Two other Sloanies (Salil Gokhale and Andy Hider) and I spent the whole month of January in Hong Kong and China advising a PE group an electric vehicle deal. The PE group is acquiring 8 small companies in China (which we visited and conducted due diligence on) to create a vertically integrated electric vehicle company. The acquisition targets included lithium ion battery company, auto parts companies, design companies, and manufacturing factories.
To see manufacturing and deal execution in China was extremely valuable. From a western viewpoint, I felt that the manufacturing facilities were far more advanced than I had expected at the onset of the project. There were few key takeaways that I have summarized below.
Business in China
- Most business dealings are dependent on faith. It is uncommon to ask probing questions but as a foreigner it was easier for me to be ignorant about the culture.
- Size of the corporation is more important than profitability. A low-margin business with higher volume sales is preferred over a high-margin business with lower volume sales.
- Drinking (which I had no problem with) with business partners is a must. Although, the 60% alcohol in the Chinese wine was too much for me.
Cleaner vehicles in China
- The market already exists and the government is accelerating adoption for such vehicles. There are 100 buses running in Shanghai on a combination of Li-ion batteries and ultracapacitors.
- BYD has introduced a $22000 PHEV - 60mile sedan in the Chinese market and is ready to launch the same F3DM model in the US later this year.
- Electric bikes are commonplace. They are cheaper than gasoline powered motorcycles and require no effort compared to the manual bicycle. All in all, a perfect option for the rural and urban low-income population.
- China is on its way to playing a significant role in the cleaner vehicles market!
Infrastructure in China
- When I landed in Beijing airport, I saw 70% of the gates had no aircrafts taxied. The Chinese overdid the size of the airport in honor of the Olympics, but the airport is top notch.
- The high-speed train from Beijing to Shanghai took us only 6.5 hours and the comfort level was great.
- The locals and residents of China have still not caught up with this rapid infrastructure growth. The people seem to be almost a decade or two behind the infrastructure. For example, there are four traffic police cops enforcing zebra crossing discipline at red light intersections in Shanghai.
This trip was an eye-opener and I hope to have many more opportunities to unravel the mysterious Dragon...
