BYD Co, the Chinese car and battery maker backed by U.S. billionaire Warren Buffett, posted a forecast-beating fourth-quarter result on Sunday, as Beijing's policy initiatives boosted demand in the world's largest car market.

Analysts said earnings growth for Hong Kong-listed BYD, 10 percent owned by Buffett's Berkshire Hathaway, would likely slow this year as car sales in China return to more normal growth rates after the breakneck expansion in 2009.

BYD is a company that can't be underestimated, said Charles Guo, an analyst with JP Morgan, before the results were announced. If the Chinese vehicle market expands 10 percent this year BYD's sales will grow at least 40 percent -- 50 or even 60 percent is also a possibility.

BYD is even more upbeat. In December the company lifted its 2010 car sales target by 14 percent to 800,000 vehicles -- nearly double its sales of about 440,000 last year.

China overtook the United States to become the world's largest auto market last year, with sales jumping 46 percent to a record 13.6 million vehicles. Analysts expect China's car sales to continue to increase this year, though they expect the growth rate to slow to about 10 percent.

BYD, which stands for build your dream, said in a statement to the Hong Kong Stock Exchange that strong demand and low penetration provides a vast market for China's domestic automobile industry.

The group will also intensify its efforts to develop overseas markets and increase presence in overseas markets, it said.

However, the company warned of headwinds facing its mobile phone handset component and assembly business amid a global industry downturn. Its battery and other electronic businesses, largely held by unit BYD Electronic (International) Co Ltd, accounted for about 47 percent of sales in 2009.

BYD earned 1.46 billion yuan ($214 million) in the fourth quarter due to the economies of scale of its fast growing automobile business, according to Reuters calculations,.

It beat a consensus forecast of 891 million yuan and compared with the 243 million yuan made in the same period the previous year.

Full-year net profit was 3.79 billion, ahead of the average forecast of 3.23 billion yuan given to Thomson Reuters I/B/E/S from 13 analysts, and up sharply from 1.02 billion yuan a year earlier. Turnover jumped 47 percent to 39.5 billion yuan during the period, the statement said.

DAIMLER TIES

China has been the major bright spot for carmakers amid a global industry downturn thanks to Beijing's economic stimulus measures, which include deep sales tax cuts for small cars.

BYD is among the major beneficiaries of the incentives. Its F3 was the best-selling car in China last year, beating popular domestic and foreign models, such as Hyundai Motor's Elantra and Chery Automobile's QQ.

The company is headed by Wang Chuanfu, a studious, soft-spoken entrepreneur who in his early days would dismantle rival's batteries to understand how they worked.

The company, a front runner among Chinese carmakers in clean energy vehicles, earlier this month agreed to team up with Daimler AG to develop electric cars for the Chinese market.

Analysts hailed the deal as further validation of BYD's leadership in battery technology and electric vehicles.

In May last year the automaker signed a memorandum of understanding with Volkswagen AG for a hybrid and electric vehicles partnership, but has yet to announce details.

The stock gained 7 percent in the fourth quarter of 2009 and has been largely flat so far in 2010 compared with a 5 percent decline in the Hang Seng China Enterprises Index of major Chinese companies listed in Hong Kong.

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