Financial Deterioration Due to Declining Electric Vehicle Demand and Intensified Market Competition
Guangzhou State-Owned Investment Firm Becomes Controlling Shareholder
China's battery industry’s 9th largest company, Funeng Keji (Parasis Energy), has fallen into state hands. This decision was made as the company could no longer bear its worsening financial situation due to mounting losses caused by intensified market competition.
According to Chinese economic media Caixin on the 30th of last month, Guangzhou state-owned company Guangzhou Gongkong (Guangzhou Public Management) Group became the controlling shareholder by acquiring a 12% stake in Funeng Keji through a private equity fund the previous day.
Founded in 2009 and headquartered in Ganzhou, Jiangxi Province, Funeng Keji is one of China’s major strategic battery manufacturers, ranking 9th in the industry based on installed capacity (3.88 GWh) and market share (1.32%) from January to October this year. Guangzhou Gongkong, the new controlling shareholder, is a state-owned enterprise fully funded by the Guangzhou municipal government and Guangdong provincial finance department. It is a capital investment company focusing on sectors such as steel, emerging materials, and core components.
As the pace of electric vehicle sales in China slowed and competition intensified among the proliferating battery manufacturers, Funeng Keji’s financial condition deteriorated over several years. Until 2019, the company posted an operating profit of 131 million yuan (approximately 23.9 billion KRW), but losses snowballed over the following four years. The deficit, which reached about 331 million yuan in 2020, surged to 953 million yuan in 2021 and 927 million yuan last year. This year, the situation worsened further, with a cumulative loss of 1.563 billion yuan recorded in the first three quarters.
Caixin assessed that the sharp increase in financial costs pressured the company’s finances. Financial expenses such as loan interest in the first three quarters of this year rose by 155.8% year-on-year to 120 million yuan. Other factors cited include falling raw material prices like lithium carbonate and intensified industry competition.
Additionally, Caixin diagnosed that Funeng Keji’s “technology path,” which focused on developing soft pack batteries, was also a risky choice. Power batteries can be classified into three types based on packaging: soft pack, prismatic, and cylindrical. Soft pack batteries use lightweight materials compared to other types, making them relatively lighter and denser. However, they also face higher demands in terms of safety and performance, and their product consistency is considered poor, according to Caixin. Industry leaders such as Ningde Shidai (CATL) and BYD are focusing more on prismatic battery development.
Amid intensified competition due to overproduction, the industry is eager to explore new markets. For example, about 20% of CATL’s revenue comes from the energy storage sector, a rapid increase from 16.3% last year. In contrast, Funeng Keji’s related business accounts for only 1% of its revenue, showing little improvement from 0.7% last year.
With China’s consumer demand sluggish and electric vehicle market penetration rising, the EV market has entered a contraction phase, increasing the likelihood of further industry restructuring. According to the South China Morning Post (SCMP), among over 200 Chinese electric vehicle companies, 15 are on the brink of bankruptcy due to liquidity crises caused by poor performance. Automotive news media Automotive News reports that one-third of Chinese EV manufacturers sold fewer than 500 vehicles in the third quarter (July to September) of this year.
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