BYD (OTC: BYDD.F) is often referred to as the You’re here (NASDAQ: TSLA) from China, and for good reason. A major passenger vehicle player in its own market with international potential in commercial applications, BYD is the only major electric vehicle fleet you will find in Berkshire Hathaway‘s (NYSE: BRK.A)(NYSE: BRK.B) equity portfolio. In this fool live clip, registered on August 30, Fool.com contributors Matt Frankel, CFP and Jason Hall explain why BYD might be worth a closer look at this time.
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Matt Frankel: If you had told me 10 years ago that Warren Buffett was going to have an EV inventory in his top 10, then I would have told you you were crazy. If you had said he would have had a stock of Chinese EVs in this top 10, I would have said you’re out of your rocker, get out of here.
Jason Hall: You’ve lost your mind.
Frankel: BYD is an electric vehicle company based in China, which is why its ticker symbol is BYDDF. You have to buy it over the counter in America. It is called the Tesla of China. It truly lives up to the name. They are the leader of battery electric vehicles in China. They sold just over 427,000 vehicles last year. About a quarter of them were pure electric vehicles and about half were electric, if you include hybrids. BYD is an interesting business. They were a battery maker. They provided a lot of batteries.
Room: When Berkshire first invested it was largely based on this business.
Frankel: They made batteries for many earlier cell phones like Motorola and Nokia, were two of their big customers. They switched to vehicles a little over a decade ago, around the time Berkshire invested in them. Berkshire bought their stake in 2008. They wanted to buy 25% of the company. BYD management would not sell it to them. They bought just over 85% of the business. Berkshire paid $ 232 million for the stake, and it’s now worth around $ 8 billion. It’s a pretty successful investment in a short period of time. Surprisingly, it was Charlie Munger who really pushed for the investment, not Buffett, not one of his lieutenants. Munger said, here is the quote, “I have never felt more privileged in my life to be associated with something than I think of BYD.” That’s great praise from Charlie Munger, who is notoriously pessimistic about a lot of things Buffett does and a lot of new technology. They really did a great job of pivoting to vehicles for batteries, which is no small feat. They are not just passenger vehicles. They also produce a range of utility vehicles. They have a lot of battery powered sweeper trucks that are operational in China right now, to name just one example; great market opportunity. They also produce a monorail system. If they call it the sky rail. They’ve been producing them since 2016. Large-scale electric vehicle maker Buffett obviously doesn’t think they’re done growing yet and neither do I. To be honest with you, they are still, in my opinion, an up-and-coming company in an exciting space. Battery technology is evolving to the point where many of their utility vehicle lines are going to come in handy to produce on a large scale, winning many valuable contracts. He’s the one I’m a big fan of. A market capitalization of just over $ 100 billion currently. I think this is more than justified given the progress of the company. I think if I were to bet on the first $ 1,000 billion EV stock, it would probably be BYD.
Room: Yes. I think I agree with this second sentiment. I’m really struggling with the reported $ 100 billion valuation for the company’s transactions, $ 94 billion or $ 95 billion or somewhere in this neighborhood. The reason I think it’s worth it is because it’s not just a company that makes cars. It is a full range transport company. I think their biggest business in the United States is probably their bus business. They build buses in the United States. Then, because they are starting up as a battery business with electric vehicles, that core skill is so important, so valuable. This translates into success. They also do storage on a commercial and utility scale. They don’t follow Tesla’s model here, they do some of the same things Tesla did, but they focus in a very holistic way. I think it’s gonna be a better business and I think it’s gonna be bigger than Tesla, I agree.
Jason Hall has no position in the stocks mentioned. Matthew Frankel, CFP owns Berkshire Hathaway shares (B shares). The Motley Fool owns shares and recommends Berkshire Hathaway (B shares) and Tesla. The Motley Fool recommends the following options: $ 200 long calls in January 2023 on Berkshire Hathaway (B shares), $ 200 short buys in January 2023 on Berkshire Hathaway (B shares), and $ 265 short calls in January 2023 on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.