Commentary: Buffett Unlikely to Abandon BYD

(BRK.A), (BRK.B)

With Chinese new energy company BYD seeing a major slump in its share price, its important to remember that Warren Buffett’s belief in the company’s founder and CEO Wang Chuanfu makes it more likely that Buffett will buy more shares, or at least maintain Berkshire’s current position than abandon the investment.

BYD’s share price peaked at 83.70HKD in October 2017 and as of May 2 has slumped to 54.00HKD.

Berkshire’s still way ahead, as its cost basis per share was 8.00 HKD. Berkshire took its position in 2008 when it purchased 225 million shares at roughly 8.00KHD.

Whose idea was it to purchase a stake in the company? It wasn’t Buffett’s, but he has since become a big fan.

“Charlie (Munger) called me one day and says, ‘We’ve got to buy BYD. This guy that runs it is better than Thomas Edison,’ Warren Buffett explained while appearing on CNBC’s Squawk Box on Feb 26, 2018. “And I said, ‘That isn’t good enough.’ And then he called a little later and said, ‘He’s a combination of Edison and Bill Gates.’ And I said, ‘Well, you’re warming up but it still isn’t good enough.’ Anyway, Charlie wanted to do it. Now, it’s worked out so well that I’m actually starting to remember that it was my idea. As it’s coming back to me. I think I persuaded Charlie. But unfortunately I’m on the record that it’s his deal. But BYD, Charlie’s in love with the company, and it’s done very well. And the fellow that runs it, you know who’s autos and batteries, but he’s got big, big ideas and he’s very good at executing. So, but I leave it to Charlie.”

Stock prices go up and down, but Buffett has always been the most patient of investors.

With BYD having sold 13,000 of its plug-in electric cars in March alone, and aiming to sell between 15,000 and 20,000 cars per month when its new model year debuts, it continues to be the leader in EV cars.

The sales marked an increase of 116% year-over-year and were 31% of the total BYD car sales for the month.

BYD was number one worldwide in plug-in electric vehicle sales in 2017, its third consecutive year.

Additionally, its dominance in the Pure electric bus market continues to grow. The company sold over 14,000 pure electric buses globally in 2017.

It’s unlikely that Buffett’s or Munger’s respect for the company will change due to short-term price fluctuations and investors should be reminded that BYD’s stock price had a similar plunge in 2014 that saw no selling by Berkshire.

I’m not calling this one of Buffett’s forever stocks, but it would seem to fit one of his classic buy-and-hold investments, and it is unlikely to leave Berkshire’s portfolio anytime soon.

For More on BYD, read the Special Report: BYD, Berkshire’s Tesla.

© 2018 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

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