Buffett Watch

Buffett's Bet on Chinese Electric Car Maker Coming Back to Earth

Warren Buffett's bet on a Chinese electric car maker has been coming back to earth, dropping about $2 billion in value from its peak of almost $2.5 billion in October of 2009.

It's not, however, a total loss.  Berkshire Hathaway's 10 percent stake in BYD is still worth around $460 million, double the $230 million it paid in September, 2008.

BYD's rally in 2009 can be at least partially attributed to enthusiasm for the company sparked by Buffett's strong endorsement.  In April that year, Fortune did a major story on "Buffett's Electric Car."  The cover asked, "If the Oracle's plugging in, shouldn't you?"

Less than a year later, Reuters warned that Buffett's bet could "backfire" amid accusations of stolen technology.

The latest blow is a 14.3 percent drop for BYD shares in Hong Kong trading on Tuesday.  That brings them to a fresh 2-1/2 year low.

The plunge follows BYD's warning that it could post a loss for its third quarter amid anemic sales.   Net profit for its first three quarters may fall between 85 and 95 percent.  The company is also delaying the planned U.S. launch of its e6 electric car until next year.

BYD Chairman Wang Chuanfu expects auto sales will improvein the second half of the year and the company doesn't plan price cuts.

There are growing doubts about China's electric car efforts in general.  The Financial Times recently reported that government officials in Beijing appear to be "rethinking" the country's "singular focus" on electric vehicles as the original production targets prove to be overly optimistic.

Today, some analysts are suggesting Buffett will up the ante.  Michael Yoshikami, founder and CEO of YCMNET advisors, a Berkshire shareholder, tells Reuters, "I think he probably will put in more money and if the stock keeps falling I think he will buy the company.  They're in the right space and over the long period of time it's going to be a good international play."

Steve Check of Check Capital Management, another Berkshire shareholder, notes Charlie Munger's continuing enthusiasm for BYD and its CEO.

But Bill Smead, CIO of Smead Capital Management, yet another Berkshire holder, doesn't appear to share that enthusiasm.  "Warren Buffett is the greatest investor of all time but sometimes he drinks the Kool-Aid. Not selling BYD, he kind of drank the Kool-Aid on BYD."

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