BYD may struggle for the rest of the year, but that doesn't mean its prospects are as dim as its sales suggest.

For starters, BYD has abandoned its false hopes for strong EV sales. Instead the company is investing in its gasoline vehicles and is moving them upscale.

The company finally is making the right moves, even if those moves are almost too late.

Two pricier new models are gaining a foothold. Last October, BYD introduced the G3 sedan, which starts at 63,000 yuan ($9,800). And in May, the company unveiled its S6 SUV, which starts at 90,000 yuan.

Last month, BYD sold 4,920 units of the G3, plus 3,204 units of the S6. So consumers are starting to accept BYD's more upscale vehicles.

BYD hopes these vehicles will reduce its dependence on entry-level models, which are struggling. The F3 compact car, which sells for 53,000 yuan, and the 37,000-yuan F0 minicar have suffered sharp sales declines.

While BYD shakes up its lineup of gasoline cars, it also appears to be reconsidering its investment in EVs.

The company has invested hundreds of millions of dollars to develop plug-in hybrids and EVs. But sales have been pitifully low. In part, that's because China's cities lack charging stations. EVs also remain expensive despite hefty incentives.
Should BYD continue to spend tons of money to build more and better EVs? Or should it devote more resources to its gasoline vehicles?

Judging by the prospectus for the initial public offering that BYD launched in June, it has shifted back to gasoline vehicles.

According to the prospectus, BYD will invest virtually all of the 2.2 billion yuan raised from its stock sale to expand production and upgrade r&d for its gasoline models.

Only a small portion will be used to produce batteries for electric tools, and no proceeds have been allocated for plug-ins or EVs.

This is a sensible decision. To shore up its sales and profits, BYD must go upscale. As a public company, it should not use investors' money to double its bet on EVs.

BYD is a young and inexperienced company. It didn't start making cars until 2003. So it isn't surprising that it has made mistakes.

In pursuit of overambitious sales goals, the company expanded its dealership network too quickly, only to lose 20 percent of the network as stores went out of business.

BYD naively believed that the EV market was about to take off. Now it's stuck with a huge investment that it may never recoup.

But BYD is a fast learner. Only four years after it started building cars, it became China's largest domestic automaker.

I wouldn't be surprised if this company digs its way out of its financial hole in the not-too-distant future.