Doug Young

Corporate China | BYD seeks jump-start with asset sale, finance JV

BYD's latest asset sale, combined with its new auto finance joint venture, are both aimed at boosting its struggling EV business, but it may have to sell off more assets before the market finally starts to gain some momentum.

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Shares in Warren Buffett-backed BYD Co Ltd fell more than 45 per cent in Hong Kong last December. Photo: Reuters

Doug Young

Published: 2:49pm, 15 Feb 2015Updated: 2:56pm, 15 Feb 2015

Struggling electric car maker BYD (1211.HK; Shenzhen: 002594) is starting to look a bit desperate, announcing a major asset sale just days after it received approval for a stalled finance joint venture aimed at boosting its sputtering sales. The approval this week for its auto finance joint venture comes as rival Geely (0175.HK) also has just announced its own approval for a similar stalled joint venture with France's BNP Paribas (Paris: BNP). That indicates Beijing may be starting to worry about a broader slowdown in China's car market after several years of breakneck growth.

China's big domestic automakers like Geely and BYD have suffered over the last few years, as they rapidly lost share in their home market to big global rivals like General Motors (NYSE: GM) and Volkswagen (Frankfurt: VOWG). BYD has suffered more than most of its domestic peers, since it also placed big bets on an EV program that has yet to gain much traction despite Beijing's strong desire to develop the clean energy sector.

Earlier this week BYD announced it had finally won approval from the banking regulator to set up a vehicle financing joint venture that it previously announced nearly a year ago. That initiative should help both its traditional and especially its new energy car sales, since EVs are typically quite a bit more expensive than traditional cars and also face a wide degree of skepticism from mainstream consumers that BYD is targeting for the market.

Now BYD, which is backed by billionaire investor Warren Buffett, has just announced it is selling off one of its older electronic component businesses, in what looks like a bid to raise cash to shore up its shaky financial position. Under the deal, BYD will sell its BYD Electronic Components unit to Holitech (Shenzhen: 002217) for up to 2.3 billion yuan. In exchange, BYD will get cash and up to 12.3 per cent of Holitech, a dubious looking chemical company traded on the Shenzhen stock exchange.

BYD is quite direct in saying the sale is part of an asset disposal as it focuses on its newer core businesses in the traditional and new energy auto sectors, including battery technology. The electronic component business it's selling was actually one of its more profitable units, generating about 200 million yuan in profits last year. Shareholders seemed to welcome the disposal, with BYD's Hong Kong-listed shares rising nearly 5 per cent on the news.

Meantime, Geely will follow BYD into the auto finance sector, with word that it's received approval from the banking regulator for its previously announced joint venture with BNP. Geely says the approval means it can now set up the joint venture, which could become operational within the next six months. Geely first announced this joint venture more than a year ago, and it does seem like the regulator's approval of both the Geely and BYD joint ventures in the same week is probably not just coincidence.