BYD is a Chinese company that has one big thing going for it: It counts Warren Buffett as an investor. But beyond that, the carmaker/batterymaker/solar manufacturer has been enduring a rough ride. It's seen a massive decline in earnings this year, while Buffett has seen his 10 percent stake, purchased in 2008, fall to substantially less than its 2010 peak value of $1.2 billion. BYD (it stands for "Build Your Dreams") executives have been heading for the exits.
There are some complex, interpersonal, inside-Berkshire Hathaway questions about how Buffett and his longtime partner, Charles Munger, came to be involved with BYD. But there's no question about how Los Angeles came to be home to BYD's North American headquarters, opened Downtown about a year ago, in a corridor that's jammed with auto dealerships.
L.A. put together a deal that BYD couldn't refuse. Carol Schatz of the Central City Association laid it all for the Los Angeles Daily News in 2010. Her argument was that bringing BYD to town would cost the city next to nothing, get us some new electric buses, create jobs, and really just put L.A. on the hook for the lease to the building that BYD moved into:
[C]riticism of the city’s lease guarantee to the site’s property owner is badly misplaced. The guarantee declines annually, with the city retaining sublease rights, and Los Angeles would have a claim against a $14 billion company that is 10 percent owned by billionaire Warren Buffett.
The lease guarantee is $2.4 million and, as Schatz notes, would be a claim against the company — and, by association, Buffett — if BYD decides to leave town. That sounds like an extreme scenario, until you consider that an analyst in Asia recently cut his target price for BYD's stock to, basically, nothing (then stock trades on the Hong Kong exchange). The firm's current market cap of about $4 billion (well below the 2010 valuation than Schatz cited) would be reduced to almost nil if the company performs that badly. This suggests bankruptcy, not recovery.
Mayor Villaraigosa's office declined to comment on BYD's fortunes, saying that it isn't his policy to speculate on the financial performance of corporations. They're looking into the implications for the lease guarantee, however, but they haven't gotten back to me yet.
Schatz is ultimately right that BYD — in Downtown or not — didn't cost the city much, although the reason to beat out other cities to attract the company, offering incentives in the process, was to create the impression of a favorable business environment it order to get job creation and economic activity. Electric cars looked like a better business a few years back. Unfortunately, the market hasn't yet taken off.
BYD isn't just about electric cars, of course, and a U.S. headquarters isn't the same as a U.S. showroom. The battery, solar and lighting businesses may keep BYD in L.A. But at the moment, the future doesn't look as bright as it did when the ribbon was cut last October.