Chinese carmaker BYD is facing serious challenges with its net profit having declined from 3.79 billion yuan (US$598 million) in 2009 to 2.52 billion yuan (US$399 million) in 2010 and 1.38 billion yuan (US$218 million) in 2011, reported the Investor Journal weekly in Beijing.

The company's net profit declined almost 90% in the first quarter of this year, according to its latest financial report.

Citing statistics compiled by China Passenger Car Association, the weekly said BYD's four leading car models had sold 30,000 vehicles per month on average in the first quarter of this year; 26,000 per month in the second quarter; and 20,000 in July.

This was a danger sign for BYD, as car sales contribute 24 billion yuan (US$3.8 million) to the company's total revenue of 48.8 billion yuan (US$7.7 billion).

The weekly blamed BYD chairman Wang Chuanfu for the company's plunging profits, saying he was obsessed with the idea of horizontal integration and insisted on manufacturing each of the components of BYD's cars.

"This practice has turned out to be wrong, as some components can be supplied by others at lower costs and at a higher quality," an engineer who has worked at BYD for eight years was quoted as saying.

Wang's other mistake was to copy other car models instead of developing BYD's own, to save on the cost of design.

This route had been successful in the beginning and had boosted the company's market share significantly. For example, BYD delivered 140,000 F3s in 2007, increasing the company's delivery for the full year to 170,000 cars.

However, this approach undermined the company's research-and-development abilities, subjecting it to great pressure each time other Chinese carmakers launched new models.

"The success of F3 was an accident, but misled Wang into thinking that copying other carmakers' popular models was a shortcut to success," Peng Po, a manager studying the auto industry at consultant Booz & Company told Investor Journal.

Its vulnerability in research and development was exposed in 2009 and 2010 when the company launched only new models, G3 and M6. Many of its dealers ended their partnerships with BYD as the lack of models kept away customers.

The company's reckless entry into the new-energy car segment was another major mistake, as only 400 units of its electric car E6 were sold in 2011, while 600 were sold in the first half of 2012.

While he was occupied with the development of electric cars, Wang overlooked BYD's battery-production division, and the firm's status as the "king of lithium batteries" in China was lost to its lead rival Bak Power. Further, BYD was replaced by ATL as Apple's Chinese battery supplier.

From being the leading battery maker in China in 2006, BYD slipped to the 11th position in 2011, according to the China Industrial Association of Power Sources.

Worse, the company's information-technology department, which contributed greatly to its profits by assembling mobile phones for foreign companies, saw its revenue shrink 4.85% to 20 billion yuan (US$3.15 billion) in 2011, reported Investor Journal.