I have finally come to understand that automotive companies make terrible businesses. Terrible businesses are not very good for long-term investors. What has led me to this conclusion? History, and observation.
Here’s a bit of history
During a Berkshire Hathaway shareholder meeting, Warren Buffett described Henry Ford as "owning the world in 1920." At that time, Ford was the wealthiest person on the planet, and his Model T was the top-selling car. However, by 1927, General Motors had overtaken Ford as the world's largest automaker, a title it retained until 2007 when Toyota claimed the global sales crown as GM edged toward its eventual bankruptcy in 2009.
The same year of GM’s bankruptcy, Berkshire Hathaway invested $270 million in a relatively unknown Chinese automaker called BYD. Today, Berkshire's stake in BYD is valued at $3.9 billion, despite recently selling a significant portion of its shares. For Berkshire, BYD represents a substantial return on their investment. Yet, the reasons behind Berkshire's partial divestment from BYD remain somewhat unclear.
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