China’s Didi is in talks with state-backed Sinomach Automobiles to buy a third of its electric-vehicle unit, two sources said, signaling the ride-hailer’s regulatory trouble is in the rear view mirror as it focuses on growth.
The deal, if completed, will accelerate Didi Global Inc’s strategic expansion into the world’s largest EV market and help mitigate the pandemic’s impact on its core ride-hailing business.
Investigations from Beijing for suspected breaches of data security have forced Didi to delist from New York and rein in her business, but there are signs of a thaw. The Wall Street Journal reported on Monday that regulators are ready to end their investigation into the company.
A source told Reuters that Didi aims to acquire shares in small-sized automaker Sinomach Zhijun Automobiles from minority shareholders and infuse fresh capital into the firm. Another source said that a share of that proportion would cost Didi more than 1 billion yuan ($150 million).
Sources said talks for a stake in Sinomach Zhijun are in the final stages. One of them said both sides have given themselves time till the end of the month to complete the deal, which would make Didi the EV maker’s second largest shareholder after Sinomatch Automobiles.
The Corporate Registry shows that the parent and its related entities hold a combined 67% of Sinomac Zijun.
“The deal negotiations between Didi and Sinomach have given positive signs to the market,” said Zhang Zihua, chief investment officer at Beijing Uni Asset Management.
“First, it means that the regulatory crackdown that forced Didi to delist from the US and ban its apps in China will probably end. Secondly, Didi’s tie-up with the state-backed automaker in Greater China will come to an end. Re-listing plans in the region will also help in the future,” Zhang said.
Shares of Didi, which have fallen more than 55% so far this year, were up nearly 4% at $2.31. He rose 8% in premarket trading following a Reuters report.
The ride-hailer is quietly moving forward with a car-building project code-named “Da Vinci”, and according to one source, it has about 2,000 people. Sources said it is partnering with automakers that have EV production licenses, which is needed to make such vehicles in China.
Didi and Sinomach Zijun did not respond to requests for comment. Neither did Shanghai-listed Sinomach Automobiles, whose shares jumped a 10% daily range in afternoon trading on Wednesday.
Sources who have direct knowledge of the deal’s negotiations declined to be identified due to lack of confidentiality.
EV Ambitions
Didi’s focus on expanding the business rather than fighting regulatory fire will come as a relief to investors, who have seen the company’s valuation in May from about $7 billion to $80 billion at the time of its listing, though shares have been in the past. has accelerated. month.
Graphic: Didi Shares vs US Rivals (https://fingfx.thomsonreuters.com/gfx/mkt/klvykovegvg/image-1654658639183.png)
Its foray into EVs comes as big Chinese tech firms such as Xiaomi Corp and Huawei ramp up their efforts to gain a foothold in the industry, as Beijing promotes green vehicles to reduce carbon emissions. Didi, which is also developing autonomous driving technology, plans to launch two EVs for mass production in the second half of next year, one targeting the online ride-hailing market and the other targeting the consumer market. is for. China’s total vehicle sales for April fell by nearly 48% from a year ago, according to official data, as COVID-19 lockdowns hit factories and showrooms, EV sales increased and Chinese brands declined. competed with global rivals.
debt relief
As part of the Sinomatch deal, Didi aims to help solve the debt problem of Sinomach Zhijun, which was struggling to boost its sales in China and owes more than 1 billion yuan, Said another source. The automaker, based in the southern city of Ganzhou in Jiangxi province, has halted most of its production since the second half of last year, the source said. According to Chinese media reports, an executive of Sinomach Automobiles said earlier this year the entity was looking at bringing in strategic investors and was in talks with several companies in the industry, with the parent prepared for the move. Huh.
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