(Adds comments from analyst, earnings details)
HONG KONG/SHANGHAI Aug 25 Chinese carmaker BYD Co Ltd , backed by Warren Buffett, saw its shares drop as much as 9 percent in Hong Kong before bouncing back after the company posted worse-than-expected first-half results and warned profit may fall by as much as a fifth in the first nine months of the year.
The shares slid to a two-month low of HK$44.90 in Monday morning trading, before regaining much of the lost ground. By 0304 GMT, the stock was trading 1.8 percent lower, trailing a 0.4 percent fall in the benchmark Hang Seng Index, while BYD shares in Shenzhen were down 2 percent.
BYD said late on Sunday that its net profit during the first six months fell 15.5 percent to 360.7 million yuan ($59 million) from 426.9 million yuan a year earlier, dragged down by a 27 percent slump in vehicle sales volume. Three analysts polled by Reuters had forecast a net profit of around 400 million yuan on average.
The firm also forecast a 12-22 percent drop in net profit in the first nine months of the year.
BYD and other Chinese carmakers such as Geely Automobile Holdings Ltd and Chery Automobile Co Ltd are losing market share to foreign rivals Volkswagen AG , General Motors Co and Ford Motor Corp as competition grows in the lower-end of China's auto market.
JL Warren Capital LLC, a New York-based, China-focused equity research firm said in a research report published on Monday that BYD's earnings forecast translates into a 27-31 percent fall in 2014 net profit. "Q3 guidance is disastrous," the research firm said.
One bright spot in BYD's first-half results was the explosive growth in its business selling vehicles powered by new forms of new energy, principally electric cars. That division saw revenue surge more than 10-fold to 2.7 billion yuan on the back of government incentive policies.
But some analysts said such growth is unsustainable. "Without local government support in the form of subsidies, the demand simply isn't there for electric vehicles," said JL Warren Capital, which has a "strong sell" rating on the stock.
BYD raised HK$4.2 billion ($542 million) in May through a share placement in Hong Kong to fund mainly its electric vehicle business, which some analysts described as a risky bet.
The carmaker currently has around a 37 percent share of China's new energy vehicle market, and said it expects to further strengthen its position in the second half of the year with new models and expanded production capacity. (Reporting by Donny Kwok and Samuel Shen; Editing by Kenneth Maxwell)