Why Tesla stock bounced today

Tesla is looking to bolster its battery supply chain, and the tie-up is with a Buffett-backed company.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

What happened

Shares of Tesla (NASDAQ: TSLA) are reacting to an overnight report on how it it planning to ensure it has the raw materials to continue to lead the EV market as it grows. The report has Tesla shares jumping in early trading. As of 11:03 a.m. ET, the stock was up 3.5%. 

So what

Tesla has plans to add another battery supplier, and it is one of the largest EV makers in China, according to CNBC. That supplier, Chinese automaker BYD, is also a company Warren Buffett likes. Buffett's Berkshire Hathaway owned 225 million shares of BYD as of Dec. 31, 2021, representing a 7.7% ownership stake in the company. The report quoted BYD Vice President Lian Yubo as saying his company is "now good friends" with Tesla CEO Elon Musk, and that BYD is ready to supply batteries to Tesla soon. 

Now what

BYD sold more than 740,000 electric and fossil-fuel-based vehicles combined last year. Its new-energy-vehicle production -- which includes both plug-in hybrid and battery electric cars -- more than tripled year over year in 2021, to more than 600,000. That makes it a direct competitor to Tesla, which also has a manufacturing plant in the largest global EV market. 

While vehicle production was a much larger portion of its sales, battery sales represented about 7.3% of total revenue in 2021. The alignment makes for an interesting combination, as its other battery suppliers are not competing directly with Tesla for vehicle sales. 

But Musk knows EV competition is heating up, and one of the supply chain restrictions could be battery supply in coming years. Investors are cheering the news that Tesla is thinking ahead to be able to supply its growing manufacturing volume with a necessary part that might be in short supply for many EV makers. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Howard Smith has positions in BYD and Berkshire Hathaway (B shares). The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway (B shares) and Tesla. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool Australia has recommended Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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