General Motors Company (GM)’s Electrifying Opportunity in China

More Buffett-GM cross-pollination please!
Warren Buffett’s 20% stake in aforementioned BYD at one time was a huge winner for Berkshire Hathaway Inc. (NYSE:BRK.A) -A, -B). But with net sales growth approaching absolute zero in recent quarters, the once-darling of the Chinese auto industry is back down into deep value territory.

Given GM’s existing relationship with Berkshire and Buffett (in May of last year, the company disclosed a 10-million share position in the automaker), a controlling stake in BYD might not be a bad idea.

Part of the strategy for buying a Chinese manufacturer would be to take advantage of excess capacity. Many of the automakers are currently building far less than their factories can push out. In 2011, BYD was building facilities as if they were lemonade stands, and now the company needs some cash to plug the hole in the bottom of its business. And despite its recent troubles, which are largely due to its cell phone battery market share evaporation and other, non-vehicle related losses, the company actually makes a great product — all electric vehicles designed by someone Charlie Munger calls “a combination of Thomas Edison and Henry Ford.” BYD makes anything from compact sedans to large touring busses, all running on the lightning.

There isn’t any reason to suggest that GM is in communication with BYD regarding a possible stake or acquisition, but it’s a nice thought, in my opinion.

It ain’t until it is
Bloomberg was one of the rags that scooped the possibility of a GM shopping spree, but it also mentioned that when it reached out to GM’s Chinese representatives, they said there were no current plans to do such a thing.

At this point, it’s rumor, but it’s one that makes sense. Investors will want to keep a close eye on this story and, if rumor becomes reality, they may want to consider adding to their positions.

Until then, though, it is safer to assume no action.

The article GM’s Electrifying Opportunity in China originally appeared on Fool.com and is written by Michael B. Lewis.

Fool contributor Michael B. Lewis has no position in any stocks mentioned. The Motley Fool recommends General Motors. The Motley Fool recommends and owns shares of Berkshire Hathaway.

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