NEW ENERGY: Geely Dumps EVs, BYD Wins Back Shenzhen

By on

Bottom line: Geely’s sale of its EV joint venture stakes to its parent company, and BYD’s reinstatement of a major electric bus order from its hometown government, underscore how reliant the industry is on government support for its survival.

Shenzhen reinstates big electric bus order for BYD

A couple of electric vehicle (EV) stories are in the headlines, spotlighting just how dependent the sector is on government subsidies for its survival in China. I’ve written about this over-reliance on state-support frequently, including just last week when a government report said the sector had become bloated with mediocre players without any chance for commercial success. (previous post) Both of the latest headlines reinforce that theme, including one from smaller player Geely (HKEx: 175) and the other from stalwart BYD (HKEx: 1211; Shenzhen: 002594).

The Geely headline is the most revealing of the pair, and has the Hong Kong-listed company selling its stake in 2 EV joint ventures back to its unlisted parent. Such moves are quite common for Chinese companies, whose listed units often swap assets back and forth with their unlisted parents. Such practice removes poorly performing assets and injects up-and-coming ones into the listed company to improve its outlook, and prices are always advantageous to the publicly traded company.

In this case, it’s also quite revealing that Geely actually tried to sell the stake in one of its EV joint ventures with a company called Zhidou to a real independent buyer, but failed in that effort. As a result, the Hong Kong-listed Geely ultimately had to sell the Zhidou joint venture stake, as well as its stake in another joint venture with EV maker Kandi (Nasdaq: KNDI) back to its state-run parent. (HKEx announcement)

According to its announcement, Geely sold the 2 joint venture stakes to its parent for a combined 1.35 billion yuan ($200 million), which was roughly split 50-50 between the 2 different joint ventures. In its statement, Geely said the pair of ventures, both involved in low-end EV manufacturing, were both suffering recently due to changes in China’s tax and other incentive policies for new energy car development.

China’s strong support for the sector has included numerous product development grants for manufacturers, as well as generous rebates for the vehicle buyers. But Beijing has strongly curtailed such incentives this year, partly after discovering that many buyers were simply chasing big government rebates and had no interest in driving their EVs. The flood of mediocre products from small producers has also forced Beijing to rethink its strategy, and was also probably a factor behind Geely’s decision to dump the joint venture stakes from its Hong Kong-listed unit.

Hometown Support

While Geely’s joint ventures probably fall into the category of mediocre product makers, BYD is China’s clear leader in the space and has worked for years to develop globally competitive products. Despite that, the company, whose backers include US billionaire investor Warren Buffett, hasn’t achieved much success globally. It has signed a steady stream of pilot programs outside China, but few have moved beyond that stage.

Instead, BYD has relied heavily on Beijing incentives to boost its China EV sales, and has also relied heavily on big orders from the government in its hometown of Shenzhen. The company appeared to suffer a big setback when Shenzhen’s bus operator abruptly canceled about three-quarters of an order for nearly 3,000 electric buses earlier this month. (previous post) Some speculated the cancellation was prompted by rival bidders who complained that BYD had won the entire order due to favoritism by its hometown government.

But now BYD has just announced a new order for about 2,600 buses from the same operator in Shenzhen. (company announcement) That number is larger than the original cancellation of an order for 2,228 buses that was contained in the reports earlier this month, and it’s quite obvious the two pieces of news are related.

This latest announcement shows the earlier cancellation was probably due to procedural issues rather than concerns about an unfair bidding process. But equally if not more important, this latest bid continues to underscore how dependent Chinese EV makers are on state support for their survival, a reality that’s unlikely to change anytime soon.

Related posts:

(NOT FOR REPUBLICATION)

(Visited 432 times, 1 visits today)