BYD's Long-Term Investment Potential Post-Berkshire Exit: Navigating Re-Rating and Institutional Shifts

The recent full exit of Berkshire Hathaway from its 17-year stake in BYD marks a pivotal moment for the Chinese electric vehicle (EV) giant. Warren Buffett's decision to divest a position that grew from $230 million in 2008 to a peak valuation of $9 billion by 2022Warren Buffett’s Berkshire Hathaway Sells Entire Stake in Chinese EV Giant BYD^[1] has sent ripples through the EV sector. While the move reflects strategic recalibration by Berkshire, it also raises critical questions about BYD's long-term value creation potential and its ability to navigate a re-rating in the EV industry.

Strategic Implications of Reduced Institutional Ownership

Berkshire's exit, confirmed in March 2025, followed a gradual reduction of its stake since August 2022Buffett Munger BYD exits stake^[2]. The sale triggered an immediate 3% drop in BYD's sharesBYD Stock Drops After Warren Buffett's Berkshire Exits Stake^[3], underscoring the symbolic weight of Buffett's endorsement. Institutional ownership shifts have since accelerated: Vanguard, BlackRock, and Fidelity collectively sold $3.3 billion worth of BYD shares in Q2 2025Buffett Ends 17-Year Investment Journey with Full BYD Exit^[4]. This exodus reflects broader investor caution toward Chinese equities amid geopolitical tensions and regulatory scrutiny of aggressive discounting in the EV sectorBerkshire Hathaway Exits BYD After 17 Years, Citing Market Changes in China's EV Sector^[5].

However, institutional skepticism does not equate to a lack of fundamentals. BYD's financials remain robust, with a net cash position of 13.57 billion yuan and a debt-to-equity ratio of 0.21BYD Company (BYDDY) Statistics & Valuation Metrics^[6]. The company's vertical integration—controlling battery production, electronics, and software—grants it a 25% cost advantage over legacy automakersBYD Teardown | UBS Global^[7]. UBS analysis emphasizes that this structural edge positions BYD to maintain profitability even amid price warsUBS Analysis on BYD’s Cost Leadership^[8].

Re-Rating Potential in the EV Sector

The EV sector's re-rating in 2025 has been shaped by divergent trajectories. Tesla, with its 35% production capacity increase in 2023 and IRA credits, retains dominance in the U.S. marketTesla (TSLA) vs. NIO vs. BYD (BYDDY): In-Depth Comparative Analysis^[9]. NIO, meanwhile, staged a 40% stock rebound in July 2025 on cost-cutting optimismNIO vs BYD: The 2025 EV Stock Showdown^[10], though it remains unprofitable. BYD, by contrast, faces a more complex landscape:

• Profitability Pressures: BYD's Q2 2025 net income fell 30% year-on-year due to domestic price warsBYD Cuts 2025 Sales Target by 16%^[11].
• Sales Revisions: The company cut its 2025 target to 4.6 million vehicles from 5.5 million, reflecting slowing domestic demandChina Electric Vehicle Market Report 2025^[12].
• Valuation Metrics: BYD's trailing P/E ratio of 22.71 and EV/EBITDA of 7.50BYD Company Limited: Valuation Ratios^[13] suggest moderate valuations compared to historical peaks (e.g., 116x in 2025)A Financial Analysis and Valuation of BYD^[14]. Analysts like UBS argue the stock is undervalued relative to its cost leadership and global expansion plansUBS Global Insights on BYD’s Re-Rating Potential^[15].

Long-Term Value Creation: Challenges and Opportunities

BYD's ability to sustain long-term value creation hinges on three factors:

1. Global Expansion: The company is targeting 40% of its 2025 sales from overseas markets, leveraging cost-effective models and Blade battery technologyBYD’s Global Expansion Strategy^[16]. Success in Europe and Southeast Asia could offset domestic headwinds.
2. Technological Innovation: BYD's investment in sodium-ion and solid-state batteriesGlobal EV Outlook 2025 – Analysis^[17] aligns with global electrification trends, offering a potential moat against competitors.
3. Margin Resilience: While price wars have eroded short-term profits, BYD's vertical integration and scale could enable margin recovery as demand stabilizesBYD’s Vertical Integration and Cost Advantages^[18].

Conclusion: A Cautious Bull Case

Berkshire's exit signals a recalibration of risk in the EV sector but does not invalidate BYD's long-term potential. The company's cost leadership, technological depth, and global ambitions provide a foundation for value creation. However, investors must weigh near-term challenges—such as regulatory pressures and profit erosion—against its structural advantages. For those with a multi-year horizon, BYD's current valuation and strategic pivot to international markets may present an attractive entry point, albeit with a higher risk profile than Tesla's entrenched dominance.