BYD: Not Looking Like One of Buffett's Better Investments

Includes: BRK.A, BYDDY
by: Ira Stoll

A $5.2 million City of Los Angeles subsidy for China-based electric car company BYD was the topic of a post here last month. Now it turns out that BYD has been having a rough patch, and that it doesn't look, at least now, like it's one of Mr. Buffett's wiser investments. Here is a dispatch from Shanghai by Yang Jian, managing editor of Automotive News China. It appears under the headline, "Buffett Has Failed to Precent the Dimming of BYD's Star":

In September, American billionaire Warren Buffett drove BYD Co.'s M6 MPV in China and said it was a fine product. During the same visit, he also appeared on TV and said BYD was a great company.

One month later, BYD's stock tumbled 10 percent after the company disclosed that its third-quarter profits had plunged 99 percent.

Yang Jian reports that BYD stock is down 21% this year. "The company pursued a low-cost strategy, relying on cheap labor instead of robots to build cars, and seeking to make everything in-house. Moreover, BYD still copies the styling of international brands such as Toyota. The M6 that Buffett drove last month in China is a lookalike of a Toyota Previa."

He predicts: "So far, the explosive growth of China's auto market has papered over the weaknesses of many companies. But as China's growth slows, those failings will be dangerous to ignore. Unless BYD moves quickly to upgrade management and change its strategy, it will have even more trouble going forward."