Buffet-backed BYD announced on this Wednesday that it has ended the joint venture for car purchases in China with a unit of France's Societe Generale due to differences in the risk evaluation of the business between the two parties.
In the statement to the Hong Kong stock exchange, BYD stressed:"the Societe Generale unit is of the view that automobile market in the Chinese Mainland is facing increasing risks, and the two companies have different evaluation on the potential risk in association with the business and cannot reach consensus on the business strategy of the JV Company.”
Last June, BYD signed joint venture with Compagnie Generale de Location d'Equipements (CGL) to meet the growing demand for vehicles in Chinese Mainland, the biggest auto market in the world. According to the joint venture contract, the venture's registered capital would be about CNY 500 million (US$77 million), of which BYD would contribute CNY400 million and the Societe Generale unit paid the remainder.
Under the final settlement, the Societe Generale unit will pay CNY 2.25 million to BYD. However, BYD said that the termination of the contract won't have a significant impact on its financial position and business operations.
A Societe Generale spokeswoman confirmed that the joint venture ended, but declined to comment on the reason.
Shares of BYD — which held an 80 percent share of the tie-up — were 2.23 percent lower at HK$26.3 (US$3.38) in Hong Kong at noon.
BYD, which saw first-quarter profit shrink 84 percent due to increasing costs and falling auto sales, said the decision would not have a significant impact on its financial position and business operations.
BYD reported earnings of US$266.7 million yuan in the three months to March 31, well below its US$1.7 billion yuan net profit in the same quarter last year. Operating revenue fell 12 percent in the quarter.
Despite this, shares of BYD — which is already listed in Hong Kong — soared 41 percent in their share debut on the Chinese mainland last week.
BYD, which began as a manufacturer of rechargeable lithium-ion and nickel batteries, drew international attention when Buffett bought a 9.89 percent stake in it for US$230 million in 2008.
China's auto sector overtook the United States in 2009 to become the world's largest car market but it has lost steam after Beijing phased out most sales incentives implemented to ward off the global downturn.