Several media reports have appeared today suggesting that Warren Buffett’s visit to China next week may be due to concerns regarding Berkshire Hathaway’s investment in BYD. Most of the reports cite a Reuters article which seems quite unconvincing. While BYD has experienced some difficulties recently related to alleged violation of government regulations and weaker than expected automobile sales, there have been no public statements by Berkshire regarding dissatisfaction with the investment or any plans to sell. In fact, all recent comments by Berkshire executives have been very positive.
BYD has been a very successful investment for Berkshire Hathaway over the past two years with the original investment of $225 million rising to nearly $2 billion at the end of 2009. However, BYD shares have fallen over 17 percent so far in 2010 amid well publicized problems that have alarmed some analysts. [more]
One of the unfortunate aspects of the Internet era is that sound bites have become far more powerful than in the past. We have unprecedented access to information, but attention spans are short and content is consumed in bits and pieces. [more]
One of the major obstacles standing in the way of widespread adoption of electric vehicles is the limited range offered by current battery technology. While battery capabilities have improved in recent years, those who need to drive very long distances still have “range anxiety” concerns due to the prospect of being stranded with a dead battery. BYD will introduce the all-electric e6 model with a 200 mile range in the United States in the near future, although exact timing is uncertain. The Chevrolet Volt, to be introduced later this year, uses a gasoline powered generator to supplement the electric motor’s meager 40 mile range, but the car is likely to be a niche product due to its high cost. [more]
“The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.”
– Warren Buffett, 2007 Letter to Berkshire Hathaway Shareholders [more]
A quick look at the chart for Atwood Oceanics shows a familiar pattern for those who have been following the price action of companies in the offshore contract drilling industry. Shares of Atwood have declined by approximately 30 percent from the trading levels that prevailed in the weeks prior to the April 20, 2010 Deepwater Horizon disaster. However, Mr. Market is generally incapable of evaluating the details behind specific situations and appears to have unfairly discounted Atwood based on one surprising fact: Less than two percent of the company’s revenues in the current fiscal year were derived from activities in the Gulf of Mexico.
As we have seen in our previous articles on Noble Corporation, Ensco, and Diamond Offshore, opportunities exist for investors who are willing to look past the emotional distress of Mr. Market and come to their own conclusions on valuation. However, all three of the companies previously analyzed had at least some material activity in the Gulf of Mexico and one could plausibly argue that some impairment could exist going forward due to more onerous regulations. The same cannot be said about Atwood due to the immateriality of the Gulf of Mexico to overall revenues and the fact that the one rig that Atwood operates in the Gulf is only rated for shallow water activity. [more]