China's Electric Dream Goes Public

By Nisha Gopalan 

China's biggest electric-car maker 
1 , owned by state firm BAIC Group, will soon have a coming-out party at home.
A way into one of Beijing's favorite industries may prove to be a hit for the group and investors.
BAIC, whose BAIC Motor Corp. subsidiary is listed in Hong Kong, is injecting its EV unit into a Shanghai-traded maker of optical-fiber cables, Chengdu Qian Feng Electronics Co., in a $4.5 billion reverse merger. That's good news no doubt for investors in Chengdu Qian, whose shares have been halted since September 2016.
The plan will also cheer shareholders in BAIC Motor, which owns 8 percent of the electric-auto unit, according to analysts at JPMorgan Chase & Co. The Hong Kong subsidiary might make a 1 billion yuan ($156 million) investment gain from the deal, the Wall Street broker predicts.
BAIC Group, whose main business centers on sales of Mercedes-Benz cars in China and a painful partnership with Hyundai Motor Co., gets a listed presence in an industry that mainland investors love. Just look at BYD Co., backed by Warren Buffett -- its China-listed stock has risen a lot more than the Hong Kong shares.
Mainland investors' enthusiasm for the electric story makes perfect sense.
While EVs represent just a fraction of total auto sales, China is already the world's largest electric-car market, and will keep growing, thanks to the government. Beijing is working on a timetable to end sales of fossil-fuel-based vehicles, and the country already has the world's largest EV charging network. It's safe to say gas guzzlers' days are numbered in a nation that's keen to curb pollution and build national champions.
That gives the prospective Shanghai listing a golden aura. While China will open up the EV market to competition and phase out subsidies to reduce the throng of companies joining the electric game, few would bet against BAIC.
The BAIC listing will also be a purer play on EVs than BYD. As Gadfly has noted, the Buffett-backed company gets just 55 percent of its revenue from auto sales, and electric vehicles are 20 percent of the total. While EVs are a small part of BAIC Group's mix now, Chairman Xu Heyi said in an interview with the state-run China Daily last month that the company plans to stop producing conventionally powered cars under its own brand by 2025. 
BAIC competes with Geely Automobile Holdings Ltd., the owner of Volvo Cars, and Chery Automobile Co., as well as BYD and the many smaller new entrants.
In the coming shakeout of the EV industry, however, it's hard to see the state-backed brand being the loser.

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