Buffett and the Berkshire team took an interest in electric vehicles while the sector was still in the early innings.
Despite decades of proven investing experience, Warren Buffett and his team at Berkshire Hathaway (BRK.A 0.55%) (BRK.B 1.06%) have never been afraid to adapt or invest in new technologies. In 2008, when the electric car maker Tesla (TSLA 3.94%), now one of the largest stocks in the world, was only five years old, one of Berkshire’s subsidiaries decided to invest $230 million in the China-based electric vehicle maker BYD (BYDD.F -1.20%) in return for a 10% stake in the company.
Berkshire held that position firmly for about 14 years, making a killing in the process. The stock had risen by close to 2,000 before Berkshire began to sell big chunks of it in August of 2022. Berkshire actually completely dumped BYD earlier this year, although that was only recently confirmed by media outlets. Is the stock still a buy?
Image source: The Motley Fool.
A fantastic investment showing signs of fizzling
U.S. investors may not be as familiar with BYD because their vehicles aren’t sold in the country, but Buffett and his team scour the markets and the globe for good investments, and they scored a big winner with BYD, which became more and more obvious in recent years.
BYD has managed to develop cheaper EVs than the likes of Tesla, and with more powerful charging capabilities. Earlier this year, BYD released EV charging technology that could charge nearly 250 miles of range in about five minutes. All of this started to show up in the financials in 2024 when BYD, which also makes hybrid vehicles, surpassed Tesla in annual revenue with roughly $107 billion.
In 2024, BYD grabbed 32% of China’s EV market, compared to Tesla at about 6.1%. Things got more exciting when BYD announced plans for expansion and said it expected half of its sales to be outside of China by 2030.
However, the company has shown signs of slowing recently. Throughout the year, management has slashed its full-year vehicle delivery outlook multiple times, bringing it down 16% collectively. In its most recent quarter, BYD saw its profits fall by 30% year over year. The culprit appears to be increasing competition and price wars in China, where BYD still conducts most of its sales.
Buffett and his team may have seen this coming. In a 2023 interview with CNBC, Buffett called BYD an “extraordinary company” led by an “extraordinary person” in CEO Wang Chuanfu, but “I think that we’ll find things to do with the money that I’ll feel better about.”
Erste Group Analyst Stephan Lingnau recently downgraded BYD from a Buy to a Hold, amid increasing competition and negative pricing in the EV sector in Europe, which is a market that BYD has high hopes for. Lingnau said in a research note that the average price of BYD vehicles sold in Europe has decreased every quarter over the last two years, and it’s unclear when this trend will abate.
Is the stock a buy?
BYD appears to be dealing with more of an industrywide EV issue, with rising competition and declining prices in Europe. Tougher carbon emission policies in the European Union are also forcing automakers to sell more EVs, which requires price reductions. Lower lithium prices are also allowing companies to make cheaper EV vehicles.
Ultimately, I still think BYD has a really strong and competitive product set, but it’s tough to fight industry headwinds right now. Trading at roughly 15 times forward earnings, I wouldn’t necessarily classify the company as cheap or expensive. Rather, I’m more neutral on the stock. This is one to maybe nibble at or put on your watch list and monitor for improving EV trends in China and Europe.
Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Tesla. The Motley Fool recommends BYD Company. The Motley Fool has a disclosure policy.