Does Warren Buffett really think differently from ordinary people?

BYD's sales have reached a new high, even surpassing Tesla, yet Buffett has increased his selling efforts. Why is that?

01

According to the most recent data, BYD's sales volume in October this year reached 217,800 units, marking two consecutive months of exceeding 200,000 units.

In contrast, Tesla's Shanghai factory delivered 71,700 vehicles in October this year.

When comparing BYD's sales volume with Tesla's Shanghai factory deliveries, the gap is threefold.

Moreover, the development trends of the two companies are slightly different. Tesla's deliveries in September set a historical record, but there was a slight decline in October. BYD, on the other hand, has exceeded 200,000 units for two consecutive months, with a year-on-year growth of nearly 170% in October.

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BYD's sales not only far exceed Tesla's but also firmly hold the leading position in the domestic market.

In October this year, the national sales volume of new energy passenger cars was 680,000 units, which means BYD's nearly 220,000 units accounted for nearly one-third. If we look at the cumulative data from January to October this year, BYD's nearly 1.4 million units are still far ahead of Tesla and other new energy vehicle brands. Tesla's cumulative sales volume from January to October this year was 908,600 units.However, in October this year, BYD's overseas sales were only 9,529 units, which is just a drop in the ocean compared to domestic sales. Therefore, some people believe that even if BYD surpasses Tesla in the domestic market, it doesn't mean much.

But looking at the data, it's not the case.

Last year, the global cumulative sales of new energy vehicles reached 6.75 million units, doubling compared to 2020. In the first nine months of this year, the global sales of new energy vehicles have already exceeded last year's total, reaching 9.98 million units.

But China has a significant share in this global sales volume, accounting for 67% in July to September, and 62% cumulatively from January to September. It can be said that whoever wins China wins the world.

When reviewing Tesla's stock price, we have also pointed out on multiple occasions that Tesla's stock price soared precisely after obtaining authorization for the Shanghai Gigafactory at the end of 2019.

So in the medium to short term, as long as domestic car manufacturers like BYD focus on the Chinese market, they can also gain a first-mover advantage in the global market in the future.

02

However, Buffett has repeatedly reduced his holdings in BYD's H shares.

Data provided by the Hong Kong Stock Exchange shows that on November 8th, Buffett reduced his holdings in BYD by 5.78 million shares again, cashing out 1.1 billion Hong Kong dollars, and his current shareholding ratio has been reduced to 16.62%.

Before the end of June this year, Buffett had always held BYD shares and had never reduced his holdings for more than a decade. However, starting from August this year, the Hong Kong Stock Exchange's data has repeatedly shown Buffett's reduction in BYD's holdings.Previously, Buffett held 250 million shares. According to the most recent data, he has reduced his holdings by 43 million shares, which is close to 1/5 of his original stake.

Why is BYD's sales volume getting better and better, yet Buffett is increasingly inclined to reduce his holdings?

I estimate there are two possible reasons.

The first possibility is based on Buffett's long-standing value investment philosophy. He bought the shares at a price far below his expected intrinsic value, which provided a high margin of safety, hence the purchase.

After so many years of development, especially with the increasing penetration rate of new energy vehicles in the past two years, BYD's stock price has soared, and the current stock price has exceeded the intrinsic value in Buffett's mind.

Regardless of how much room for growth there might be in the future, according to Buffett's consistent investment philosophy, this is the time to sell.

The second possibility is that the U.S. stock market has been declining for nearly a year now. In Buffett's view, the U.S. stock market is littered with golden opportunities, and many individual stocks are worth buying.

Buffett is raising more cash by reducing his holdings in BYD, preparing for his next significant value investment.