Buffett’s China Car Bet Rakes in $1.3 Billion in a Decade

(Bloomberg) -- How has the king of buy-and-hold investment fared in China? Not bad, based on a bet Warren Buffett made a decade ago.

On Sept. 26, 2008, Berkshire Hathaway Inc. agreed to buy what is now equivalent to 24.59 percent of BYD Co.’s Hong Kong-traded stock. Those shares in what is now China’s biggest maker of alternative-energy vehicles have soared more than 500 percent since then, turning a $232 million investment into a stake worth roughly $1.6 billion at current prices. Berkshire shares have rallied 144 percent in the same 10-year period.

Buffett’s bet -- made two years before Tesla Inc. listed and way ahead of the auto industry’s shift toward electric cars -- has turned BYD into the billionaire investor’s most-valuable holding in a publicly traded company based outside the U.S. The Chinese firm has weathered sharp swings in its share price and transformed itself from a maker of cell-phone batteries into a manufacturer of cars and monorails as China’s transport needs evolved.

“BYD has recorded rapid growth over the past decade,” the Shenzhen-based company said in a statement. “Mr. Warren Buffett’s unparalleled personal charm and practical action have provided strong support for BYD’s development.”

Buffett’s China Car Bet Rakes in $1.3 Billion in a Decade

Still, investors looking to follow the investment guru’s path might want to think twice over the next year. The 12-month price estimate for BYD’s Hong Kong-traded shares calls for a 5.4 percent decline, based on more than 20 analyst forecasts compiled by Bloomberg. Analysts Patrick Yuan of Jefferies Hong Kong Ltd., and Zhixuan Lin of Hua Tai Securities Co., both affirmed the equivalent of sell recommendations on the stock this week.

The Chinese government’s quest to lead the world in electric vehicles has created favorable policies and lured investors, heightening competition. So far, at least five local electric-car makers have attracted funds of $1 billion or more with minimal production.

Bloomberg Intelligence noted that Chinese tech behemoths including Baidu Inc., Alibaba Group Holding Ltd. and Tencent Holdings Ltd. are throwing their weight behind electric vehicles, channeling capital into startups such as NIO Inc. and Xpeng Motors Technology Ltd. for manufacturing, research and development.

“China’s electric-vehicle market could get increasingly crowded as the nation’s tech giants boost their stakes in home-grown startups,” Bloomberg Intelligence auto analysts Steve Man and Kevin Kim wrote in a report published Thursday. This will give “‘producers the heft to go head-to-head with traditional automakers,” they wrote.

BYD’s price-to-earnings ratio of about 35 also far exceeds that other major Chinese auto manufacturers including Geely Automobile Holdings Ltd. and Guangzhou Automobile Group Co.

Buffett’s China Car Bet Rakes in $1.3 Billion in a Decade

The gain made by BYD in the past decade is the fourth-largest in dollar terms among the 27 companies in the Bloomberg World Auto Manufacturers Index, behind China’s Geely Automobile Holdings Ltd., Tesla and Maruti Suzuki India Ltd.

And BYD isn’t Buffett’s largest windfall from China, where he is revered for his investment skill and has been dubbed the “God of Stocks” by state media. Berkshire made a profit of about $3.5 billion in 2007 from divesting its shares in PetroChina Co., having first disclosed investments of $488 million in the energy producer in 2003.

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