Hidden in Berkshire Hathaway’s (NYSE: BRK.B) 2022 annual report was an interesting piece of information that could further Warren Buffett’s interest in the electric vehicle (EV) industry.
How so, you ask?
In 2017, the company made a $2.76 billion investment in Pilot Travel Centers, the owner of the Pilot Flying J truck stops. The investment gave Berkshire a 38.6% stake in the company, with an additional purchase in 2023.
On Jan. 31, it acquired that additional ownership position for $8.2 billion. The purchase price was based on Pilot’s unaudited 2022 earnings and net debt. As a result, Berkshire now owns 80% of the company, while the founding Haslam family owns 20%.
Founded in 1958, Pilot now has 650 travel centers in 44 states and six Canadian provinces. It also has 150 retail locations in the U.S. and Canada, where it sells diesel fuel to other travel center operators.
When Berkshire first invested in Pilot, it had annual revenues of $20 billion. In 2021, they had grown to $45 billion with earnings of over $1 billion.
The 80% stake is another indirect bet on the EV market and the transition from fossil fuels to clean energy.
Here are three reasons why it’s a no-brainer.
| BRK-B | Berkshire Hathaway | $311.12 |
Pilot’s EV Charging Plans
In July 2022, Pilot announced a partnership with General Motors (NYSE:GM) and EVgo (NASDAQ:EVGO), adding 2,000 DC fast chargers at 500 truck stops on highways nationwide.
EVgo, which will operate the charging stations, is already working with GM to put 3,250 chargers in major U.S. cities and suburbs in place. In addition, GM customers will get preferential treatment regarding reservations.
While there are skeptics of this kind of private expansion of the U.S. charging network, there isn’t a company more invested in interstate travel than Pilot. Whether it’s diesel fuel or EV charging, Pilot’s positioning itself for the transition over the next decade.
Berkshire has fossil fuel investments such as Chevron (NYSE:CVX) and Occidental Petroleum (NYSE:OXY). It owns 8.7% and 21.4% of the two companies but has significant equity investments in businesses such as GM and BYD (OTCMKTS:BYDDF). These produce both gas- and electric-powered personal and commercial cars and trucks.
And with the additional stake in Pilot, it owns operating businesses such as Berkshire Hathaway Energy that are working to deliver more clean energy to their customers in the years ahead.
Warren Buffett is covering the transition from all angles. That’s a good thing if you own its stock.
$11 Billion Is Peanuts for Berkshire
Berkshire’s only acquisition in 2022 was its $11.5 billion purchase of Alleghany Corp., an operator of property and casualty reinsurance and insurance businesses. After accounting for cash, it paid $10.6 billion. Thus, including the $8.2 billion spent on Pilot in January, it has made slightly less than $22 billion in acquisitions over the past 38 months.
That’s not huge, considering it finished 2022 with $128.7 billion in cash. Excluding the $30 billion he’s said he’d always keep on Berkshire’s balance sheet, the company still has more than $98 billion it could put into play to make a massive acquisition.
Based on a conservatively financed acquisition of 75% cash and 25% debt, Berkshire could buy a $131 billion company. Approximately 407 of the stocks in the S&P 500 would fit these criteria.
Warren Buffett likes to own easy-to-understand businesses. There is nothing complicated about Pilot’s business. It is very good at executing the little things that add up to big profits.
BP Just Paid $1.3 Billion for a Much Smaller Business
In mid-February, TravelCenters of America (NYSE:TA) announced that it had agreed to sell its business to BP (NYSE:BP) for $1.3 billion in equity and the assumption of $1.75 billion in net debt [Total debt of $2.22 billion less $467 million cash].
In 2022, TravelCenters had $10.84 billion in revenue and $159 million in net income. So, BP paid $4.64 million for each company’s 280 locations. Based on an equity value of $13.75 billion for Pilot (the $11 billion Berkshire paid for 80% divided by 0.80), Berkshire is paying $21.75 million for each of Pilot’s 650 locations. And that doesn’t consider the 150 locations where it sells diesel fuel to other third-party operators.
TravelCenters has a net margin of 1.5%. Pilot’s is approximately 2.2%, possibly more.
In this kind of business, scale is everything. With Pilot having 2.3-times as many locations, it will be tough for BP ever to catch Pilot for travel center market dominance.
Long-term, Warren Buffett’s multi-step move to buy a strong brand and operator will pay dividends for years to come. At the same time, it increases its participation in the EV market.
That’s an excellent thing.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
