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Follow that car!

It’s a cliché from the best and worst of Hollywood movies. But it appears to be all the rage in investment circles. The next big idea: buying into China’s automakers.

Last modified: 23 Sep 2009 11:15
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It’s a cliché from the best and worst of Hollywood movies. But it appears to be all the rage in investment circles. The next big idea: buying into China’s automakers.

Goldman Sachs – which bet against mortgage-backed securities and won – has pledged to invest $334 million in Geely Automobile Holdings. Geely’s parent company Geely Group Holdings, China’s 10th biggest car maker, is certainly ambitious. It wants to raise money to double production and acquire new technology with the possible $2 billion purchase of Ford’s Volvo business.

It already has a stake in Manganese Bronze Holdings – the British company that makes the world famous black London taxi. Looking at Geely’s current line up – Free Cruiser, Geely Kingkong, Vision and Panda -- it certainly won’t have Western consumers salivating. Although it has plans to flood the world with cars designed to meet local demands.

And not a mention of its Hybrid programme in its half-year results in September (pdf). Here lies the problem.

Take U.S. billionaire Warren Buffet investment in BYD. His company Berkshire Hathaway paid $230 million for a 10 percent stake in the battery and electric car maker. While Goldman Sachs is buying into the petrol combustion engine, Buffet is looking to the future.

And the future is just around the corner. BYD will launch the first mass-produced electric vehicle E6 in China later this year.  BYD, founded and run by Chief Executive Wang Chuan-Fu, did not enter the car market until 2003. In October last year its F3 sedan became the best selling car in China.

Wang, a chemist and former government scientist, makes batteries cheaper and better than his Japanese rivals and employees thousands of scientists to improve its own products, it also makes solar panels. Wang certainly is an innovator – that’s what attracted Buffet. And Buffet’s bet has paid off his initial investment has risen seven-fold to $1.8 billion.

Can Goldman Sachs duplicate that success? It certainly can -- Wall Street's kingpin has gained a seat as China’s car industry consolidates and overtakes the United States as the world’s biggest auto market this year.