SPECIAL REPORT-Warren Buffett's China car deal could backfire

Wed Mar 9, 2011 11:55am EST

Related Topics

SLOWING SALES

The U.S. launch for the e6 has slipped repeatedly, and is now aimed for the first quarter of 2012. But Austin conceded there was no rush, particularly as the company continued to learn what American consumers want and demand from a car versus Chinese expectations.

"I'm not going to let them launch the wrong cars. It'll be a huge nightmare from a PR and marketing standpoint, and the truth is, the market is China," he said. "If we have a branding issue, it impacts the global sales. BYD is not in a rush to come to the U.S. market."

While consultants and executives debate whether BYD will ever make it to the United States and how it might do if it gets here, there are signs it may be having some sales troubles on the homefront.

For all of 2010, BYD reported having sold 480 of its F3DM plug-in hybrids and E6 electric taxis. By contrast, GM had over 600 Chevy Volts as of February, counting just two months of sales in 2010 in the U.S. market.

The disappointing BYD electric car sales come despite generous government incentives in China. The F3DM, for instance, carries a government subsidy of about 47 percent of its purchase price.

"BYD makes a lot of claims and not a lot of them come true," said Newton of IHS.

More recently, BYD's February sales fell by half from January and nearly a quarter from a year earlier. Analysts said its low-end models were less competitive than they used to be and higher-end models were not gaining sales momentum, even with price cuts in mid-February of up to 20 percent.

Sales also fell 15 percent in January, even as the Chinese auto market was growing in the double digits at that time.

"They are in recovery mode, working on the quality of the vehicles, working on the dealership network and most importantly trying to prove to the world that they are in fact a genuine producer of electric vehicle(s). That's why Warren Buffett had invested and that's why everyone is watching," said Michael Dunne, president of consultancy Dunne & Co.

The sales declines are nonetheless showing up in BYD's stock. Even with a sharp bounce since the last part of February the shares are still down nearly 10 percent this year, suggesting that Buffett's investment has slipped below the psychologically important $1 billion mark.

Falling sales at home would be bad enough, but BYD's aspirations are global. If the company does make it to the world stage it could face a whole different set of problems, as the Guangzhou consulate noted almost two years ago.

"Especially as the company eyes overseas markets and gears up to export its models, including electric cars, to the United States, the likelihood of legal challenges related to intellectual property and safety or liability issues would appear to loom larger and larger on the horizon," the consulate said.

The consulate's warning about lawsuits could serve as a caution to the 80-year-old "Oracle of Omaha." Though Buffett is a long-term investor, he may not want the hassle -- or the headlines -- of holding a stake in a company that risks years of protracted litigation. Otherwise, he may be reminded of his words in his 2008 letter about another bad deal, this time the acquisition of shoe maker Dexter.

"To date, Dexter is the worst deal that I've made," Buffett said. "But I'll make more mistakes in the future -- you can bet on that." (Additional reporting by Bernie Woodall in Detroit, Fang Yan in Beijing and Kentaro Sugiyama and Nathan Layne in Tokyo; Editing by Jim Impoco and Claudia Parsons)

FILED UNDER:
A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

Find your dream retirement town

Florida? Hawaii? Reuters has teamed up with Zillow to give you the power to customize a list of your best places to retire.  Video | Full Article