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Will Youngy boss take profit on his huge BYD stake?

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BYD will work with ABB to build a new network of charging stations

London’s minicabs are reflective of China’s growing business interests in the British capital. London Taxis, builder of the boxy black cabs so synonymous with the city, is owned by Chinese automaker Geely after all.

But following London Mayor Boris Johnson’s pledge to cut taxi carbon emissions to zero by 2018, its flagship model the TX4 may soon face competition from another vehicle – this time one that is made in China.

This week BYD launched London’s first ever all-electric taxi fleet. It has provided 20 electric minicabs to fledgling private hire firm Thriev, less than two months after delivering London’s first fully electric buses.

While US rival Tesla primarily targets high-end consumers, BYD has been focusing its electric future on public transport.

By the end of June the Chinese firm had more than 1,000 electric buses or taxis running in Chinese cities. It has also been promoting trial operations in overseas cities. Pilot programmes for its electric vehicles have launched in the US, Canada, Germany and likewise in a variety of countries in Southeast Asia.

But not many of these schemes have resulted in meaningful contracts.

For example, Green Tomato Cars, London’s second-largest minicab operator, said it had pulled out of a deal this week that would have seen 50 BYD taxis join its existing 500-strong fleet of mainly Toyota Prius hybrids. Nevertheless the showcase projects do help to enhance BYD’s brand name worldwide, making it one of the more obvious partners for foreign firms with an eye on the new energy revolution.

For example, BYD has a joint venture with Daimler in China. And earlier this month, Swiss-based electric equipment maker ABB announced a partnership with both companies to supply fast-charger techology.

According to press reports, the agreement “will result in the world’s largest fast-charging network for electric vehicles”. Like Tesla’s ambitions in China (see WiC224), the details are limited. But that said, BYD’s latest initiatives – as well as the Chinese government’s renewed efforts to promote new energy cars to tackle dramatically worsening air pollution in its cities – have put the company’s stock back on investors’ radar.

BYD’s Shenzhen-listed shares rebounded more than 80% in 2013. And following another 30% gain so far this year, its A-shares have surged to an all-time high this week, reaching a market capitalisation of Rmb112 billion ($18.5 billion), having listed in the southern Chinese city three years ago.

The company’s Hong Kong-listed shares, which were floated in 2002, are still trading 50% below their 2009 peak. But at around HK$42 ($5.40), Warren Buffett is now sitting on a 400% return after acquiring a 10% stake back in 2008.

In fact, Buffett isn’t the only one to profit from BYD’s transformation from battery maker to green automaker. Berkshire Hathaway’s investment return has been dwarfed by that of Lu Xiangyang, the cousin of BYD’s chairman Wang Chuanfu.

WiC has profiled Wang before (see one of our earlier mentions in issue 42). But when he was setting up his battery venture back in 1995, he sourced Rmb5 million as startup capital from his cousin Lu.

Lu and his investment holding firm Youngy now owns a combined 17% of BYD. The stake is worth Rmb19 billion or nearly 4,000 times the seed capital ­– a stake that the Securities Times described as “the best venture investment ever in China”.

According to China Business News, Youngy has since expanded into upstream mining too, as part of a strategy to build “an integrated industrial chain” anchored against BYD’s core businesses. In 2009 the Guangzhou-based company bought 70% of the world’s largest lithium mine in Sichuan and it now has investments in projects that carry a combined Rmb180 billion market value.

Buffett has stressed repeatedly that BYD is a long-term play that he will hold for the foreseeable future. But for Lu the option to divest opens up in just a few months. His BYD stock is all Shenzhen-listed and was subject to a 36-month lock-up that expires in June.

According to the Investor Journal, the market value of BYD’s ‘locked-up’ stock is now the second highest in the Chinese market.

(Great Wall Motors will see its own share lock-up expire in September – and the current value of the stock that is being freed up is Rmb64 billion.)

So investors will soon find out whether Lu’s commitment to BYD is as strong as Buffett’s. In the event Lu does take profits, it could see downward pressure on a stock whose recent trajectory has only been positive.

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