Wang Chuanfu, co-founder and chief executive of BYD, saw his wealth plummet by $1.9 billion after Warren Buffett’s Berkshire Hathaway cut its stake in the Chinese electric carmaker for the first time since investing in the company Shenzhen-based in 2008. fell amid speculation that more stock sales could be underway.
Hong Kong-listed BYD plunged nearly 12% on Wednesday after regulation deposit on the city stock exchange showed that Berkshire Hathaway cut its stake to 19.92% from 20.04%. The Omaha-based investment firm gained $47 million when it sold 1.33 million shares on Aug. 24 at an average price of HK$277 each, according to the filing.
Kenny Ng, Hong Kong-based securities strategist at Everbright Securities, says the possibility of further selling is high. Speculation that Buffett’s company would reduce Berkshire Hathaway’s position in BYD has escalated since last month, when a tranche of shares matching the size of the US company’s stake in BYD entered the central system. Hong Kong clearing and settlement.
“Warren Buffett bought the company when it was only trading at around HK$8 per share,” Ng said. “BYD’s current value is not cheap, and Buffett is getting a very good return on this investment.”
Led by billionaire Wang, BYD now has a forward price-to-earnings ratio of 74 times. Berkshire Hathaway, which invested around $230 million to acquire 225 million shares of BYD more than a decade ago, has seen the Chinese company become a leader in the country’s booming electric car market. Meanwhile, the value of the remaining Berkshire Hathaway stake has jumped to $6.6 billion based on the current share price.
And just two days ago, BYD announced outstanding results for the first half of 2022. Thanks to a highly integrated business model, where the company produces its own batteries and other auto parts used in electric cars, it was able to ignore the pains of lockdown and run manufacturing lines across China.
The company sold 641,350 cars in the first six months of the year, a 315% increase from the same period a year ago. Revenue jumped 65.7% year-on-year to 150.6 billion yuan ($21.8 billion), while net profit jumped more than 200% to $530 million.
Vincent Sun, Shenzhen-based analyst at Morningstar Equity Research, says his view on BYD’s fundamentals remains unchanged and he has a price target of HK$315 for the stock. Sun also mentioned that when Berkshire Hathaway reduced its stake in PetroChina in 2007, the company did this in several rounds over a period of several months.
Berkshire Hathaway may choose to reduce its stake in BYD by a small additional percentage, said Dickie Wong, chief executive of Hong Kong-based Kingston Securities. But the company may also choose to retain some ownership instead of getting rid of the entire position, as China’s electric vehicle sector may well continue to grow. “BYD is one of the key players that can compete with Tesla,” Wong says. “They [Berkshire Hathaway] can only partially sell at this stage.
But any sell-off would continue to damage investor confidence. “The reduced ownership of Berkshire Hathaway doesn’t necessarily mean BYD’s value has peaked,” says Ng of Everbright Securities. “But he’s a long-term value investor, and his sale certainly has a negative impact on market sentiment.”
Wang co-founded BYD as a battery manufacturer in 1995 and ventured into the automotive business in 2003. He currently owns a 17.6% stake in BYD which makes up the bulk of his $22.2 billion fortune. dollars, according to Forbes‘ real-time data.