BYD Co., the Chinese carmaker part-
owned by billionaire Warren Buffett's Berkshire Hathaway Inc.,
was fined and ordered to surrender seven factories in central
China after the government said it used land illegally.
BYD will pay 2.95 million yuan ($443,000) and the factories
in Xi'an, Shaanxi province, will be confiscated, the Ministry of
Land and Resources said on its website today.
"This will affect their capacity expansion in the medium
to long term," said Yu Bing, an auto analyst with Pingan
Securities Co. in Shanghai. "If you consider their production
requirements in the next two to three years, they will need to
bolster their capacity now."
The decision adds to setbacks for the Shenzhen-based
automaker that include declining domestic sales and scaled-back
plans to sell electric cars in California. BYD, China's fastest-
growing carmaker by sales last year, reported a 25 percent drop
in September auto sales today, even as deliveries rose at rivals
SAIC Motor Co. and General Motors Co.
The company's earnings and operations won't be affected by
the confiscation, John Lee, BYD's head of investor relations,
said by phone from Shenzhen. In a later filing to Hong Kong's
stock exchange, BYD said the land and buildings were part of an
expansion project and hadn't yet contributed any production,
sales or profit. Construction was at an initial stage, it said.
Current capacity of 700,000 cars will be enough to meet
demand this year, and BYD will boost production at existing
plants in China if market demand increases, Lee said. In the
statement, BYD said it expected no "material adverse impact."
BYD, the maker of China's best-selling F3 compact car, fell
0.7 percent to HK$56.50 at the 4 p.m. close in Hong Kong
trading. The stock has dropped 17 percent this year, while the
benchmark Hang Seng Index has gained 7.3 percent.
The company in August slashed its 2010 sales outlook by 25
percent to 600,000 vehicles. Buffett affirmed his support for
BYD last month when he visited the automaker in Shenzhen, saying
it will be a leader in electric cars.
BYD unlawfully built seven factories on 112 acres of
farmland it agreed to buy from an economic development agency in
Xi'an, the land ministry said July 15. The company built the
plants even though 92 percent of the land was still zoned for
agriculture, according to the ministry.
A decision on whether to punish the company was to be made
by Sept. 30, the ministry said at the time.
Spending on Plant
BYD spent 149 million yuan on the plant construction as of
June 30, according to its interim report issued Sept. 19. The
factories would have had a combined capacity of 200,000 cars
when completed, it said.
Berkshire Hathaway owns about 10 percent of the automaker
through Des Moines, Iowa-based MidAmerican Energy Holdings Co.
BYD, headed by Chairman Wang Chuanfu, started expanding its
production as China surpassed the U.S. last year to become the
world's biggest auto market. Its existing Xi'an factory, built
in 2005, can assemble 300,000 of its 3-series cars, including
the F3 and G3 models, annually.
The carmaker planned to invest 5 billion yuan in a new
factory in Xi'an with the same capacity, Wang said in August.
Even as domestic brands such as BYD have expanded capacity
more aggressively this year, this may not translate into higher
sales, Hungbin Toh, an analyst at Credit Suisse Group AG, wrote
in a report this month. The automaker may miss its reduced sales
forecast for this year, Toh wrote.
The government decision announced today may help bring BYD
relief with regard to its plans for an A-share listing in China,
Pingan Securities' Yu said.
Share Sale Delayed
A day before the ministry announcement in July, BYD said it
may delay the share sale to wait for "better timing" after
stock markets fell. BYD planned to raise 2.85 billion yuan for
projects including the development of lithium- and solar-powered
"A resolution to the case will end the uncertainty
surrounding the stock for investors," Yu said. "Investors like
BYD for their new energy business, and it is still a very