Warren Buffet reduces stake in Chinese EV giant BYD: Why and what’s next?

Jul 23, 2024 04:36 PM IST

When Berkshire Hathaway Inc. offloads another chunk of BYD Co. shares — a stock it has held for more than 15 years — it will be done in secret.

Warren Buffett’s investment firm disclosed in a filing to the Hong Kong exchange Monday that its stake has fallen to 4.94% from 5.06%, and down from over 20% two years ago. Dropping below the 5% threshold means that Berkshire is no longer obligated to disclose any further sales, or whether it exits its position altogether.

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While the news sent shares in BYD in Hong Kong down as much as 4% on Tuesday, the most in six weeks, at least one investor believes expectations for a full divestiture are almost baked in.

“Buffett will eventually cut his BYD stake to zero,” Andy Wong, an investment director at Solomons Group, said. “Once that’s done, it should help BYD’s Hong Kong shares bottom out” given the Chinese automaker’s strong fundamentals.

Buffett, renowned as one of the world’s most astute investors, saw a 2,000% gain from his early bet on BYD, which went from a little-known Chinese battery provider for cell phones to the biggest electric and hybrid vehicle maker in a little over 20 years. At a market valuation of just shy of $100 billion, BYD is the third most-valuable carmaker globally after Tesla Inc. and Toyota Motor Corp.

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Other early investors have also taken profit. Himalaya Capital once held 75 million shares for a stake of around 8.2% but its interest dipped below 5% in 2021.

Himalaya’s Chairman Li Lu was the one who recommended the Chinese automaker to the late Charlie Munger, Berkshire’s former vice-chairman. Berkshire purchased 225 million of BYD’s Hong Kong-listed shares in 2008 for $232 million.

Shenzhen-based hedge fund Snow Bull Capital, which has stakes in BYD and Tesla, said BYD benefited from Buffett’s endorsement when it was unknown to investors but now, the billionaire’s backing doesn’t count for too much.

“The best thing for the stock, long term, would be for Berkshire to sell it all,” Snow Bull CEO Taylor Ogan said.

BYD’s market leading position stems in part from its vertical integration that keeps costs down — the company makes its own batteries and semiconductors, and even has its own ship to send cars abroad — and also its strong line up of attractive, well designed cars along all price points.

Despite Berkshire’s selldown, BYD is going from strength to strength, selling a record number of electric and hybrid vehicles in the second quarter. The Chinese brand sold just shy of 1 million units between April and June.

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