Warren Buffet Buys Battery-Maker BYD

When a certain industry is hot, a good idea is to invest in companies that profit from the companies selling the hot product. Make sense? Let me put it like this: If computers are selling like wildfire, don’t necessarily invest in the computer companies, like Compaq, invest in the companies that make the components, like Intel. Find companies that profit from all or most of the competing companies in some industry. Companies like that are also usually insulated from any major downturn in the industry. Plus they make money from everyone.

Warren Buffet may be doing just that. He recently purchased 225 million shares of the Chinese battery maker BYD for about $230 million dollars. That constitutes around 10 percent of the company. BYD is one of the leading producers of lithium-ion batteries.

Most lithium-ion batteries are about $500 dollars per kWh, but BYD price target is $150 per kWh. Plus, they are on the cutting edge of the technology in that sector.

Buffet probably thinks that, as the automotive sector gets more and more concerned with alternative fuels, the electric car market will be the most likely place to find a profit. And BYD should be able to provide lithium-ion batteries to a large portion of the electric car market.

(via Ridelust)