Batteries are starting to become central to automobiles. In 10 years, the battery may be to the car the way the microprocessor is to the computer. Smart investors are taking note of that and looking around for companies that are poised to profit from that kind of change in the industry.
And there are few investors smarter than Warren Buffet. He recently agreed to buy stakes in a private Chinese battery company called BYD. They make automobiles and batteries for phones and for cars.
Buffet purchased 225 million shares for about $230 million dollars. That constitutes around 10 percent of the company.
Buffet normally follows the Benjamin Graham/Peter Lynch school of value investing. He generally buys solid, well known companies with lots of cash. BYD is a little different, which is even more of a signal that it’s a good buy. Buffet doesn’t invest in companies he doesn’t understand, so there must be some compelling reasons for his purchase of BYD.
I think the major reason was the fast that BYD is a leading producer of lithium-ion batteries. They’re at the cutting edge of the lithium-ion technology, at the 2008 Detroit Auto Show, they showcased a new formula called the lithium-fe battery which performed even better than modern lithium-ion batteries.
They also have an extremely low target price. Most lithium-ion batteries are about $500 dollars per kWh, but BYD price target is $150 per kWh.
Now, with Buffet’s capital backing the company, we may see an even harder push for cars to go electric. Once the technology gets cheap enough and effective enough, the scales may tip to the electric cars, and gas will be on it’s way out.