Wednesday, March 9, 2011

Reuters: "Warren Buffett's China car deal could backfire" (BRK.A; BRK.B)

Dear Warren, about that "investing in businesses you understand and managements you trust..."*
From Reuters India:
An ordinary American investor would probably not put money into a foreign electric car start-up suspected of openly copying competitors, let alone one whose franchised dealers occasionally put other companies' logos on its own vehicles.

But Warren Buffett is no ordinary investor, and China's BYD is no ordinary company.
At the depths of the financial crisis, Buffett put $232 million into BYD Co. Ltd., taking a 9.9 percent stake in the nascent Chinese auto business. Lest there be any doubt of the relationship, BYD showrooms are adorned with giant pictures of Buffett shaking hands with Chairman Wang Chuanfu.

More than any winning presentation at the Detroit Auto Show, more than any statistics or innovations, Buffett's imprimatur put BYD on the map, instantly making it the most serious Chinese contender among those seeking to sell an all-electric car in the U.S. market.

But diplomatic cables revealed by WikiLeaks and provided to Reuters by a third party, as well as interviews with industry consultants and executives who have examined the company's operations, raise a number of questions about the fledgling carmaker. Among other things, they describe a record of stealing designs from rivals, using those savings to undercut competitors on price and scrimping on safety.

"While BYD has certainly achieved a measure of success based on a business approach of copying and then modifying car designs just enough to convince Chinese courts that the company has not infringed on patents, it is far less certain that foreign courts will be as sympathetic," Guangzhou Consul-General Brian Goldbeck wrote in an Oct. 30, 2009 cable that was unclassified but marked for U.S. government eyes only. It was submitted just days after BYD shares hit a new peak, driven by Buffett's backing.

BYD's questionable behavior went beyond copying designs, though. According to the consulate, the company also sold some vehicles almost at cost to boost its market share and may have advertised safety ratings for one model it did not have.

The scorching assessment of BYD by U.S. officials carried the title, "BYD seeks to 'Build Your Dreams' -- based on Someone Else's Designs." Nothing in the consulate's cable describes the motivation for the secret review of the Chinese upstart, although it notes that Buffett's bet had put BYD in the spotlight and allowed it to be seen as "one of the most promising carmakers of the future." The State Department did not respond to request for comment on the cables....MORE
*Out of the link-vault from  a couple years ago, the big Fortune article with the iconic photo:

Warren Buffett takes charge
Warren Buffett hasn't just seen the car of the future, he's sitting in the driver's seat. Why he's banking on an obscure Chinese electric car company and a CEO who - no joke - drinks his own battery fluid....

Warren Buffett with BYD's E6. 
The car came straight to Omaha from the Detroit auto show.