Warren Buffett's decision to offer his stake in BYD, a leading Chinese electric car (EV) maker, has sparked intrigue given the company's remarkable development. Between 2020 and 2024, BYD's production rose significantly to 4.3 million cars, fueled by aggressive growth. Nevertheless, market expert Yoken Sebert, creator 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 actually resulted in overproduction, with cars far exceeding market demand. To clear inventory, BYD slashed costs by 33% in Might, firing up a cost war that has worn down profits throughout China's automobile sector. Rivals like SAIC and Li Automobile, with less provider debt, are much better positioned, but the market deals with a potential 20-25% sales drop in the next two years. New government policies mandating 60-day supplier payments might strain BYD's finances, while reports of questionable accounting raise even more concerns. Factory closures by Volkswagen and Nissan, along with exits by Mitsubishi and others, signal a market on the verge of downsizing. Buffett's steady exit from BYD because 2022 likely reflects these warnings. In spite of federal government aids increasing EV adoption and improving air quality, the market's reliance on synthetic need develops unpredictability. As China's vehicle market browses this crisis, Buffett's relocation highlights the threats beneath BYD's growth story.
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