Warren Buffett met with students from Rice University’s graduate school of business yesterday. Each year, Mr. Buffett meets with several groups of business students and provides advice on business and investing topics. According to an article in the Houston Chronicle, Mr. Buffett made some comments regarding peak oil and the prospects for electric cars:
Goetgeluk [President of Rice University’s finance club] asked what Buffett thought of the peak oil theory — that oil production has peaked and will only decline in the future — and what he believed would replace carbon fuel. Buffett told him that in 20 years, he believes all the cars on the road will be electric. He’s already invested in a Chinese company working on the technology to make it happen.
Those who follow Berkshire Hathaway are probably already familiar with the company’s investment in BYD. The electric car industry, and BYD’s role in it, has been a frequent topic on The Rational Walk in recent months. If electric powered cars eventually dominate American transportation, this would produce favorable results for companies such as Berkshire’s MidAmerican subsidiary. MidAmerican and BYD have also collaborated on using battery technology to match renewable energy production with electricity demand.
Twenty years is a short period of time for a radical shift to an all-electric vehicle fleet. Battery technology will need to improve significantly to make it cost effective without government subsidies. Electric vehicles will also need to have a range comparable to gasoline vehicles along with the ability to either quickly recharge the battery or swap it for a new one. BYD’s e6 has shown that a 250 mile range is already possible and a 50% recharge can be done in just ten minutes. Better Place has developed technology to exchange fully charged batteries in an automated process.
A complete replacement of the entire motor vehicle fleet in such a short period may be unlikely but technology is progressing rapidly and Berkshire Hathaway seems well positioned to capitalize from this shift through the investment in BYD as well as exposure to increased demand for electricity.
Disclosure: The author owns shares of Berkshire Hathaway.