A BYD Auto advert in China

Warren Buffett’s Berkshire Hathaway Inc. completed the purchase of a 9.89 percent stake in electric-car maker BYD Co., whose shares have jumped fivefold since the deal was announced.

Berkshire is set to make a paper profit of about US$1 billion from the deal, agreed in September, following the increase in BYD’s share price. The automaker has climbed in Hong Kong trading on publicity from the Buffett tie-up and because of rising demand for its fuel-efficient vehicles.

“Investors are buoyed by the potential growth in BYD’s electric-car business,” said Barry Leung, an analyst at Sun Hung Kai Securities Ltd. in Hong Kong. “The alternative-energy sector is clearly one that will continue to enjoy the support of the Chinese government.” Leung rates the carmaker “buy.”

Berkshire’s MidAmerican Energy Holdings Co. unit agreed to buy 225 million new shares of BYD for HK$8 apiece. That stock now has a market value of HK$9.4 billion ($1.2 billion), based on Thursday’s closing price. Buffett will pay HK$1.8 billion.

BYD, also China’s biggest maker of rechargeable batteries, fell 1.3 percent to close at HK$41.65 in Hong Kong trading Thursday, before the completion of the purchase was announced.

The Buffett deal may help BYD, the seventh biggest carmaker in China, boost its profile overseas and also reassure potential customers, company President Wang Chuanfu said last year. The automaker started selling the F3 DM, the world’s first mass-produced plug-in hybrid, in December.

The Shenzhen-based company plans to sell shares on the mainland to help fund the development of its auto business. The carmaker intends to offer as many as 100 million yuandenominated shares in Shenzhen, it said in a July 16 statement.

BYD aims to more than double sales this year to 400,000 vehicles helped by exports and new models, Wang said in March. First-half sales more than doubled to 176,814, helped by demand for the F3, China’s fourth bestselling car, according to the China Association of Automobile Manufacturers. China’s overall passenger-car sales rose 26 percent to 4.53 million in the first six months.

Source: Bloomberg