BYD, the world’s largest electric vehicle (EV) maker, has earmarked US$5 billion for foreign exchange derivatives trading to reduce risks to its fast-growing global operations from the yuan’s volatility amid rising geopolitical tensions.
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“To offset the adverse impact from wild fluctuation in exchange rates and save financial expenses, the company has decided to carry out foreign exchange hedging through derivatives trading,” BYD said in a filing to the Hong Kong stock exchange on the weekend. “The derivatives trading will be conducted according to operational needs.”
The Shenzhen-based carmaker, which counts Warren Buffett’s Berkshire Hathaway as a shareholder, added that the US$5 billion would be used only for hedging purposes.
Currency futures are a hedging tool that allows traders to minimise potential losses from currency conversion. Technically, a stronger Chinese yuan would cause the carmaker to suffer foreign exchange losses if the revenue it makes abroad depreciates.
BYD’s plan to trade forex derivatives is a result of its rapid overseas growth, as its mass-market EVs have been increasingly well received outside mainland China. The company has operations in nearly 100 countries.
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