January 19, 2014

Warren Buffett bringing Chinese Cars to US

January 19, 2014. Lancaster, CA. Five years ago, two billionaires with connections to two of the most powerful governments on Earth became partners to take over the world’s automobile market on behalf of China. One of those wealthy investors was Warren Buffett. And thanks to his business partnerships with the Obama administration, those Chinese cars will begin being sold in the US next year.

The Chinese Qin, coming to America next year. Image courtesy of BYD Auto.

Look out GM and Ford. Look out Toyota. There’s a new next-generation automobile manufacturer in town and it’s a Chinese company called BYD Automotive. In reality, BYD are the initials of the corporation’s Chinese name, something that doesn’t really translate into English. So, Western investors have been giving the company a slang name, ‘Build Your Dreams.’



Warren Buffett and BYD

Back in 2009, Warren Buffett’s Berkshire Hathaway purchased a 9.9% stake in a little-known, government-controlled, Chinese battery maker named BYD. Between mini computers, smart phones, jumbo jets and green cars, Buffett knew batteries were the wave of the future. He and Berkshire bought $230 million worth of BYD stock for roughly $2 per share. On Friday, those shares (NASDAQ-OTH: BYDDY) closed at $9.42 per share, making Berkshire Hathaway and its investors a billion dollars in pure profit.

Even though the stock has increased nearly five-fold in the five years since the Chinese government allowed Buffett to invest in the company, many expect it to rise exponentially from here, especially if everything goes well with the corporation’s 2015 introduction of its new Chinese cars in the US market. Illustrating that, Berkshire Hathaway hasn’t sold a single share of its BYD holdings. In the first six months of 2013, the company saw its net profits rise to $427 million yuan ($70 million US) from $16 million yuan in the same time period in 2012.

Just as a little background compliments of a 2009 CNN Money/Fortune report, BYD was a tiny battery company founded by a Chinese government chemist who borrowed the money from wealthy family members and used his Communist Party connections to gain an advantage and assistance from the Chinese government. Wang Chuan-Fu started BYD in 1995 in Shenzhen, China. He began with one small factory where he manufactured rechargeable cell phone batteries to compete locally with foreign imports.

With assistance from the Chinese government, BYD spent the next five years becoming one of the largest battery suppliers in the world. They not only manufacture parts for most cell phone companies, they also began designing the devices themselves for customers like Motorola, Nokia, Sony, Ericsson, and Samsung. In 2003, BYD purchased a nearly-closed state-run Chinese auto maker. Promising to turn it around, Chuan-Fu turned it into BYD Automotive – China’s futuristic electric and solar car maker.

Coming to America

With a small sales office in Elk Grove, Illinois handling its Elk Grove customer Motorola and a small factory in Lancaster, California, BYD Auto is set to enter the US auto market. The company expects to have cars in showrooms and on America’s streets by the end of 2015. Already, the Chinese company produces and sells electric buses here in the US to large fleet operators such as towns and cities. But this will mark the first time it enters the US consumer car market.

Much like its counterpart here in the US – Tesla Motors – BYD had plans to introduce its battery operated cars in America as early as 2010. BYD was actually ahead of most other major global auto makers in the area of battery and solar power, and the cars that would eventually be powered by them. But a highly publicized fire from one of its Chinese battery-powered cars, much like Tesla’s recent fire-related PR nightmares, caused sales, investment and its stock price to plummet. Chuan-Fu also explains that their plans for the US were simply too ambitious with the limited amount of resources the company had.


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As detailed by Bloomberg News last week, ‘BYD plans to introduce about four models for its US debut at the end of 2015, said Stella Li, the senior vice president in charge of the company’s US business.’ The account also quotes one global investment analyst from the auto sector that suggested BYD’s entrance into the US isn’t so much about profits as it is about getting American car buyers’ seal of acceptance and approval.

Apparently, Americans know cars. And if Americans embrace the Chinese BYD automobile, as they did with Toyota, Honda, and Hyundai, so will the rest of the Western world. If the Chinese-designed cars have poor quality or the launch isn’t handled properly, the Chinese BYD may go the route of the Soviet Yugo from 1985. But with the man who bailed out the bank that bailed out the entire US government behind BYD’s American launch, investors are betting the Chinese just found their magic key that lets them into the all-important US auto market.

Chinese autos shape America’s future

Already, California and some of its cities are customers of China’s BYD Auto. The company’s battery-powered busses are being snapped up by countries around the world, including Canada, Israel and most recently, Brazil in preparation for the 2016 Olympics in that country. But it’s expected that the corporation’s ‘Qin’ plug-in hybrid will be the auto-maker’s inaugural flagship consumer vehicle in the US. They know the first cars sold in America must be dependable and perform well if they’re to be accepted.

The Qin plug-in, named after the dynasty that unified China in 200 BC, went on sale in Beijing in 2013 for $31,400 (US). The car can go from 0 to 60 in 5.9 seconds and can travel 43 miles on a single battery charge. US auto analysts say the price and performance is in line with domestic hybrid models. Before now, BYD was criticized for selling cheap cars with poor safety records. The company vowed to reverse that perception and the Qin is one of its models that symbolize that transformation.

BYD Auto isn’t the only Chinese auto maker with big plans on entering the US consumer car market. The largest Chinese automobile manufacture – Great Wall Motor – says it is planning to expand to the US but has not released its official timetable for it. Moving much more quickly however is the Chinese auto maker Geely Automotive. The company is owned by Volvo and is planning to introduce a Swedish-branded, but Chinese-made hybrid vehicle in the US in 2016.

Capitalist-Communism

One of the more interesting aspects of this story isn’t so much that a Chinese auto maker is planning to enter the US auto market, as much as it is the reason why they’re coming to America. In a rare glimpse into the world of 21st century Capitalist-Communism, BYD Auto was forced into the global markets because it was shut out of doing business in China’s two major cities of Beijing and Shanghai. BYD is located in Guangdong province at the southern-most tip of China.



Seemingly a world away, Beijing and Shanghai officials have repeatedly denied BYD’s applications to supply automobiles because the cities have their own local state-run auto makers to subsidize and promote. So while BYD is building the next generation hybrids for the rest of the world, the bulk of the Chinese people will still be buying last generation’s hybrids due to the loyalty of big-city Communist Party officials to big-city Communist Party auto manufacturers.

In the meantime, the Chinese state-run BYD Auto will be the latest foreign auto maker to attempt to enter the US car market. Time will tell if they will be successful like Toyota, BMW, Honda and even Hyundai. Or, maybe the Communist Chinese moniker will simply prove too offensive for Americans and the BYD Qin will go the way of the Yugo, Le Car, Peugeot and a host of others.

 

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