James Lewis

Questioning Berkshire Hathaway's BYD Purchase: Long-Term Economics?

Ha Ha - BYD have good battery technology.

No they dont!
There claims are false. They do not even have an assembly line in their electric car manufacturing centre in Tianjin. Also local electric car companies are all looking at buying from Japan as domestically Lithium Battery production of this scale is years away.

There aim is to purchase the technology.

In terms of competitive advantage, in China BYD will be able to take very large market share simply because they will be protected by government protectionist policies. They will be the best of a bad bunch and will be able to produce the cheapest with all the back door subisidies, tax breaks. I think its highly unlikely they will be able to penetrate international markets because the foreign governments have finally woken up and will protect their markets with trade barriers. Also clearly BYD cars are still not upto international crash tests and have no chance of passing for a long time. This will allow the Nissan's, Mitsubishi's, fords and GM's to gain marketshare early on with agressive market penetration. But the chinese market should be quite large, especially due to the reform of petrol prices.

I believe that Warren has also invested in Mitsubishi Electric Cars as well. He is just hedging his bets buying into different markets. Makes sense as he believes in the electric car revolution.

My bet is the government will block the investment and BYD are now just using his purchase as a put option for the share sale they are preparing. The government never likes to give profits to foreign enitites so easily. In effect Warren is sitting on a $770 million profit if he is allowed to buy at the price he went in at.The only way he will get this through is if he allocates a lot of money to the right people.

My advice to Warren is go to silicon valley, Japan or Switzerland and find high technology battery manufacturer. But the company outright. Then go back to BYD and promise technology transfer in return for his original 25% stake offer. This is the only way you are going to getting a piece of the pie in China