China's BYD Co Ltd, 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 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, 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 was down substantially from the previous quarter.

China surpassed the United States last year to become the world's No. 1 auto market as sales took off, fueled 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.

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 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- months, analysts said, while BYD's inventory could double that level.

($1=6.790 Yuan)

(Editing by Doug Young, Chris Lewis and Valerie Lee)

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