Warren Buffett, it seems, has made a 500pc return on his investment in BYD, the Shenzhen battery firm turned a car manufacturer.
Here at China Economic Review, the house style is American, so here’s a colloquial US phrase for you – I call bull**** on BYD.
The company leading China’s "electric car revolution" is hugely over-hyped. The spin began last September, when Buffett announced he would take 10pc of the company at HKD8 a share.
Suddenly, the entire world’s media, including the New York Times, were camped on BYD’s doorstep, churning out stories about how the company was a world-beater. The shares started rising, and were trading yesterday at HKD48.
But as GE Anderson points out here, Buffett didn’t actually buy any shares in the company until the end of July, when his deal was cleared by the Chinese authorities. Just the announcement that he was interested was enough to propel BYD into the stratosphere.
BYD’s real asset is not its "revolutionary" electric car batteries – which rival firms say are nothing special – but its founder and chairman, Wang Chuanfu. Wang is a master salesman. This is the man who was prepared to drink battery acid out of one of his cars in order to prove its environmental credentials.
And now he is cranking up the hype machine again. He claims Buffett is so happy he wants to buy more shares, that international companies including Volkswagen want to buy his batteries, and that he will ship his e6 electric cars to the US next year.
All of these statements, in my opinion, are aimed squarely at the domestic Chinese market, and designed to make BYD seem like an important "international" marque. It is not. It is a middling Chinese car maker, whose gasoline cars far outsell its electric ones.
Indeed, its famous electric hybrid, the one which beat Toyota to market, has had only a handful of sales, and mostly to the Shenzhen government.
And although BYD is a private company, Wang clearly has some friends in government. Thanks to a 50pc tax break from the Chinese State Council on small passenger cars, total sales were up to 176,814 in the first half, an increase of 1.5 times. BYD also benefits from a 50,000 yuan subsidy on hybrids and a 60,000 yuan hand-out on electric vehicles.
Shenzhen is even topping up these enticements to help its local champion further. Anyone wanting to buy BYD’s 149,800 yuan F3 model can get a 60pc subsidy from the local government. Unsurprisingly, the F3 has become BYD’s most popular car (and China’s fourth most-popular passenger vehicle). The rub is, it’s not one of the company’s much-vaunted hybrids – it runs on good ol’ gasoline.
Of course, the hype works. BYD revenues were up 30pc in the first half to 16.132 billion yuan, with the Auto division recording a 133pc rise. But is BYD a truly innovative company with an amazing product? I call bull****.