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.

BYD attracted Buffett's Berkshire Hathaway because of its battery technology, which former Berkshire executive David Sokol called a breakthrough.

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 planned 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 and Singapore 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 7.6 percentage points to 13.7 percent in the first half, to improve in the second half.

BYD warned late on Monday that its net profit for the first three quarters may fall between 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'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 whether the U.S. investor would sell BYD shares.

The failure of BYD to deliver on its promises for both cars and battery technology has analysts concerned.

Buffett said at the time of the investment that he did not know anything about cars or batteries and was talked into the investment by his partner Charlie Munger and Sokol.

LOWER FORECASTS, TARGETS

The company'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.

CLSA's Laprise said BYD needed to renew its F3 hybrid model and cut administrative costs to get back on track because the brokerage did not see any positive catalysts in autos or mobile-phone components business.

($1 = 6.401 Chinese yuan)

(Reporting by Alison Leung and Donny Kwok; Editing by Matt Driskill and Vinu Pilakkott)

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