There's no denying the fact now that electric cars are the future. There were only a handful of companies really competing in this market up until a few years ago. Now, almost all major car manufacturers across the globe have started launching fully electric vehicles. Electric car companies are now considered to be solid investments due to the immense potential for future growth.
If someone was able to acquire a sizeable stake early on, they'd want to ride the growth wave for the maximum return on their investment. However, Samsung's decision to sell its $1.3 billion stake in China's largest electric car manufacturer has confused many.
Everyone's buying into car companies, Samsung's had enough
Samsung confirmed back in 2016 that it had acquired a 4% stake in China's largest EV and rechargeable battery manufacturer called BYD for almost $450 million. The company has gradually reduced its position in the company over the following years, netting a decent profit over its initial investment.
Regulatory filings showed at Samsung had a 1.9% stake in BYD at the end of 2020. Korean media is now reporting on Samsung's latest regulatory filings that confirm it has sold a 1.6% stake in BYD for approximately $1.3 billion. As of now, Samsung only has a 0.3% stake in BYD.
It goes without saying that Samsung has more than tripled its initial investment in the company. This turned out to be an incredible deal for Samsung. However, market watchers are puzzled by Samsung's decision to sell its stake even as car manufacturers across the globe compete to develop self-driving and electric vehicles.
It's not like the company is strapped for cash. It has more than $100 billion in cash sitting in the bank. The market hasn't lost momentum as well. Global tech companies are actively getting involved with the automotive industry to generate growth from next-generation vehicles. When Samsung bought its 4% stake in BYD back in 2016, it said that the deal was made to secure growth for its automotive chip business.
Some analysts believe that Samsung has merely cashed out at a time when BYD's shares are at their highest point. Shares are up 31% from the end of 2020. Others feel that it may be part of a balancing act that Samsung is having to perform as it juggles its relationships with the US and China.
Nevertheless, what matters most in every investment is the amount of return that you can generate. Samsung has made money hand over fist on this deal. Maybe it felt that $1.3 billion can be used to generate more profit elsewhere.
