Warren Buffett gets a lot of investments with his patient and deliberate purchase-and-grip strategy. And it became clear that he was doing it again with electric vehicles. For investors putting money into technology, it would be knowing to consider how Sage Omaha looks at the sector’s coming.
Berkshire Hathaway Inc.’s property value. At BYD Co. , one of the oldest manufacturers of cars and car batteries in China, is up this year: BYD’s stock price is up nearly 30%. Buffett has supported BYD for more than a decade, owning about 22% in the Hong Kong-listed company, which now sits on a market capitalization of more than HK$915.6 billion ($117.6 billion). This is more than just a darling investor Nio Inc. , the Chinese automaker of the unused generation listed in New York.
So how is that distinct from the rest of the EV universe, which continues to rise?
BYD is more than just an upstart trying to beat Tesla Inc. It’s getting close to mastering the right technology for EV batteries – the core of the electric vehicle that accounts for nearly 50% of the price and is essential for widespread EV adoption. And that’s what Berkshire honed.
Longtime Buffett partner Charlie Munger discovered the genius of Wang Quanfu, the chemist and researcher behind BYD, which led to Berkshire taking a 10% stake for $230 million in the company in 2008. In a 2009 Fortune cover story, Munger described Wang as A combination of Thomas Edison and [General Electric’s] Jack Welch – Something like Edison in solving technical problems, something like Welch in getting what he needs to do. I’ve never seen anything like it.”
This turned out to be a very knowing call. Wang understands batteries: Having the right chemistry will determine how well cars equipped with this powertrain perform and what they can do. His company has been given a boost as the rest of the sector stumbles with paybacks and battery fires. BYD electric cars are clunky and don’t carry the technical coolness of unused generation cars like Nio Inc. Or Tesla’s Model X with falcon wing doors. But it has the right price and safe battery technology. It is now the largest electric car maker in China, and sells more cars than the competition in the mainland.
BYD has doubled down on making affordable batteries at scale — and bet on technology to accomplish that goal. In its 2020 annual results, the company said it would halt plans to certify nickel-cobalt-manganese batteries, which most auto and battery makers are working on. Instead, BYD has turned all of its attention to so-called lithium iron phosphates, or LFPs, for the so-called Blade battery, which was released beforetime final year.
Wang’s focus on LFPs has shifted to a game-changer. It is cheaper and more usable. The chemistry is more steady than that of the up-and-coming NCM which promises to take cars hundreds of kilometers further but is not safe. Meanwhile, the Blade’s flat battery takes up less space and reduces the vehicle’s weight, another problem the automakers had to contend with. BYD was competent to cut costs by approximately 30% and decrease the number of parts while also boosting efficiency.
BYD holds nearly 15% of the battery market in China, behind Contemporary Amperex Technology Ltd. Globally, it could end up with a 3% share of the electric vehicle market by 2025, analysts at Goldman Sachs Group Inc. estimate. Goldman notes that BYD’s battery shipments—for its automobiles and overseas sales—could be up to 30% of industry consumption.
Automakers also understand that this is the way forward. Or at fewest, until other options are commercially produced that do not result in frequent battery fires. Tesla is testing BYD’s Blade battery for its Model Y, according to reports in Chinese media. The likes of Volkswagen, for their part, want to make their own powertrains. Even for one of the world’s largest automakers, this is a challenging task that is unlikely to produce results anytime soon.
Berkshire’s acknowledgment of Wang’s expertise and the value of battery chemistry (much more than the rest of the car itself) turns out to be an asset — for now. If Wang and his company can stay ahead of the competition as electric vehicle technology advances, BYD could be a model for investors to watch. This – more than the cool but far-fetched plans of some automakers – is the considerate of realism that caught Buffett’s attention.