Buffett: All Cars Will Be Electric in 20 Years

Warren Buffett met with students from Rice University’s graduate school of business. 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 vehicles.

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 cars. He’s already invested in a Chinese company BYD working on the technology.

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. If electric cars dominate American transportation, this would produce favorable results for companies such as Berkshire’s MidAmerican subsidiary. MidAmerican and BYD have also collaborated on using lithium ion batteries to match wind power 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.

Wang Chuanfu might aptly be called China’s man of electric dreams. Wang started BYD in 1995 with money from a relative after leaving a government sector job where he worked as a researcher. His company’s name stands for "Build Your Dreams," according to its business cards, though Wang sometimes jokes that it really means "Bring You Dollars."

Wang, whose company made its mark selling batteries to the likes of Nokia (NOK1V.HE) and Motorola (MOT.N) and is now taking a plunge into electric cars, is a bit of a hybrid himself. He blends the qualities of legendary former GE (GE.N) boss Jack Welch, known for his management prowess and grasp of his markets, and equally legendary inventor Thomas Edison, Li said.

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.

Berkshire Hathaway Inc.’s (NYSE:BRK.A) $33.4 billion purchase of the 77.4% of railroad Burlington Northern Santa Fe Corp. (NYSE:BNI) that it doesn’t already own, exemplifies the dichotomy of Warren Buffett’s energy investments.