Buffett's China Car Project Drives Into Trouble

BYD, a Chinese car company backed by Warren Buffett, hit a pothole as profits fell 99% in the third quarter. The firm recently delayed plans to export electric cars to the U.S. and the Chinese government seized seven of its locations, saying they were built illegally. BYD was the fastest-growing car company in China last year, but that expansion has slowed, nearly to a halt.

Bloomberg calculated the earnings numbers based on the BYD financial release. BYD units sales dropped 25% in September to 33,085.

The company has been little more than trouble to Berkshire Hathaway (BRK.B), Warren Buffett's holding company, which owns 10% of BYD. One bright spot is that Daimler recently said it was close to a joint venture to build electric cars with BYD. But the deal has not been sealed. If the agreement advances, the German and Chinese companies would each put $90 million into the project. LDK Solar (LDK) also announced that it would buy polysilicon products from BYD in a transaction that could be worth $300 million.

But BYD has begun to fail in its core business. China is now the world's largest vehicle market. Over 16 million cars and light trucks were sold in the People's Republic last year. GM, VW, and Chinese car manufacturers like SAIC control the market. Smaller companies want more of a share in China, but the market has become crowded with both foreign and local firms.

Chinese car sales rose 19.3% in September and 36.7% for the first nine months of 2010 to 9.9 million units. As for now, BYD is moving in reverse in its home market.