Warren Buffett invested $232 million in BYD (BYDDF), a Chinese auto maker during the financial crisis, as reported by Reuters. As of December 2010 Buffett's 225 million shares were worth $1.18 billion. In 2009, the shares were valued at just under $2 billion. So from 2009 to 2010, Buffett's Berkshire Hathaway (BRK.A) lost about 40% of his investment.
But that is just the beginning. Now there is criticism surrounding the new Chinese car, dubbed the hybrid car F3DM.They center around two major areas, authenticity of the design and the overall workmanship of the car itself.
Other car makers in Europe, Asia, and the United States are accusing BYD of copying their design and technology. For instance, BMW is accusing the Chinese of a knock off model they call BMVV. The car is known as "the Chinese BMW3."
This blatant copying of other manufacturer's style and technology could lead to lawsuits for BYD. That would not be good for Buffett's image nor Berkshire Hathaway's.
The second area of concern is workmanship. A New York Times reporter made this assessment. The BYD has a wobbly storage compartment between the front seats. In addition, it has sub par floor mats and squishy handling. Quoting from the report: "The steering wheel vibrates. The dashboard hums. You feel the vibration in your molars."
That's not all. BYD has fallen on hard times in its sales results. February sales fell more than half from January. This is even with prices cuts of 20%. BYD sold only 480 of its F3DM hybrids and E6 electric cars compared with 600 Chevy Volts.
Buffett must weigh whether his investment in BYD is worth it. Does he want to be associated with a company that copies its models and technology and could be open to extended lawsuits? Does he want to be associated with a car that has shoddy workmanship? From this writer's perspective, that's and easy decision: "It's time to cut and run."
Berkshire Hathaway's stock is trading at $129,029, down $509.01. BYD is trading at $4.74, up 16 cents.