Buffett’s BYD Stake Sale Fuels Fears of More Selling to Come

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(Bloomberg) — Traders rushed to sell BYD Co. after Warren Buffett’s Berkshire Hathaway Inc. trimmed its stake in the Chinese electric vehicle maker, fearing that the legendary investor may be gearing up for an eventual exit after decade as the company’s most notable backer.    

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BYD shares plunged as much as 13% in Hong Kong on Wednesday, the most in seven weeks and the worst performance on the benchmark Hang Seng Index. The selling followed Berkshire’s filing to the exchange late Tuesday notifying that the firm reduced its holding of BYD’s Hong Kong-listed shares to 19.92% from 20.04% on Aug. 24. 

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Read: Buffett Trims Stake in China’s BYD, Spurring Bets More May Come

Speculation has been swirling for weeks about Buffett’s intentions, ever since a 20.49% stake — identical to the size of Berkshire’s last reported BYD position as of December — entered Hong Kong’s Central Clearing and Settlement System last month, a move that is often seen as a precursor to share sales. BYD stock has fallen more than 25% from a July high.  

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“Investors could interpret this as the beginning of Berkshire closing its position in BYD,” said Bridget McCarthy, a market research analyst at hedge fund Snow Bull Capital Inc. “I would expect arguably one of the world’s greatest investors to take some profits after over a decade, especially on his highest-returning investment, percentage-wise.”  

Buffett has sold about 6.3 million shares since June 30 through Aug. 24, according to calculations based on BYD’s interim report and the investor’s latest filing. Berkshire, which first bought 225 million shares in September 2008, has been by far the largest shareholder in the EV giant. 

The investment has also proved hugely lucrative as BYD shares have soared over 2,000% since his initial purchase.  

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Investors view BYD, China’s biggest EV maker, as a bellwether for the sector. The company reported a jump in profit for the first half of the year as record output and sales shielded it from Covid disruptions and supply-chain pain. 

Read more: BYD’s First-Half Net Income Triples to Top End of Forecast 

The carmaker’s fundamentals suggest BYD may be able to endure further selling from Buffett, especially as investors pour into China’s green energy sector on bets the industry will benefit from Beijing’s policy push. The auto industry has also been a key recipient of a range of tax and consumption incentives as authorities seek to dominate the shift away from combustion engines and accelerate the economy’s recovery.

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BYD’s business model has improved significantly from the time Buffett first invested, said Andy Wong, a fund manager at LW Asset Management Advisors in Hong Kong. “Despite the short term share price struggle, there is value to invest in the company with its solid business model in the medium to long term,” he said, adding some investors may have been waiting for a correction to buy.  

A BYD official, in comments to China’s 21st Century Business Herald, said there’s “no need to overinterpret” the stake sale, and added the company’s operations remain normal. 

As of Tuesday, BYD was the world’s second-most richly valued automaker, with its price to estimated earnings ratio below Li Auto, a Chinese EV startup listed in the US, and higher than Tesla Inc.  

“In terms of valuation, it’s not cheap,” said Vincent Sun, an analyst for Morningstar Investment Service. “But the Chinese auto market is attractive given its size. If investors want to tap the growth potential here, BYD is still a top choice.” 

(Adds more information on Buffett’s investment, additional comments)