Chery loses controlling stake in Quantum venture

by Linda Luo   2009-07-31

- Font Size  +

WUHU, Anhui - Chery Automobile Co., Ltd. has reduced its stake from a controlling 55 percent to 50 in Chery-Quantum Automobile Co., Ltd., which it operates in collaboration with Quantum LLC, Beijing Times reported, citing sources familiar with the matter.

"Chery-Quantum is a 50:50 percent joint venture now," a source told the newspaper lately. The independent State-owned Chinese OEM was forced give up control because Quantum LLC, a U.S. corporation, has been cutting investment in the venture, sources explained.

News of a possible change in ownership came out in March in a filing with the Tel Aviv Stock Exchange. In the meantime, Quantum and Chery amended their business plan to include electric vehicles as well as those with conventional powertrains. The amended business plan entailed a change in the venture's capital requirements.

Israel Corporation., parent of Quantum LLC, announced the share change in June on its website. However, Chery has made no statement until now and declined to comment on the news. A Chery PR person even told the newspaper that Chery still owns 55 percent in the venture.

Chery-Quantum was formed by Chery Automobile Investment Co. and Quantum LLC in February 2008. Quantum LLC is a Israeli government-owned holding group. Chery initially contributed land and technology for the 55 percent ownership while Quantum contributed 45 percent with $225 million in cash payment. Quantum also agreed to pay an additional $180 million as investment guarantee.

Quantum recently has decided to reduce its investment from the initial $900 million to $500 million in 2009-2010, according to the newspaper. In addition, production plans will also be postponed.

"Israel Corporation may have reduced investment due to the financial crisis," an auto analyst told the newspaper. But the analyst was perplexed by the fact that by reducing investment the Israeli partner has increased its equity shares. The only possible explanation is Quantum has demanded for a 50:50 share slit by threatening to reduce cash investment.

The other request from Quantum, which an insider said has been accepted by Chery, is to sell the joint venture vehicles in both China and overseas, which is different from the original agreement.

According to their initial plan, the venture will produce passenger vehicles, including cars and sport utility vehicles developed by Chery, with an annual capacity of 150,000 units for sale mainly in the U.S. The JV will produce high-end, up-market products with Chery's technologies. The products would be targeted at both domestic and international markets. A new brand might be created in this joint venture, but the brand will belong to Chery, according to company president Yin Tongyue.

The Wuhu-located joint venture was originally scheduled to start production at the end of 2009. But now it seems its first model will be launched in 2012. "We are still developing the model. The launch time has not been settled down," said an insider at Chery.

Chery-Quantum has become the only local JV project for China's leading independent carmaker. As the biggest Chinese exporter of passenger cars, Chery wants to seek overseas expansion by teaming up with global automakers. But efforts in forming a joint venture with Chrysler as well as Italian automaker Fiat have come to no fruition.

Chery aims to sell 419,000 vehicles this year, including 156,000 units for export. It sold 172,650 vehicles in the first five months of the year in China, up 1.28 percent from the same period of 2008, according to CBU-Autostats.

Post a Comment (No comment)

If you want to comment this article, please log in first. If you have no account, you can create an account by click the button blow.
Sign In Register