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Batteries, cars and face masks – and BYD is moving into chips too

Berkshire Hathaway CEO Warren Buffett plays bridge during the Berkshire annual meeting weekend in Omaha, Nebraska

Thankful for his BYD face mask

Warren Buffett is considered to be one of the world’s most successful investors. The Berkshire Hathaway chairman is also a very savvy marketer. Since buying more than $1 billion of Coca-Cola stock in 1988, the 89 year-old has not stopped talking about how much Coke he drinks. And after investing in a 10% stake in BYD in 2008, Buffett went into promotion mode again, giving Bill Gates a test drive in one of the Chinese firm’s electric cars. Later he took Gates along to a slew of BYD functions in China and analysts there believe Buffett’s endorsement gave BYD’s brand an invaluable boost.

This month the Oracle of Omaha pulled another marketing masterstroke, when he donned a product from another of BYD’s new business lines: a medical face mask.

In a weibo post that has been widely forwarded in China’s investment community, Buffett appeared in a T-shirt with the slogan: “I intend to live forever. So far so good”. The image is apparently signed by Buffett himself, with a short message: “And my BYD masks are helping me meet my goals. Thanks!”

The post was originally shared by Li Lu, the fund manager believed to have alerted Buffett to BYD as an investment back in 2008. At the time BYD’s main business was making mobile phone batteries. A Rmb270 million ($38.2 million) acquisition of a Xi’an-based car factory a few years earlier was seen by many analysts as an undesirable distraction from its core operation. But BYD made the leap from making batteries to building the cars powering them rather adeptly. Last year it was the world’s second largest EV (electric vehicle) maker in terms of sales behind Tesla.

BYD first announced plans to make face masks in January. As global demand surged for masks and Covid-19 was declared a pandemic, BYD claimed last week it had become the world’s largest producer, with output of 20 million masks a day. It said that a team of 3,000 engineers had built production lines from scratch with 90% “in-house components”. Production will be significantly scaled up – Japanese conglomerate Softbank has signed a deal to buy 300 million BYD masks a month starting in May, Shenzhen Special Zone Daily reports.

BYD hasn’t provided financial details of its mask business but the company is already turning its attentions to another new product line. Last week, it said it was working to bring in “strategic investors” to its semiconductor unit ahead of a planned stock market listing. Previously known as BYD Microelectronics, the unit was recently renamed BYD Semiconductor. According to local brokerage CICC, the unit could already be worth as much as Rmb30 billion.

Other large firms in China including the likes of Huawei and Alibaba have been keen to develop their own processor products, in light of the increasingly acrimonious rows over tech exports between China and the US.

BYD Semiconductor specialises in making IGBTs, or insulated gate bipolar transistors, which provide the switches to reduce power loss and improve reliability in EVs. It plans to broaden its range into smart IC chips and optoelectronic chips as well.

Should the listing happen, it will be interesting to see if Berkshire Hathaway and Samsung – another shareholder in BYD (see WiC334) – line up again as strategic investors.

BYD has always been nimble in introducing new business lines, debuting electric buses, utility vehicles, energy storage equipment and even monorail in previous years. This year it has also announced plans to sell a fuller range of EV components to third-party carmakers.

That’s probably just as well: overall profits fell 42% in 2019 due to weaker sales of EVs and scaled-back subsidies. The company is also warning of a much steeper fall in profits in this year’s first quarter, because of the coronavirus.

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