Is It Boundless Horizons or Survival by Amputation? How Are the Cross-Industry Publicly Listed Firms Faring?

As 2024 draws to a close, the battery and new energy industry continues its growth trajectory. In recent years, various industries have targeted this lucrative market and ventured into the battery and new energy sector. How are these cross-industry companies faring? Amid intensified cut-throat competition and industry reshuffling, what new changes have emerged for these cross-industry entrants?

Entering the Market: A World of Opportunities?

On December 18, Willfar Information Technology Co., Ltd. (002058) announced plans for a major asset restructuring. The company intends to sell all assets related to its instrument business to Shanghai Zizhu Science-Based Industrial Park Development Co., Ltd. in cash, while also planning to pay in cash to acquire a stake in Shanghai Zijiang New Material Technology Co., Ltd. ("Zijiang New Material"), aiming to gain control of the latter.

According to available information, Zijiang New Material specializes in the R&D, production, and sales of aluminum-plastic composite films for pouch lithium batteries. Its end-use applications include 3C digital products, energy storage, and power sectors.

Battery Network noted that prior to this transaction, Willfar primarily operated in the fields of automation instruments and automotive inspection tools. Willfar stated that through this asset sale, the company will divest underperforming assets related to its automation instrument business, which will help improve asset quality, enhance sustainable operations and profitability, and protect investor interests. Meanwhile, by acquiring Zijiang New Material, the company aims to transition to new productive capacities, share in Zijiang New Material's future growth, and positively impact its financial and operational performance, aligning with the interests of the company and its shareholders.

On October 31, Ribo Fashion Group Co., Ltd. (603196) announced plans to issue shares and pay in cash to acquire a controlling stake in Sichuan Indiel Materials Technology Group Co., Ltd. ("Indiel") and raise supporting funds.

Since its inception, Indiel has focused on the lithium battery adhesive sector and is a representative enterprise in PAA-based waterborne lithium battery adhesives. Its main products include lithium battery anode adhesives, cathode edge-coating adhesives, and separator adhesives, widely used in power batteries, energy storage batteries, 3C consumer batteries, coated separators, and carbon-coated aluminum foil.

As a publicly listed firm on the Shanghai Stock Exchange, Ribo Fashion's acquisition of Indiel aligns with policy encouragement and support, which is expected to boost the company's performance, help build long-term, healthy, and stable new productive capacities, enhance core competitiveness, and steadily improve sustainable operations.

On the evening of October 22, Lihu Co., Ltd. (300694) announced that it had signed a "Cooperation Agreement" with Highpower Technology (Shenzhen) New Energy Co., Ltd. to jointly establish a limited liability company as a platform for a joint laboratory to develop industrialisation technologies related to all-solid-state sulphide batteries.

According to available information, Lihu's main business involves the R&D, production, and sales of key components for turbochargers, with its primary products being compressor housings and turbine housings.

The establishment of this joint venture to develop industrialisation technologies for all-solid-state sulphide batteries marks Lihu's cross-industry attempt.

On September 25, Jinlongyu (002882) announced that at the beginning of 2024, the company had invested in establishing a subsidiary, Jinlongyu New Energy (Shenzhen) Co., Ltd., which will undertake the company's R&D projects for solid-state batteries and their key materials.

According to available information, Jinlongyu's main business involves the R&D, production, sales, and services of wires and cables, primarily in the power cable category, with its main products being wires and cables.

Jinlongyu also mentioned in the announcement that its R&D efforts in solid-state batteries and related key materials represent a cross-industry investment.

On July 4, Taihe Technology (300807) announced plans to invest 410 million yuan of its own funds to construct an industry chain expansion project to further extend its industry chain, diversify its product portfolio, and enhance profitability.

The announcement stated that the project will be implemented by Shandong Taihe Technology Co., Ltd., located in Zaozhuang, Shandong, with a construction period of three years from the date of obtaining the construction permit.

Taihe Technology stated that this investment project aligns with the company's future strategic development plan, enabling it to deepen its core water treatment agent business while advancing its layout in the new energy sector, promoting rapid development in the new energy industry, and creating new profit growth points for the company.

According to Battery Network statistics, the cross-industry entry into the battery and new energy sector surged in 2023. In H1 alone, over 24 companies announced new developments in this field, with the industries of these companies spanning real estate, environmental protection, apparel, food, chemicals, logistics, toys, ceramics, LED, liquor, and more. However, entering this sector is not a blue ocean. As the sector becomes increasingly crowded, competition has intensified. In H2, the cross-industry entry window closed, intertwining dreams of transformation with the reality of challenges, as many publicly listed firms faced significant tests.

From recent publicly disclosed cases of cross-industry entry into the battery and new energy sector, publicly listed firms have largely avoided the highly competitive power battery and four major material fields, opting instead to break through in areas such as aluminum-plastic films, adhesives, solid-state batteries, and electrolyte solutes.

Exiting the Market: Cutting Losses to Survive?

On October 10, the Shanghai Stock Exchange held a brokerage symposium, emphasizing that cross-industry mergers and acquisitions should focus on industrial transformation and upgrading to develop a second curve of growth.

Cross-industry ventures are not always smooth sailing; they come with both opportunities and challenges. Battery Network's analysis reveals that cross-industry ventures can be a "bonus" for some publicly listed firms but a "death sentence" for others. Faced with severe cut-throat competition and intensified industry reshuffling, some companies have seen their cross-industry new energy plans fall through, been forced to delist, or announced the divestment of underperforming businesses to avoid wasting project resources.

On the evening of December 18, Yayun Co., Ltd. (603790) announced plans to terminate a major asset restructuring. This marks the halt of the company's new energy venture. After nearly 20 months of a tug-of-war, Yayun's plan to acquire Yingming Zhituo has officially ended.

Yayun is a major domestic chemical industry publicly listed firm specializing in the integrated development of dyes and textile auxiliaries, with products including dyes and textile auxiliaries. Yingming Zhituo's main business focuses on NEV battery swapping operations.

Yayun stated that the decision to terminate this transaction was made after comprehensive consideration of the current market environment and full communication and consultation with relevant parties.

On December 16, Leap Technology (300530) announced plans to gradually divest its underperforming power battery business and reallocate resources to focus on the development of higher-margin energy storage batteries and systems. According to Leap Technology, as market competition in the new energy battery industry intensifies and technology updates accelerate, the company upgraded its No. 1 battery cell production line in 2023, transitioning from 135Ah to 100Ah battery cells. However, it failed to achieve economies of scale, with unit costs remaining higher than peers. In 2024, the No. 1 production line's capacity utilisation rate was low, primarily processing inventory of 135Ah and 100Ah battery cells, generating sales revenue of approximately 25.7967 million yuan.

In 2024, Leap Technology plans to shift its focus to producing 280Ah and 314Ah energy storage battery cells on its No. 3 production line and concentrate on energy storage system business. Additionally, to meet business adjustment needs, the company and its wholly-owned subsidiary Hunan Leap signed an agreement with Hongxin Construction on November 19, 2024, to terminate the lease contract for the No. 1 production line.

On the same day, Leap Technology also announced a related-party transaction involving its wholly-owned subsidiary signing a "Lease Contract." This transaction, aimed at supporting the development of its energy storage battery and system business, involves leasing facilities such as battery cell production line plants, auxiliary equipment, pilot line plants, large-scale storage line plants, module line plants, and equipment, ensuring the subsidiary's R&D, production, and daily operations in the new energy battery sector.

On the evening of November 6, Shenzhen Newstar (603978) announced a "Supplementary Agreement" regarding the asset transfer of its wholly-owned subsidiary. To optimize its industrial structure and divest underperforming assets, the subsidiary Songyan New Energy Materials will transfer equipment and labor related to its LiPF6 project to Ganzhou Songyan New Energy Materials Co., Ltd. for a transfer price of 160 million yuan.

As of the announcement date, Songyan New Energy had received 40 million yuan in asset transfer payments from Huikai Chemicals. The supplementary agreement stipulates that Huikai Chemicals must pay the remaining 41.6 million yuan by November 30, 2024, and the remaining 78.4 million yuan within five years of signing the agreement. Songyan New Energy agreed to assist in transferring 100% equity of the project company and completing related handover procedures after receiving the 41.6 million yuan payment.

Regarding the reasons for divesting LiPF6-related assets, Shenzhen Newstar previously mentioned that in recent years, due to lower-than-expected market demand for LiPF6 and a significant drop in product prices, the LiPF6 business segment has been operating at a loss, with little prospect for substantial improvement in the short term. To enhance overall operational efficiency, further optimize its asset structure, focus on core businesses, and improve financial performance, the company's wholly-owned subsidiary plans to divest certain LiPF6 project assets.

On August 11, Zhongyin Wool Textile Co., Ltd. (000982) announced that its stock had been delisted by the Shenzhen Stock Exchange on August 12 after its closing price remained below 1 yuan for 20 consecutive trading days from May 24 to June 21, triggering delisting conditions. Zhongyin Wool Textile became the first non-ST delisted stock on the Shenzhen Stock Exchange in 2024.

In March 2021, Zhongyin Wool Textile entered the LFP cathode active material sector through an acquisition, with its subsidiary Sichuan Ligu New Energy Technology Co., Ltd. leasing facilities with an annual production capacity of 4,200 mt of LFP. In August 2021, it established an asset holding platform in Shanghai and a business operation platform through a joint venture to engage in battery swapping for two- and three-wheeled EVs. In November 2022, it acquired a 70% stake in Henan Wanguan Industrial Co., Ltd., further expanding its presence in the specialty graphite sector.

Battery Network statistics show that the competitive environment is not favorable for cross-industry entrants. Previously, several companies faced obstacles in their ventures into the battery and new energy sector, including Xinhai Retired (002089), a communication products company; Kexiang Co., Ltd. (300903), a printed circuit board manufacturer; Meiliyun (000815), a paper manufacturing company; Huati Technology (603679), a road lighting company; Huasoft Technology (002453), a chemical raw materials and products manufacturer; Baoming Technology (002992), a new-type panel display device company; Black Sesame (000716), a health food company; International Industry (000159), an oil and chemical products wholesaler; and Gaole Co., Ltd. (002348), a toy manufacturer.

Conclusion:

Currently, China's NEV market continues to grow rapidly, with monthly sales surpassing 1.5 million units for the first time. Battery production has increased both YoY and MoM, making this a promising sector with long-term growth potential. However, the battery industry also faces risks of "structural" surplus and "short- to mid-term" low capacity utilisation rates. It is both an open field and a walled city, requiring caution as investments carry risks, and cross-industry ventures should be approached prudently.