Warren Buffett’s investment firm, Berkshire Hathaway, has recently disclosed a reduction in its stake in Chinese electric vehicle (EV) maker BYD. According to a filing with the Hong Kong exchange on Monday, Berkshire’s stake has fallen to 4.94% from 5.06%, marking a significant decrease from over 20% two years ago. This reduction, which drops Berkshire’s holding below the 5% threshold, means the firm is no longer obligated to report any further sales or potential exit from its investment.
The news triggered a decline in BYD’s Hong Kong shares, which fell as much as 4% on Tuesday, marking the most significant drop in six weeks. Despite this, some investors believe that the expectation of a complete divestiture by Buffett might already be factored into the stock price. Andy Wong, an investment director at Solomons Group, suggests that Buffett will eventually divest his entire stake in BYD. Wong anticipates that once this is complete, it could help stabilize BYD’s Hong Kong share price, given the company’s robust fundamentals.
Buffett’s investment in BYD has been highly lucrative, with the billionaire seeing a 2,000% gain from his initial investment. Berkshire Hathaway initially bought 225 million shares of BYD in 2008 for $232 million. Over the past two decades, BYD has evolved from a little-known battery provider into one of the largest electric and hybrid vehicle manufacturers globally, boasting a market valuation of just under $100 billion. It currently stands as the third most-valuable carmaker worldwide, behind Tesla Inc. and Toyota Motor Corp.
Other early investors in BYD, such as Himalaya Capital, have also reduced their stakes. Himalaya, which once held 75 million shares, saw its interest dip below 5% in 2021. Notably, Himalaya’s Chairman Li Lu was instrumental in recommending BYD to the late Charlie Munger, Berkshire’s former vice-chairman. Despite Berkshire’s ongoing sell-off, BYD has continued to thrive, achieving record sales of nearly 1 million electric and hybrid vehicles in the second quarter of this year.
Snow Bull Capital, a Shenzhen-based hedge fund with stakes in both BYD and Tesla, believes that Buffett’s endorsement was crucial during BYD’s early, less well-known phase but now holds less influence. Snow Bull CEO Taylor Ogan argues that a full exit by Berkshire could actually be beneficial for BYD’s stock in the long term.
BYD’s strong market position is partly due to its vertical integration strategy, which allows the company to control costs by producing its own batteries, semiconductors, and even managing its own shipping. Additionally, BYD offers a diverse lineup of well-designed vehicles across various price points, contributing to its success in the competitive EV market.
Despite the reduction in Buffett’s stake, BYD’s impressive sales and strong market fundamentals suggest that the company remains on a solid growth trajectory.