beyondbrics

BYD, the Chinese protégé of Warren Buffett, is nothing if not over-ambitious – much like China itself. The Shenzhen based carmaker was meant to teach the world how to mass produce electric cars, while Beijing was meant to teach other governments how to wean their drivers off Big Oil.

Now Beijing is questioning the whole direction of its green car policy, and BYD is disappointing the market, yet again, with another profit warning: time for a dose of realism all around.

Late on Monday BYD (1211:HKG), backed by the iconic US investor’s Berkshire Hathaway, warned the Hong Kong market that net profit for the first three quarters of this year may be down 85-95 per cent. Its shares have fallen 60 per cent so far this year.

BYD tried to blame that on weakness in the China car market – but it is suffering more than its peers from that problem, partly because it benefited disproportionately in the past from government largesse in the form of subsidies to small engine vehicles (since phased out).

And in what the market took as a resounding vote of no confidence, BYD head of sales Xia Zhibing resigned earlier this month; Chinese media say he disagrees with the company’s overambitious dealer expansion strategy.

The good news is that BYD’s profit problems so far have almost nothing to do with electric cars – because the company is not selling very many of those yet. BYD is suffering because its conventional cars, at first perceived as cheap, small and trendy, are now perceived as just cheap and small. The bad news is the same: that BYD’s plans to be a mass producer and exporter of electric cars has yet to get off the ground.

Berkshire and Buffet have repeatedly reiterated their support for BYD, despite over a year of bad profit news, to no avail.

At least Buffet is still in the black on his investment with the shares trading at around double the price he paid in 2008. But subsequent investors many of whom seemed to have piled in because of Buffet will be nursing heavy losses as the chart below shows.

Buffet and Berkshire insist they are in the long haul – though the haul seems to get longer all the time.

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