MILAN (Reuters) -Leading Chinese automaker BYD will need to manufacture auto batteries in Europe as its car production in the region is expected to expand in the coming years, the group's special adviser for Europe said on Wednesday.

BYD aims to produce all its EVs for sale in Europe locally within three years, helping it avoid EU tariffs, Executive Vice President Stella Li said earlier this month, adding plug-in hybrids should dominate the group's European sales in the short term.

The Chinese manufacturer is building a factory in Hungary that should start output at the end of this year, while another one in Turkey is due to start production in 2026, for a total capacity of around 500,000 vehicles a year.

Asked whether BYD is considering a further facility serving Europe, its special adviser Alfredo Altavilla said the group would also need to produce batteries in the region.

"It does not make sense to invest in car assembly (in Europe) but bring batteries from China," he said during an automotive conference in Milan.

The Chinese automaker originally sold only fully-electric cars (EVs) in Europe but it has started also offering plug-in hybrids, which are proving popular among consumers.

Altavilla said BYD still had to decide whether to prioritise a third assembly plant or a battery making facility, as it was now totally focused on launching the Hungarian plant and bringing it to full speed.

He added BYD was considering all European countries for that further investment, and interacting with local authorities.

"Several factors come into play when choosing a new location ... such as energy cost, which is objectively one of the most important competitiveness factors, because both assembly and battery factories are energy-intensive businesses," he said. 

Altavilla also commented on the recent decision by Warren Buffett's Berkshire Hathaway ( BRK/A ) to fully exit BYD, ending a 17-year investment, rejecting speculation the move was a sign of mistrust in the company.

Buffett "made a profit of 20 times the capital he invested. He did very well to do what he did," he said. "We've been extremely glad to have had Buffett (as an investor), but the fact that he monetised his position is exactly what Berkshire Hathaway ( BRK/A ) does for a living: buying, earning and selling".