BYD's ability to produce an electric car for the Chinese market has come under scrutiny following the automaker's decision to enter the sector.

The Chinese manufacturer signed a contract with Daimler in May creating a 50:50 research and technology joint venture known as Shenzhen BYD Daimler New Technology Co that will develop an electric vehicle for China.

The two companies will invest RMB600m (US$88.5m) to use as registered capital for the JV.

New generation electric vehicles developed by the JV will use Daimler's know-how in EV architecture and safety as well as BYD's battery technology and e-drive systems.

However, one analyst remains sceptical about BYD's capacity in the field.

"[In] the electric vehicle sector, BYD always claims it will be a big player, but so far I don't see it has demonstrated a strong capability," IHS Automotive senior market analyst Huaibin Lin in Shanghai told just-auto. "Electric cars are not simply about batteries - batteries are a component."

Nonetheless, BYD plans to become the first Chinese firm to sell electric and hybrid vehicles in Europe in 2011.

BYD sold 33,046 vehicles in July, up 4% year on year, but down 6% month on month, which the company attributed to an off-season market.

Lin also projected a BYD sales volume for BYD of 600,000-700,000 units this year - broadly in line with its forecasts - but added this was a 25% drop in targeted volume as the Chinese rate of market growth slows.

"They set perhaps too ambitious targets - perhaps mission impossible," he said. "BYD produces a lot of budget and economy cars but still has not demonstrated a good quality of research and development.

"A lot of its models have been a direct copy of foreign OEMs, so I am pretty dubious about its long-term potential."

IHS Automotive estimates the Chinese personal car market will increase by 24% this year to 16m units, although this growth rate appears to be slowing.