Why is Warren Buffett invested in BYD

BYD electrifies Buffett's e-mobility activities!

Technology values ​​like Apple are not Buffett's specialty at all. But one of the strengths at Berkshire Hathaway is that the two “grand seigneurs” Buffett and Munger do not insist on hatching all the ideas themselves, but can fall back on some very successful initiators. Like the designated CEO Greg Abel, the head of the insurance division Ajit Jain, as well as the two "investment lieutenants" Todd Combs and Ted Weschler, who each manage their own multi-billion dollar portfolios. And in the past, David Sokol was one of them, who worked with Munger to get involved in the unknown Chinese car maker BYD.

BYD investment is Munger's baby

The Chinese mixed group BYD tells an impressive growth story in the 25 years of its existence. Berkshire Hathaway has been one of its shareholders for many years, with a stake of 8.25 percent at the end of 2020.

Note: Confusingly, there is also information that Buffett holds around 15 percent of the shares. But this only applies to the Hong Kong-listed H-shares.

13 years ago, Charlie Munger convinced his partner Buffett to invest in the relatively unknown Chinese automotive company "Build Your Dreams". Munger believed in the company's management, especially doer Wang Chuan-Fu, and believed the company was incredibly well positioned to benefit from the changing automotive industry.

Buffett sent Sokol to China in 2009 to put BYD through its paces. And he was convinced. Berkshire then invested $ 232 million in BYD and received 10 percent of the shares in return. Buffett even wanted to buy 25 percent, but the founder refused; Buffett was neither piqued nor disappointed, but rather took this as a vote of confidence.

Today Berkshire still holds 8.2 percent of BYD and with a current market capitalization of $ 61 billion, Buffett's package is worth $ 5 billion, almost 22 times the original stake. And a few weeks ago the price was almost twice as high.

In any case, at the end of 2020, Buffett's BYD position was worth $ 5.9 billion, making it the eighth largest holding in Berkshire's portfolio.

What is BYD actually doing?

BYD is a mixed Chinese group with headquarters in the Shenzhen Special Economic Zone. The company was founded in 1995 by chemist Wang Chuan Fu and has been listed on the Hong Kong Stock Exchange since 2002. BYD's main products include cars (both e-cars and those with internal combustion engines), e-buses, accumulators, batteries, electric monorails and accessories for cell phones.

BYD operates in the three areas of “Automobiles & Related Products”, “Batteries & Photovoltaic” and “Handset Components & Assembly Services”.

The sector with the highest turnover at 49% is the production of automobiles and suffered from the Chinese government's cut in subsidies for e-cars in 2019. But the global trend towards electric mobility is also boosting BYD's sales enormously and, behind Tesla, BYD is now the second largest electric vehicle manufacturer in the world. With just under 84 percent, China is by far the largest sales market.

In Europe, BYD is best known for its e-buses, as it is a leader here and many municipal companies rely on cooperation with BYD. BYD has already sold more than 50,000 e-buses worldwide.

BYD Company Limited(ISIN: CNE100000296)

* This text is an excerpt from my free investment report. *

Today's issue was again created in collaboration with Michael C. Kissig, Value Investor and operator of the blog iNTELLiGENT iNVESTiEREN.

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Notification obligation according to §34b WpHG: The author (s) is / are NOT invested in one or more of the above securities / underlyings at the time the article was published. There can therefore be NO conflicts of interest. The information contained in this article does not constitute a solicitation to buy or sell any securities.

I wish you every success with your investment

Yours Armin Brack
Editor-in-Chief Investment Report