Buffett’s BYD stake sale fuels fears of more sales ahead

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(Bloomberg) — Traders rushed to sell BYD Co. after Berkshire Hathaway Inc. of Warren Buffett has cut its stake in the Chinese electric vehicle maker, fearing the legendary investor may be preparing for an eventual exit after more than a decade as the company’s most notable backer.

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BYD shares fell as much as 13 percent in Hong Kong on Wednesday, the biggest gain in seven weeks and the worst performance on the benchmark Hang Seng. The sale followed Berkshire’s filing late on Tuesday that the company had cut its stake in Hong Kong-listed BYD shares to 19.92 percent from 20.04 percent on Aug. 24.

Read: Buffett cuts stake in China’s BYD

Speculation has swirled for weeks about Buffett’s intentions since a 20.49% stake — the same size as Berkshire’s last-listed BYD position in December — was listed on Hong Kong’s Central Clearing and Settlement System last year. month, a move often seen as a precursor to stock sales. BYD’s stock has fallen more than 25% since its July high.

“Investors could interpret this as the beginning of Berkshire closing its position on BYD,” said Bridget McCarthy, market research analyst at hedge fund Snow Bull Capital Inc. a decade, especially for its highest-yielding investment, percentage-wise.”

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

The investment has also proven extremely profitable as BYD shares have soared over 2,000% since its initial purchase.

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Investors view BYD, China’s largest electric vehicle maker, as a bellwether for the industry. The company reported a jump in profits for the first half of the year as record production and sales shielded it from Covid disruptions and supply chain pain.

Read more: BYD’s first-half net income triples to top forecast

Auto industry fundamentals suggest BYD may be able to withstand further selling by Buffett, especially as investors flock to China’s green energy sector on bets that the industry will benefit from Beijing’s political push. The auto industry has also been a key recipient of a series of tax and consumer incentives as authorities try to rein in the shift away from internal combustion engines and speed up the economic recovery.

BYD’s business model has improved significantly since Buffett first invested, said Andy Wong, a fund manager at LW Asset Management Advisors in Hong Kong. “Despite the short-term share price controversy, there is value to invest in the company with its solid business model in the medium to long term,” he said, adding that 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 was “no need to over-interpret” the stake sale and added that the company’s operations remained normal.

As of Tuesday, BYD was the world’s second-richest automaker, with a price-to-estimated earnings ratio below that of Li Auto, a U.S.-listed Chinese electric vehicle start-up, and higher than Tesla Inc.

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

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

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