Anhui Jianghuai Automobile Co., Ltd. (JAC) signed a framework agreement on August 8 with Tianjin HKMC Equity Investment Fund Management Co., Ltd. (Tianjin HKMC) to set up a 50:50 joint venture to manufacture new energy vehicles, according to a JAC statement released on August 9.
The announcement came only days after the company announced on August 3 that the two sides signed a letter of intent for the said JV to be built inside the Hefei Economic and Technology Development Zone where JAC is based.
The new energy vehicle joint venture, named Anhui JAC-HKMC Automobile Corp. (JAC-HKMC), will have a registered capital of 700 million ( 103 million) and a total investment of no less than 2 billion equally split in cash between the two partners in the first phase of the project.
Total investment of the project is estimated to reach 30 billion, with a planned production capacity of 1 million vehicles, 1 million sets of powertrain assemblies and 12 million kWh lithium-ion batteries in the next eight years.
JAC is a public-listed company on the Shanghai Stock Exchange (SH600418) and Tianjin HKMC is a subsidiary of Hybrid Kinetic Motors Corp., a public-listed company at the Hong Kong Stock Exchange owned by automotive legend Yang Rong (aka Benjamin Yung Yeung). Yang founded Brilliance China in the 1990s but was forced to flee China in 2002 before he was served an arrest warrant for alleged economic crimes.
The joint venture, which will have an initial period of 25 years, has been approved by shareholders of both parties and by relevant government departments. Both partners have reached a consensus on the terms of the JV deal, reads the JAC statement.
The statement also says that the two parties have signed a framework agreement with the Hefei Economic and Technology Development Zone in which the latter will provide an area of 10-12 square kilometers of land and the most preferential support for the JV in terms of land cost, taxes and fees and construction capital.
The two partners agree to authorize the JV to use their trademarks free of charge in the development, manufacture and sales of new energy vehicles and powertrains in the future. The JV will use patented and proprietary technologies that belong to the partners for a reasonable fee.
The JV s board will consist of nine directors, with four from each party and one-third party director to be selected by JAC and Tianjin HKMC who will be able to communicate effectively with the local government. The first chairman of the board will be appointed by JAC and the first president by Tianjin-HKMC. The two senior positions are to rotate between the two partners in the future.
Industry analysts believe that the JAC-HKMC joint venture deal signifies that Yang Rong has reemergence in automobile manufacturing and his grand scheme in building hybrid vehicles in both the U.S. and China has made a substantive progress. In the meantime, JAC has taken a critical step in foraying into the manufacture of new energy vehicles, expanding into the global market and moving toward a future restructuring of its corporate ownership structure.
JAC-HKMC deal long expected
The JAC-HKMC deal was expected as early as at the beginning of the year when Yang Rong signed a vehicle development deal on January 19 with the world famous designer Giorgetto Giugiaro in Montgomery, Alabama. Attending the signing ceremony were Alabama governor Bob Riley and other officials from the state and Baldwin County. HKMC will build a green field plant with 1- 1.5 billion in initial investment in Baldwin County to make the world s most efficient cars and trucks by using a combination of compressed natural gas as the primary fuel plus minimal gasoline as well as battery power.
Government officials from the Hefei Economic and Technology Development Zone, Tianjin Economic and Technology Development Zone and Ningbo Hangzhou Bay New Area attended the signing ceremony. Yao Weidong, deputy director of the Hefei Economic and Technology Development Zone, was on the rostrum together with other VIPs at the ceremony.
Yang Rong told CBU/CAR in an exclusive interview with Chinese media representatives in Montgomery that of the three municipal development zones, only one houses a company that has passenger car production license.
I don t want to name names because our partner hasn t given me the permission, Yang said. Apparently, JAC which is located in the Hefei Economic and Technology Development Zone is the only one that has government license at the ceremony indicated that Yang Rong s HKMC had been in negotiation with both the Hefei government and JAC. Yang also disclosed that delegates of relevant government and enterprise officials would arrive in HKMC headquarters in L.A. after the ceremony for further negotiations.
Yang told CBU/CAR that the cooperative car assembly project with the company that has the manufacturing license was going through government approval process and that HKMC president and CEO, Wang Chuantao, would be the president of the cooperative whole vehicle project. The vehicle project will go through China s approval process, Yang said, and it should be approved with no difficult because it is a green vehicle project. First, it involves Chinese, not overseas capital. Second, the total investment exceeds the 2 billion threshold required by the National Development and Reform Commission (NDRC). And third, our planned production capability of 1 million units far exceeds the required 150,000 units.
Senior JAC executives did not deny the possible tie-up with HKMC during telephone conversations with CBU/CAR earlier this year.
JAC s pursuit of independent branding and globalization
There are four reasons why JAC has chosen HKMC as a strategic partner. First, JAC is the only independent automaker in China with a full range of passenger and commercial vehicle products. It is also the only stated-owned auto group that does not have any whole vehicle JV with a foreign brand. During the past two decades, JAC management team under the leadership of Chairman Zuo Yan an has not only made significant achievement in commercial vehicle sales but also successfully moved into the passenger car segment. Yang Rong was known for both his successful launched of China s first independent car brand, the Zhonghua, and his legendary experience in the capital market. The future JAC-HKMC brands, whether Hybird Kinetic (Zhengdao in Chinese, which means correct way ) or JAC, will be Chinese brand.
Second, compared with leading private and State-owned automakers in the development of new energy vehicles, JAC lags behind. The joint venture with HKMC will give JAC ready access to the latter s patented new energy vehicle and powertrain technologies and help it move into new energy vehicle production with limited investment. HKMC plans to follow two technology routes in its new energy vehicle development. The first id to use its patented 1.5-liter internal-combustion engine which can be powered by natural gas, petroleum and battery, with a 20-25 percent improvement in energy efficiency compared to regular engines. The other is to move into plug-in or pure electric vehicles.
Earlier this May, HKMC announced its 100 percent acquisition of Zhejiang GBS Energy Co., Ltd. (GBS), a lithium-ion battery manufacturer. The acquisition provides HKMC with not only the much needed batteries for its hybrid vehicles but also power batteries for plug-in and pure electric vehicles. According to Yang Rong, GBS boasts advanced management, technology and lower cost compared with some larger players in China. It has been exporting power batteries to the U.S.
Third, with the new JV, JAC is expected to export KD parts and assemblies to HKMC s plant in Alabama, which is expected to start operating in 2013. If everything moves according to plan, JAC may very well become the first Chinese OEM to export in quantity to North America. The successful operation of JAC-HKMC no doubt will help accelerate the building of HKMC s U.S. plant.
Fourth, as a state-owned enterprise, JAC has made efforts over the years in trying to go through ownership reform to better adapt to market demands at home and abroad. Already, with the approval from provincial Development and Reform Commission, JAC has offered staff and employees 30 percent of company shares to buy out their past service with allocation of company stocks, which means that company management and employees now own 30 percent of the company. For quite a few years, JAC has been exploring the possibility of selling another 30 percent of company stocks to a strategic private investor in an effort to further lower the state ownership to only 30 percent. The strategic partnership with HKMC may help JAC realize this goal in the future.
Despite many uncertainties, the JAC-HKMC joint venture deal will likely be a win-win tie-up between Yang Rong and Zuo Yan an, both of whom happen to be natives of Anhui.
