BYD stock has tanked on fears that Warren Buffett is dumping the Chinese EV maker. Analysts are divided on whether he's selling.
Buffett's company might be preparing to cash out, pursuing a "funky trading strategy," or switching from paper stock to electronic, analysts say.
Getty Images
- BYD stock plunged this week on speculation that Warren Buffett was selling his stake.
- Buffett's Berkshire Hathaway has made over 30 times its money on the Chinese automaker.
- Analysts disagree on whether Berkshire is about to pocket some or all of its profits.
BYD shares tumbled 12% in a day earlier this week, as investors speculated that Warren Buffett's Berkshire Hathaway was about to dump its entire stake in the Chinese electric-vehicle company. Analysts are divided on whether a sale is imminent.
Buffett's company spent $232 million to buy 225 million shares of BYD in 2008. Its holding was untouched as of last December; Berkshire's latest annual report showed a 7.7% stake worth $7.7 billion, representing a roughly 3,200% gain on its investment.
However, almost exactly 225 million BYD shares were added to the Hong Kong Stock Exchange's clearing system, CCASS, on Tuesday. The surprise listing by Citibank sparked fears that Berkshire was getting ready to cash out.
"Undeniably these shares are Berkshire's," David Blennerhassett, an analyst at Quiddity Advisors who publishes on Smartkarma, told Insider. He noted the shares had been parked outside of the clearing system since 2009, and more than 99% of BYD's outstanding shares are held in the system now.
Blennerhassett said there was a "very high probability" that Berkshire would sell some or all of the shares, given it had brought its stake into the clearing system. Buffett's company could also be pursuing a "funky trading strategy," but there's no way to tell, he continued.
"Despite shares rolling over on account of this perceived overhang, Berkshire has still made out like a bandit on this trade," Blennerhassett added.
Berkshire may also have moved its shares into the clearing house in preparation to sell them at a later date.
"By transferring its entire stake to CCASS, Berkshire has the freedom to decide when and how much to sell down," Arun George, an analyst at Global Equity Research who publishes on Smartkarma, told Insider.
George noted that Berkshire would have to publicly disclose a material change to its shareholding, and it hasn't done that yet, indicating a sale is yet to occur. Investors will be watching closely what happens to the 225 million shares now in the clearing system, he added.
Jack Bai, a research analyst who covers BYD for CMB International Securities, proposed a less exciting explanation.
"We believe that it is a technical move to convert paper stock into electronic stock," he told Insider. "Citi is more likely to be a custodian bank for Berkshire after this move."
Still, Bai said it would be "very reasonable" for Berkshire to pocket some of the enormous profits it has made on BYD. Even if Buffett were to cash out, Bai said he expects BYD stock to quickly recover as the company remains the "shining star" of China's electric-vehicle and battery industries.