Did Buffett see BYD’s one problem?

After years of sitting on an over 20% stake in China’s BYD Co, Warren Buffett’s Berkshire Hathaway may be mulling an exit. A similarly-sized position showed up in Hong Kong’s clearing system, fuelling worries that the Sage of Omaha was over the hot Chinese electric vehicle and battery maker.
It sure seemed like odd timing: BYD has risen to the top of global electric vehicle maker rankings. It’s closing in on Tesla Inc while forging a clear path ahead on batteries and, somehow, circumventing severe supply chain snarls. The firm has done all the right things. The Hong Kong-listed company said it expects preliminary net income in the first half to jump 207%.
The question is, if the stake in the clearing house is Berkshire-related, what risk do Buffett and his vice chairman Charlie Munger see that others don’t? Could it be a judicious call, much like the one that led them to take a stake in BYD to begin with?
Beneath BYD’s stellar performance, a wrinkle is emerging: lithium supply. While it’s been well-telegraphed that a raw material shortage looms as prices surge, the company has so far circumvented those cost pressures. It’s been pushing a vertically integrated model: eyeing mines across the world, boosting production, making better batteries and keeping a tight hold on its supply chain. Among all those factors, its grip on lithium production has been the most uncertain. High material prices have been hitting China’s industrial firms so hard that Beijing called for capping the rising lithium price and is planning policies to help downstream firms.
BYD has been on a mission to get its hands on lithium mines and resources this year. The firm is connected with Youngy Co, one of China’s first spodumene, or raw lithium compound, miners. In March, it participated in a private placement in another miner, Chengxin Lithium Group. As part of this, the firm will get discounted lithium compounds in the future.
While both are likely to continue buying more mines in the Sichuan region, it isn’t going to lead to immediate or guaranteed supply: Most of the quarries have future — not existing — ore production capacity and Chengxin doesn’t have full access to supplies in some of them.

—Bloomberg