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Buffett-Backed BYD Goes Electric
The company has produced China's first plug-in hybrid car.
Times are tough for automakers, but fast-rising Chinese company BYD, which stands for Build Your Dream, dreams big in the electric car market. BYD, partially-owned by billionaire investor Warren Buffett, beat Japanese and U.S. automakers to release the first plug-in hybrid car in China. If it fulfills its promises, the cheaper car may have a good chance against Toyota Motor's Prius in the urban Chinese market.
BYD shares soared 16.4%, or 1.88 Hong Kong dollars, to 13.32 Hong Kong dollars on Monday afternoon in China.
BYD's F3DM model operates in either full electric or gas-electric modes, and contains an electric battery that can be charged at a regular plug or at a recharging station. It can travel up to 100 kilometers (62 miles) solely on battery power, and contains a back-up gas engine, BYD said on Monday. Drivers alternate between the two power modes by flipping a switch: the electric mode is optimal for city driving, as gas engines are more wasteful under constant acceleration and deceleration, and the gas-electric mode is more appropriate for travel on highways and outside of cities.
The battery takes up to seven hours to charge with a regular plug, and up to 15 minutes to be 80.0% charged at a special recharging station.
The F3DM will have to overcome a cost barrier to do well among China's middle class. Its price tag is 149,800 yuan ($22,000), much higher than BYD's $14,000 regular gas-powered F3 model, though lower than the Prius' 259,800 yuan ($37,938) cost. But the car may get a government subsidy, given Beijing's emissions-curbing program.
The different designs of the F3DM and Prius, currently the top-selling hybrid vehicle in China, entails some trade-offs for consumers. "One is an intelligent student with high IQ and the other one is very hard-working, so it depends on what examination you give them. That is, it depends on the usage and habits of the consumer," said a Hong Kong-based analyst with a European bank who asked to remain unidentified due to company policy.
The Prius is designed "intelligently" because it automatically charges when energy discarded by the gas-powered engine during deceleration gets transferred to the electric battery. In the F3DM, the gas and electric engines are isolated from each other, so the battery has to be separately charged manually--but the F3DM may run on electricity more often than the Prius, according to the analyst.
Though electricity is not necessarily a clean energy source in China due to the country's reliance on dirty coal-fired plants, plants are generally more efficient than car engines in burning energy. Transferring electricity from plants to power stations is also more efficient than transferring gasoline from refineries to pump stations.
Toyota (nyse: TM - news - people ), General Motors (nyse: GM - news - people ) and Nissan Motor (nasdaq: NSANY - news - people ) are reportedly likely to start selling a plug-in or electric car in China after 2009. BYD said it aims to sell 10,000 F3DM's in 2009, and launch the model in U.S. and European markets in 2011. Various state-run companies, such as China Construction Bank, and local governments, such as Shenzhen, reportedly have already placed orders.
One of the world's biggest producer of rechargeable batteries for cell phones and laptops by sales, BYD moved into the auto market five years ago. In September, Buffett-controlled MidAmerican Energy Holdings bought a 9.9% stake in BYD for $230.0 million (See "Buffett's Battery Bet").
Buffett-Backed BYD Goes Electric
Buffett's Battery Bet
Warren Buffett is buying batteries.
Through MidAmerican Energy Holdings Co. he is paying $230 million for a 10% stake in BYD, China's largest maker of rechargeable batteries.
BYD batteries are principally used in mobile phones, for which it also makes handset components. But it has aspirations to use its rechargeable lithium battery technology to become a green car company.
BYD plans to start selling its first all-electric car in China next year and to start selling gasoline-electric hybrids in the U.S. and Europe by 2010. BYD short circuited the difficult process of getting government permission to build cars by buying bankrupt state-owned automaker Qinchuan in 2003 to be the basis of its car-making division, BYD Auto.
The deal with MidAmerican will be unveiled in Hong Kong, where BYD is listed, on Monday. Details became known late Friday.
BYD is based in Shenzhen and has 130,000 employees worldwide. It had sales of $1.8 billion in the six months to June, up 44% for the same period a year earlier. Profit after tax was up 15% at $108 million, as raw material costs surged for both its battery and handset components businesses.
Two-thirds of BYD's sales are in China. The company's chairman, Wang Chuanfu, said in a statement that the investment from MidAmerican will help give BYD further access to global markets, particularly for its new electric vehicles and environmental protection products.
Buffett is getting his BYD stake at a tiny discount to Friday's closing price of HK$8.40. The stock hit a 52-week low of HK$6 on July 24 in the wake of Hong Kong's High Court dismissing in late June a request to halt a lawsuit filed by Foxconn International Holdings, the world's biggest contract maker of mobile phones, for allegedly stealing trade secrets.
Buffett's BYD stake isn't on the scale of the $5 billion he invested in Goldman Sachs (nyse: GS - news - people ) earlier in the week, but he has a record of savvy China deals. He invested $488 million in PetroChina (nyse: PTR - news - people ) stock in 2002 and 2003. In 2007, he sold his stake for $4 billion.
Buffett's Battery Bet
