BYD Spins Off Car-Seat Unit in Drive to Shed Noncore Assets

BYD Co. Ltd., the electric car maker backed by billionaire investor Warren Buffett, said it will spin off one of its car-parts units into a joint venture with France’s Faurecia as part of a larger drive to divest its component businesses to focus on carmaking.

The partnership will see BYD and Faurecia set up a joint venture with 760 million yuan ($115 million) in registered capital, with the former contributing 30% and the latter 70%, the pair said in a statement to the Hong Kong Stock Exchange. Under that ownership structure, the joint venture will become part of Faurecia’s China unit.

The venture will mostly engage in the manufacture, assembly and sale of automotive seating products, and will continue to sell to BYD, according to the BYD statement. The venture’s annual sales are expected to reach 2.4 billion yuan by 2020, according to a separate statement from Faurecia.

“The joint venture with Faurecia China is the first attempt of the group to spin off and consolidate its automotive parts business,” BYD said. “The company expects that the establishment of the joint venture company can help the group become more asset-light, enable the group to focus on the automobile business, and enhance the quality and cost control of the seating of vehicles of the group, as well as enhancing the sales of automobiles of the group.”

BYD added that it will also realize one-time gains from the sale of the seating and other car-part divisions, and BYD can then channel those gains back into its core car-making business. Faurecia considers Asia a “priority region” for the company, and has current strategic alliances with domestic Chinese auto industry players Geely, Xuyang Group and Changan, according to its website.

“Faurecia greatly values this new strategic joint-venture with BYD, a leader in the electric-vehicle market in China,” company CEO Patrick Koller said. “It will support Faurecia’s penetration into the new-energy vehicle market and will accelerate Faurecia’s growth with Chinese original equipment manufacturers, which will reach 40% of the group’s sales in China by 2020.”

BYD shares were up 1.2% in afternoon trading in Hong Kong. The stock rallied sharply in September on big hopes for its electric vehicles, following Beijing’s rollout of a new policy that will force all carmakers to get into the new-energy vehicle business or buy credits from other existing players like BYD. But the stock has pulled back about 14% from a peak in early October after Beijing announced it will delay rollout of the program until 2019 from an original start date of next year.

BYD’s spinoff of the seat-making business comes about five months after it announced another spinoff for its electric vehicle battery-making unit into a separate company.

Earlier this week, BYD reported its third-quarter revenue rose 4% to about 29 billion yuan, but its profit fell by 24% to just over 1 billion yuan. BYD and other electric car makers struggled in the first half of the year as China overhauled its new-energy vehicle subsidies to eliminate abuses. But they expect sales to rise sharply toward the end of the year as new policies start to take effect.

Contact reporter Yang Ge (geyang@caixin.com)