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.
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.
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.
The fact of the matter is that China's broader car industry has shown signs of a rapid slowdown in recent months, in tandem with the nation's broader economic slowdown. National car sales this year are forecast to grow only about 7 per cent this year after posting a disappointing similar rate in 2014. Sales had been growing at double-digit rates before that, as China overtook the US to become the world’s biggest car market in 2010.
This latest asset sale by BYD, combined with its new auto financing joint venture, could buy the company some valuable time for its struggling EV initiative. Beijing has been working hard to promote the development of necessary infrastructure like charging stations to make EV ownership more attractive for average consumers, and many of the new projects will come on stream this year and next. It's possible that development could provide some new life to BYD and its sagging stock. But it's more likely the sector will continue to struggle in China, like it is in the rest of the world, and BYD may have to sell off more assets to stay afloat.