Bloomberg News

BYD Surges as Buffett-Backed Carmaker Debuts in Shenzhen

June 30, 2011

(Updates with closing share price in second paragraph)

June 30 (Bloomberg) -- BYD Co., the Chinese automaker part- owned by Warren Buffett’s Berkshire Hathaway Inc., surged on its Shenzhen trading debut today amid speculation it may benefit from government funding for electric-vehicle development.

BYD closed 41 percent higher at 25.45 yuan today. That compares with a 1.2 percent gain in the benchmark Shanghai Composite Index and a 46 percent jump for Sailun Co. Ltd, the other stock that debuted today in Shenzhen.

China may announce a plan early next month to invest 100 billion yuan ($15 billion) to help companies develop vehicles powered by alternative energy, China Quality News reported on its website yesterday. BYD started selling its F3DM plug-in hybrid to corporate and government customers in December 2008, making it the world’s first mass-produced plug-in hybrid car.

“BYD will be one of the first companies that will benefit by incentives like this,” said Vivien Chan, a Hong Kong-based analyst at SinoPac Securities Asia Ltd. “Investors’ bet on the incentives are helping pushing up BYD’s shares.”

BYD reported an 84 percent plunge in profit yesterday for the three months ended March. Declining sales and higher expenses dragged net income to 266.7 million yuan from 1.7 billion yuan a year earlier, according to BYD.

“It may have gone through its worst performing period,” Chan said.

China IPOs

BYD’s Hong Kong-traded shares, which fell the most in more than three months yesterday, rose 5.7 percent to close at HK$25.25 today.

Companies that had their initial share sales in Shanghai and Shenzhen this year have declined by an average of 14 percent since their first day of trading, according to data compiled by Bloomberg.

BYD’s auto sales have slowed this year as the government removed incentives that spurred buying for cars with engines smaller than 1.6 liters, such as its F3 sedan. The carmaker raised 1.35 billion yuan in a share sale in Shenzhen to fund research and expand its manufacturing facilities.

The company plans to introduce the new G6 car model this year and appoint dealers in the U.S. for its E6 electric car, Stella Li, BYD’s senior vice president, said in a June 17 interview.

The automaker is aiming to match last year’s sales in 2011 and sees growth resuming at the start of 2012, Li said. BYD delivered 519,806 cars in 2010, compared with a forecast of 600,000 units.

On-Board TVs

Chinese billionaire Wang Chuanfu founded BYD as a lithium- ion battery maker in 1995, before expanding into auto making in 2003 with the purchase of Xi’an Tsinchuan Auto Co.

MidAmerican Energy Holdings Co., a unit of Buffett’s Berkshire Hathaway, bought 9.9 percent of BYD in September 2008 to tap rising demand for clean technology. BYD’s Hong Kong shares surged more than ninefold after Buffett’s investment, reaching a record close of HK$85.50 on Oct. 23, 2009.

The carmaker has lost 66 percent of its market value since and has declined 38 percent this year, compared with a 2.8 percent drop for the benchmark Hang Seng Index.

BYD’s vehicle sales declined for 10 straight months through May as the popularity of its F3 sedan waned. Sales of the F3 dropped 30 percent to 97,300 in the first five months, ranking it behind Volkswagen AG’s Lavida and Jetta and General Motors Co.’s Excelle in China, according to the China Association of Automobile Manufacturers.

‘Fill the Holes’

The carmaker said May 5 it planned to use 1.14 billion yuan from the share sale for research and development and expand its production facilities in Shenzhen. The company will use 652 million yuan of the proceeds to expand its auto-parts unit and 400 million yuan on a lithium-ion battery project, it said.

BYD’s sales will struggle to recover as inventory remains high and dealers continue to exit the brand’s network, said Jack Yeung, an analyst at BNP Paribas Securities Asia Ltd. in Hong Kong.

“This is not looking good,” said Yeung, who has a “hold” rating on the stock. “The money they raised from their A shares is probably going to fill the holes, rather than for additional development,” he said, referring to the company’s Shenzhen sale.

Adoption of electric cars is still in its infancy and unlikely to contribute significantly to BYD’s profit in the near future, according to New York-based Chardan Capital Markets LLC.

Electric Cars

The carmaker will start fleet sales of the E6 in the U.S. at the end of 2011, it said at the Detroit Auto show this year, delaying a previous plan to begin deliveries in 2010. Retail sales will commence in the first quarter of 2012.

Under a pilot plan announced last year, China, the world’s biggest polluter, is paying as much as 50,000 yuan toward the purchase of plug-in hybrid models and as much as 60,000 yuan for vehicles running only on batteries in Shanghai, Changchun, Shenzhen, Hangzhou and Hefei. The government is also considering waiving annual taxes for such owners, the China Daily reported June 20.

Increasing demand for electric cars will boost BYD’s sales, Li said on June 17.

“We are talking about future cars, future needs,” she said. “The markets will need a green car, and then, BYD will play an important role.”

--Liza Lin, with assistance from Tian Ying in Beijing. Editors: Chua Kong Ho, Terje Langeland

To contact Bloomberg News staff for this story: Liza Lin in Shanghai at llin15@bloomberg.net

To contact the editor responsible for this story: Kae Inoue at kinoue@bloomberg.net


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