Warren Buffett owes a lot to the late Charlie Munger, his longtime friend and Berkshire Hathaway vice chairman. He called Munger "the architect of Berkshire Hathaway," crediting him with introducing him to the idea that he should focus on buying wonderful businesses at fair prices instead of seeking to buy fair businesses at wonderful prices.
The results speak for themselves. Since Buffett received that advice in 1965, he has provided investors with a 20% compound annualized return. Munger was by his side for most of those 60 years, and he found quite a few wonderful businesses to invest in himself.
One that Munger convinced Buffett to invest in back in 2008 was a company with leading technology and manufacturing capabilities in the emerging industry of electric vehicles. It was an incredible investment, which has returned over 2,000% on Buffett's original investment to date. And it's not too late for small investors to get in on it.
Image source: The Motley Fool.
The global EV leader 15 years in the making
When Tesla (TSLA +0.30%) released its groundbreaking Roadster in 2008, it demonstrated the potential of electric vehicles. However, that stylish high-end sports car stood in stark contrast to what another EV pioneer was doing across the ocean. That year, Chinese company BYD (BYDDY 1.38%) (BYDD.F 0.73%) was finalizing designs for the e6, an economical five-door compact car.
Guess which one Munger told Buffett to buy.
Buffett put $230 million of Berkshire Hathaway's cash to work, buying roughly 10% of BYD. He has since sold off portions of that initial investment, but still holds approximately 4.4% of the company, and that stake is worth about $2.4 billion as of this writing.
OTC: BYDD.F
Key Data Points
BYD didn't even start as an automaker. It started as a battery maker. It focused on reducing its unit costs through vertical integration efforts such as producing key machinery in-house. Keeping its costs low helped it to win big customers, which allowed it to invest in new technology and processes to make its batteries better, which led to further customer wins.
The combination of a vertical integration model and a workforce loaded with engineering talent gave BYD some significant advantages. It launched its auto business in 2003, integrating its batteries and other electrical components into the vehicles of a small auto manufacturer it acquired.
Within that paradigm, BYD has been able to build cars at impressively low costs. That's what enabled it to launch its first fully electric vehicle -- the e6 -- at the lower end of the market in contrast to Tesla's higher-end models. But BYD was mostly treading water after the launch of the e6. Sales of its electric vehicles cannibalized the sales of its traditional car models. In the late 2010s, it nearly went bankrupt.
But its consistent efforts to advance its technology and cut its manufacturing costs started to pay off in 2020, and sales have soared substantially over the last five years. That's thanks to its blade battery, introduced in 2020, which offers advantages in safety, range, longevity, and power. Meanwhile, its two most popular models are priced around $20,000 and $12,000, respectively. Those are hard prices to compete with.
Analysts expect BYD's global annual sales of fully electric vehicles to surpass Tesla's for the first time this year. Counterpoint Research sees the EV maker accounting for 15.7% of total EV unit sales compared to Tesla's 15.3%.
Here's why it's the electric vehicle company to own
BYD's focus on keeping costs low allowed it to survive in the 2010s and now enable it to thrive in 2025. BYD has continued to pursue new ways to vertically integrate, including by buying lithium mining rights in Brazil (which it did in 2023).
It also developed its own driver-assist system it dubbed "God's Eye," and is reportedly seeking an SAE Level 4 classification for autonomous driving for its highest-end system. It also includes the system on every model it sells at no additional cost.
The combination has enabled BYD to develop low-cost EVs with advanced capabilities. It's no wonder it's selling more units than ever. It reported over 1 million total vehicle sales during the first quarter, 416,000 of which were battery EVs, up 39% year over year. The remainder were mostly hybrids.
By comparison, Tesla reported sales of 336,000 vehicles in the first quarter, down 13% year over year.
As BYD's sales climb, it's producing significant operating earnings. Its operating margin for 2024 was 7%, right in line with Tesla's, and there's still a lot of leverage in the business. Management projects first-quarter earnings growth between 85% and 118% -- higher than a year ago. By comparison, Tesla's profits are expected to decline by 4% in the first quarter.
At its current price, BYD stock trades for about 18 times forward earnings estimates. That's an incredible bargain for a company growing as quickly as the automaker. Despite the strong performance both since the start of the year and since Buffett bought it in 2008, it's still worth adding to your portfolio today.
