From Top Electric.

Warren Buffett’s decision to sell his stake in BYD, a leading Chinese electric vehicle (EV) manufacturer, has sparked intrigue given the company’s remarkable growth. Between 2020 and 2024, BYD’s production surged tenfold to 4.3 million vehicles, fueled by aggressive expansion. However, industry expert Yoken Sebert, founder of JSC Automotive, reveals troubling practices behind this success. BYD financed its growth by extending supplier payment terms to 270 days, using the cash to scale operations. This has led to overproduction, with vehicles far exceeding market demand. To clear inventory, BYD slashed prices by 33% in May, igniting a price war that has eroded profits across China’s automotive sector. Competitors like SAIC and Li Auto, with less supplier debt, are better positioned, but the industry faces a potential 20-25% sales drop in the next two years. New government regulations mandating 60-day supplier payments could strain BYD’s finances, while reports of questionable accounting raise further concerns. Factory closures by Volkswagen and Nissan, alongside exits by Mitsubishi and others, signal a market on the brink of downsizing. Buffett’s gradual exit from BYD since 2022 likely reflects these red flags. Despite government subsidies boosting EV adoption and improving air quality, the market’s reliance on artificial demand creates uncertainty. As China’s automotive industry navigates this crisis, Buffett’s move underscores the risks beneath BYD’s growth story.

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