Doing business in China is a strange and mercurial endeavor. After Samsung found out its battery division had been left off a list of approved suppliers, it quickly decided to curry favor with Chinese authorities by making an investment in BYD, the large Chinese electric car company that is 10% owned by Warren Buffett’s Berkshire Hathaway group.
In February, BYD won approval from the Chinese government to sell additional shares in the company. The sale could raise as much as 15 billion yuan (approximately $2.2 billion) for the company. That money would help fund expansion of its battery making operations and additional product development. BYD has six months to sell the shares after winning approval.
In an e-mail on July 15, Samsung confirmed its interest in BYD and said it would provide details once the terms of the purchase have been finalized. BYD said Samsung has been actively pushing forward talks about buying its shares in a private placement. But talks are still underway, the Chinese company said, denying a report by the Korea Economic Daily that an agreement was reached to acquire a 4 percent stake.
The investment in BYD will allow Samsung, which is the the world’s largest maker of phones and memory chips, to expand its involvement in the development of computer systems for electric and connected automobiles. The government of China is strongly encouraging the manufacture and sale of electric cars. Since China is now the world’s largest automotive market with sales exceeding 20,000,000 vehicles a year, every major manufacturer and supplier is anxious to not be left out.
“It puts Samsung into the electric-vehicle subsystem supply chain for a key Chinese electric vehicle and battery manufacturer,” said Bill Russo, a Shanghai-based managing director at Gao Feng Advisory Co. “BYD gets a technology innovation pipeline partner with a reputable brand.”
The Chinese government says it wants sales of so-called “new energy vehicles” to exceed 3 million units a year by 2025. Thanks to generous incentives, deliveries of new energy vehicles more than doubled in the first half of this year to about 170,000 units according to the China Association of Automobile Manufacturers. That means China still has a very long way to go to achieve its goal.