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Pay no attention to that man behind the curtain. The Oracle of Omaha has spoken. Warren Buffett may not be the Wizard of Oz, but considering his almost mystical track record as a powerhouse investor and one of America’s most successful businessmen, it would be easy to understand any confusion. The Berkshire Hathaway CEO is well-known for his frugality, continuing to live in the modest Omaha home he bought in 1957, despite a reported net worth of $37 billion. And while he may distill his investment strategies down to a few simple rules, one can almost believe that he has stumbled upon some previously unknown fundamental truth – so when the man behind the curtain speaks, people – and markets – tend to listen.

marAt least, they usually do. In September, amidst news of the worsening global financial crisis, Berkshire Hathaway announced its acquisition of 10% of little known (in America) Chinese company BYD for $230 million. The company, based in Shenzen, China is a world leader in manufacturing batteries, cellphone handsets, and low cost laptops – and recently stepped into the automobile industry. But few failed to realize what this new arrangement would herald – a possible mid-game shift in the failing auto industry, which has been struggling to develop a feasible electric car. BYD, already a leader in the rechargeable battery industry, has now set its sights on a new goal – building an electric car that the world will want to drive.

By most reports, BYD is nothing short of a phenomenon. Started in 1995 by Wang Chuan-Fu, with $300,000 worth of borrowed money, BYD quickly grew from a small-time battery supplier to manufacturing cellphone handsets for the largest carriers in the business – among them Motorola’s popular RAZR, and the AT&T/Apple iPhone. Like Buffett, Chuan-Fu spared every possible extraneous cost, including the expensive robotic arms that are standard in most tech facilities. BYD’s assembly lines were instead populated by people, an anomaly in the industry, and rely on stringent quality control methods and testing protocols. And unlike their Japanese competitors, BYD batteries have never had a recall.



BYD F3DM Auto Commercial

By controlling costs, BYD has been able to retain the capital needed to explore new ventures without relying on third-party borrowing. With little knowledge of the auto industry, their 2003 buyout of an unsuccessful, government-owned automaker may have been judged by some as a failure waiting to happen. But, as with every other venture BYD has undertaken, their tenacity – and engineering prowess – has paid off. The BYD-manufactured F3 is now the best selling sedan in China. With the company primed to enter the electric car race, the stage was set. Now enter Warren Buffett.

Buffett has long been a supporter of alternative fuels and clean energy solutions – but not of technology trends. Famously opting out of the ’90s tech bubble – and possibly sparing Berkshire Hathaway billions of dollars in lost capital – Buffett firmly stands by his rule to never invest in a business he does not understand. However, when trusted business partners Charlie Munger and David Sokol insisted to Buffett that he should take a closer look at BYD, and CEO Chuan-Fu, it didn’t take long for Buffett to be convinced.

While most automakers are struggling to release a cheaper, better electric car, BYD has already done it. Their plug-in hybrid, the F3DM has a range of 62 miles on a single charge – and sells for less than the reported retail prices of the not-yet-released all-electric Prius and the Chevy Volt. And the reason behind their success? Their battery division. The development of electric cars have been hindered, in large part, by the inability to create a longer-lasting, faster-charging battery. With BYD’s significant expertise in the area, they already have a lead on the competition.

While initial reviews of the F3DM have been less than stellar, BYD should be lauded for retaining complete control over all aspects of the manufacturing – from air-conditioning components to seat-belts. As public interest in electric vehicles grows – for their reduced emissions and lowered fuel costs – BYD’s early entry is still a promising step forward. At least, the Oracle in Omaha seems to think so. In fact, he’s banking on it.