Warren Buffett-Backed BYD Faces $12B Selloff Amid Doubts Over Sales Targets And Smart-Car Capabilities: 'The Growth Profile...Is Being Questioned'

The growth status of Chinese EV manufacturer, BYD Co. BYDDF, is under a cloud of uncertainty following a $12 billion selloff. Concerns regarding the company’s sales targets and its ability to compete in the realm of smart cars have been cited as the key reasons behind the selloff.

What Happened: BYD’s Hong Kong-listed shares witnessed a 12% dip in November, spurred by worries over its ability to meet sales expectations in a volatile market environment, Bloomberg reported. The company’s capability to deliver intelligent, connected offerings, especially in the face of competition from newcomers like Huawei Technologies Co., has also been scrutinized.

Xiadong Bao, a fund manager at Edmond de Rothschild Asset Management, voiced concerns over BYD’s growth trajectory. He pointed out that Huawei’s entry into the electric vehicle (EV) sector could potentially expedite the launch of new Chinese products, thereby leaving BYD in a vulnerable position due to its lagging technology.

"The growth profile of BYD is being questioned," Bao said.

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Despite posting record sales in October, BYD’s market turned bearish quickly as the company resorted to higher discounts to drive sales. Other challenges such as Warren Buffett's Berkshire Hathaway Inc. BRK BRK selling down its stake in BYD and a probe by the European Union into Chinese EV subsidies have further complicated the situation. This has led to a surge in short interest in BYD shares, which now stand at over 4% of the free float over the last three weeks.

Why It Matters: Despite setting another sales record last month, BYD’s numbers were essentially on par with October’s level. This has failed to assuage investors who had been questioning BYD's ambitious sales goals of three million units for this year and four million in 2024. Even though BYD remains the leading auto brand in China, surpassing Volkswagen AG VWAGY, investors have been wary of the increasing competition and the rise of Huawei in the EV sector.

The company’s recent decision to slash prices on several models in a year-end push could be seen as an attempt to boost sales and remain competitive. However, the temporary nature of these discounts might not be enough to instill long-term confidence among investors.

However, the growing gap in market capitalization between BYD and Tesla Inc., despite their comparable revenues, EV sales, and profits, has also roused questions among analysts.

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BYD Photo by A. Aleksandravicius on Shutterstock