Chinese EV star and Tesla rival BYD unveils European expansion

BYD, the Shenzhen-based rival of Elon Musk’s Tesla, has unveiled plans to take over the European car market, as the electric carmaker embarks on an aggressive global expansion despite pressure from a potential exit from the shareholder Warren Buffett.

China’s biggest electric vehicle maker and second-biggest battery maker announced pre-sale prices for a range of all-electric vehicles in Europe this week. BYD’s European expansion will begin in Germany, home to Volkswagen and Mercedes-Benz, and Sweden, before expanding to France and the UK later this year.

“They’re looking to go up against the big guys,” said Tu Le, managing director of Sino Auto Insights, a Beijing-based consultancy, which expected Chinese models to compete with cars such as the BMW iX3 and the Musk’s fleet.

As battery car sales increase, analysts expect widespread adoption of Chinese nameplates across Europe, similar to the rise of Korean brands Hyundai and Kia. BYD is among a group of Chinese electric vehicle makers hoping to break into the region, including Nio, XPeng and Aiways.

BYD began preparing for its European offensive five years ago, hiring designers to improve the appearance of its vehicles. “They’ve really come a long way to make their vehicles more attractive than before,” said Michael Dunne, head of consultancy ZoZoGo and an expert on China’s automotive industry.

“What’s driving this huge increase are much better designed and manufactured vehicles,” he said.

Still, BYD’s expansion was overshadowed by speculation that it would lose Warren Buffett as an anchor investor after Berkshire Hathaway began trimming its stake, sending shares 33% below their July high.

“The irony is that they make the best products they’ve ever made,” Tu Le said of BYD. “Their sales growth is off the charts. And one of their biggest investors is stepping down.

BYD is one of many Chinese electric vehicle companies that have benefited from years of subsidies and state-backed development of the battery metal supply chain. The group’s revenue soared nearly 70% to Rmb 150.61 billion ($21 billion) in the first half of 2022.

In June, BYD overtook Volkswagen as the world’s third most valuable automaker, behind Tesla and Toyota. In September, the group’s electric vehicle battery unit sales volume overtook South Korea’s LG Energy Solution as the world’s second-largest supplier of electric car batteries, behind China’s CATL.

In February, Berkshire Hathaway valued its 7.7% stake in BYD at $7.69 billion, a stunning 33-fold gain from the $232 million invested in 2008. Five months later, Berkshire sold 3 million shares of its Hong Kong stake, equivalent to only more than 1% of the 225 million shares of its original stake.

The move and subsequent block trades sparked panic selling by other investors. The decision to give in was not explained by Buffett or BYD. The companies did not respond to a request for comment.

A senior adviser to a US hedge fund, who asked not to be named, said geopolitical considerations could underlie Buffett’s decision.

Surveillance of US investment in China has intensified in recent years and there is bipartisan pressure in Washington to sever US ties with companies and industries perceived to support the Chinese Communist Party.

Cole Smead, chairman of Smead Capital Management, an American investment fund, expected Berkshire to make slow progress in selling its stake. He pointed out that Charlie Munger, vice chairman of Berkshire and Buffett’s right-hand man, has long had a “bullish” view of China.

“I just don’t see Berkshire Hathaway being welcome in China if they cause major disruption in capital markets by selling, say, their entire stake within a week or two.”

Traders have warned that the sharp decline in market sentiment this year has made it much more difficult to sell a large stake in BYD without jeopardizing returns from Berkshire’s investment.

“Leaving a position like this is harder than it was a year or even six months ago,” said Andy Maynard, trader at investment bank China Renaissance.

Maynard said Berkshire could attempt to divest through large block trades, gradually sell the entire market position, or a combination of the two.

“The problem with dribbling is that you keep the downward pressure on the stock for a long time,” he said. “It depends on Berkshire coming back [target] is, which is something that is private to them and their bankers.

Additional reporting by Eric Platt in New York

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