Is It Time to Throw in the Towel on BYD Company?

Key Points

• Warren Buffett's Berkshire Hathaway just finished exiting its position in BYD.

• BYD is expanding its product lineup into ultra-luxury segments.

• BYD derives some of its competitive edge from its vertical integration.

• 10 stocks we like better than BYD Company ›

BYD Company, a Chinese electric vehicle (EV) juggernaut, quickly took over its home market before stepping out into the world. And then it started taking over global sales, too, signaling not only had it arrived as a global powerhouse but that it was here to stay.

BYD's stock has been a high flyer over the years, but arguably its most well-known investor just exited his stake in the company -- is it a red flag for investors?

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Image source: BYD.

What's going on?

Warren Buffett's Berkshire Hathaway has fully exited its position in BYD, per an SEC filing, which ends a lengthy 17-year investment that boasted a staggering increase in value over that time frame.

Berkshire Hathaway began investing in the Chinese automaker way back in 2008 when it paid $230 million for roughly 225 million shares, or about 10% of the company at the time. It was a true Warren Buffett move in that he was greedy when others were fearful. Perhaps now comes the other side of the coin -- when others were greedy, he decided to exit the position. The investment was an amazing call as its shares increased by about 3,890% over the time Berkshire Hathaway owned them.

Buffett's company began selling BYD shares in 2022 after a massive run-up in share price over the years. It comes at a questionable time for the Chinese automaker as its domestic sales, which make up roughly 80% of its global shipments, dropped for the fourth straight month in August. In fact, the company even cut its annual sales target by as much as 16%, down to 4.6 million vehicles.

To be fair, investors can sell for any number of reasons. Perhaps an investor has a need for cash, or to rebalance a portfolio, harvesting tax losses (not in this case), or simply cashing in on a big winner. Despite Buffett's Berkshire Hathaway exiting its stake in the Chinese automaker, there are still plenty of positive developments for investors wishing to keep their shares.

Ultra-premium

When investors think about BYD, they likely imagine an automaker that caught Tesla in global sales by undercutting the competition with rock-bottom pricing. That's one thing the automaker is attempting to change as it has begun developing a line of ultra-premium vehicles that should help boost its brand image. In fact, the company is now offering some luxury models with price tags topping $200,000 -- essentially the opposite of its brand image that is known for mainstream volume and affordability.

Beyond expanding its brand into higher margin ultra-premium vehicles, the company's international footprint is based on a handful of core concepts: controlling its supply chain, adapting brands differently in a wide range of markets, and localizing production. One thing that's a bit different with BYD is that the company makes almost all of its vehicle parts in-house, including the largest cost of an EV, the battery. This vertical integration gives BYD an edge in speed, flexibility, production, and cost, and it's been a driving force behind the company's financial surge over the past few years.

BYD is also comforting to investors that prefer a more diversified business. While BYD is most known for its mix of all-electric battery-powered vehicles and hybrids, it also manufactures buses, forklifts, high-speed trains, and even utility-scale energy storage solutions. BYD even supplies Ford, Toyota, and Tesla with some batteries for their EVs.

Lastly, and perhaps most importantly for investors hanging on to their shares, BYD has plenty of room to grow. Consider that the International Energy Agency predicts that hybrids and full EVs are expected to account for 80% of China's new-car sales by the end of this decade, a sizable increase from today's level of roughly 50%. You also can't mention BYD's potential growth without noting it has yet to enter the U.S. market, which could be a lucrative strategic move for the company once it mitigates tariffs and other obstacles.

What it all means

Ultimately, while it's easy to think it's time to exit BYD after a massive run-up and its most well-known investor calling it quits, there's plenty of room left for long-term shareholders. BYD is a solid company expanding its brand into more lucrative vehicles, has a diversified business, and profitable growth to be had in its home market and potentially the U.S. market. BYD's share price has been soaring for years, and there's no reason to think that's about to come to a screeching halt.

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Daniel Miller has positions in Ford Motor Company. The Motley Fool has positions in and recommends Berkshire Hathaway and Tesla. The Motley Fool recommends BYD Company. The Motley Fool has a disclosure policy.