A year ago, China’s car market was piping hot, just like Apple’s iPads are all the rage these days. Annualised growth for passenger cars in China was running at over 90%. The waiting time for a subcompact in Shanghai was more than six weeks — or about the same for an iPad or the much-derided iPhone 4 in Singapore these days. Even battery and TV makers were jumping into the fray. The joke among investors was that when Shenhua Energy or Bank of China announced a car venture, you’d know it’s a bubble and time to sell.

Much to their credit, no Chinese coal miner launched its own sedan. That’s just as well.  A year on, China’s stockpile of vehicles parked at manufacturers and dealers is running at more than 100,000 passenger cars. Add in other vehicles and you get an inventory of 130,000 units. Chinese plants are producing cars faster than the distributors can sell, creating a glut. Showrooms are flooded. And those long waiting lists and queues are now history. Indeed, you can get your favourite model right now and they’ll throw in a discount and a financing deal.

If the latest turn of events in China’s car market reminds you of the glut-prone US car market, there’s more. Rising inventories of cars at the dealers and at manufacturers’ plants, coupled with slowing demand, could lead to fierce price wars, Credit Suisse warned in a report last month. Y-o-y passenger car sales growth in July were down to 15.4%, despite the fact that car-financing terms are becoming easier and car makers are pushing sales in far-flung corners of the country.

That’s a huge comedown because as recently as April, vehicle sales were growing at an annualised rate of 34%. Vehicle sales are likely to grow 16% this year to 15.7 million — a huge increase on 1.2 million sold in 1999. Credit Suisse forecasts y-o-y sales growth is likely to plunge to negative later this year.

The symbol of the car boom in China was battery maker BYD Co, which makes lithium-ion batteries for cellular handsets. The obscure firm was readying batteries for electric and hybrid cars when billionaire investor Warren Buffett put it on the map by purchasing a 9.9% stake for HK$8 a share just four days after US investment bank Lehman Brothers collapsed in September 2008. At the trough of the market, the deal looked like a steal.

By the time Buffett came along, BYD was already making subcompact cars that ran on gasoline. The idea was that while it readies hybrid and electric cars and perfects its car-battery technology, BYD could use the time to build itself a name as a car manufacturer. With Buffett as a key shareholder, BYD was able raise more money from banks and buy technology. Suddenly, it was the market’s darling.

By last October, BYD stock had soared to HK$88, giving Buffett an elevenfold gain on his 13-month investment. Time for the Sage of Omaha to cash out? Well, not quite. Earlier in the decade, Buffett invested US$488 million (RM1.5 billion) in PetroChina. Five years later, he exited the Chinese oil giant with a 700% gain, or US$4 billion, in the bag.

With the China car market slowing, electric cars still in their infancy and the car-battery market still small, BYD has had its comeuppance lately. The stock is down to just over HK$50 from a high of HK$89. Credit Suisse is among the many investment banks that have a “sell” recommendation, with a price target of HK$44. Unless Americans start buying more hybrid cars or the Chinese start buying more of BYD’s electric cars, its stock could go even lower.

Yet, it isn’t all doom and gloom. China is likely to remain the world’s biggest car maker and indeed, some day, might even become the car maker to the world. Last week, Geely Auto took control of Swedish niche car maker Volvo from Ford Motor. Volvo makes about 280,000 passenger cars a year, though Geely wants to increase production to 600,000 within five years by making more Volvo cars in China. While the potential is enormous, there will be plenty of bumps along China’s road to car domination.

This article appeared in Corporate page, The Edge Malaysia, Issue 818, Aug 9-15, 2010