Warren Buffet leaves airlines behind but profits predicted for electric cars

Airlines may take years to recover from the Covid-19 pandemic, but the electric car industry should rebound with profits.

The possible economic outcomes for the transport sector due to the Covid-19 pandemic are perhaps most clearly reflected in decisions of investment giant Berkshire Hathaway, led by chairman and CEO Warren Buffet.

Buffet confirmed in the firm’s annual shareholders meeting on Saturday (US time), to an empty auditorium, and an online audience of analysts and investors, that the multinational has sold its entire stakes in four major US airlines, American, Delta, Southwest, and United, a 180 degrees turnaround from the investment firm’s return to airlines in 2016 that saw it take near 10% stakes in each carrier.

It is a purely financial decision, said Buffet, and one that should not be mistaken as a market prediction.

But as airlines around the world, grounded as the majority of the planet stays at home to stop the spread of the pandemic, put their hands out to governments for financial lifelines, we are reminded of Buffet’s comments of over a decade earlier when Berkshire Hathaway shunned airlines.

“The airline industry’s demand for capital ever since that first flight has been insatiable. Investors have poured money into a bottomless pit, attracted by growth when they should have been repelled by it,” Buffet wrote in a 2007 investor letter.

Exactly what the future holds for air transport will not be clear for some time.

While Australia has managed to keep the Covid-19 relatively under wraps allowing some restrictions to slowly lift, in many major countries and regions across the globe the impact has been far worse. Almost 250,000 deaths and more than 3 million cases – a third of which are in the US – have been recorded globally according to data collated by Johns Hopkins University.

The electric car market, meanwhile, looks to be holding up.

Tesla has reported its first profitable quarter, and while CEO and co-founder Musk noted in the company’s first quarter 2020 earnings call on Wednesday (US time), amongst railings against government-enforced shelter-in-place measures, that “Tesla will weather the storm”, other US car makers such as GM and Ford are decidedly less positive, forecasting flat profits for 2020 and squeezing credit lines.

Significantly, Warren Buffet-backed Chinese battery and EV maker BYD is predicting a return to profits.

BYD has taken a hit over the past few quarters, languishing initially along with the Chinese electric vehicle market at large due to a cutback in electric vehicle subsidies.

But in a statement released last Tuesday by the company, it said it expects a 25% net rise in income for the first quarter of 2020 despite an 85% slump in the first quarter due to the pandemic.

“In the second quarter of 2020, the impact of Covid-19 on the domestic market is expected to gradually subside, and the automobile industry will recover steadily,” BYD said in the statement.

“NEV sales and revenue of the group will ride out the downturn, thereby driving the group’s revenue to resume growth.”

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