Loading...
Symbols:
Authors:

Is China BAK Battery More Attractive After Warren Buffett's Investment in BYD?

by: Xiaoda Chen October 06, 2008 | about stocks: CBAK    

Xiaoda Chen

About this author:
Become a Contributor Submit an Article
  • Font Size:
  • Print

In my March 3, 2008 article for Seeking Alpha, "Is China BAK Battery Just What the Hybrid Vehicle Market Needs?" I stated:

Currently, there is a variety of lithium ion battery makers in China. The top brand is BYD [HKSE:1211.hk]. However, BYD chooses to develop its own dual mode hybrid car, F6, along with its own lithium ion battery business. This strategy may ultimately prevent most US auto makers from collaborating on the lithium ion battery.

Well, Warren Buffett decided to purchase 10% equity in BYD in late September. That ownership percentage might be increased to a higher level when the appropriate timing arrives, according to Berkshire Hathaway personnel. Buffett's purchase action further enhances my belief that China BAK Battery (CBAK), another Chinese battery maker, is now an even more attractive supplier for Chinese and Western automakers. Four facts might support the CBAK position in the alternative energy marketplace.

1. Fear Brings Customers to CBAK

Warren Buffett's action of investing in BYD is a dramatic eye opener inside China as well as in the West. For the Western automakers, Chinese power battery and Chinese hybrid vehicles now are becoming a real thing. They cannot ignore it. They have to either work with it, or compete against it. For instance, General Motors' (GM) Volt will arrive at dealerships in 2010, the same year BYD's plug-in hybrid is to be brought to the US for sale. However, the BYD vehicle will carry a price tag of at least $15,000 less than the Volt's. GM probably will have to locate a comparable low cost power battery cell package, in order to stay in the business. The same issue will face Ford (F), Chrysler, etc in 2010 and beyond.

In China, virtually all local automakers that together produce several million auto vehicles a year now have a common front runner (competitor?). They certainly prefer not to choose BYD power battery as their supply source if an alternative exists. Where can the Chinese and some Westerners go to find a competing power battery? The answer lies at a China BAK power battery facility in the Beichen District of Tianjin, a Northern Chinese port city, about an hour driving distance away from Beijing. The China BAK Tianjin facility is recently built and starts operation this month, just in time to meet with the industry inquiries and quotations. The facility is the largest independent power battery manufacturing spot in China that carries a full capacity of making 350,000 cells daily.

The fear factor will probably bring many automakers to China BAK faster than anticipated. Chinese sources indicate the China BAK power battery is considered to have high quality and reliability. That is why the China national power automotive battery research project might be located at China BAK soon, after a site audit by the nationwide battery experts in August.

2. Focusing on Strength

China BAK has made it clear that it will only supply the power battery to automakers, rather than going into the auto making business itself. Obviously, China BAK understands its strength and its limits. It is premature at this stage to compare the BYD closed business model for power battery versus the China BAK open business model. In my personal opinion, it is more efficient for China BAK to generate revenues by selling power battery to all potential automakers. Focusing on strength is not a bad idea.

3. HP Notebook Battery Contract for CBAK

China BAK disclosed recently the long awaited HP (HPQ) notebook battery qualification process is coming to fruition fairly soon. The HP site audit will be conducted this month, with purchasing contracts to follow one or two months afterward. The contract, if it happens, will be the first time a Chinese battery firm secures large scale complex power storage orders from a tier one customer. No doubt that will solidify CBAK's technical and commercial position.

4. Large Production Capacity Investing

China BAK is a small company. Over the last three years, this firm has invested all its resources of over $100 million into the fully automated cylindrical lithium ion battery production, phosphate lithium ion battery making capacity, and power battery research and development. Overcoming the cash shortage, CBAK brings its battery technologies and production capacity to the world stage for tier one customers. Starting from this quarter, the heavy battery investment pays off as CBAK re-emerges as a profitable company. CBAK now owns one of the largest battery making capacities, just in time for the world class power storage game, with a wide open business model to deal with all auto makers who are looking for a low cost long term solution.

Warren Buffett just took BYD. Two miles away, the China BAK head office is entertaining hurried-up potential partners.

Disclosure: Long CBAK.

Related Articles

This article has 10 comments:

  •  
    Oct 06 08:01 PM
    This is too much of promotional material.
    Reply
  •  
    Oct 06 10:31 PM
    Dubya has allowed our economy to collapse ..I don't see our Big Three moving forward into the electrics by 2010. Got any hot tips on any Chinese bicycle manufacturers? preferably with an ADR listing..
    Thx jegan ;-)
    Reply
  •  
    Oct 07 10:53 AM
    Billy Bob (Clinton) and the Demons (Democrats) killed the economy. Legislating financial institutions make home mortages to people who couldn't and/or wouldn't pay for them, just to buy votes was not only economically unsound, it was downright criminal.

    Not sure about CBAK, but we will be seeing electric cars. Oil price fluctuations plus all the global warming hoax believers will force automakers to electric cars in the short-run. There was a piece on 60 Minutes Sunday night with a GM VP. He was pretty convincing that GM had to compete in this market, and compete soon. The whole electric car thing might be short-lived though. Like climate change hoaxes (30 yrs. ago it was aeresol that was going to destroy the ozone and cause a new ice age), electric cars have been around for awhile. They fad in and fad out. The new electric car fad will likely be much bigger than the electric car fads of the past, but a fad nonetheless.
    Reply
  •  
    Oct 07 11:29 AM
    hows china"s quality control on its products?will the battery explode? of course if it does you might get to your destination much faster.
    Reply
  •  
    Oct 07 11:34 AM
    What about ABAT. Are or has anyone heard if there are any American Auto Companies interested in their batteries?
    Reply
  •  
    Oct 07 11:36 AM
    Has anyone heard of ABAT- Advanced Battery Technology! Does anyone know if there are any American Auto Companies interested in their Batteries? Regards
    Reply
  •  
    Oct 07 04:14 PM
    My understanding is that GM wants to warrant their car batteries for 10 years. Such a battery doesn't exist right now.
    Reply
  •  
    Oct 07 07:24 PM
    <the Demons (Democrats) killed the economy>

    Lets see, which Democrats would those be? Alan Greenspan and George W. Bush, who both worked to open the mortgage market to the poor?
    Reply
  •  
    Oct 08 06:46 AM
    I really do not think I wish to own an automobile that only travels 40 or 50 miles on a charge, and needs thousands of $s worth of new batteries every few years.
    Reply
  •  
    Oct 17 06:18 PM
    I don't know if you are aware that BYD is listed in the US. It does trade using the Tracking symbol BYDDF. I had come across them months ago just by chance. Actually they are and have been more well known for the batteries they supply for cell-phones, computers, and just about every type of battery made. They are China's largest and a Global leader in many types. I hope you dig into them deeply. The current share price for BYDDF, about 2, is about 80% Below its High of last year, plus it pays a dividend. Most China based stocks experienced a huge drop in the past year. The China Market was cut by a bit over 2/3, from over 6,000 to under 2,000. I'll look at CBAK and you may have to redo this article if you research BYDDF.
    Reply
More Comments on CBAK »
More by Xiaoda Chen
Investment Resources
Money Managment
Research
Seeking Alpha provides these ads as a service to its leading contributors
Articles on related themes
Small Cap
China Energy
Alternative Energy
China Funds