Warren Buffett has picked a fight with Elon Musk that could have serious implications for the future of all electric vehicles in America, and one company will be hit especially hard.

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In the decade-plus since Buffett’s initial investment, BYD has become a serious competitor in the global auto industry. And Buffett’s $230 million investment ballooned to a value of nearly $7.7 billion by the end of 2021.

So how did a mobile-phone battery maker started in the 90s by Wang and his cousin grow to become an automotive behemoth? By putting technology before strategy. Oh, and having a massive investment from Buffett to make that innovation happen didn’t hurt either. Under Wang’s leadership and Buffett’s cash, BYD allowed its tech innovations to inform its strategy and products, not the other way around. 

Not only does BYD use these batteries in their own cars, but they also sell them to other automakers, including Tesla. Teslas with Blade Batteries began rolling off the assembly lines in May 2023. It couldn’t have been an easy decision for Musk to buy batteries from his top competitor in the EV space.

The two companies have forged a strange frenemy-like relationship as they compete for market share in more territories while pushing each other to innovate further and faster. BYD has effectively crushed Tesla in its home country and most other markets, outselling Tesla’s EVs in 2022. They certainly aren’t afraid of starting a price war with Musk. The BYD Seal sedan cut prices by 10% across all five trim levels in 2023, making it a full 18% cheaper than Tesla’s Model 3. And the ridiculously affordable BYD Seagull is priced at just $11,000. The Model 3, meanwhile, starts at $33,000. That’s steep competition, Elon. And it was Buffett’s backing that allowed BYD to climb to these heights. 

Musk did not try to hide his feelings about the value that investors like Buffett placed on BYD in 2011. In one interview, he burst out laughing after a Bloomberg reporter asked him about the Chinese company being a possible competitor for Tesla. “Have you seen their car?!” Musk asked while chuckling. And when the reporter pointed out that Warren Buffett had purchased a 10% stake in the company, Musk doubled down, saying he did not see BYD as a legitimate competitor. He’s singing a different tune now, though. In January 2023, Musk said Tesla’s toughest competitor was “some company out of China,” refusing to name BYD outright. And when the Twitter King himself was called out on the platform for his remarks in 2011, Musk responded like any now-middle-aged high school bully, saying, “That was many years ago.” and that “Their cars are highly competitive these days.” 

In a surprise twist, Buffett seems to be throwing in the towel, or at least withdrawing some of his bets on the outcome of this match-up. Why? Mostly because he’s tired of being in the ring with Musk. 

In August 2022, Buffett’s Berkshire Hathaway began selling off shares of BYD stock. Again and again. Over more than a dozen sales, Berkshire sold nearly two million shares, cutting its 20% stake in the automaker down to under 10%, or just over $3 billion. The decision to sell off an asset that was performing so well was noteworthy, to say the least. BYD’s stock prices were still vastly outperforming all its competitors, including Tesla. And its growth hadn’t slowed down as COVID-related delays and shortages plagued other automakers. 

Buffett and Munger explained their decision to shareholders at Berkshire’s annual meeting by saying, “We don’t want to compete with Elon in a lot of things. We don’t want that much failure.” So, is Warren Buffett really retreating because he believes Tesla will ultimately defeat BYD? Perhaps. BYD is struggling to make an impression on the US market and only has a small commercial vehicle operation in the states, with no current plans to enter the passenger market there. But their position as a currently-untouchable leader in the price war of international EV sales is kind of indisputable. So it’s more likely that Buffett was looking to put his BYD earnings to better use in industries he’s well-versed in while throwing Elon a bone with his praise. After all, these billionaires have to stick together. 

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#car #usa #china #elonmusk #warrenbuffet #byd

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