Over the past two months, Berkshire Hathaway, the investment company owned by Warren Buffett, has reduced its holdings in Chinese automaker BYD (BYDDY -1.32%), with its holdings in the automaker dropping to 14.95% from 16.28%. Overall, Berkshire has sold its BYD holdings five times since August, just after the company's stock hit an all-time high of $42.
If you're currently invested in BYD, you might be tempted to follow Buffett's lead and dump your shares. But Berkshire's recent stock sales aren't necessarily a reason to panic. Here's why.
Why investors should hold on
The conglomerate still owns a substantial number of BYD shares, as previously mentioned. It's an investment the company's held since 2008, when Berkshire paid $230 million, or $1.02 per share. Currently, its share price is hovering around $26-$27 a share.
But more than that, BYD has become a true challenger to Tesla, albeit one that doesn't sell its vehicles in the United States. In its home market of China, it has grown to become the country's top-selling car brand.
And the company is expanding in its home market despite stellar sales. BYD plans to launch a premium brand named Yangwang in the first quarter of 2023, along with what it calls a "professional-personal" brand, also in 2023.
BYD is also pushing into worldwide markets, including Norway, New Zealand, Singapore, Brazil, Costa Rica, and Colombia. The company is due to raise its awareness in Europe with an order from rental car company Sixt for 100,000 vehicles. The vehicles will be rolled out in Germany, France, the Netherlands, and the U.K. If successful, the partnership would expand to other parts of the world.
Finally, not to be overlooked, the company's supply chain is vertically integrated, from batteries to chips. While the company has no plans to sell vehicles in the United States, it is considering building a battery plant here.
A strong competitor
Certainly, the company's sales success in China is being felt by other car companies, including Tesla, which is reported to be shortening production shifts at its Shanghai factory by one-and-a-half hours and delaying new hires as their EV sales aren't meeting expectations. The moves come as Tesla is reportedly cutting production of the Model Y and Model 3 by about 20%, something the company characterizes as "untrue."
Another automaker feeling the heat is Volkswagen Group, whose namesake brand was outsold by BYD, but total sales beat BYD when Audi sales are included.
Buy or sell?
Certainly, the company is solidifying its position on the world automotive stage.
While down from its record $42.40 high in July, it's up to $26-plus a share from its recent low of $21.90 in late November. If you've already invested, that's a good reason to hold on to the stock, particularly as it grows in its own market and overseas. If you're new to the stock, you might want to consider it.
But keep in mind its 1.43% net income margin is far smaller than competitors such as Tesla, at 10.26%. This is something to keep in mind, despite its growth, if you're considering buying shares. It seems like one to buy and hold.