Sluggish sales in the past few months and high inventory have prompted several dealers in Beijing and other areas to pull out of BYD's sales network, a setback for the high-flying carmaker, the China Business News reported. 

BYD and other automakers are anticipating a slowdown in the second half, largely the result of Beijing's efforts to curb 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, a slowing economy and widespread natural disasters kept buyers from showrooms.

BYD Chairman Wang Changfu said the China Business News report was exaggerated, adding that dealer churn rates at the company were at normal levels. 

"We have dealers joining and leaving the network all the time," he told reporters after BYD reported disappointing second-quarter results. BYD earned a second-quarter profit of 717 million yuan ($106 million), well below the 962 million-yuan average estimate of four analysts surveyed by Bloomberg News.  

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 Leaf and GM's 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." 

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.