Buffett earns $1 bln on China's hybrid maker BYD

Warren Buffett's Berkshire Hathaway Inc. earned a $1 billion paper profit from an investment it agreed to make in Chinese carmaker BYD Co. less than a year ago.

The automaker has jumped fivefold in Hong Kong trading since the deal was announced on Sept. 27, helped by Buffett's investment and rising demand for fuel-efficient vehicles. Three days earlier Berkshire agreed to an investment in Goldman Sachs Group Inc. that has since generated a paper profit of about $2 billion.

"When Warren Buffett says the sun shines out of somebody's backside, it's worth paying attention," said Guy Spier, principal at New York-based hedge fund Aquamarine Funds LLC, who owns Berkshire shares and has researched BYD. Buffett is "betting on the jockey in this case," Spier said, referring to BYD's Chief Executive Officer Wang Chuanfu.

Berkshire's MidAmerican Energy Holdings Co. unit agreed to buy 225 million new shares of BYD for HK$8 apiece. That stock now has a market value of HK$9.37 billion ($1.21 billion), based on yesterday's closing price. Buffett will pay HK$1.8 billion.

BYD said last night it completed the sale. Buffett didn't respond to a request for comment.

BYD's Hybrid

The investment may help BYD, the seventh-biggest carmaker in China, boost its profile overseas and also reassure potential customers, Chief Executive Wang said last year. The automaker started selling the F3 DM, the world's first mass-produced plug- in hybrid, in December.

"Investors are buoyed by the potential growth in BYD's electric-car business," said Barry Leung, an analyst at Sun Hung Kai Securities Ltd. in Hong Kong. "The alternative-energy sector is clearly one that will continue to enjoy the support of the Chinese government." Leung rates the carmaker "buy."

BYD, also China's biggest maker of rechargeable batteries, fell 1.3 percent yesterday to close at HK$41.65. The company supplies power units to mobile-phone makers including Motorola Inc., Nokia OYJ, Samsung Electronics Co. and LG Electronics Inc.

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