Translated by Andrew Vanburen from a Chinese-language piece in Sinafinance
THE BIGGEST ISSUE hybrid vehicle manufacturers like BYD Auto (SZA: 002594; HK: 1211) have traditionally had to face is squeezing as many kilometers as possible out of a single electric charge.
Now the Shenzhen-based firm is grappling with a much more pedestrian problem -- how to squeeze as much profit out of a struggling company in a down market as possible.
Just a few short years ago, Chinese electric vehicle maker BYD had the country's top-selling car and Warren Buffett jumped onboard with a 10% stake.
But market conditions forced the carmaker to slam on the brakes, and now it's planning major redundancies and slashing salaries to cut costs.
An incident in Shenzhen last month in which a speeding sedan slammed into a BYD taxi, causing an inferno which killed three people in the latter vehicle, sent the firm’s share price plunging 5% after the news hit the press.
BYD’s first quarter revenue was flat year-on-year at around 11.7 billion yuan while net profit plummeted to 53 million from 324 million a year earlier.
So what's stalling forward progress of Buffett's hybrid?
BYD, which stands for “Build Your Dreams,” has been having anything but pleasant reveries of late.
The dual-listed firm which began by specializing in the design and manufacture of rechargeable batteries for cell phones and computers, has entered into a new round of comprehensive salary and staff cuts, a company spokesperson was cited as saying.
Summer of Discontent
The manufacturer with facilities spread across the outskirts of the southern Chinese metropolis of Shenzhen will begin the new paring down process this month and continue into September.
Additionally, performance-based bonuses will only be offered to the most deserving 15% of the entire workforce rather than the 33% originally targeted.
Company officials estimate that these measures will result in savings of at least 240 million yuan for BYD.
But the savings will most certainly be partially if not totally eclipsed by the deficit in good will and company morale that ordinarily accompanies incentive-based campaigns for hard-working staff.
”Due to the lackluster external market environment and management’s lack of optimism for a near term turnaround, the cost saving measures and sharp benefit reductions were implemented,” the company spokesperson added.
It added that the current cost saving measures would stay in place until September, and there was no plan at this time to continue them past that point.
However, conditions down the road would dictate whether or not an extension was warranted.
”Current economic conditions dictate that we have no choice now but to take these measures.”
The spokesperson went on to say that the decision to implement this unpopular campaign came with a great deal of reluctance, but management believed that the workforce understood that cost saving measures were currently necessary given the economic difficulties at large and the general market uncertainty.
He added that the company has not seen any unrest or disturbances resulting from the new campaign.
”We’re already into our fourth month of similar measures, and if things turn around for BYD then this campaign will no longer be necessary. For example, if things brighten up in the fourth quarter, then bonuses will be fully back on the table.”
Reports of job cuts were not confirmed by the company, but the predominance of reports stating as such were also not denied by officials with the firm.
Employees will not be the only ones eagerly hoping for a turnaround in BYD’s top and bottom lines, as well as a resumption of incentives like performance-based bonuses.
Warren Buffett with his 10% stake will no doubt also be keeping his fingers crossed for a jumpstart to the electric vehicle play.
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