Date
10 December 2016
Despite all the hype about the prospects of the electric vehicle industry, most top players are still in the money-burning stage or generating just a small profit. Photo: The Crux
Despite all the hype about the prospects of the electric vehicle industry, most top players are still in the money-burning stage or generating just a small profit. Photo: The Crux

China car dealership firm Harmony mired in EV nightmare

China Harmony New Energy Auto Holding Ltd.’s(03836.HK) streak of bad luck began with its venture into electric car business.

About two years ago, amid heightening competition and thinning margins in its core car dealership business, Harmony chairman Feng Changge decided to look for fresh growth opportunities by tapping into the electric car industry.

But Feng made a big mistake.

After Harmony acquired an 88 percent stake in Zhejiang Green Field Motor Co. Ltd. for 300 million yuan (US$43.56 million) in January last year, with a pledge to inject another 300 million yuan later, the country’s second largest car dealer found out the firm actually has no license to make passenger vehicles.

Zhejiang Green Field Motor is only allowed to produce low-speed four-wheel vehicles for the handicapped and elderly, and golf carts.

Worse, since July this year, a court has suspended Green Field Motor’s operation after it failed to settle payments owed to more than 260 suppliers.

Harmony has been heavily criticized for not conducting proper due diligence for an acquisition costing almost one full year of its profit.

Now Harmony is faced with the possibility of suffering a total loss.

Harmony has yet to give an official explanation for the fiasco.

Also, it has not made any provision in its first-half results released in August, in which it posted a year-on-year profit growth of 9.6 percent.

The market did not buy into that, and the share price plunged further.

Another thing keeping investors wary is that Feng himself reportedly has been missing for months.

A local media report said Feng had been taken away to assist in the investigation of a graft case involving a senior official of Henan province, where the company is based.

Feng has been out of contact since then, the report said, citing a company source.

However, on Nov. 30, the firm issued a statement on the Hong Kong Stock Exchange to deny the report, noting that Feng can be reached and continues to participate in the company’s major decisions.

Harmony’s share price has already lost about 45 percent year to date, pushing its price-to-book ratio to below 0.7 times, far below the average ratio of 1.8 times in the dealership industry.

While Feng’s move into electric vehicles is understandable, he has probably overestimated his company’s capabilities.

Even global leaders such as Tesla have yet to achieve stable profits. Other players like Apple and Google are still in the money-burning stage.

BYD Co. Ltd. (01211.HK, 002594.CN), China’s leading maker of electric vehicles, still derives most of its profit from batteries, mobile phones and gasoline cars.

This article appeared in the Hong Kong Economic Journal on Dec. 1.

Translation by Julie Zhu

[Chinese version 中文版]

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RT/CG

Hong Kong Economic Journal columnist

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