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Energetic moves: Gree’s Dong

Back in March, Dong Mingzhu, the formidable boss of Gree, China’s largest air conditioning manufacturer said her firm was purchasing a fellow Zhuhai-based company, the electric car manufacturer, Yinlong New Energy, plus its troubled NASDAQ-listed battery producer, Altair Nanotechnologies, based in Nevada.

Last month it confirmed the deal, with a price tag of Rmb13 billion ($2 billion), more than double the valuation ascribed to Yinlong during recent fundraising rounds.

Analysts have been positive about Gree’s move because it could deliver a new revenue stream at a time when air-conditioner sales have slowed. Gree gets about 86% of its revenues from manufacturing air conditioners and parts, but sales contracted by 2% in the first half of the year.

The new direction may also help Dong win a bet she made with Xiaomi’s boss Lei Jun in 2013. As we reported in WiC266, she wagered that he should pay her Rmb1 billion if Xiaomi was unable to top Gree’s sales figures within a five-year period. If it did manage to do so, she vowed to pay him Rmb1 billion.

The following year Gree saw sales rise to a record Rmb140 billion. Yet this was less impressive than the doubling in Xiaomi’s revenues to Rmb74.3 billion. That seemed to put the tech start-up well on its way to overtaking the white goods manufacturer, but Dong claimed the bet had been nullified after Xiaomi moved into the property sector.

(Her competitive rivalry with Lei hit the headlines again when Xiaomi purchased a 1.29% stake in her archrival Midea Group.)

More recently Xiaomi’s growth has slowed because its smartphone sales have given up ground to local rivals such as Huawei.

Both Xiaomi and Gree have been trying to progress into smart manufacturing and the internet-of-things, and build brands of their own. Gree’s first move in this direction came with the launch of its own smartphone last spring, which can be integrated with some of its white goods. Limited production meant the trial version of the phone was largely sold to Gree employees, although the ThePaper.cn says that a second-generation phone is scheduled to go on general sale next spring. In another swipe at Xiaomi, Dong says her true competitor is Apple’s iPhone 6, rather than its lower-priced rivals.

Securities Daily thinks that the Yinlong transaction will help Gree’s expansion into intelligent manufacturing. Gree brings large-scale production and sales expertise, while Yinlong delivers R&D capabilities in sectors where there is already some overlap, such as energy storage (i.e. batteries).

Dong will likely focus her own energies on her home market, where the electric vehicle industry is a priority sector for the government. On first announcing the Yinlong deal, Dong said she was supporting the push towards greener technologies. “The decision was made with the Premier’s work report target to have blue skies, green pastures and clear water,” she said, acknowledging a few of Li Keqiang’s priorities for the year.

As we reported in WiC316, subsidies for the sector are designed to get five million electric vehicles on the road by 2020. Based on sales of 331,000 units in 2015, this implies compound annual growth of about 30% over the next four years. Yinlong sold 7,000 units last year, far below the industry leader BYD’s 61,700.

Its main niche lies in blade electric buses, where it ranks seventh, selling 3,189 units in 2015. Tencent Technology says Yinlong is also developing a fourth-generation lithium battery, which is 40% cheaper but has 30% higher energy density than the mark three.

The acquisition may also explain why US-listed Altair’s share price has rocketed more than 1,500% this year, albeit from a lowly starting point. It had been plagued by problems since 2014 when its auditor resigned, citing irregularities in China.

Gree joins dozens of firms with ambitions in the electric vehicle sector. Will it be able to make the transition? Dong is a fiery competitor who was once memorably described in the New York Times as a woman “who doesn’t even spit out the bones when she chews you up”.


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