This weekend, Berkshire Hathaway’s earnings report for 2020 was released, giving the investment world another opportunity to track earnings for [hotlink]Oracle[/hotlink] by Omaha himself, Warren Buffett. And even though the wonderful 90-year-old investor holding company predictably felt the effects of the COVID-19 pandemic on its bottom row, the report highlights how one of Buffett’s bravest ventures to date yields huge dividends.
Thirteen years ago, on the advice of his famous skeptical lieutenant Charlie Munger, Buffett made a $ 232 million investment in a relatively unknown Chinese car company. [hotlink]BYD[/hotlink]. Som Munger told Fortune in a cover story from 2009, he was enchanted by the vision of BYD’s founder – a chemist-turned-entrepreneur named Wang Chuanfu, who had built one of the world’s largest manufacturers of rechargeable mobile phone batteries before turning into the automotive sector.
“This guy is a combination of Thomas Edison and Jack Welch – something like Edison to solve technical problems, and something like Welch to do what he needs to do,” Munger said of Wang. “I’ve never seen anything like it.”
By transforming BYD’s rechargeable battery technology into a rapidly growing car manufacturing operation, Wang had gained a foothold in the new market for electric vehicles (EV) – building longer batteries and cheaper vehicles than American and Japanese manufacturers managed to do at the time. In BYD, Buffett and Munger believed that they had found a company with a chance to become one of the largest players in a global car market that inevitably went electric.
At the end of 2008, the Berkshire Hathaway pony raised the aforementioned $ 232 million for a 10% stake in BYD. As Buffett recalled, Berkshire initially tried to buy 25% of the company, but Wang refused to release more than 10% of BYD’s shares. “This was a man who did not want to sell his business,” he said Fortune. “That was a good sign.”
It has turned out to be good money. As the EV market exploded in China, BYD has developed into a major player in the world’s largest car market. it is old more than 130,000 battery-powered electric vehicles last year competing for market share with competing EV manufacturers such as Wuling, NIO and, of course, Tesla.
As BYD has grown, so has the value of Berkshire Hathaway investment. By the end of 2018, ten years after cutting $ 232 million, Berkshire’s stake in the company had swelled to about $ 1.6 billion. Since then, that figure has climbed exponentially amid the rapid expansion of the Chinese EV market and a remarkable quadruple increase in BYD’s Hong Kong-traded shares last year: Berkshire Hathaway’s 8.2% stake in the carmaker had a market capitalization of $ 5.9 billion in end of 2020 per Buffett letter to Berkshire shareholders on Saturday.
This means that BYD was Buffett’s eighth largest holding after market value at the end of last year, making it a more valuable investment for Oracle of Omaha than his stake in the big old name of American automobile manufacturing, [hotlink]General Motors[/hotlink]. (Berkshire’s 3.7% stake in GM was valued at $ 2.2 billion as of December 31.) Of course, GM is just accelerates its pressure into the realm of electric vehicles, while BYD has blocked an EV-powered future over the past decade – a vision that is now bearing fruit for Buffett, Munger and their own investors in Berkshire Hathaway.
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This story was originally presented on Fortune.com