The Motley Fool

Warren Buffett owns this EV stock. Should I buy it too?

Buffett at the BRK AGM
Image source: The Motley Fool

Warren Buffett is widely regarded as the greatest stock market investor of all time. So, I like to keep an eye on his portfolio.

Looking at that portfolio today, it’s interesting to see that Buffett has a very large position in an electric vehicle (EV) company. It’s not Tesla. And it’s not NIO. Instead, it’s BYD (OTC:BYDD.F), an under-the-radar Chinese EV maker that has a listing in the US.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

Should I follow him and buy BYD stock for my portfolio? Let’s take a look.

BYD: the business

Founded in 1995, BYD is an automotive company that offers a broad range of internal combustion, hybrid, and battery-electric passenger vehicles. It also offers commercial vehicles such as trucks, vans, and buses. When it was founded back in the 1990s, it was originally focused on batteries. However, in 2003, it entered the automotive market.

Last year, it sold around 190,000 new-energy vehicles. That’s not as many as Tesla sold (around 500,000). However, it’s far more than Chinese rival NIO sold (around 44,000).

It’s worth pointing out that Buffett has been invested in BYD for a long time. He first invested here back in 2008 on advice from his business partner Charlie Munger. This long-term approach has paid off. His original investment of around $230m in BYD is now worth over $9bn.

Could it be the Tesla of China?

BYD appears to be having a lot of success right now.

In October, three of its models were among China’s five best-selling new-energy vehicles, according to Bloomberg. These were the Qin Plus DM-i, the Song DM, and the Qin Plus EV. The other two EVs that made the top five were the SAIC-GM Hongguang Mini EV and Tesla’s Model Y.

Meanwhile, for the first three quarters of 2021, four BYD models were among the 15 best-selling new-energy vehicles in China (listed below), according to the China Passenger Association.

1. Hongguang Mini (SAIC-GM-Wuling)
2. Model 3 (Tesla)
3. Model Y (Tesla)
4. Han (BYD)
5. Qin Plus DM-i (BYD)
6. Li One (Li Auto)
7. BenBen EV (Changan)
8. Aion S (GAC Motor spin-off)
9. eQ (Chery)
10. Ora Black Cat (Great Wall Motor)
11. P7 (Xpeng)
12. Song DM (BYD)
13. Nezha V (Hozon Auto)
14. Clever (SAIC Roewe)
15. Qin Plus EV (BYD)

As for growth, BYD is putting up some impressive numbers at present.

In October, its new-energy vehicle sales were up 263% year on year to 80,003 units. By contrast, NIO saw a 27.5% dip in deliveries in October due to supply chain challenges.

Meanwhile, in the third quarter of 2021, its battery-electric sales jumped 67% and outpaced Tesla’s sales for the first time since the end of 2019, according to the China Automotive Technology and Research Center.

Should I buy BYD stock?

There’s certainly a lot to like about BYD, in my view.

For starters, revenue growth has been very strong in recent years. Between 2015 and 2020, revenue jumped nearly 100%. This year, analysts expect top-line growth of nearly 40%.

Secondly, unlike many other EV makers, BYD is already profitable. This reduces risk.

One concern I have right now, however, is the valuation. BYD shares have had an amazing run over the last two years (+800%) and as a result, the stock now has a market cap of around $130bn and a forward-looking P/E ratio of around 200. These are high figures. 

Another issue for me is the low return on capital. Over the last five years, it has delivered an average return on capital of just 6.3%. I prefer to invest in highly profitable companies that earn a big return on their investments.

Given these issues, I’m going to leave this Buffett stock on my watchlist for now.

All things considered, I think there are better stocks to buy.

Like this one…

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.