Warren Buffett may have erred in investing in copycat BYD

Article by Christian A., on March 15, 2011

BYD Co. Ltd. has been regarded as the most likely Chinese carmaker to succeed at offering an all-electric car in the U.S. but its future has become murky as a third party has given Reuters and WikiLeaks copies of diplomatic cables that provide details of its unbecoming behavior. During the time when the financial crisis was at its worst, Warren Buffett invested in BYD.

It was an unexpected move for the billionaire as this foreign electric car start-up had a reputation of copying competitors and some of its franchised dealers have been found to put other companies' logos on its own vehicles. Buffett invested $232 million into BYD, taking a 9.9% stake.

In fact, pictures of Buffett shaking hands with Chairman Wang Chuanfu are displayed at the BYD showrooms, having more impact than participating in auto shows and offering more innovations.

But now, doubts are rising on the company’s wellbeing as these diplomatic cables are revealed and industry consultants and executives who have studied BYD’s operations are being interviewed. BYD was exposed to have stolen designs from rivals and then undercutting competitors on price and scrimping on safety.

In an Oct. 30, 2009 cable that was unclassified but marked for U.S. government eyes only, Guangzhou Consul-General Brian Goldbeck wrote that while BYD’s business approach of modifying other company’s car designs just enough to convince Chinese courts that it didn’t violate any patents has had some measure of success, he believes that foreign courts will not be as sympathetic.

This cable was submitted only a few days before Buffett signified his support, which boosted BYD shares. [via reuters]

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