CARS: SAIC Eyes Indonesia, BYD Tries Finance

Bottom line: SAIC’s foray with GM into Indonesia could stand a moderate chance of success, while BYD’s new auto financing joint venture is unlikely to provide a major boost for its stalling EV campaign.

BYD gets approved for auto finance JV

Two of China’s more innovative automakers are in the headlines today, making interesting moves as each looks to maintain growth as the domestic car market sputters. One move will see domestic leader SAIC (Shanghai: 600104) make a new attempt to move outside China with plans to open an Indonesian factory with US joint venture partner General Motors (NYSE: GM). The second move has the sputtering BYD (HKEx: 1211; Shenzhen: 002594) getting government approval to launch a vehicle finance joint venture, which could potentially help to jump-start its stalling electric vehicle (EV) program. Both of these moves are being driven at least partly by a rapid slowdown in China’s domestic auto market, with sales set to grow only about 7 percent 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. A number of Chinese car makers have tried to export and even found early success in developing markets, as customers were attracted by their low prices. But more recently names like Geely (HKEx: 175) and Chery have discovered it’s harder to maintain that momentum due to their lack of strong after-sales support. Some players have also been hit by quality problems that resulted in recalls, and Russia’s ongoing currency crisis has also exposed the risks of doing business in such markets. SAIC has experimented several times with overseas production, but each ended in failure. The largest of those saw it purchase a Korean car maker a decade ago that ultimately went bankrupt. Three years ago it also abruptly pulled out of its struggling India joint venture with GM. (previous post) Now we’re getting word that SAIC is preparing to try again with GM, this time by building a plant to sell their Wuling brand vehicles in Indonesia. (English article) Construction on the plant will begin this year, and most cars will initially be sold in Indonesia. The venture could eventually export its cars to other nearby markets like Malaysia and Thailand. I like SAIC’s plans to partner with GM in the venture, which differs from other Chinese car brands that have previously set up similar overseas plants alone. It’s obviously still too early to say if the new venture will succeed, but the choice of Southeast Asia looks like a fairly safe bet and perhaps SAIC will finally find success with its third major overseas foray. Meantime, BYD is also looking to breathe new life into its car business with its new auto financing venture, which has just been approved by the China Banking Regulatory Commission. (company announcement) BYD actually announced its formation of the joint venture with Bank of Xi’an last May, but is just now getting formal approval from the financial regulator. The company, to be called BYD Auto Finance Co Ltd, has registered capital of 500 million yuan ($80 million), with BYD supplying 80 percent of the total and Bank of Xi’an the remainder. The new company is allowed to engage in a wide array of services, but presumably one of its main roles will be helping consumers to buy new BYD traditional gas-powered cars and also its newer electric vehicles. BYD, which is backed by US billionaire investor Warren Buffett, has struggled quite a bit amid sputtering sales for its EVs despite generous incentives from Beijing. Lending money to finance EV purchases could help to improve the situation, but improvements in infrastructure and customer confidence are the bigger changes that need to happen before the market can really take off. Related posts:

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