BYD (OTC: BYDD.F) is often referred to as the Tesla (NASDAQ: TSLA) of China, and for good reason. A massive passenger vehicle player in its own market with tons of international potential in commercial applications, BYD is the only major electric vehicle stock you’ll find in Berkshire Hathaway‘s (NYSE: BRK.A)(NYSE: BRK.B) stock portfolio. In this Fool Live clip, recorded on Aug. 30, Fool.com contributors Matt Frankel, CFP, and Jason Hall discuss why BYD could be worth a closer look right now.
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Jason Hall has no position in any of the stocks mentioned. Matthew Frankel, CFP owns shares of Berkshire Hathaway (B shares). The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and Tesla. The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.
Matt Frankel: If you had told me 10 years ago that Warren Buffett was going to have an electric vehicle stock in his top 10, then I would have said you were crazy. If you would have said he would’ve had a Chinese electric vehicle stock in this top 10, I would’ve said you’re off 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 referred to as the Tesla of China. It really lives up to that name. They are the leader in battery electric vehicles in China. They sold a little over 427,000 vehicles last year. About a quarter of them were pure electric vehicles and about a half were electric, if you include hybrids. BYD, it’s an interesting company. They used to be a battery manufacturer. They provided a lot of batteries.
Hall: When Berkshire first invested, it was based largely on that business.
Frankel: They made batteries for a lot of the earlier cellphones like Motorola and Nokia, were two of their big customers. They pivoted to vehicles a little over a decade ago, right around the time that Berkshire invested in it. Berkshire bought its stake in 2008. They wanted to buy 25% of the company. BYD’s management wouldn’t sell it to them. They bought a little over 85 of the company. Berkshire paid $232 million for that stake, and it’s worth about $8 billion today. That’s a pretty successful investment in not that long. Surprisingly it was Charlie Munger who really was pushing for the investment, not Buffett, not one of his lieutenants. Munger said, here’s the quote, “I’ve never felt more privileged in my life to be associated with something than I feel about BYD.” That’s pretty high praise from Charlie Munger, who’s notoriously pessimistic about a lot of the things Buffett does, and a lot of the new technologies out there. They’ve just really done a great job of pivoting to vehicles for batteries, which is no small feat. They’re not only passenger vehicles. They produce a range of commercial vehicles as well. They have a lot of battery-powered street sweeping trucks that are operational in China right now, just to name one example; big market opportunity. They also produce a monorail system. If they call it the sky rail. They’ve produced those since 2016. Wide ranging electric vehicle manufacturer Buffett obviously doesn’t think they’re done growing yet and neither do I. To be honest with you, they’re still, in my opinion, an up-and-coming company in an exciting space. Battery technology is just now evolving to the point where a lot of their commercial vehicle lines are going to be practical to produce at a wide scale, winning a lot of valuable contracts. This is one I’m a big fan of. Little over $100 billion market cap right now. I think that’s more than justified based on the company’s progress. I think if I had to bet on the first $1 trillion electric vehicle stock, it would probably be BYD.
Hall: Yeah. I think I agree with that second sentiment. I really struggle with the basically $100 billion valuation the company trades were announced, $94, $95 billion or somewhere in that neighborhood. The reason I think it’s worth it is because this isn’t just a company making cars. This is a transportation business across the entire gamut. I think probably their biggest business in the U.S. is their bus business. They build buses in the U.S. Then because they’re starting as a battery business with electric vehicles, that core competence is so important, so valuable. It translates to success. They’re also doing commercial and utility scale storage. They’re not following Tesla’s model here, they’re doing some of the same things Tesla has done, but they’re focusing very holistically. I think this is going to be a better business and I think it’s going to be bigger than Tesla, I agree.