Beijing Halts Construction of BYD Auto Plant

BEIJING—China's central government ordered BYD Co. to surrender land in a zoning dispute, a decision that is likely to slow the Chinese battery and auto maker's push to expand in the nation's growing auto market.
China's Ministry of Land and Resources also hit BYD with a 2.95 million yuan ($442,000) fine, the ministry said on its website Wednesday. The ministry confiscated 121 acres of land in the central Chinese city of Xian, where BYD executives said the company has been building a car assembly plant. BYD had hoped to start production at the complex as early as next year.
The ministry said zoning for the land was "illegally adjusted" to industrial use from agricultural use but didn't elaborate. The decision comes as some government officials have shown concern about excess capacity in the auto industry.

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The land ministry also disciplined about a dozen government officials in Xian, the capital of Shaanxi province. Lu Yong, director of the planning department of the Shaanxi land and resources office, was removed from his post.
The Xian site was part of BYD's five-billion-yuan expansion to roughly double its car-production capacity in China, where executives said the company is capable of manufacturing 700,000 cars a year. In addition to Xian, where BYD has two existing plants, the company is increasing output in Shenzhen and adding a production complex in the central Chinese city of Changsha.
The company is "duly accepting the ministry's decision," said BYD spokesman Paul Lin. He said, however, that the move was "not likely to have material impact" on BYD's business, though he declined to elaborate.

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Associated Press

BYD Chairman Wang Chuanfu, left, at a celebration last month in Shenzhen city with Berkshire Hathaway's Charles Munger, center, and Warren Buffett.

Still, an individual close to BYD said the company, one of China's top-tier car brands, might have to look for a different site in Xian to build a third assembly plant and explore other options. Each existing plant in the city can produce 200,000 cars a year.
It wasn't immediately clear how much BYD spent to acquire the Xian site or how much it has invested at the location, which was to have production capacity of 200,000 cars a year. Mid American Energy Holdings Co., a unit of Warren Buffett's Berkshire Hathaway Inc., owns 10% of BYD.
The Chinese government's move adds to a series of setbacks for BYD this year. With demand slowing for its cars in China, BYD in August slashed its 2010 sales outlook by 25% to 600,000 vehicles. It also delayed plans to sell all-electric cars in California by year-end, although BYD executives have said the company plans to introduce its electric car, the e6, in the near future.
BYD said Wednesday that its car sales in China last month fell 25% from a year earlier to 33,085 cars, even as China's overall vehicle sales rose 19%.
Given the diminishing outlook for BYD's car business, Yale Zhang, an independent auto analyst in Shanghai, said the ministry's move "shouldn't be that damaging" for now. "It's not as if BYD's lacking capacity for auto production right now."
MidAmerican bought its stake in BYD two years ago after Mr. Buffett's longtime business partner, Charles Munger, learned of the company and its lithium-battery technology from hedge-fund manager Lu Li. Mr. Munger asked MidAmerican Chairman David Sokol to investigate.
Mr. Buffett said earlier this year that MidAmerican's initial $231 million investment is now worth about $1.5 billion. Mr. Li now is considered a leading candidate to run a chunk of Berkshire's investment portfolio. Mr. Sokol, a member of BYD's board since last year, is widely thought to be the leading candidate to succeed Mr. Buffett as Berkshire's chief executive.
—Sue Feng and Erik Holm contributed to this article.