China’s appliance market has been stagnant amid the economic slowdown and an excess of capacity, forcing leaders in the sector to look for new areas of growth.
Earlier, Midea bought a controlling stake in German industrial robot maker KUKA. Most recently, its rival Gree sealed a deal to buy new energy player Yinlong.
Gree first announced its acquisition in March and finally closed the deal last week.
To solve the pollution problem, new energy is a strategic focus of Beijing and enjoys strong policy support.
The rapidly expanding market could also be an important lure for Gree as sales of electric vehicles were up 162 percent in the first half of this year.
Meanwhile, Gree generates the bulk of its sales from air-conditioners, and the sales contracted about 2 percent in the first half. Gree needs to reduce its over-reliance on one major product line.
Headquartered in Zuhai in Guangdong, Yinlong makes batteries for cars. It also manufactures electric vehicles.
The deal marks Gree’s first major effort to diversify into the new energy business.
Observers are not too excited about the deal, however.
More than 200 Chinese companies, including firms backed by internet behemoths Alibaba, Tencent and Baidu, are developing around 4,000 models of new energy vehicles, according to reports.
The market potential may look promising, but the supply side is catching up fast.
In the past, whenever certain business looks rosy, Chinese firms flock into it and flood the market with too many products, making it a mug’s game for most of the participants.
As an example, Gree tried smartphones last year but its products failed to make much of an impression in the cut-throat market already dominated by top foreign brands like Samsung and Apple, or domestic brands like Huawei.
Meanwhile, it’s also a bit early to tell if Yinlong has what it takes to become a winner in the field of electric vehicles and batteries.
Yinlong controls Altair Nanotechnologies, a Nasdaq-listed company that specializes in lithium titanate materials. Little is known about Altair, but at least investors seem to be voting with their feet.
Altair lost nearly 70 percent of its market value over the past one year. Over a longer horizon of five years, the stock has lost over 95 percent.
Gree has other plans to upgrade itself from an appliance maker to a more sophisticated maker of advanced equipment and smart devices, eyeing sectors like robotics, but like many ambitious plans laid out by Chinese companies, they need to be viewed with a certain degree of caution.
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