When I went to the
Berkshire Hathaway (NYSE:
annual meeting in 2009, there was something I really wanted to do.
No, it wasn't a chat with Warren Buffett.
That's almost impossible at the yearly "Woodstock for Capitalists,"
and only first-timers make the trek to Omaha, Nebraska, to see
Buffett anyway. Longtime shareholders make the trip to listen to
Berkshire's vice chairman, Charlie Munger.
But even speaking with the inimitable Munger, who's probably the
smartest guy in U.S. business, wasn't at the top of my list.
I really wanted to see a floor model of one of Berkshire's newest
acquisitions -- the BYD car.
You see, all of Berkshire's companies display their wares in the
exhibition hall at the Qwest Center in Omaha, from the GEICO gecko
to Fruit of the Loom, and tucked off to one side was a BYD vehicle,
complete with a leather interior, an atypicaloption for BYD cars,
which are barebones and compete on price.
Hundreds of attendees, mostly younger men, were doing the same
thing I was doing -- snapping pictures of the engine with my
BYD is a Chinese company, one that Buffett took a major stake in at
Munger's behest back in 2008. Buffett sent his top scout -- a guy
named David Sokol -- to China to meet with the company's CEO, who
showed him BYD's electric cars and, just as important, the highly
efficient car batteries the company builds.
The battery fluid in the power cells is non-toxic, and BYD's CEO
Wang Chang-Fu even drinks it to demonstrate that fact. And although
Sokol politely declined to take a sip, Berkshire took a 10% stake
in BYD, which has since shot up in value.
The car looks like a dressed-up Saturn; tinny, plastic, and cheap.
The door slam sounds like a
Corolla instead of an Audi or a Cadillac, which is, incidentally,
what Buffett drives. The BYD car is the opposite of the sleek and
Roadster, considered to be the must-have car among the affluent
Despite the car's frail look, the investment in BYD proves a
powerful point: The auto industry is changing, although it never
really stood still.
The question is: Are there companies out there poised to accelerate
that rate of change and do they have what it takes to satisfy their
shareholders in the process?
BYD caused such a stir in Omaha, because it shows that even the
most famous investor in the world sees that U.S. car makers will
not have the power they once did as new consumers around the world
enter the car market for the first time.
As the Chief Strategist behind
, I'm always on the hunt for the next big thing. I'm telling you
now that major auto manufacturers such as
General Motors (NYSE:
aren't the next big investment in the space.
The game-changers in the ever-changing auto industry will occur as
a result of one of three reasons:
1. New technology developed by small companies.
Big automakers are happy to pay for this technology to give their
vehicles an edge.
Whether it's power windows, keyless entry, satellite radio,
synchronized cell phones/entertainment systems or any of dozens of
other options, automakers embrace new technologies quickly.
Companies that develop these new systems can burgeon seemingly
overnight into industrial powerhouses.
2. Small companies thatprofit from electric cars.
A shift in automotive design has ushered in the global trend toward
short-trip electric cars. These models, geared for city dwellers
who drive less than 40 miles a day, are appealing to
environmentally conscious consumers who are willing to pay for a
With strong government incentives in Europe, China, and the United
States, the BYDs of the world and their suppliers that can deliver
electric cars are likely to see meaningful growth. Nissan's entire
2010 production run of its Leaf electric car sold out in just a few
days. Electric car makers -- or, more specifically, the suppliers
that deliver critical components -- are potential game-changing
3. Companies that fit in the first two groups
must also be able to go global, delivering their products to
consumers or companies in markets where meaningful sales growth is
still possible -- and that means India and China.
It's important to keep the sheer mathematical reality of the
worldwide automotive marketplace in mind. In the next 40 years, the
global fleet of passenger cars is expected to quadruple to nearly 3
billion. China, which has overtaken the United States as the
world's biggest car market, could have as many cars on its roads in
2050 as there are on the planet today. India's fleet may multiply
50-fold. It's likely that new approaches to mass transit will help
limit some of that growth, but there's no doubt car use is on a
major upward trajectory.
Action to Take -->
Even with that, I don't think the largest returns are going to come
from the current major auto makers. But BYD, like a handful of
other companies I've been following, has a real shot of starting at
the ground floor in this huge global industry and growing
exponentially in coming years.
Or at least Warren Buffett seems to also think so...
Andy spent a decade as a financial journalist writing for some
of the largest newspapers in the nation. His acumen helped guide
the financial news read by over a million people each day. Read
P.S. -- When you get in on the ground floor of a promising new
trend or technology, the profits that can follow can change your
life forever. Andy Obermueller's Game-Changing Stocks is entirely
devoted to finding the next big, life-changing investing idea. See
his latest report, The Hottest Investment Opportunities of 2011, to
find even more ground-breaking investment plays.
Disclosure: Neither Andy Obermueller nor StreetAuthority, LLC
hold positions in any securities mentioned in this article.
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