Buffett Sells His Top EV Bet
Do you get the feeling the Electric Vehicle (EV) stock boom is fading?
Warren Buffett certainly looks like he does.
His firm, Berkshire Hathaway (BRKA), has announced this week it’s “taking profits” on a historic EV bet.
Once you step back and look at where we are in the EV growth cycle, how expensive EV still are, and some rapidly emerging trends within EV’s, you can see a lot of warning signs that EV stocks could continue their downtrend.
If you own any EV stocks or are looking for a great time to buy in again, please read on.
Buffett Bucks EV Bulls
First things first, the EV boom isn’t slowing down.
We’re still in the relatively early stages of the EV boom.
This future EV sales chart from SplitVolt best describes where the EV market is headed:
Just want to make that clear.
But when one of the greatest investors in history makes this kind of move, it should make you think.
So we’ll start with Buffett’s big recent move out of one of the most successful EV companies in the world.
Back in 2009 Buffett made his first move into EVs.
That’s when Berkshire made a $232 million investment for a 10% stake in BYD Group (BYDDY).
BYD was making a transition from rechargeable cell phone batteries to full EV’s.
Wang Chuanfu, the head of BYD, was described as a combination of “Thomas Edison and Jack Welch.”
Based on BYD’s growth, he has lived up to the expectations.
In September it passed 200,000 total EV sales for the month.
That’s almost double the sales rate of Tesla (TSLA) which sold an average of just over 114,000 per month last quarter.
Shareholders have been handsomely rewarded too.
The chart below is of the BYD Group’s American Depository Receipt shares from shortly after Buffett’s investment to today:
You can see it was a long term bet that didn’t really pay off until the EV bubble took off in 2020.
BYD shares have exploded in price, but have been cut by 35% from the peak earlier this year.
After this kind of price increase, it’s natural to want to take some profits.
Berkshire announced its first sale of BYD over the summer.
It trimmed its stake from 20.5% to 19.9%.
This week we learned the profit-harvesting continued.
Berkshire’s stake is now down to just under 15% of BYD.
That’s a 5% sell-out of a company worth $100 billion for a total sell of around $5 billion.
That’s a big sell for anyone.
And we’ve got a suspicion of the catalysts for the sell-off.
Fueling The EV Bear
The EV industry could be facing its toughest headwinds ever in the next couple of years.
And EV stocks could take a big hit because of them.
Consider this.
First is the bubble run-up in EV stocks.
EV’s were one of the hottest sectors over the past two years.
These companies had no business being worth trillions when most will lose money for years to come.
Second is increased competition.
The number of new EV’s rolling out in 2023 is in the dozens.
The big U.S., European, and Asian automakers have many more planned for after that.
The early EV leaders thrived without competition. That’s changing fast.
Those two could be a serious drag on the EV industry for years.
And since EV stocks have had such a big run, there could be more pain ahead.
In fact, the big downturn may have already begun.
This Is How Bad Goes To Worse
The EV sector has been hit with some major tough announcements over the last few weeks.
For example, Lucid Group (LCID), ultra high-end with the cheapest car is $95,000, according to MotorTrend, recently announced big discounts.
This is a sure sign demand is waning.
Even Elon Musk has gone as far to say that “[Lucid] are not long for this world.”
There’s more.
Rivian (RIVN), an EV truck maker which was put on the map after a $700 million investment from Amazon (AMZN), has been facing its own problems.
This week the company announced it will pause its EV van development program with Mercedes-Benz.
This is all happening in a market where EV stocks had huge gains and have held onto them far better than other high-flying sectors.
High stock prices and heavy (and growing!) competition is a recipe for long-run sector downturns.
Best case, EV stocks could be dead money for years to come.
Worst case, the slide in these stocks is just beginning.
At this point, EV stocks carry a lot of risk for little reward.
The world’s greatest investor seems to agree.
