special report: warren buffett's china car deal could backfire - lithium iron phosphate battery

New york/DETROIT/Hong Kong (Reuters)-
An average American investor may not be putting money into the start-up of a foreign electric vehicle.
Suspected of publicly copying a competitor, not to mention that its franchisees occasionally put signs of other companies on their own vehicles.
But Buffett is not an ordinary investor and BYD is not an ordinary company in China.
At the height of the financial crisis, Buffett invested $0. 232 billion in BYD. Ltd. , taking a 9.
A 9% stake in China's emerging auto companies.
In BYD's showroom, there are huge photos of Buffett shaking hands with Chairman Wang Chuanfu, so as not to have any doubts about the relationship between the two sides.
Buffett's imprimatur's award-winning speech at the Detroit auto show, more than any statistics or innovation, put BYD on the map and immediately made it the most serious Chinese contender among those seeking to sell everything
Electric vehicles in the United StatesS. market.
But WikiLeaks disclosed and provided diplomatic cables to Reuters by third parties, as well as interviews with industry consultants and executives reviewing the company's operations, raised some questions about the emerging carmaker.
Among other things, they describe the record of stealing designs from competitors, using these savings to lower their competitors' prices and making cuts in terms of security.
"Although BYD's business approach based on copying and then modifying car design has certainly achieved some success, it is enough to convince the Chinese court that the company has not violated the patent, whether a foreign court will show sympathy like a Guangzhou consul is far from certain. "
General Brian Goldbeck wrote in a telegram dated October 30, 2009 that the telegram was not classified but marked with the United StatesS.
Only the eyes of the government
The report, backed by Buffett, comes days after BYD's share price hit a new peak.
BYD's suspicious behavior, however, is more than copying the design.
According to the consulate, the company has also sold some vehicles at almost cost prices to increase its market share and may have promoted a safety rating for a model it does not have.
US enthusiastic assessment of BYDS.
"BYD seeks to achieve your dream '"
Based on the design of others.
Nothing in the consulate's telegram describes the motives for secretly reviewing Chinese upstarts, although it points out that Buffett's bet has made BYD the focus, and let it be seen as "one of the most promising automakers of the future ".
"The State Department did not respond to requests for comment on these cables.
Indeed, analysts believe that some of BYD's actions are widely represented in the Chinese auto industry, especially for better-
Famous international automobile.
However, analysts and industry experts in the United States say BYD stands out even in this case, and there are questions about whether the companyballyhooed —and oft-delayed —e6 all-
Electric vehicles will enter the US market. S. market.
Micheal Austin, vice president of BYD's US company, defended the company's performance and commitment to battery technology, which convinced Buffett of this.
He said in an email: "So, where is the real technology and intellectual property? —
In a single package-
The metal around the car?
Or is it a genius to create zero-emission cars?
Zero, Nada, zip
No noise, no smell, no smoke.
A car that is harmless to the environment can be sold in Shenzhen, China for $10,800 (
Inspired by Chinese countries and places)—that is genius!
"No one can match the technology at this point.
Yes, should they worry?
Will "they" complain about "China" cars following world design trends and following design best practices?
Austin said in an email.
"BYD's business and intellectual property practices in China and around the world comply with local and international requirements and regulations.
If there is from (
Other car manufacturers)
"We try to solve these problems," he said . ".
Buffett did not respond to requests for comment from his assistant, who handles his news inquiries.
A spokeswoman for Buffett's China-US Energy Department, which controls investment, said, "we don't speak or comment on BYD's behalf.
Buffett holds a 0. 225 billion stake in BYD, worth $1.
18 billion on December 31, 2010, according to his late record
Annual letter to shareholders dated February.
Looks good on paper as it means his initial investment has increased by 5-
More than two years.
However, reality is very different.
By the end of 2009, BYD's value on Berkshire's books was less than $2 billion, meaning he lost 40% of his stake in the year, otherwise a very strong year for the market.
Buffett did not seriously mention BYD in this year's letter, but only pointed out that the company will have the opportunity to show off at its holding company Berkshire Hathaway's annual meeting in April.
2009 letters only mention "amazing Chinese companies" and their products.
This is an unusual investment for Buffett.
In an interview with Fortune magazine in April 2009, Buffett said his partner, Charlie Munger, convinced BYD Chairman Wang Jianlin of his impression, munger described it as a combination of Thomas Edison and Jack Welch.
However, if the investment ultimately fails, it will be a black mark for executives leading the investment: David Sokol, chairman of Berkshire's China-US and NetJets.
Sokol is often considered one of the four candidates to succeed Buffett as Berkshire's chief executive, and most see him as the leader.
Sokol also featured in BYD's deal, meeting with the industry and the media at the 2009 Detroit auto show to make BYD's electric vehicles a trend for the future.
The company appeared on the main floor of the Detroit auto show, the first appearance of Chinese automakers, when Detroit automakers General Motors and Chrysler were busy with the government's life-security.
"Now, we're just limited by resources," Wang said as he stood outside BYD's red car in January 2009. and-
The company's ambitious motto: "make your dream" lights up the white-themed booth.
Wang Jianmin must be his.
He used to be a government researcher. in 1995, he borrowed $300,000 from his family and friends to create BYD and become the world's largest mobile phone battery manufacturer in five years.
Wang, once the richest man in China, is aiming to become the world's largest carmaker.
With this in mind, Wang knew he had Buffett's trust and proposed to Sokol.
In an interview with Fortune magazine issue 2009, Buffett admitted: "I don't know anything about mobile phones or batteries . ".
"I don't know how the car works either.
Charlie Munger and Dave Sokol are smart people and they do understand that.
"Given MidAmerican's commitment to renewable energy and the touted commitment of BYD's battery technology, Sokol's attachment to the deal makes sense, as it was the first time in its F3DM plug
Mixed with range-
Extension of gas engine.
BYD's propaganda about its battery technology is so strong that while the consulate is concerned about the company's behavior, it is willing to consider the possibility that the battery itself is a real deal.
"According to an ambitious South China Company, the answer to climate change may be as simple as the chemical formula of lithium-ion batteries, consular Section Chief Michael Jacobson said in a note to the State Department on January 2010.
The only problem is that the battery has to work.
"During a recent visit to BYD's Shenzhen headquarters, a senior manager told (
Embassy officials)
Sales of the F3DM have been slow, and so far only about 100 vehicles have been sold, mostly to the city government, "the cable added:" Media reports speculate, slow sales may also indicate that the battery performance of the f3dm is well below expectations.
"If not all batteries are cracked, this raises a fundamental question about Buffett's investment.
"Whether they can make their own cars has nothing to do with us because we see that their real expertise is to develop batteries, motors and control systems, sokol told Reuters in January 2009.
"It's not that they can't make a good car, it's that a lot of people can make a good car.
From our point of view, the breakthrough is battery technology.
"Curious Americans have only one option at the moment: a fleet of 10 F3DMs. Los Angeles City Housing Authority signed an agreement last year.
This arrangement is not a formal lease, but a cost.
BYD Austin estimates that the share plan costs between $300 and $400 per vehicle per month.
The housing authority did not respond to multiple calls for comment in a few days.
But early reviews were not optimistic.
"It's easy to laugh at the small flaws of the f3dm --
Rocking storage room between front seats, floor mats below standard, soft handling.
But the quality of the building and the materials seem to be perfect for utilities
The New York Times wrote after a test drive on February 20.
Paper pairs of f3dm-
The process of switching mode engines, especially from electricity to natural gas, is more difficult.
"Steering wheel vibration.
The dashboard buzzed.
You can feel the vibration of your molars teeth.
BYD's Austin later told Reuters
The story of The Times is actually useful as it helps him prove to engineers in China that BYD needs to better suppress noise for the USS. market.
The Times reporter's experience of the f3dm process is at the heart of one of the most common criticisms of BYD and Chinese automakers: their cars are just cheap products from other manufacturers.
Even in the case of active cooperation between Chinese automakers and their European, US and Asian partners, it is possible to be confused about the end of one brand and the beginning of another.
For example, Brilliance, a Chinese carmaker with a joint venture with bmw ag, offers its own range of cars that rely heavily on design leads from its more prominent partners.
Brilliance even sold its M2 car as a car that has passed the "BMVV quality control process --
A letter from the BMW brand-
And said the car was "called the Chinese BMW 3.
Paul Newton of London
Analysts at IHS Motor said all foreign companies doing business in China knew the layout of the land.
Even if they feel offensive behavior, he says, they think it's part of the price of doing business in the world's largest car market.
"Before Chinese law recognizes some kind of international intellectual property issue, companies will always oppose it.
But to a large extent,
Officials of Western companies)
Shrug and say we don't participate more than we do, so let's get involved, "Newton said.
As far as BYD is concerned, carmakers most often referred to as the "inspiration" for its cars include Toyota Motor and Honda Motor.
Although both declined to comment on the matter, they knew the issue.
A Honda source, who declined to be named, said BYD's F3 models, especially those of Toyota Corolla and Honda Fit.
"This design makes it known to anyone looking at a car that it's a kind of imitation, but it doesn't mean that the car manufacturers get design rights for each part, so, in fact, it is very difficult to refer this issue to the court, "the source said.
Austin said he was not even aware of any complaints of infringement of intellectual property rights.
"This is the standard way to do business in China," he said . "
The company also beat some of the same companies with price leverage.
According to the Guangzhou consulate, according to one of the sources, BYD sold a model at a profit of less than $146 per car.
Ironically, the consulate said that almost the same number of BYD dealers will replace all BYD with signs, symbols and model boards from Toyota or other manufacturers.
Austin acknowledged that this practice took place with franchisees, not with dealers owned by the company.
"Where the dealers do this, there are isolated incidents," he said . ".
"We feel uncomfortable about brand issues and may be as uncomfortable as Toyota.
Still, BYD is attracting new partners.
It said last week that the Chinese government had approved its cooperation.
Working with Daimler AG, the German luxury carmaker's engineer has been involved in a joint project in Shenzhen.
For Daimler, the joint venture's investment was low, a shift to electric vehicle technology.
Because of government policies aimed at reducing oil consumption, hedge risk ways that may require all automakers to provide regulations on electric vehicles in China.
A person familiar with Daimler's negotiating position said the German carmaker was well aware of the clouds surrounding BYD.
"In the Chinese market, no one can do it so quickly, no one is dead," the person said . "“It’s systemic.
The Chinese are famous for imitating everything.
"Although BYD is known for its old copies --
Its e6 is the next generation based on models like F3. It’s an all-
According to BYD, electric vehicles go further than competing models such as Nissan and charge faster (the Leaf)
And GM's Chevrolet (the Volt).
But they are skeptical about what automakers say.
On May 2009, Volkswagen considered
Work with BYD but quit after some due diligence.
A spokesman for the public could not be reached to comment on the talks.
One of the concerns raised by potential BYD partners is that car suppliers complain that BYD's car-making strategy is equivalent to stealing their technology, according to a consultant, when a veteran carmaker kicks tires, he was invited to study BYD. BYD, U. S.
The supplier complains that it will ask for a preliminary order of parts such as door panels, and then abandon the business, reverse engineer the parts and use them on the upcoming model.
In addition, the consultant found that BYD's products exported to the United States or Europe were "far from meeting safety standards" and were of uneven quality in the Chinese market.
"If you close the door too tightly, the door will fall," said the consultant . " He asked not to be named.
These security issues were also noted by the consulate.
On October 2009, Guangzhou cable TV mentioned the dispute over the safety rating of BYD F0 model --
The company said it had five.
The Consumer Association's star rating, which says it has not even tested the car.
The consulate also noted trends in costs
All of this reduces weight and cost, but makes the car more vulnerable.
"They passed all of America. S.
"Safety crash testing standards," Austin said of the F3DMs currently in use in California. The U. S.
The release of the E6 has been declining again and again, and now the target is 2012.
But Austin admits it is not in a hurry to do so, especially as the company continues to understand the needs of American consumers for cars and the expectations of Chinese consumers.
"I won't let them launch the wrong car.
It will be a huge nightmare from a PR and marketing perspective, and the fact is that the market is Chinese, "he said.
"If we have a brand problem, it will affect global sales.
BYD not eager to came to American. S. market.
"While advisers and executives are debating whether BYD will enter the US and what it might do if it arrives in the US, there are signs that it may run into some sales problems at home
It is reported that BYD sold 480 F3DM plugs throughout 2010
Hybrid and E6 electric taxis.
By contrast, as of February, GM's Chevrolet voltage exceeded 600 volts, counting only two months of sales in the United States in 2010. S. market.
Despite generous incentives from the Chinese government, sales of BYD's electric vehicles have been disappointing.
For example, the government subsidy for F3DM is 47% of the purchase price.
"BYD has made a lot of claims, but many of them have not been fulfilled," said IHS's Newton . ".
Recently, BYD's sales in February fell by half from January, down nearly a quarter from the same period last year.
Analysts said,
The terminal model is less competitive than before, and higher --
Even if the price is reduced in the medium term, the terminal model has not gained sales momentum.
Up to 20% in February.
Although China's auto market was growing in double digits at the time, sales in January also fell by 15%.
"They are restoring the model, working to improve the quality of the vehicle, working on the dealer network, and most importantly proving to the world that they are actually real producers of electric vehicles (s).
That's why Warren Buffett is investing, and that's why everyone is watching . "
Still, BYD's shares fell in sales.
Although shares have rebounded sharply since the end of February, this year's share price has fallen by nearly 10%, indicating that Buffett's investment has fallen below the psychological important $1 billion mark.
Although the decline in domestic sales is bad enough, BYD's desire is global.
If the company does enter the world stage, it could face a whole range of different problems, as the Guangzhou consulate pointed out two years ago.
"Especially when the company looks at overseas markets and is ready to export models including electric vehicles to the United States, the consulate said: "The possibility of legal challenges related to intellectual property and security or liability issues seems to be growing. ".
The consulate's warning of the lawsuit can be used as a warning against 80-year-
The old Oracle of Omaha.
Although Buffett is a long-term
Long term investor, he may not want trouble-
Or headlines.
Hold shares in a company with years of long-term litigation risk.
Otherwise, he might recall his remarks in 2008 letters about another bad deal, this time the acquisition of shoe maker Dexter.
"Dexter is by far the worst deal I 've ever done," Buffett said . ".
"But I will make more mistakes in the future --
You can bet.