Buffett's Electric-Car Maker Is Still on Sale

A battery, solar-panel, and automobile maker made famous by a certain Omaha-based oracle, BYD (NASDAQOTH: BYDDY  ) has seen its fair share of peaks and troughs. The company, 10 % owned by Berkshire Hathaway  (NYSE: BRK-A  )   (NYSE: BRK-B  ) subsidiary Mid-American, was flying high a few years ago on the back of its genius founder, who was pushing the limits of electric vehicles well before Elon Musk got headlines. Subsequent years saw plummeting sales and tremendous competition in its non-vehicle businesses. Now the company has seen sales stabilize in the first half of the year, but warns of more stormy weather ahead. Is BYD a dream or a nightmare?

Recap

For those unfamiliar, BYD -- which stands for Build Your Dreams -- is a Chinese battery and electric vehicle manufacturer, among other lines of business. The company is run by a man Berkshire bigwig Charlie Munger once described as "a cross between Edison and  Jack Welch," Wang Chuan-Fu. Wang caught the world's attention with Warren Buffett's endorsement, and antics such as disassembling a Toyota seat , mid-travel, to better understand its mechanics.

In its first half of 2013, BYD saw its net income rise from 16 million Chinese yuan in 2012, to 427 million (roughly $70 million) this year. Car sales jumped  an impressive 25% throughout the first half, far ahead of the industry average in China.

It's been a slow, topsy-turvy path to recovery since 2010, when the company faced quality issues, including one incendiary  taxi incident, as well as competition in other lines of business such as cell phone batteries and photovoltaic panels. Though they were responsible for half of its car  revenue in the first half of this year, the company plans to phase out its gasoline vehicles in favor of electric vehicles, prompting some to consider BYD the Tesla of China.

Still, shares plummeted on a tepid outlook for the remainder of the year. Is BYD bound for perennial mishaps, or is this a Tesla waiting to happen?

Looking ahead

For Buffett and Berkshire, BYD has already proved to be a fantastic investment. Buffett made his stock purchases in the $2 per share range, and hasn't sold any of Mid-American's stake to date. Though it's far outside the Oracle's wheelhouse, BYD appears to remain a convincing long-run investment for Berkshire Hathaway.

BYD's K9 electric buses are snapping up contracts around the world, from Canada  to Amsterdam . The company provides a tremendous number of taxis to markets such as Shanghai and Hong Kong, and looks to expand in coming years.

Management guided down for the rest of 2013, sending shares down by double digits in Monday's trading. Third-quarter profit is expected to be less than half  a million U.S. dollars, and management believes its ongoing recovery will be delayed by the weak sales season.

Overall, though, this is a long-term buy and look away stock, for those interested. BYD has been and will remain exceptionally volatile. Short-term fluctuations will keep things choppy for the foreseeable future. A prospective investor should view this as a long-term hold. Wang Chuan-Fu is dedicated to creating, "a  zero-carbon and zero-emission eco-environmental system" with his automobiles, batteries, and solar panels. The company has improved substantially from its previous troubles, but it still has a long way to go.

BYD trades at a far more reasonable valuation when compared to the likes of Tesla, and has a more diversified line of business. While Tesla's stock price assumes everything will go peachy-keen for Musk and Co., BYD's valuation is more realistic, reflecting the issues still facing widespread electric vehicle adoption. For a well-priced entry into the world of zero-emission vehicles, BYD remains an appealing, Buffett-endorsed pick.


 

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  • Report this Comment On August 28, 2013, at 9:56 PM, BeijingGuy wrote:

    I have been in Beijing for 10 years. BYD is a cheap car. Current policy is you need to go through a lottery to get a license. In reality you pay rmb100k. How would you buy a rmb60k BYD while paying rmb100k for a license? Lol. People know his investment and follow his pick. Mr. Buffett is also a PR person. Double digits? I work on my P&L too.

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