Special Report: Warren Buffett's China Car Deal Could Backfire

The Omaha Oracle’s investment put BYD on the map, but WikiLeaks cables raise questions about the carmaker

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 October 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. ...

Read Full Special Report: Warren Buffett's China Car Deal Could Backfire

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By Ben Berkowitz,
Kevin Krolicki and Lee Chyen Yee
NEW YORK/DETROIT/HONG KONG, March 9
REUTERS

“I don’t know a thing about cellphones or batteries ... And I don’t know how cars work. Charlie Munger and Dave Sokol are smart guys, and they do understand it.”

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