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Is Buffett's Electric-Car Company Toast?

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Is Berkshire Hathaway's (NYSE: BRK-B  ) favorite electric-car company on the skids?

Chinese automaker BYD (OTC BB: BYDDY.PK) has attracted a lot of attention in the West -- not only because of Berkshire's $232 million investment back in 2008, but because of the company's grandiose global expansion plans. Those plans included a highly touted electric car, the E6, said to be destined for the U.S. market, and a series of electric and plug-in hybrid models.

But troubles at BYD have cast doubt on the company's ambitious plans -- and, increasingly, on its continued existence.

A big mess, exposed
Last March, a WikiLeaks document dump brought to light several State Department cables that cast BYD's business in a troubling light. Shoddy manufacturing practices, cheap materials, models that looked suspiciously like Toyota (NYSE: TM  ) clones, concerns about the actual quality of BYD's battery technology, and sharp declines in sales at home in China were among the concerns raised by the local U.S. consulate in Guangzhou.

BYD clearly wasn't ready for prime time. Its low-cost models found a foothold at home for a while, but the company seemed far from being ready for direct competition with industry giants like Toyota, General Motors (NYSE: GM  ) , Ford (NYSE: F  ) , or Volkswagen (OTC BB: VLKAY.PK) in markets outside China.

The mess is getting messier
Things have gone from bad to worse since then. BYD's sales in China have now fallen for 11 straight months. The company's first-half numbers were a major disappointment, with earnings down 85% versus the first half of 2010 -- and sales down 20%, even as competitors saw gains.

The company's vice president of sales, Xia Zhibing, resigned last week, a move that may signal a larger shakeup. But just like nearly every other struggling car company ever, the root of BYD's problems is product. The company's bread-and-butter F3 and F6 sedans were popular for a while but have been left behind as Chinese consumers have embraced fresher (and better-quality) alternatives.

BYD wants to be known as a maker of electric cars and has invested huge sums in an effort to develop advanced battery technology. But these huge investments have led to only a tiny handful of sales. The problem is simple but daunting: China, like the U.S., doesn't yet have the infrastructure to embrace electric autos on a wide scale.

That might change eventually, but not soon.

Retrenching, but too late?
BYD raised $219 million in a secondary offering in June, a sum that it says it will devote almost entirely to production and R&D of new gasoline-fueled cars. That's a huge change of emphasis from the electric models that caught the attention of Warren Buffett and Charlie Munger a few years back. But it's clearly what BYD needs to do to survive as an automaker right now.

BYD says it's on track to introduce the E6 in the United States next year, at a price of $35,000 -- a few thousand lower than had been anticipated. The company claims that the E6 has a range of almost 200 miles, about double that of the Nissan Leaf and more than Tesla Motors (Nasdaq: TSLA  ) expects from the base version of its more expensive Model S sedan, also due in 2012.

The claimed range for the E6 is enough to make it a viable everyday car for many. Assuming it holds up in independent testing, it'll be a strong selling point for the car -- though whether it will be enough to overcome concerns about quality and finish is very much an open question.

Still, BYD may find a few thousand sales here over the next couple of years. But that'll be just a drop in the bucket of what the company needs to keep going -- and to keep its most prominent investor, a certain Mr. Buffett, from bailing.

Assuming, that is, that he hasn't bailed already.

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Fool contributor John Rosevear owns shares of Ford and General Motors. You can follow his auto-related musings on Twitter, where he goes by @jrosevear. The Motley Fool owns shares of Berkshire Hathaway and Ford. Motley Fool newsletter services have recommended buying shares of General Motors, Berkshire Hathaway, and Ford. Motley Fool newsletter services formerly recommended BYD. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (8) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 13, 2011, at 10:52 PM, mattmosa wrote:

    BYD just doesn't sound like a Buffet quality investment to me, though the man did pull the trigger and write em a check.

    There might be more to BYD than meets the eye.

    Then again, maybe its US AIR all over again.

    Time will tell.

  • Report this Comment On August 14, 2011, at 7:07 AM, grigory99 wrote:


    The main reason Buffett invested in BYD is because Charlie Munger had been obsessed with that company for years. Munger is a big fan of China and loved the fact that BYD hired the best and brightest engineers China had to offer. Unfortunately, it looks like Munger's enthusiasm led him to overlook the company's shoddy management - ironic, considering he lectured about this very fallacy in the past...

  • Report this Comment On August 14, 2011, at 10:10 AM, madmilker wrote:

    With less than 5% foreign in Wal*Mart stores in China the nice people of China are deprived from purchasing foreign made items and wasn't the nice people of China that invested in the port in Mexico with Wal*Mart.

    Oh! it wasn't the nice people of China tip toeing through Michelle's garden before selling Bank of America and sitting back to watch the government sue the bank.

    BYD is doomed just like Wal*Mart....cause little people are the ones that have the be in their hand when they their pocket book and purse when they shop.

  • Report this Comment On August 14, 2011, at 11:44 AM, tukuemuaca wrote:

    OK, give me a break. Claim is that slow sales of electric cars is because of lack of infrastructure? What nonsense!! Even if there were charging stations on every corner, the problem is simply CHARGING TIME. So, if you buy one of these for commuting for a few miles a day, you can recharge in your garage overnight. BUT, if you want to go anywhere any distance away, you look forward to charging time. Typically, it is 8-12 hours. So, the "infrastructure" should have rooms with beds so you can sleep while your car is being recharged. And, forget about claims that there will be "fast" charging coming. NO way. The reason is the FACT that the amound of energy that has to be transferred in any reasonable time requires an immense connecting cable with hundreds of amperes at high voltage. IT WILL NEVER HAPPEN. Even Tesla says that the "solution" are stations that replace your battery in a "few minutes" This electric car stuff will ALWAYS be elaborate golf carts that are essentially "tethered" to your house. Can't go any distance anywhere because of CHARGING TIME.

  • Report this Comment On August 14, 2011, at 1:21 PM, HappyEndingz wrote:

    The mess is getting messier?


    So, according to Charlie at this year's Wesco meeing, BYD's car sales have doubled (emphasis here on up 100%) every year for the past 5.

    And now, they are down a whoppin' 20% in the past 6 months. Help required. The point of this article is exactly what?

  • Report this Comment On August 14, 2011, at 7:42 PM, madmilker wrote:

    duh! if Nokia is 43% of their business and they postponed orders for handset parts and assembly ain't gonna matter much if they sell 100 electric automobiles or 200,000 .....

    Maybe someone needs to be pumping Nokia....better yet...maybe the O'fart will buy that and that way he could have those six horses and stagecoach pull the electric car with him wearing a pair of fruity foreign underwear in the passenger seat with Charlie driving while talking on a hands-free Nokia cell-phone and Bill Gates in the back seat eating a DQ burger watching Obama on a laptop reading from two teleprompters talking about his visit to Facebook and Apple.


    Facebook is like makes NOTHING!

    All of Steve Jobs apples are foreign....assembled in China from parts made in Korea.

    and all those rich a-holes don't say a word about those fifteen cargo ships that pollute as much as 760 million automobiles....

  • Report this Comment On August 15, 2011, at 2:12 AM, highwaym wrote:

    People that buy an electric car already know its range and its charging time. It's something you buy to drive local. Then at night when you sleep it charges. two hundred Kilometers is plenty range and 8 to 12 hours charge time? Big deal, your asleep most of that time.

  • Report this Comment On October 26, 2011, at 1:27 PM, deepestvalue wrote:

    BYD wasa battery company when Buffett ( Berkshire actually) invested. The batteries from BYD were and still are world leaders.

    The article misses two points ( at least) :

    1. BYD wanted to double sales every year for six years and they succeeded in the first five

    2. BYD is working on 8 new things and any one will change the world as we know it - if it works.

    Say what, I just talked myself into doubling my position...........

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