Asia's Buffett Gets Into Battery Business

NEW YORK ( TheStreet) -- Li Ka-shing's recent investment in Jia Sheng Holdings shows that the businessman may be taking his nickname as the "Warren Buffett of Asia" to heart. The move closely mirrors a similar bet made by the Oracle of Omaha that earned the investor big returns through 2009.

Jia Sheng Holdings, which has a niche in the Hong Kong market as a brokerage and investment firm, recently took steps to go in a new direction. The company plans to spend HK $2.75 billion to purchase Union Grace Holdings to gain control of Thunder Sky Energy Group, which produces batteries for electric cars.

The recent developments draw interesting parallels to Buffett's investment in the Chinese electric car and battery company, BYD. In September 2008, Buffett paid nearly $2 billion for a 10% stake in this firm which, at the time, was relatively unknown outside of China.

With the growing popularity of environmentalism and electric car prospects, the small firm, once mainly known for producing cell phone power sources, has grown to become one of the most recognizable car companies in not just China, but around the world.

In the time since the bet was made, BYD has grown to become the fourth largest car maker in China and shares of firm have ballooned five-fold. In return, Buffett and Berkshire Hathaway ( BRK.A) have pocketed billions.

Li Ka-shing's Jia Sheng investment is considerably smaller than that of Professor Buffett. However, the Hong Kong businessman's 400 million shares which, together translate into a 2.5% stake in the firm, still set him back nearly $38 million. These funds will be used to pay for the company's efforts to build battery factories.

On the day Li was announced as a major shareholder, the company's stock responded by shooting up nearly 70%. This was the largest intraday gain for the firm since 2003.

Both Li and Buffett have expressed their confidence in the electric car industry through their massive investments. However, going forward, I would advise against trying to follow these two gurus into this risky industry.

Though electric cars have gained impressive popularity and a lot of press as of late, production of the vehicles and the batteries that power them is still expensive. For instance, the BYD e6, which the firm hopes to see hit U.S. roads in 2010, is expected to carry a $40,000 price tag.

Therefore, in order to make the vehicle attractive to the public, the government will be forced to offer incentives. If the government decides to abandon its support, there will be a steep rise in prices and buyers will disappear. BYD, in return, will suffer.

I encourage using caution when attempting to play electric cars. However, I am much more confident playing the broader auto industry. In fact, with companies like Ford ( F) and Johnson Controls ( JCI) seeing strength, it appears that this sector has room to run. Even in light of the broad auto sell-off thanks to the massive Toyota ( TM) recall, I am confident that, when the issue works itself out, playing this industry will still prove beneficial.

The Fidelity Automotive Select Fund ( FSAVX) provides investors with exposure to a strong collection of top players involved in the U.S. auto industry. This instrument has seen impressive strength since hitting market bottoms and, as the industry continues to heal, it should continue to perform well.

In the past year, the fund has gained well over 150%.

Top holdings in FSAVX do not include the big three U.S. auto makers. Instead, the instrument depends mainly on the success of parts makers like Johnson Controls, Autoliv ( ALV) and BorgWarner ( BWA). Neither Toyota nor CTS Corp ( CTS), the firm responsible for the firm's defective accelerators, are present among the fund's portfolio.

Though Buffett and Li Ka-shing have emphatically thrown their hats into the electric car industry, investors should not get carried away trying to follow suit.

In the end, playing electric cars is not a short-term play. Rather investors need to be prepared for what could be rocky performance over the next decade or so. Looking to the nearer future, investors will find much more stability in the auto sector playing a fund like FSAVX.

-- Written by Don Dion in Williamstown, Mass.

At the time of publication, Dion did not have any positions in the equities mentioned.

Don Dion is president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.

More from Opinion

Tuesday Turnaround: Micron, Autonomous Driving, and J.C. Penney

Tuesday Turnaround: Micron, Autonomous Driving, and J.C. Penney

Cable Stock Investors Should Keep an Eye On Wireless Broadband's Rise

Cable Stock Investors Should Keep an Eye On Wireless Broadband's Rise

Trump Blinks on China Trade War That's Looking Harder to Win

Trump Blinks on China Trade War That's Looking Harder to Win

Monday Madness: GE, China, and Micron

Monday Madness: GE, China, and Micron

Attention 60 Minutes: Google Isn't the Only Big-Tech Monopoly

Attention 60 Minutes: Google Isn't the Only Big-Tech Monopoly