For over a billion dollars
Buffett is massively selling shares in Tesla rival BYD
By Diana Dittmer
11/24/2022, 5:28 p.m
For 14 years, investment legend Warren Buffett was a loyal fan of Tesla rival BYD. Apparently not anymore. In several tranches, he is selling large stakes in China’s number 1 e-car maker. Why is Buffett doing this? And what does he want with the money?
At the age of 90, old master Warren Buffett has lost none of his fascination. Each transaction is closely followed by his fan base, always hoping to learn and benefit from the meticulous stock picking of his investment vehicle, Berkshire Hathaway. The deals of the past few months have not gone unnoticed either. They raise questions.
According to stock market documents, Buffett’s investment vehicle has been reducing positions in Tesla’s Chinese rival BYD on a large scale and at an accelerating pace for several months. According to the US broadcaster CNN, 3.2 million shares listed in Hong Kong were sold to China’s number 1 among electric car manufacturers in the past week alone. Estimated value: 80 million US dollars. Berkshire’s stake shrank to 15.99 percent.
The transaction would not be worth mentioning if it weren’t the fifth in four months. Collectively, Berkshire has dumped more than 49 million BYD shares since August. How high the proceeds from these sales are can only be estimated: With an average share price of 205 Hong Kong dollars (equivalent to 26 US dollars) in the past few months, the profit would add up to 1.2 billion US dollars.
Reasons for the sales are not known. It was definitely a profitable investment. Buffett has been a major shareholder in BYD since 2008. At that time, the financial crisis was raging and stocks had fallen deeply. BYD was trading at just HK$8 (US$1.02). The Texan billionaire took the opportunity and bought shares for a total of 230 million dollars – at a bargain price. The stock is now worth a multiple.
BYD had its best year two years ago. The Chinese electric vehicle market was booming and the company presented the “BladeBattery”. The new super battery for electric cars not only set new standards in the safety of electric cars due to its low heat generation, the battery also ensured a longer range and had a significantly longer service life. The stock market honored the invention in 2000 with a price increase of 400 percent. Buffett and Berkshire made money.
Tech correction and anti-China policy
The best-selling electric car brand in China has remained on the road to success in other respects as well. It has left US rival Tesla behind in the home market. While BYD delivered 103,157 pure electric vehicles in China in October, according to data from the China Passenger Car Association, Tesla only rolled out 71,704 vehicles from the Tesla plant in China.
Electric cars are in greater demand in China than anywhere else. Sales of vehicles that are at least partially powered by an electric motor rose by 87 percent in October compared to the previous year. The top dog BYD has secured more than just a small piece of the cake. The bottom line is that his earnings have more than tripled. The company can benefit from government incentives for electric cars in China more than any other automaker.
So why is Buffett getting out now? According to Ferdinand Dudenhöffer from the CAR Center Automotive Research, there are several reasons for a withdrawal. Tech stocks have been struggling for quite some time. BYD cannot escape the downward pull in the industry either. The price of the Chinese electrical manufacturer is around 30 percent below its all-time high. “One should assume that the tech companies as a whole have not yet reached their low point,” says the car expert ntv.de. “Tech products are very energy-intensive and will therefore be faced with high energy prices worldwide in the next few years.”
BYD stands for most of electric vehicles and their batteries. However, the company also produces solar systems, energy storage systems and semiconductors – which are important for the automotive industry, among other things – and are required for chip production. This is where China and US policy come in.
According to Dudenhöffer, the danger of an anti-China policy under US President Joe Biden and the risks for US-dominated companies and investors should play a role in Buffett’s investment strategy. The semiconductor sanctions are a “very clear” sign in which direction things could develop. “It’s easy to imagine Buffett looking to hedge by reducing his China portfolio risk.”
Biden’s Inflation Reduction Act is also an argument for withdrawing from China. According to the law, vehicles from abroad that do not install a US battery no longer receive any tax advantages. “A very clear trade barrier and protectionist measure that Biden’s administration has set up here. Electric cars from China, such as those from BYD, are on the losing side in the USA,” says Dudenhöffer.
What is Buffett doing with $1.2 billion?
The question remains as to what plans the US investor has with the money? Does he board anywhere at the same time? If Buffett is already making large-scale investments somewhere, it’s in secret. According to “Handelzeitung”, stock market experts have at least picked up a small lead. Berkshire Hathaway already bought many shares of a single company in the third quarter. The purchase was only not publicly reported to the authorities in the USA, but communicated separately, it is said. Berkshire justified this by saying that the transaction would affect the company’s share price too much. This could indicate that further purchases should be made.
The amount that Buffett is said to have already invested is estimated at $11 billion. Since the notification threshold of five percent was not exceeded, it must be a large company, it is said. And because secrecy with the US authorities would otherwise not have been possible, it could only be an American company.
Allegedly, 26 listed companies in the USA fit into this scheme. Among the usual suspects from the consumer goods industry, such as Coca-Cola or the Pampers manufacturer Procter & Gamble, who were once of interest to Buffett ten years ago but hardly play a role today, is BYD’s US rival, Tesla . The tech industry, in the form of Apple, is by far the largest in Buffett’s portfolio today. As luck would have it, there are said to be around 50 million Tesla shares that no longer appear with any major shareholder. Has Buffett already used that?