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China’s BYD can navigate a Buffett selldown

Berkshire Hathaway CEO Warren Buffett talks to reporters prior to the Berkshire annual meeting in Omaha, Nebraska May 2, 2015. REUTERS/Rick Wilking

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HONG KONG, Aug 31 (Reuters Breakingviews) – Chinese electric-car maker BYD (1211.HK), (002594.SZ) doesn’t need Warren Buffett. The 92-year-old billionaire’s Berkshire Hathaway (BRKa.N) has sold a sliver of its 7.73% stake in the Hong Kong- and Shenzhen-listed electric-car maker. That trims its holding in BYD’s H-shares to 19.92% from 20.49%. Investors are nonetheless rattled: shares fell more than 10% on Wednesday in Hong Kong. But founder Wang Chuanfu has engineered a company that could ride out Buffett’s departure, and worse.

A brutal combination of Beijing’s zero-Covid policies, war in Ukraine, semiconductor shortages and U.S.-China tensions have shaken supply chains. Set against that backdrop, shareholders might fear the Oracle of Omaha is getting out while he can. Even before the latest selloff, BYD’s Hong Kong stock was down some 16% since July on speculation of an exit.

That’s unfair. Buffett’s roughly $7.5 billion stake is worth around 33 times the $8 per share he paid when the deal closed in 2009; annualised returns of more than 30% eclipse the Hong Kong benchmark index’s 3.5% over the same 13-year period. It’s a good time to cash out. Meanwhile, BYD has matured into a formidable rival to Tesla (TSLA.O) and other more established automakers at home.

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Wang’s decision to go all-in on vertical integration proved prescient. Investments into everything from lithium to chips gave the group an edge in tough times, allowing it to secure components for its own production lines. It has even started to supply batteries to competitors from Daimler (MBGn.DE) to Ford Motor (F.N).

Sales are on a roll too. The carmaker tripled deliveries of electric vehicles to 641,350 in the first half of 2022 from a year earlier. New hybrid powertrains — coupling a battery with a traditional motor — sold well, while pricier new models aimed at taking the brand upmarket also impressed. That helped to more than double net profit to 3.9 billion yuan ($566 million).

New hazards are emerging, however. Fraught relations between Washington and Beijing could slow sales growth overseas and to foreign clients. Geopolitics could derail a mooted battery-supply deal with Tesla, for example, or jeopardise ties with American automaker Ford. Collaboration with Huawei, blacklisted by U.S. authorities, could also draw unwanted attention as the company expands.

Even so, Wang’s impressive track record suggests he will be able to navigate what comes next – with or without Buffett.

Follow @KatrinaHamlin on Twitter

CONTEXT NEWS

Warren Buffett’s Berkshire Hathaway has sold 1.33 million Hong Kong-listed shares of electric-car and battery maker BYD for about HK$370 million (US$47 million), according to a filing on Aug. 30, reducing its stake in BYD’s total issued H shares to 19.92% from 20.49%.

Buffett’s company had acquired 225 million BYD shares in 2008, giving it a 7.73% stake, equal to the 20.49% stake in H shares. Berkshire paid $232 million for its shares, whose value had by Aug. 30 grown to about $7.5 billion.

The Aug. 30 filing is the first confirmation that Berkshire has reduced its BYD investment since a 20.49% stake entered Hong Kong’s Central Clearing and Settlement System on July 11, with Citigroup serving as custodian.

BYD’s Hong Kong-listed shares fell by as much as 11% to HK$31.00 in morning trade on Aug. 31.

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

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Editing by Robyn Mak and Thomas Shum

Our Standards: The Thomson Reuters Trust Principles.

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

Katrina Hamlin

Thomson Reuters

Katrina Hamlin is global production editor, based in Hong Kong. She is also a columnist, writing on topics including environmental policy, cleantech and green finance, as well as the gambling industry in Macau and Asia. Before joining Reuters in 2012, Katrina was deputy managing editor of Shanghai Business Review magazine. She graduated from the University of Oxford with an MA in Classics, and earned a Masters of Journalism with distinction from the University of Hong Kong.

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