Warren Buffett's China car investment recharges
Berkshire Hathaway's profit on BYD climbs to 200%.
BYD's first quarter earnings tripled from a year ago, on the release of new automobile models. The company's net profit increased to 112 million yuan from 27 million yuan a year previously. BYD was expecting net profit of 100 million to 140 million yuan.
The number of cars sold also increased 25.1% year over year, to 142,851 in the first quarter.
Buffett purchased a 10% stake in BYD for about $232 million in 2008 through Berkshire Hathaway (BRK.A)(BRK.B) subsidiary MidAmerican. The purchase made MidAmerican the fourth largest shareholder in the company.
By the end of 2008, BYD had launched the first dual mode vehicle with no reliance on specialized charging stations. BYD also looked forward to multi-million yuan government subsidies in coming years.
The next few years, however, proved challenging. BYD's net profit decreased 89% to 275 million yuan in the first half of 2011. For the full year, the total number of cars sold slipped 13.3% from 2010, which the company attributed to a downturn in the domestic automobile market and a decline in the overall market share of domestic brands. The year ended with revenue down 0.8% and profit down 44%.
(data by GuruFocus.com)
The company fared worse in 2012, when net profit fell by 94% to 81 million yuan, and revenues fell by 4.29% to 46.73 billion yuan. Auto sales were flat due to continued weak demand.
New models boosted sales in the first quarter 2013, as BYD released the Suri compact car and S6 SUV in the second half of 2012. Sales in its solar cells business, which hampered full-year 2012 result, continued but narrowed, due mainly to less competition in the global photovoltaics market and rapid growth in the rechargeable battery business. The company reported that it also saw new orders for smart phones from existing customers and new smart phone projects with handset manufacturers expanded, along with new tablets and other products.
While other segments have been weighing on results, automobile sales increased to 51% of BYD's sales in 2012, from 32% of total sales in 2008.
Another bright spot for the company is the expected return of government subsidies. The previous subsidies extended from 2010 through 2012, Reuters reported.
Buffett is finally enjoying a return to substantial gains on his BYD holding. Having bought his shares for around $8 Hong Kong dollars in 2008, the stock quickly went as high as more than $85 in 2009, giving his $225 million U.S. dollar investment a market value of $1.986 billion at year-end. The stock soon plunged to slightly more than $12 in 2011 and 2012, taking it under the $1 billion value reporting threshold for his annual letters.
BYD shares year to date, however, have gained 7.94%, pushing the price to $24.15 Hong Kong dollars, and Buffett’s profit to slightly over 200%.
More from GuruFocus
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
Tighter regulations and the end of a lengthy bull market in bonds have changed the landscape forever.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.