SHANGHAI -- Encouraged by the quick inroads they have made in China's new car market, Chery Automobile Co. and BYD Co. are now expanding into non-auto sectors.
That's bad for their still-weak automotive brands.
Chery was incorporated in 1997, while BYD, initially a battery maker, didn't start making cars until 2003. As young as they are, both companies have built an impressive presence in the market.
In 2009, each sold roughly 440,000 vehicles, grabbing 5 percent of the Chinese car market, ranking only after six global players: Volkswagen, General Motors, Toyota, Honda, Hyundai and Nissan.
But now, Chery, which also builds commercial vehicles, has started making forklifts for use in warehousing and other industries. It aims to increase annual capacity of its forklift plant to 30,000 units next year.
Meanwhile, BYD President Wang Chuanfu told reporters last week in Hong Kong the company is considering making home appliances. Chinese media reported BYD has also started producing laptop computers on a trial basis.
I won't speculate whether the two leading indigenous automakers stand a good chance to succeed with their forays into non-automotive markets.
But one thing is certain: branching out stretches thin the resources that could be used to enhance their automotive brands.
Chery and BYD now sell a lot more cars than they did a few years ago. Chery's sales increased 31 percent last year from the previous year, while BYD's shot up 160 percent. But the progress they have made in brand building is far from impressive.
Both still market inexpensive cars. Their volume products sell for 25,000-60,000 yuan ($3,676 - $8,824). They are still targeting small cities and interior regions in China, where low-income consumers are more sensitive to prices than brand image.
BYD and Chery have both launched more-expensive models, such as BYD's G3 compact sedan and small cars sold under Chery's Riich brand. But demand remains low because of poor brand recognition.
Instead of diversifying into non-auto sectors, Chery and BYD should invest more in research and development to improve vehicle quality and brand image.
Otherwise, as more Chinese consumers acquire a second car and brand awareness increases among car shoppers, they will be bound to lose market share.
In fact, it's starting to happen. Due to the poor acceptance of new and more expensive models, Chery's share of the domestic passenger vehicle market has dropped to 4.1 percent in the first seven months of the year, from last year's 5 percent. In the same period, BYD's market share slid to 4.9 percent from 5.1 percent.