(Bloomberg) -- BYD Co., the Chinese carmaker part-owned by billionaire Warren Buffett's Berkshire Hathaway Inc., was fined and ordered to surrender seven factories after a dispute over land use in central China.
BYD received a 2.95 million yuan ($442,000) fine and will have the factories in Xi'an, Shaanxi confiscated, according to a statement posted today on the Ministry of Land and Resources website.
The decision adds to setbacks for the Shenzhen-based automaker that include declining domestic sales and scaled-back plans to sell electric cars in California.
BYD, China's fastest- growing major carmaker last year, said separately today that its auto sales in September dropped 25 percent, even as deliveries rose at rivals including SAIC Motor Co. and General Motors Co.
“This will affect their capacity expansion in the medium to long term,” said Yu Bing, an auto analyst with Pingan Securities Co. in Shanghai. “If you consider their production requirements in the next two to three years, they will need to bolster their capacity now.”
The company slashed its 2010 sales outlook by 25 percent to 600,000 vehicles on Aug. 4. Buffett affirmed his support for BYD last month when he visited the automaker in Shenzhen, saying the Chinese automaker will be a leader in electric cars.
Paul Lin, a spokesman for BYD, said the company will follow the ministry's decision and that it won't have any impact on the carmaker's operations.
BYD unlawfully built seven factories on 112 acres of farmland it agreed to buy from a local economic development agency in Xi'an, the land ministry said July 15.
The company, which makes China's best-selling F3 compact car, built the Xi'an plants even though 92 percent of the land they occupied was still zoned for agriculture, the ministry said. The ministry planned to decide by Sept. 30 whether to punish the company, it said at the time.
Berkshire Hathaway owns 10 percent of the automaker through MidAmerican Energy Holdings, based in Des Moines, Iowa.
BYD, headed by Chairman Wang Chuanfu, started expanding its production as China surpassed the United States last year to become the world's biggest auto market. BYD's existing Xi'an factory, built in 2005, can assemble 300,000 of its 3-series cars, including the F3 and G3 models, annually.
The carmaker planned to invest 5 billion yuan in a new factory in Xi'an with the same capacity, Wang said in August.
Even as domestic brands such as BYD have been expanding capacity “more aggressively” this year, additional capacity may not translate into higher sales, Credit Suisse Group AG auto analyst Hungbin Toh wrote in a report this month.
The automaker may miss its sales target for this year even after lowering it, Toh wrote.
Today's government decision may help bring BYD relief with regard to its plans for an A-share listing in China, Pingan Securities' Yu said.
A day before the ministry announcement in July, BYD said it may delay the share sale to wait for “better timing” after stock markets fell. BYD planned to raise 2.85 billion yuan for projects including the development of lithium- and solar-powered batteries.
“A resolution to the case will end the uncertainty surrounding the stock for investors,” Yu said. “Investors like BYD for their new energy business, and it is still a very recognized company.”
BYD's Wang said Aug. 23 the company is proceeding with the listing and hopes to sell the shares later this year.