BYD Co's profit warning and failure to deliver its promised electric car plan sent shares plunging to a more than two-year low, as the Chinese auto and battery maker backed by Warren Buffett struggles with steady sales declines and waning popularity of its top model.

Shares in BYD plummeted more than 14 percent on Tuesday after the company warned it could post a third-quarter loss.

The grim warning and ensuing stock drop has put a spotlight on the company's strategy and on Buffett, whose investment in BYD has lost around $2 billion in value since taking a stake in 2009. His stake is still worth twice what he paid, though.

BYD attracted Buffett's Berkshire Hathaway because of its battery technology, which former Berkshire executive David Sokol called a breakthrough. Sokol has since left the company under a cloud related to his personal investing activities.

Despite BYD's F3 sedan being China's best-selling car brand in 2009 and 2010, the company sold only 480 units combined of its F3DM hybrid and e6 electric model. It has also delayed the U.S. launch of its e6 until 2012.

Sales may improve in the second half with the launch of new models, BYD Chairman Wang Chuanfu said on Tuesday.

The company planned to export electric cars and buses to the United States and Europe next year and other overseas markets such as Hong Kong as early as 2011, the chairman said.

We will start selling e6 to individual customers in China in the second half and to overseas markets next year, Wang told reporters. The fourth quarter is the traditional high season for car sales in China and with the new models coming to the market, our auto sales should be better in the second half than the first half.

He expects BYD's gross profit margin, which fell to 13.7 percent in the first half, to improve in the second half.

BYD warned Monday its net profit for the first three quarters may fall 85-95 percent due to fierce competition in China, the world's largest auto market.

I drove their car two years ago and I love it, said CLSA analyst Scott Laprise, referring to BYD's hybrid car. I thought this is the winner and I thought this could go anywhere in the world because of relatively low price.

The premium part of the valuation is zero because they can't deliver what they promised years ago, Laprise said.

BUFFETT BAILING?

Buffett's Berkshire Hathaway paid about $230 million in 2009 for 225 million shares in the company.

That stake was worth as much as $2.47 billion in October 2009 when the stock peaked at HK$85.5 each. The 9.6 percent stake is now worth about $467 million.

Wang said the company continued to maintain a good relationship with Buffett, but declined to comment on whether the U.S. investor would sell BYD shares.

Within Berkshire, the champion for the BYD investment has been Vice Chairman Charlie Munger, who held a personal stake even before the Berkshire investment and who has spoken of BYD's Chairman Wang in glowing terms.

At investor meetings in April and July, Munger said he intended to stick with the BYD stake, which some took as a signal that Buffett would as well.

Buffett and Munger have also brushed aside concerns -- raised by U.S. diplomats in cables released by WikiLeaks -- that BYD has copied industrial designs from competitors. Diplomats have said that and other factors may keep BYD from releasing cars in the United States.

Buffett's assistant did not respond to a request for comment on Tuesday.

LOWER FORECASTS, TARGETS

BYD's guidance for a further deterioration and the forecast represented a 154 million yuan ($24 million) loss to a 90 million yuan profit for the third quarter, Bank of America Merrill Lynch said in a note.

The consensus 2011 profit forecast for the company stands at 1.7 billion yuan, according to a poll of six analysts by Thomson Reuters I/B/E/S.

Bank of America Merrill Lynch on Tuesday cut the target price on BYD shares by 15 percent to HK$17, after lowering its 2011 earnings forecast by 61 percent and its 2012 forecast by 31 percent.

BYD's Hong Kong-listed shares, which have lost more than three-fifths of their value this year, dived 14.3 percent to close at HK$$16.18, their lowest since April 2009, compared with a 2 percent gain in the Hang Seng Index.

However, its Shenzhen-listed shares were up 1.2 percent.

The market has high expectations on BYD's newly launched sport utility vehicle S6, and the coming G3 model, which will replace the popular F3, analysts said.

This (profit forecast) was a surprise to the market, said Steve Man, an analyst at Samsung Securities.

Maybe on top of that the year-on-year comparison will be pretty easy starting from the third quarter. So people are hoping the company's earning starts to turning around, Man added.

($1 = 6.401 Chinese yuan)

(Reporting by Alison Leung and Donny Kwok, additional reporting by Ben Berkowitz in New York; Editing by Matt Driskill, Vinu Pilakkott, Dave Zimmerman)