial support in order to grow jobs and tax revenue.

“If you surrender the fight now, it will become very difficult to restart it later, as competitors will have become stronger,” Dunne says of provincial governments’ possible reasoning.

For the time being, American, European and Korean competitors are the domestics’ fiercest foes, as a dispute between China and Japan over ownership of a group of uninhabited islands in the East China Sea rages on.

Violent protests calling for a boycott of Japanese products have led many Japanese manufacturers to shut down their Chinese operations and close retail outlets, some of which have been damaged by arson.

Domestic auto makers in partnerships with the Japanese also are being targeted. China’s Xinhua news agency reports Dongfeng, which has joint ventures with Honda and Nissan, expects a 30% decline in September-December sales, amounting to a loss of 150,000 units.

Overall light-vehicle deliveries already are showing the effect, with September results down 0.3% to 1.32 million units, according to the Chinese Association of Automotive Manufacturers, while total vehicle sales slid 1.8% to 1.62 million.

Both Nissan, the leading Japan-based seller of new cars in China, and Mazda reported September sales falling 35% below year-ago. Toyota, which dropped 48.9%, decided to halve its October production from like-2011 levels, Japan’s Mainichi newspaper says

In comparison, Hyundai-Kia September deliveries rose 9.5% from year-ago, on track to meet the auto makers’ combined 2012 sales goal of 1.25 million units. Ford, GM and BMW also saw sales boosts. The Ford Focus was the best-selling foreign brand for the month.

Dunne believes the dip in sales for Japan brands will be relatively short-lived, as Chinese car buyers consistently have shown they favor the quality and reliability long inherent in Japanese cars. Plus a prolonged lockout would harm domestic JV partners and their provincial governments.

Nissan Executive Vice President Andy Palmer tells WardsAuto the auto maker has no plans to halt construction of a fourth manufacturing plant in the country, set to open in 2014 in the northeastern Chinese city of Dalian. Nissan has said it wants to sell 1.35 million vehicles in China this year, and he says the order rate is “starting to pick up.”

Forecaster AutomotiveCompass expects China’s light-vehicle production to reach 18.2 million units in 2012, up 6.0% from prior-year, and climb 12.6% to 20.5 million in 2013.

cschweinsberg@wardsauto.com

Click here to read the article at wardsauto.com

VW Threatens to End GM’s Eight-Year Lead in China

Bloomberg News, October 24, 2012

After trailing General Motors Co. (GM) in China for eight years, Volkswagen AG (VOW) edged ahead in the third quarter, putting it one step closer to its goal of becoming the world’s biggest automaker.

VW’s deliveries in the country jumped 21 percent last quarter, almost triple GM’s growth, to 704,991 vehicles, according to figures the company reported yesterday. That beat the 664,765 that GM reported earlier this month.

Enlarge image

Volkswagen introduced new versions of its Lavida and Audi A4L sedans in the third quarter, and benefited from a territorial dispute that fueled so much anti-Japan sentiment that Toyota Motor Corp. and Nissan Motor Co. saw their September sales in China tumble the most since at least 2008. Photographer: Nelson Ching/Bloomberg

At stake is supremacy in the world’s biggest auto market, which analysts say will likely exceed those of the U.S., Japan and Germany combined three years from now. China is the biggest market for both companies.

“Being No. 1 in China means a lot to their global development,” said Harry Chen, an analyst with Guotai Junan Securities Co. in Shenzhen. “Volkswagen and GM will go through a period of time fighting at close quarters in China and they may take turns grabbing the lead.”

Though the comparisons aren’t perfect -- VW counts Hong Kong and Macau and excludes trucks, while GM does the opposite - - Kevin Wale, GM China’s outgoing president, yesterday confirmed that his company had ceded the top spot for the quarter. Volkswagen declined to comment.

With only one quarter left, GM’s lead of about 77,000 units may be enough for the company to hang on to the annual China sales crown.

The Buick Excelle and Chevrolet Sail were the top two selling cars in China for the first nine months, while VW’s top seller, the Jetta, ranked fourth, according to the China Association of Automobile Manufacturers. VW had five of the 10 best-selling cars through September, while GM claimed three spots, according to CAAM.

Japanese Backlash

Volkswagen introduced new versions of its Lavida and Audi A4L sedans in the third quarter, and benefited from a territorial dispute that fueled so much anti-Japan sentiment that Toyota Motor Corp. (7203) and Nissan Motor Co. (7201) saw their September sales in China tumble the most since at least 2008.

Most GM sedans were introduced two to three years ago and are reaching the end of their product life cycles, making them less attractive to car buyers, according to researcher LMC Automotive.

With more refreshed models in showrooms just as Chinese buyers have turned away from Japanese brands, Volkswagen has been better able to capitalize on the tensions than GM, said Steve Man, a Nomura Holdings Inc. (8604) analyst. Volkswagen is also expanding production capacity faster -- 38 percent growth this year versus GM’s 26 percent, JPMorgan Chase & Co. (JPM) estimates.

Cushion Against Europe

Volkswagen isn’t alone in gaining on GM. South Korea’s Hyundai Motor Co. (005380) and affiliate Kia Motors Corp. (000270) saw their combined sales rise 9.5 percent to a record in September. Ford Motor Co. (F), whose Focus compact is the No. 3 selling car in China this year, reported sales jumped 35 percent.

China has helped cushion the slump in Europe, where car deliveries are headed for their biggest fall in 19 years as the region’s financial crisis continues. Volkswagen, which aims to be the world’s leading automaker by 2018, yesterday reported its biggest quarterly earnings drop since 2009 because of Europe.

Though auto sales in China have slowed in recent months, the market has plenty of room to grow. Vehicle ownership in the country was equivalent to 4.7 percent of the population, versus about 51 percent in Japan and 81 percent in the U.S., according to 2009 figures from the Japan Automobile Manufacturers Association.

Following Jeep

Volkswagen in 1984 became the second foreign auto brand, after Jeep, to produce cars in China. But more recently it has trailed GM as the Detroit-based company and its Chinese partners cranked up production of Wuling minivans, which have outsold all other four-wheel vehicles in China for the past eight years.

While quarterly comparisons only go back to mid-2009, annual data shows Wolfsburg, Germany-based Volkswagen hasn’t held the lead in China since 2004.

Volkswagen is planning to invest 14 billion euros ($18 billion) from 2012 to 2016 in the country to regain its lead. GM said last year it planned to invest as much as $7 billion in China from 2011 to 2015.

To spur sales, GM is expanding capacity and boosting production of its luxury Cadillac lineup in China, Chief Executive Officer Dan Akerson told reporters in Sao Paulo on Oct. 21.

“Of course we’d like to see a more robust market in China,” Akerson said. “To me, it’s not whether you’re the biggest car manufacturer. It’s whether you want to be the most profitable.”

GM’s ability to fend off Volkswagen could hinge on Wuling’s minivans, which start below $5,000 and are used as both passenger-and cargo vehicles. Wuling accounts for about half of the Detroit automaker’s deliveries in China.

Cadillac Slumps

Wuling September sales fell 2.5 percent -- more than the total market -- as the slowing economy hit demand for cheaper vehicles as less-wealthy buyers reined in spending. Speculation the government may subsidize new minivans and small cars to spur growth in rural areas has also made some buyers delay purchases, said John Zeng, director of Asian forecasting at LMC in Shanghai.

While a 3.2 percent increase in Chevrolet sales helped GM avoid an overall drop, deliveries of Buicks tumbled the most since at least 2010 and Cadillac sales fell for a sixth straight month. Those brands are important to GM because they generate more than twice as much profit per car as Wuling, according to LMC.

GM, which like Volkswagen has ventures with SAIC Motor Corp. (600104) and China FAW Group Corp., is adding SUVs, a category that’s been expanding about nine times faster than China’s overall auto industry.

‘Malibu Disaster’

A 1.6-liter engine version of the Chevrolet Malibu, GM’s second-best selling car in the U.S. this year, has been a disappointment since it hit the market in February, said Lin Huaibin, an analyst in Shanghai with researcher IHS Global Insight.

“Malibu is a disaster,” Lin said. The car was unable to effectively compete against the Superb from VW’s Skoda brand and Hyundai’s Sonata, which has sold about twice the 29,000 units GM has managed with the Malibu this year.

Competition between GM and VW, the No.2 and No.3 global automakers, after Toyota, is entering a new era with both announcing in the past four months changes in the leadership of their China businesses.

“Both companies have proven they are strong in this market,” said Bill Russo, Beijing-based senior adviser at Booz & Co. “They are the two big fish in the pond and that’s not going to change even with a shuffling of management.”

To contact Bloomberg News staff for this story: Tian Ying in Beijing at ytian@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

Click here to read the article at bloomberg.com

China Car Sales Fall Amid Japan Tensions

The Wall Street Journal, October 10, 2012

SHANGHAI—China's territorial spat with Japan is taking a toll on the world's No. 1 auto market, leading to its first monthly sales slump in nine months and adding to industrywide pressures that include a slowing Chinese economy and a surfeit of car factories.

Associated PressSales at Chinese auto makers could take a hit from excess production capacity. Above, workers assemble cars at the factory of BAIC Motor Corporation in Zhuzhou.

China's semi-official auto-industry association said Wednesday that sales of passenger cars in China fell 0.3% in September to 1.32 million vehicles compared with a year earlier, a drop it blamed on Chinese consumers angry over Japanese claims to a group of uninhabited islands in the East China Sea.

"If Japan wants economic growth, it has to maintain good relations with other Asian countries like China and South Korea," said Dong Yang, the general secretary of the China Association of Automobile Manufacturers, at a Wednesday briefing. He cited a "long-term accumulation" of resentment among consumers.

Sales of Japanese brands fell sharply, according to the association's data, which came a day after major Japanese auto makers reported their individual September China sales figures. Sales of Japanese passenger vehicles in September totaled 160,000 vehicles, down 30% from August, it said, while their share of sales declined to 13.2% from 18.62%.

Previously, Toyota Motor Corp. 7203.TO +1.29% said September vehicle sales fell 49% from a year earlier, while Nissan Motor Co. 7201.TO +1.88% said sales fell 35% and Honda Motor Co. 7267.TO +1.37% said sales fell 41%.

Foreign as well as domestic companies picked up sales the Japanese auto makers lost, the data showed. But the overall sales slump suggested many Chinese consumers held back on purchases, in a market where more than 80% of purchases are from first-time buyers who can take as many as 15 months to settle on a model.

"It's not like buying soap," said Janet Lewis, analyst with Macquarie Capital Securities Ltd. in Hong Kong. "Consumers won't immediately switch to another brand if one suddenly becomes undesirable or unavailable."

That could be good news for Japanese auto makers who are counting on Chinese consumers to come back, as they did after similar bouts of diplomatic tension in 2005 and 2010. At the same time, it could add to near-term pressures in a market that once grew by double digits annually and has become a key profit center for global heavyweights such as General Motors Co. GM -0.75% and Volkswagen VOW3.XE +1.82% AG.

Scott Laprise, steel and autos analyst with CLSA China, cited the potential for falling demand amid poor sentiment on China's economic prospects. He estimated dealers were holding two to three months of inventory this year compared with one month last year. Mr. Laprise estimates full-year growth in auto shipments of about 3% and real end-user demand to be even lower. Other analysts forecast higher growth such as Macquarie's 6.4%. 
Excess production capacity also looms on the horizon of China's car industry, especially for Chinese brands.

"Their plant-capacity expansion programs far exceed their own growth in the market," said Bill Russo, founder and president of auto consulting firm Synergistics Ltd. and a former Chrysler executive. "They are going to be sitting on a lot of excess capacity that is going to make pricing and profitability much more problematic in the future."

Mr. Russo and others still see long-term growth in China, especially for foreign brands and luxury brands, which enjoy a strong reputation among China's status-conscious car buyers. Yuan Qingwei, a sales consultant for a BMW AG BMW.XE -0.48% dealership in Beijing, said his dealership sold eight cars one day this week alone. "Now we can sell almost 200 cars per month," he said. "We estimated that total sales this year may reach 2,300."

Chinese officials also might face pressure to rekindle sales of Japanese brands from local auto makers that make Japanese cars through joint ventures, as well as local officials in their areas worried about growth. Mr. Dong, of the China auto association, cited local media reports that policy makers could soon offer subsidies for rural car buyers to help pick up the market, though he didn't offer details.

"Some Chinese car makers who have joint ventures with Japanese auto makers told me that they respect the choice of some customers not to buy Japanese cars," Mr. Dong said.
Domestic brands, which have taken hits in recent months as economic growth has slowed, won an unexpected gain from the Japanese slump. Sales rose 27% in September from August to 561,900 vehicles. U.S. auto makers' sales rose 12% to 168,200, while German auto sales fell slightly to 253,700.

Also on Wednesday, Ford Motor Co. F +1.70% said it sold 59,570 vehicles in the country in September, up 35% from a year earlier.

GM said Tuesday that it sold 244,266 vehicles in China in September, up 1.7% from a year earlier.

—Yajun Zhang and Kersten Zhang in Beijing contributed to this article.

A version of this article appeared October 11, 2012, on page B3 in the U.S. edition of The Wall Street Journal, with the headline: Japan Spat Hurts China Car Sales.

Click here to read the article at WSJ.com

JP Morgan Hands-On China Series: Contending With Slower Growth

September 11, 2012

JP Morgan Hands-On China Series report with perspectives of Chinese and Multinational executives on the growth prospects for the Chinese economy.  

Includes an interview with Bill Russo on China's automotive industry.

JP Morgan China Series: Contending with Slower Growth from Synergistics Limited

Car Maker BYD's Health Faces Skeptics

The Wall Street Journal, September 26, 2012

Click here to read the article at wsj.com

By COLUM MURPHY in Shanghai and JOANNE CHIU in Hong Kong

Chinese auto maker BYD Co. —investor Warren Buffett's highest-profile China investment—is facing renewed questions about its future as investors grow increasingly skeptical of its core businesses' prospects.

BYD shares traded in Hong Kong have fallen 13% over the past two days after brokerage CLSA slashed its target price for the stock, citing weakness in the company's mobile-phone-component, rechargeable-battery and "new energy" businesses. "BYD is likely in worse shape than we thought," analysts Scott Laprise and George Yang wrote in a research note.

CLSA's target price is 41 Hong Kong cents (13 U.S. cents), compared with the eight Hong Kong dollars (US$1.03 ) a share that MidAmerican Energy Holdings Co., a unit of Mr. Buffett's Berkshire Hathaway Inc., paid for its close to 10% stake in BYD in 2008. On Wednesday, BYD's shares closed at HK$13.26.

At the heart of BYD's problems is the company's weak performance in China's increasingly competitive market for conventional cars, a core revenue source. BYD also hasn't delivered on its mission to ride an intended Chinese push into electric vehicles, which is taking longer than expected to materialize as the government's implementation plan falls behind schedule.

The company eked out a profit of 16.27 million yuan ($2.58 million) in the first half of this year, down 94% from the same period a year earlier.

"BYD has been and continues to be profitable. Now it's not the same profit levels we have all been all accustomed to, but we are on track to get back to that spot," said company spokesman Micheal Austin.

BYD will re-emphasize quality in its vehicles as well as focus on new electric vehicles it is designing along with Daimler AG of Germany, he said. "We got ahead of ourselves," Mr. Austin said. "It's time to slow down and redirect to the principles we were founded upon."

Bill Russo, founder and president of auto consulting firm Synergistics Ltd. and a former Chrysler executive, said he believes BYD needs to be restructured. "As a maker of conventionally powered vehicles, BYD does not have what appears to be a very strong case for its continuation," he said.

The company's debt totaled 18.04 billion yuan as of June, slightly less than the 18.42 billion yuan at the end of 2011. Its cash and cash equivalents totaled 4.83 billion yuan at the end of June. Of total debt, about half is repayable in one year.

Industry officials said BYD is at little risk of insolvency because Chinese officials and banks often prop up major companies, and it enjoys the backing of major state-run banks. But its finance costs nearly tripled last year, and its weakened share price gives it less room to go to equity markets for the money it might need to overhaul its operations.

BYD's first-half vehicle sales fell 9% compared with a year earlier, to just under 199,700 vehicles. Electric cars, including electric taxis, accounted for only a few hundred.

China's auto industry has been plagued by high inventories, overcapacity and fierce price competition. The economic slowdown and higher oil prices also contribute to a much tougher environment for car makers. Still, revenue from BYD's auto division was up modestly, suggesting that the company has managed to increase sales of higher-priced models.

BYD is also striving to rebuild its distribution network after an exodus of dealers. According to Macquarie Securities, 308 dealers left the network last year, representing about 20% of BYD's total dealerships.

One of the company's major weaknesses is a lack of a foreign partner, analysts say. Chinese auto makers allied with big global car makers such as General Motors Co. and Volkswagen AG have posted stronger sales results than many of their unaligned rivals. "The better foreign auto makers are already dancing with someone. It's kind of hard to get married up now," Mr. Russo said.

BYD points to its new joint venture with Daimler, in which it is providing battery and other electric-vehicle technology. "The JV with Daimler has completely changed the way BYD thinks about the design process," Mr. Austin said.

A spokesman for Daimler said the joint venture was for the sole purpose of developing an electric passenger vehicle in China. "We are currently focused on the Chinese market only," he said.

Electric cars won't be a quick fix. In 2011, only 6,000 electric vehicles were sold in China, well behind the official target of half a million, according to a report by consulting firm McKinsey & Co. China has failed to build a support network as quickly as planned. More than 400,000 charging piles were to be in place in 2015, yet only 16,000—or under 5%—had been built as of last year, McKinsey said.