Buffett's Battery Buy

Well, as the markets suffered a loss of nearly 7% yesterday, you might have missed this piece of information that seemingly slipped under the radar. Warren Buffett has acquired a 9.89% stake in BYD Company [HKF:1211], a Chinese battery manufacturer. This battery company plans to sell electric cars by 2010 in the US. Buffett bought the stake through his Berkshire Hathaway holding MidAmerican Energy Holdings (Berkshire owns 87% of MidAmerican) and the stake cost around $230 million.

Purchasing a stake in a battery maker makes a great deal of sense here, given the squeeze in the automotive industry. Numerous manufacturers have already produced hybrids or electric cars and one can assume that the trend will continue, as consumers worry about miles per gallon and rising fuel costs. The automotive landscape is changing and Buffett looks to capitalize on the upcoming trend/shift in the industry. BYD makes lithium-ion batteries that will be found in electric vehicles. So, while this may be the worst year for hedge funds in a long time, Buffett is sticking to business as usual.

Comments

[helplessobs...:]

Only those who believe in miracles think electric charges can be harnessed to provide energy to power automobiles. Moving a car from Point A to B requires a large amount of energy. For example a gallon of gasoline contains 130,000 Btus. If this gallon moves the car 25 miles the energy used, and lost is 5200 Btu per mile. Now a kilowatt equivalent is about 3000 Btu, so any battery needs to supply about 1.72 KW per mile. We know a lot of heat is lost in a internal combustion engine, so we can reduce the 1.72KW to 1KW per mile. Gentlemen, over 200 miles this battery needs to provide 200KW of energy from its limited chemical sources. Natural gas and propane which have large heat contents are the fuels we need for automotive use.

2008 Sep 30 11:28 AM

[toxxum:]

helplessobserver, you may be right from a technical point of view. However, Buffet is not an idiot and I tend to trust his judgement.

2008 Sep 30 11:36 AM

[Clueless Wo...:]

Except I don't travel 200 miles in a week. My daily commute is 10 miles each way, and I am lucky enough to have all the shopping I need to do across the street from either work or home, so I almost never need to do additional driving.

In addition, I'm in an area with timed metering for hydro, so in the evening I am only paying 2.6 cents per KWH, so to charge for the day, assuming 1KWH = 1 Mile, would be 26 cents per day. Now, with gas where it is I am paying about $55 for a tank, which lasts me about three weeks, so in my circumstance there would be tremendous savings, depending on the cost premium of the vehicle.

But I agree with you that anyone really putting on the miles probably won't find these practical in the short term.

2008 Sep 30 11:48 AM

[TonyCinTX:]

Like Clueless Wonder, my commute is 6 miles each way, with grocery about 4 miles from my house. About once a month I visit family across town (22 miles). That works out to 316 miles per month, which in my Honda is a tank a month; and that matches my fillup schedule. It costs $55 for gas, where 9c/KWH for electric would cost about $28.44, about half as much with less emissions and greater price stability.

If I can get 50 miles on a charge, I can be completely electric. If only 25 miles, 93% electric. I am glad to own BRK.B.

2008 Oct 01 08:12 AM

[EE:]

With the pending bail out, inflation and peak oil and global demand crude will soon be over $250 a barrel. With many owning electric cars much more electricity has to be generated as we are in a shortage of transmisson lines and current now. Buy solar roofs, personal fuel cells, and multi fuel engines like RGUS is about to release. Yes, I own RGUS and you can get it better than my ave cost. Bio fuels from algae are the real future with natural gas the transition auto fuel using the RAD/MAX engine. That's my bet along with personal electricity generation.

2008 Oct 01 08:40 AM

[EE:]

OH forgot that personal storage batteries will be needed. But, by that time XDSL may have the better battery product. For now Buffet is right if you also add the above thinking to the mix.

2008 Oct 01 08:49 AM

[notsosmart:]

will chinese batteries explode?quality control does not seem their priority.cost comparison-how long will the y last? how much to replace?just like our tire problem,what happens to all the additional burnt out toxic batteries?

2008 Oct 01 09:35 AM

[bobbobwhite:]

Electricity storage batteries were invented in 1800 and little real progress has been made in improving them to where they can hold large quantities of immediately available power. Physics prevents it, and that cannot be changed. Batteries for cars are a boondoggle on the scale of corn ethanol, as neither will do much(and even that only for a few years) to solve the vehicular needs of the average driver. Pure electric cars with competition from fuel cell cars will keep power research at a high level so the end result will be a dramatic improvement in air quality along with an end to our reliance on fossil fuels. And, quieter roads for everyone is another undiscussed plus that I will truly love to hear happen.

2008 Oct 01 11:27 AM

[Glen Dale:]

Has anyone considered A123 Batteries into the mix. The sience of yesterday is rarely the science of today and thusly todays science is not that of tomorrow. I will bet on tomorrow every time. So appareently Buffet.

2008 Oct 01 12:08 PM

[Kamal Ahuja:]

One way to invest in the impending lithium boom is to buy the domestic lithium producers (FMC, ROC). I have written about both companies in the links provided below. Another lithium producer often talked on Cramer / Mad Money is SQM (which will also be the subject of my next article in the lithium series). All three company valuations have pulled back substantially from recent all-time highs; the buying opportunity at these levels may not last for too long.

seekingalpha.com/artic...

seekingalpha.com/artic...

2008 Oct 01 12:12 PM

[whidbey:]

Natural gas is the next move in transportation. The cost to set up the infrastructure to fuel cars, not to mention build them, will be large and the oil companies don't control NG sufficiently to want to invest? Warren is betting that electrics will win the race. I hold BRK and I think I am safe.

2008 Oct 01 12:37 PM

[candooman:]

helplessobse, the efficiency of gas engines is about 25%, meaning 72% of the BTU's in the fuel is lost to heat and friction. If you redo your cals, you will find out why the Tesla works. Electric motors eff gets up to the 95+% range.

2008 Oct 01 05:17 PM

[madmilker:]

the dipstick could have put it in .....
finance.yahoo.com/q/pr... and left the dang dollar at home!

2008 Oct 02 08:20 AM

[waterskier:]

Battery powered/assisted vehicles is a perfect application of photovoltaic storage. One of the biggest problems with solar is energy storage. In automobiles, predicatable and limited daily energy use allows the storage (batteries) to 1) be kept to a reasonable size and 2) be recharged in a reasonable time. Use of solar recharging systems (either vehicle or base mounted) can in many, many cases result in zero fossil fuel consumption. This is a major opportunity, and Buffet knows.

2008 Oct 02 11:33 AM

[ralf38:]

I read a bit about the advent of combustion engines with electronic computer controlled injectors and exhaust ports; all timed elements under computer control. An engine like this can be powered by combustion or high pressure gas and then used as a compressor during breaking. An engine like this can be powered by compressed natural gas (CNG). Decompressing the CNG provides some propulsion while burning the CNG provides the rest of the propulsion. Compressed air would work just fine for a vehicle driven less than 60 miles (maybe more) before recharging. Charge up with CNG for longer travel distances. The car will charge up fast and offer the opportunity to not utilize a fossil fuel. No batteries to replace, just high preasure tanks that will last a very long time.

2008 Oct 20 01:38 AM