COMMENT: BYD to hit buffers?

By Simon Warburton | 11 August 2010

There seems to be quite a stir going on in Shenzen - home of BYD - which has just drastically revised its sales forecast for this year.

Things don't appear quite so rosy in BYD's Chinese garden as previously envisaged, with sales targets slashed by 25% from 800,000 to 600,000 units for 2010 as the automaker grapples with capacity constraints.

Part of the problem lies perhaps with overambitious targets. The Chinese market is still predicted to grow at an astonishing 44% this year, according to analysts, but, on a month by month basis, the rate is slowing to around 16%.

By any other standards, in a world still gripped by the teeth of recession, that 16% would be extraordinary, but it has trimmed BYD's targets somewhat.

BYD has also run into the brick wall of the Chinese government, which is objecting to its acquisition of land in Shanxi to ramp up production. It appears the administration is dragging its heels on reaching a decision as to whether the land acquisition is in fact legal, leading to a suspension in factory construction.

The automaker is a substantial player in the China market now - selling 33,000 vehicles in China last month alone - although it has potential to do far more - capacity allowing. Does that give it sufficient clout with the Chinese government?

As one motor industry analyst in Shanghai told just-auto: "The problem is they [BYD] did not go through formal procedures - it depends on BYD's bargaining power. The whole matter is not clear to the public."

If its haggling with the Chinese government is not clear there is one element of BYD's PR that is - and which has catapulted it to world attention.

Legendary US investor Warren Buffett - the so-called 'Sage of Omaha' - has stepped up to BYD with a cool US$200m of his own cash but has nonetheless seen the manufacturer's share price plunge 20%-30%.

Buffett isn't exactly known for throwing money around so he has clearly identified BYD as a certain return on his investment. But this may well be a short-lived injection.

"If you look at the long-term perspective, I am personally not that optimistic about BYD," the Shanghai analyst adds. "If Warren Buffett says he wants to hold the investment for 10 to 20 years, I would doubt that.

"From a short-term point of view he probably will earn a lot of money from it."

Buffett clearly thinks he can build BYD - short for 'Build your Dreams' - but the automaker may well have to find other investors to plug the billionaire's gap if he wants his money back sooner rather than later.