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Alcoholic Beverage Company Wuliangye Invests RMB 1 Billion to Develop Renewable Energy Businesses

published: 2023-05-12 9:30

Wuliangye, a major player in China's Baijiu market, has long been recognized for its brewing techniques and cultural heritage. However, in recent years, the company has also entered the field of new energy technologies with the aim of developing its own renewable energy businesses. With the market for new energy technologies rapidly expanding, Wuliangye has proactively responded to the Chinese government’s policies for promoting renewable energies. By taking bold steps to diversify its operations and venture into new energy technologies, the company is demonstrating its commitment to innovation and growth. These ambitious initiatives are expected to have a significant impact.

Wuliangye Has Created Subsidiary for Developing New Energy Solutions

According to Chinese information website Tianyacha, on April 18, Wuliangye established a new subsidiary called Sichuan Wuliangye New Energy Investment with a registered capital of RMB 1 billion. The new entity mainly focuses on researching and developing new energy technologies, self-funded investments, asset management services, energy contracts, wholesales of petroleum products (including refined oil and lubricants), and management of oil and gas operations.

Based on the information provided by shareholders, Sichuan Wuliangye New Energy Investment is a wholly-owned subsidiary that is legally represented by Zhong Daoyuan. Based on public records, Zhong, who was born in December 1981 and holds a degree in finance from China’s Southwest University, currently serves as the deputy director of Wuliangye’s strategic development department.

Wuliangye is a massive state-owned conglomerate that has expanded into various fields beyond its core business of clear liquor and alcoholic beverages. From smart manufacturing and food packaging to logistics, finance, and healthcare, the company has greatly diversified its business portfolio. While many Chinese alcoholic beverage companies have also ventured into other industries in recent years, Wuliangye’s foray into the market for new energy technologies is a particularly noteworthy move.

Wuliangye Has Tried to Expand into Automotive Industry Several Times

Wuliangye attempted to move into the automotive industry in 2003, when the car market as a whole was flourishing. At that time, many major enterprises in China that had not been traditional carmakers or suppliers for automotive parts were scrambling to get into the automotive industry. Wuliangye was no exception and declared that the automotive industry was the last huge untapped opportunity within China’ economy. Therefore, the company had to quickly enter this industry in order not to miss out.

Shortly after announcing its intention to enter the automotive industry, Wuliangye’s subsidiary Sichuan Yibin Push Group began manufacturing molds for automotive parts. Three years later, Wuliangye acquired Mianyang Xinchen Engine that specializes in engines and related parts. However, by the time Wuliangye had fully established its automotive business units, the boom in the automotive industry had already ended. Facing operational difficulties, Wuliangye decided to temporarily leave the industry in 2011.

In 2015, Wuliangye began a new chapter in its diversification journey when the government of Yibin, a city in China’s Sichuan Province, released a plan for the local manufacturing of new energy vehicles (NEVs). The plan called for the creation of a vehicle production hub spanning 3,000 mu with an annual production capacity of 200,000 vehicles. This project caught Wuliangye’s attention, and Sichuan Yibin Push Group was one of the listed project bidders that possess the core technologies related to NEVs and automotive manufacturing.

Then, in 2018, Wuliangye partnered with an investment firm under the government of Yibin to acquire a 51% stake in Chery Automobile’s subsidiary Kaiyi Auto for RMB 2.5 billion. Chery is a major state-owned car manufacturer. Following this acquisition, Wuliang and the investment firm committed RMB 3.7 billion to build a smart factory for manufacturing vehicles. Nevertheless, Kaiyi Auto has not been performing at a high level despite the support from Wuliangye. Its vehicle sales for 202, 2021, and 2021 came to 30,000, 20,000, and 35,000 units respectively.

As it appeared that Wuliangye was encountering another roadblock in its foray into the automotive industry, the demand for new energy technologies, especially battery-related technologies, began to surge. Yibin, with its advantages in geography and natural resources, has attracted investments from the major battery suppliers such as CATL. Wuliangye therefore had the crucial opportunity to collaborate to CATL that was setting up shop in the vicinity of the city. In July 2022, Kaiyi Auto and CATL announced the establishment of their joint venture Kaiyi New Energy. CATL is a powerful ally that could help Wuliangye cement its position within the automotive industry.

Wuliangye Actively Searches for New Growth Opportunities

In China, the competition in the market for clear liquor has become very fierce with many brands fighting for market share. Besides Wuliangye, other well-known Chinese brands for clear liquor include Kweichow Moutai, Yanghe, Luzhou Laojiao, Shangxi Xinghuacun Fen Wine Factory, and Anhui Gujing Distillery. Presently, Wuliangye and Kweichow Moutai are the top two, but the former has been gradually losing market share to the latter.

This gap in their competition can be seen in their financial statements. From 2018 to 2021, Kweichow Moutai’s annual revenue grew steadily from RMB 73.639 billion to RMB 106.19 billion. Meanwhile, Wuliangye’s annual revenue also grew but at a notably slower pace, rising from RMB 40.030 billion to RMB 66.209 billion.

In terms of profitability, Kweichow Moutai’s annual net profit climbed from RMB 35.204 billion to RMB RMB 52.46 billion during the period from 2018 to 2021, whereas Wuliangye’s annual net profit rose from RMB 13.384 billion to RMB 23.377 billion in the same period. Hence, there is a certain gap between the two companies. Moreover, for the first three quarters of 2022, Kweichow Moutai posted a higher growth rate for both revenue and net profit compared with Wuliangye. Kweichow Moutai’s revenue growth rate and profit growth rate for the three quarters were 15.81% and 19.14% respectively. Wuliangye’s revenue growth rate and profit growth rate for the three quarters were 12.19% and 15.36% respectively. On the whole, Kweichow Moutai is gradually extending its lead over Wuliangye.

Even though Wuliangye remains a major player in the market for clear liquor, it recognizes that the market is constantly evolving, and that there is a risk of relying too heavily on a single core business. Therefore, Wuliangye is actively expanding into the field of new energy technologies just as it maintains its other long-established businesses. In doing so, the company will be able to improve its overall competitiveness and inject vitality into its ongoing development.

Crossing over into a new sector comes with some risks. First, the competition is very intense in the wider market for new energy solutions. Wuliangye will be facing pressure from many entrants. Second, companies that are developing products such as NEVs need to already possess a lot of expertise and experience. Furthermore, they have to be willing to commit a huge amount of time and financial resources. Third, there is the issue of whether Wuliangye will be able to maintain a balance between its long-established businesses and its new energy businesses. The company has to ensure that all of its core businesses are growing simultaneously and are in synergy with each other. Failing to do so will lead to internal conflicts and wastage of resources. Still, despite these challenges, the opportunities in the field of new energy technologies are just too big to ignore for Wuliangye.

This article is a translation of a Chinese article posted by TrendForce. It contains information that is either sourced from other news outlets or accessible in the public domain. Some Chinese names are transcribed into English using Hanyu Pinyin.

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