Buffett’s BYD Gain May Drop Further on Car Woes: Chart of Day

Bloomberg News, January 24, 2011

Warren Buffett's investment gain in automaker BYD Co. may shrink further, having more than halved from the peak in 2009, amid delays for expansion of the Chinese
company’s electric vehicles and rising competition, according to analyst recommendations compiled by Bloomberg.

BYD, China’s fastest-growing carmaker in 2009, saw sales drop five straight months through December last year as Great Wall Motor Co. and Dongfeng Motor Group Co. registered growth. BYD’s plan to start exporting its E6 electric cars to the U.S. was delayed more than a year to late-2011 for fleet sales and to early-2012 for retail customers, company founder Wang Chuanfu said this month in Detroit.

The CHART OF THE DAY compares BYD shares with those of Great Wall and Dongfeng Motor, the best-performing the past year among mainland carmakers listed in Hong Kong. BYD stock has dropped by more than half since early April, although it’s still up 363 percent since Sept. 27, 2008, when Buffett’s Berkshire Hathaway Inc. disclosed paying HK$1.8 billion ($232 million) for a 10 percent stake. Great Wall, an independent brand, has surged 662 percent, with much of its rally in the past seven months. Dongfeng, which makes cars with Nissan Motor Co. and Honda Motor Co., has almost matched BYD’s total rise.

“The Buffett investment itself generated so much public relations for BYD and it turned into a very significant win for them on their conventional car, the F3,” said Bill Russo, a senior adviser at Booz & Co. in Beijing. “The problem is that they have not been able to commercialize any of their electric vehicles, not to a level of reaching any kind of profit.”

BYD has a consensus rating among 27 analysts compiled by Bloomberg of 2.85 out of a possible 5, with “sells” topping “buys” by an 11-to-nine margin, with seven “holds.” Great Wall, which reported a 90 percent rise in vehicle sales last year, has a 4.64 rating from 22 analysts. The grade on Dongfeng, China’s second-largest automaker, is 4.48 from 29 brokers. Buffett, 80, made his first visit to BYD in Sept. to inspect a plant in Shenzhen and Changsha.

BYD sold 519,806 cars last year, 13 percent short of its target, which had already been cut by 25 percent in August. The Shenzhen-based company said the E6 will run for more than 300 kilometers (186 miles) on a full charge, and Buffett’s bet “is a long-term investment in a company he believes has the ability to electrify the automobile,” Russo said.