Warren Buffett Dumps EV Stock After Berkshire’s 20x Windfall - Time to Buy or Bail?
Berkshire Hathaway just pulled the plug on its electric vehicle darling after scoring a massive 20x return. The Oracle of Omaha's exit sends shockwaves through the EV sector.
The Great Unloading
Buffett's team cashed out completely - no partial position, no gradual reduction. This wholesale departure from a stock that delivered 2,000% gains speaks volumes about their current market assessment.
Follow the Money or Follow the Legend?
Traditional investors face the classic dilemma: replicate Buffett's moves or question his timing. The EV space continues evolving at breakneck speed, while legacy automakers pivot harder than a hedge fund manager during a market crash.
The 20x question remains: can lightning strike twice in the same charging station?
Image source: The Motley Fool.
A fantastic investment showing signs of fizzling
U.S. investors may not be as familiar with BYD because their vehicles aren't sold in the country, but Buffett and his team scour the markets and the globe for good investments, and they scored a big winner with BYD, which became more and more obvious in recent years.
BYD has managed to develop cheaper EVs than the likes of Tesla, and with more powerful charging capabilities. Earlier this year, BYD released EV charging technology that could charge nearly 250 miles of range in about five minutes. All of this started to show up in the financials in 2024 when BYD, which also makes hybrid vehicles, surpassed Tesla in annual revenue with roughly $107 billion.
In 2024, BYD grabbed 32% of China's EV market, compared to Tesla at about 6.1%. Things got more exciting when BYD announced plans for expansion and said it expected half of its sales to be outside of China by 2030.
However, the company has shown signs of slowing recently. Throughout the year, management has slashed its full-year vehicle delivery outlook multiple times, bringing it down 16% collectively. In its most recent quarter, BYD saw its profits fall by 30% year over year. The culprit appears to be increasing competition and price wars in China, where BYD still conducts most of its sales.
Buffett and his team may have seen this coming. In a 2023 interview with CNBC, Buffett called BYD an "extraordinary company" led by an "extraordinary person" in CEO Wang Chuanfu, but "I think that we'll find things to do with the money that I'll feel better about."
Erste Group Analyst Stephan Lingnau recently downgraded BYD from a Buy to a Hold, amid increasing competition and negative pricing in the EV sector in Europe, which is a market that BYD has high hopes for. Lingnau said in a research note that the average price of BYD vehicles sold in Europe has decreased every quarter over the last two years, and it's unclear when this trend will abate.
Is the stock a buy?
BYD appears to be dealing with more of an industrywide EV issue, with rising competition and declining prices in Europe. Tougher carbon emission policies in the European Union are also forcing automakers to sell more EVs, which requires price reductions. Lower lithium prices are also allowing companies to make cheaper EV vehicles.
Ultimately, I still think BYD has a really strong and competitive product set, but it's tough to fight industry headwinds right now. Trading at roughly 15 times forward earnings, I wouldn't necessarily classify the company as cheap or expensive. Rather, I'm more neutral on the stock. This is one to maybe nibble at or put on your watch list and monitor for improving EV trends in China and Europe.
