2003: Starting with Foreign Trade

Chapter 998 Acquisition? That's a bit too much! (Seeking monthly votes)
During his time in Germany, Tan Jincheng attended numerous public events to promote Weilai's new energy vehicles.

Meanwhile, Wei Lai's overseas team was also secretly contacting Ford, seeking to acquire Ford's German factory. This time, Tan Jincheng did not intend to use domestic capital for the overseas acquisition, but instead chose to focus on overseas assets.

By acquiring Ford's factory through financing and its own funds, it can achieve industrial isolation on the one hand, and consolidate some of its overseas assets on the other hand, especially those in North America.

"Germany has a good policy on new energy, and their policies are relatively friendly to us, so there are still opportunities."

In special events, Eastern and Western cultures clashed fiercely. Initially, our policies were criticized in various ways, but we soon followed suit. Now, in terms of control policies, the West is no less capable than us.

On the contrary, we are much more relaxed after we brought the situation under control. However, according to the information provided by Yu Liguo, the policies in various places will be much more relaxed after May.

In addition, on the economic front, the EU approved a €500 billion aid package for German businesses in early May, with a focus on supporting green technologies. However, in terms of related policies, German industry generally opposes the EU's hardline approach.

"It is really difficult to break into the international market, but no matter how difficult it is, we must do it. Germany is our best springboard."

Whether considering the level of policy leniency or the friendly attitude, Germany is the best choice. Most importantly, this year Germany and the European region are truly obsessed with the new energy industry, to the point of being almost fanatical.

From January to April, global sales of new energy vehicles totaled approximately 240 million units, with a global average penetration rate of 6.3%, a significant increase compared to 2.7% in 2020.

China is the world's largest new energy vehicle market, but in terms of penetration rate, Europe is the largest, with an average penetration rate of 15.2%, far higher than China's 12.4%.

Germany's penetration rate is even higher at 22.4%. Strict carbon emission regulations and generous car purchase subsidies have made Germany one of the top five countries in the world in terms of new energy vehicle penetration rate, and it is also the fastest growing country.

The countries with the highest penetration rate of new energy vehicles in the world are still the four Nordic countries. Norway ranks first with 86%, followed by Iceland, Sweden, and the Netherlands with 72%, 43.1%, and 30.8%, respectively.

Besides the global consensus on resources and the correct environmental policies, the reason why Europe has been able to promote new energy vehicles so rapidly is simply due to the carrot-and-stick policy.

On the one hand, it provides huge subsidies and various tax exemption policies, and on the other hand, it restricts gasoline vehicles.

Throughout Europe, subsidies are divided into two categories based on whether the vehicle is a BEV or a PHEV. Taking the BEV (pure electric) vehicle, which has the highest subsidy, as an example, the average maximum subsidy exceeds 5000 euros, with Germany having the highest subsidy.

Currently, Germany's subsidy policy allows BEV models priced below 4 euros to receive subsidies of up to 9000 euros, while PHEV models can receive subsidies of up to 6750 euros, with the highest subsidy rate reaching as high as 22.5%, which is extremely generous.

“Some people in China say that our good sales are due to subsidies, which is true, but who doesn’t do that?”

Even in North America, where the penetration rate of new energy vehicles is the lowest, Tesla, which boasts everywhere that it doesn't rely on subsidies, has received a lot of subsidies over the years. The subsidies for new energy vehicles in North America are also quite substantial, including federal tax credits, state incentives, and so on.

Taking the Model 3 Standard Range version as an example, its price of $3.99 can get an average subsidy of $2000 to $3000 in California, a maximum subsidy of $4000 in Colorado, and roughly between $2000 and $2500 in other states.

Some states, such as New Jersey and Texas, do not offer subsidies, but they are exempt from state sales tax, which is roughly between 6% and 7%, a considerable amount.

Some state power companies also offer charging discounts and cashback programs. For example, California's PG&E offers a $500 cashback, which is very competitive in terms of vehicle usage costs.

In addition, Tesla has benefited greatly from low-interest loans provided by the government. The reason Musk dares to make such boasts is simply because they are the dominant player in North America, with no competitors.

Tesla's excellence is undeniable, but to say they never received subsidies is pure nonsense. Back then, they survived on low-interest loans. The reason they dare to boast like this is simply because they had no competitors in the North American market.

Compared to the fiercely competitive European and Asian markets, Tesla and its local automakers truly enjoy a privileged position in the North American market.

In Europe and in China, there are no exclusion options for new energy vehicle subsidies for domestic companies; as long as they meet the requirements, they can receive subsidies. However, federal subsidies are only available to domestic companies or vehicles produced in their home countries.

For example, European automakers that do not have factories in North America are not eligible for any subsidies or preferential policies. The restrictions are even stricter at the state level, with some states directly prohibiting the direct-operation model.

Other factors, such as the lack of access to infrastructure like charging stations for foreign companies and political risk reviews, have restricted the sales of foreign automakers in North America, leading to Tesla's dominance.

In summary, overseas automakers, whether from China or Europe, who want to sell their vehicles normally in North America, either need to set up factories in North America to circumvent restrictions, enter the North American market through cooperative contract manufacturing, or make breakthroughs in niche markets, such as electric buses, which are not affected by individual car purchase subsidies.

Even if all the above conditions are met, in some states, sales still require cooperation with local businesses and cannot be directly operated. This means that a portion of the profits must be shared. Compared to Tesla's treatment in China, this is not even close.

This is true market protectionism, and such market protection will only become more and more stringent. Currently, North America is pushing for inflation reduction legislation, further tightening restrictions on foreign new energy vehicle companies, such as the localization of the battery supply chain.

Market barriers are the fundamental reason why overseas companies are abandoning the North American new energy vehicle market. Building a factory in the automotive industry is not as simple as it sounds; it often costs billions of dollars. After comprehensive evaluation, no one will invest blindly if there is not much profit margin.

"Although Europe is an abstract concept, the policies are quite good. This year is our best opportunity, and we must set up a factory here as soon as possible."

After meeting with some German institutions and government departments, Tan Jincheng learned about the latest policies and guidelines of Germany and the European Union, and was eager to own his own European vehicle manufacturing plant.

The reason why Germany has set the subsidies so high is actually to subsidize its own industry. Volkswagen's ID series can achieve profitability with monthly sales of more than 5000 units through various subsidies, which is incredibly attractive.

Regardless of their abstract views on environmental protection and clean energy, as long as they don't exclude us, we can compete fairly.

"Haha, that's actually true. Sigh, if only the UK hadn't left the EU, we could have expanded Lotus's factory and started manufacturing, learning from Volvo's contract manufacturing model. That would have been the fastest way."

After Brexit, the strategic significance of the Heysel factory to the entire country has actually diminished.

"The EU has implemented such a good new energy policy, and the environment is relatively fair. They actually believe they can surpass us. As for whether they will change their policies in the future, we'll leave that to them for now."

The European region may seem like a unified whole, but each entity has its own agenda. Even if policies tighten in the future, there's no need to worry about business continuing safely, as is the case in North America, as long as you remain competitive.

In Germany, the significant investment by automakers like BMW, Mercedes-Benz, and Audi in new energy vehicles has resulted in German domestic companies accounting for over 50% of the total new energy vehicle sales in Germany, reflecting the success of German automakers' electrification transformation.

Relying on this collective effort, the German government may be able to continue to outperform other countries and maintain a leading position in the field of new energy vehicles.

Currently, with its imported models such as the ET5, ES3, ES6, and ES8, Weilai holds a 5% market share in Germany, ranking eighth in sales from January to April, after Skoda.

Among the top ten, only Weilai and Tesla rely on imported models and localized production, which brings them greater competitiveness.

On May 10, Tan Jincheng was invited to visit BMW's plant in Leipzig. This plant, which has been certified as a zero-carbon factory, uses photovoltaic and energy storage systems. During the visit, Tan Jincheng praised this model and expressed his approval of the German government's tightening carbon emission policies.

Furthermore, it was stated that the company's factory in Germany would strictly adhere to this regulation, thus generating public opinion in anticipation of the upcoming acquisition of the Ford factory.

Meanwhile, Tan Jincheng has been frequently contacting German labor unions to try to improve relations with them. Wei Lai’s overseas team has already flown to Ford’s North American headquarters to begin secret negotiations regarding the acquisition, with Yu Liguo personally leading the team.

"To negotiate with Ford, we must, of course, target Ford's sore spots."

It's already 2021, and it's much more difficult for us to acquire the core assets of overseas companies than it was 20 years ago. The environment is completely different now compared to when Weilai acquired Proton and Geely acquired Volvo.

Especially in North America, given the current tense relations, making an acquisition extremely difficult is a challenge. Fortunately, the previous old man has already stepped down. Although this old man wasn't exactly a saint either, and was even more cunning, he's still a force to be reckoned with.

But at least this one won't act erratically from time to time, and it won't be like the previous one who promised yesterday but then went back on their word today.

To be honest, one of them is a businessman, and businessmen only care about profits, while this one is a customer named Z.

If the negotiations with Ford can directly address Ford's weaknesses, and given Tan Jincheng's connections and influence on Wall Street, there is still a chance of an acquisition.

"Now is the best time to directly address Ford's pain points."

Ford released its first-quarter financial report on April 28. Compared to the $2 billion loss in the first quarter of last year, Ford returned to profitability overall in the first quarter of this year, but its European operations are still in a loss-making state.

The Saarlouis plant has become a burden for Ford, with more than 50% of its annual capacity idle. Keeping the plant requires continuous investment, with annual maintenance costs of approximately €1.2 million. Selling it would allow for a one-time recovery of funds.

This is also a key reason why Ford decided to scale back its European operations and close its gasoline-powered vehicle factories. Ford's management is eager to improve its financial data, and this mentality can be used to effectively intervene in negotiations.

The fact that Yu Liguo was received by Ford was a very good sign.

“Compared to our companies, these foreign car companies place great importance on financial reports. Investors and Wall Street have a huge influence on the company's operations. Your connections on Wall Street also played a role.” Through the transoceanic video conference, Tan Jincheng could see that Yu Liguo was in a good mood. Not being shut out was the first victory.

"Wall Street does have considerable influence over these companies, but we can't trust them to avoid being scammed. However, Mr. Shen's point about downplaying acquisitions with Chinese capital background is something we should definitely consider."

The decision to use overseas assets instead of domestic entities for the acquisition is also based on this consideration. For this acquisition, Tan Jincheng plans to use Cheng Yue (BVI) Limited as the main entity.

This is an offshore company controlled by Tan Jincheng. The acquisition was carried out through an entity that appears to have no connection with Wei Lai, which can avoid provoking foreigners. As for what to do after the acquisition, it is up to Tan Jincheng.

In terms of funding, Tan Jincheng plans to raise some funds by issuing bonds. It's not that Cheng Yue doesn't have the money, but this method allows other institutions to share in the profits, which can be considered a public relations expense.

"You try your best to talk to Ford over there, and I'll do my best to do public relations with the German side to try and get some of their subsidy policies."

The EU's Green New Deal and Germany's electrification subsidy policy, although with stringent conditions, can be summed up in three words: "localization." Once localization is achieved, one is eligible to apply for these subsidies.

Tan Jincheng's recent public statements were actually preparations for this. While Yu Liguo was in talks, he didn't have time to spare either.

"Look, Xiao Tan is playing pretty big games. Everyone, let's hear your opinions."

In Hangzhou, an overseas investment filing form sits quietly on the conference table. Several core members who can see it exchange glances, feeling a mix of emotions—a sense of感慨 (gan3kai3, deep emotion) and excitement.

For many years, Chinese automakers have not made any major moves in overseas mergers and acquisitions.

Tan Jincheng clearly distinguished between the two kings. The moment he decided to make the acquisition, he instructed his team in China to draft a plan, report it to Zhejiang Province, and submit it to higher authorities through their connections in Zhejiang.

To resolve this acquisition, we need to consider not only North America and the EU, but also domestic compliance.

Cross-border investment approval, foreign exchange control, industrial policy support, and anti-monopoly review are the four core dimensions of this merger and acquisition case. At the same time, it is also necessary to formulate a response strategy in light of the current policy environment.

"What objections could I possibly have? President Tan has written such a detailed plan, I have no objections."

With successful acquisitions of Proton and Lotus, Tan Jincheng and his team have extensive experience in overseas mergers and acquisitions. Because it involves the production capacity of traditional fuel vehicles, overseas investment in the automotive manufacturing industry is a sensitive industry and is classified as restricted.

However, in his proposal, Tan Jincheng positioned the project as the construction of overseas production capacity for new energy, citing the latest development plan for the new energy industry (2021-2035) policy support, thus avoiding the restrictions on fuel vehicles.

Furthermore, the main entity in the transaction structure is a non-listed company with an overseas background, all of which comply with regulations. The amount used in this transaction is very small compared to the overseas investment quota already approved by Wei Lai, and the impact on foreign exchange is minimal.

The proposed overseas investment balance for 2021 was US$50 billion. The proposal stated that the investment amount required for this acquisition would be controlled below US$3 million, which is the upper limit for filing with the local development and investment commission.

“They are indeed very experienced. If successful, they would be a great addition to our automotive industry. My suggestion is to report it as they did when they acquired Proton.”

Since last year, Weilai Automobile's overseas vehicle exports have continued to grow, and the exported models are not just low-end models like those of other companies. The ET5 competes with Tesla Model 3 in the European market, which has greatly enhanced the image of domestic car companies overseas.

“It’s really good. The plan is well written and the logic of the acquisition is clear. I also agree to submit it as a Proton acquisition case.”

When Proton applied for its acquisition, it was listed as a key project under the Belt and Road Initiative, which opened up a green channel. Weilai can also use the same channel to acquire a car factory in Europe.

The key point is that the acquisition of Proton has brought good benefits. Lotus went public, and Proton's production capacity and sales have also increased, which shows that the company has the ability to operate overseas.

"There are no problems with foreign exchange; in fact, it's even favorable for us."

Issuing Euro bonds through Cheng Yue (BVI) Limited not only avoids using domestic and international foreign exchange quotas, but if done well, it can also earn some foreign exchange back to China. With this alone, there are no problems with foreign exchange.

"Let's change this sentence."

The leader in the middle pointed to the reason for the acquisition and smiled, saying that it was a fairly professional acquisition filing plan, but the reason for the acquisition was rather frivolous, consisting of only four simple words: "Go for Tesla."

"Haha, it is indeed a bit far-fetched. Let's revise it and submit it."

The situation remained calm in Zhejiang Province, but it caused a huge uproar in Ningbo. At the same time as submitting the document to the province, the filing was also submitted to the city, although the contents of the filing differed somewhat from those in the province.

The acquisition and construction of Weilai Automobile's overseas factory is in line with Ningbo's "246" industrial cluster policy. In the filing plan, Weilai promised to source more than 50% of the factory's equipment from domestic companies, especially local Ningbo enterprises.

Among them, the biggest beneficiary will be Junsheng Electronics, a Tier 1 component supplier for Weilai.

"There are no problems with technical isolation. I'll let Mr. Tan know, and the city will provide full support."

If the acquisition is completed, the IT system of Weilai's overseas factory will be independent of Weilai's domestic network. The anti-monopoly situation has also been clearly explained. The acquisition will not enhance the dominant position of Weilai in the domestic passenger car market. The factory's products are mainly sold in Europe and have no direct impact on the domestic market. Therefore, there is no monopoly issue.

Ningbo and Zhejiang Province reacted quickly, and the document was submitted to higher authorities in a short time, expressing their respective positions. Quietly, a document stirred up huge waves at certain levels in the country.

Meanwhile, in North America, negotiations between Yu Liguo and Ford have entered a substantive stage. One side wants to sell, and the other wants to buy, and there is no major disagreement on their intention to cooperate.

The asset-light exit strategy offered by Wei Lai is very much to Ford's liking.

The base acquisition price was 3 million euros, about 40% of the factory's replacement cost. In the additional terms, the company promised to take in more than 70% of the employees, reducing the pressure on Ford's unions to pay compensation, and also provided a contract manufacturing transition plan.

Within two to three years of the acquisition, the factory will continue to produce some gasoline-powered vehicles for Ford to avoid supply chain claims triggered by a sudden production line shutdown.

Of course, what attracted Ford the most was that the acquisition plan offered by Wei Lai would be entirely in cash, which was a great temptation for Ford. After the sale was completed, Ford's financial report would look very good, and it would also alleviate Ford's short-term cash flow pressure.

"Yu, your offer is too low. A price of 3 million euros shows no sincerity. And why didn't Tan participate in the negotiations himself?"

Jimmy Farley, 59, received Yu Liguo and his delegation. As Ford's CEO, he will make the final decision on this asset sale proposal. The two sides met formally through Goldman Sachs.

Goldman Sachs is also Ford's financial advisor and has many business collaborations with Tan Jincheng. As for Shen Nanpeng, he was recommended by Tan Jincheng to serve as Yu Liguo's private advisor in this acquisition team, providing some strategic advice.

Goldman Sachs was able to obtain the factory's true financial data, while Ford was able to obtain the true purpose of the acquisition through Goldman Sachs.

"Our boss is currently on business in Europe, and he will be involved in the negotiations later. As for the price, what are your opinions, Jimmy?"

Asking for an exorbitant price and then settling for a lower one is the way to go. The offer of 300 million euros is indeed reasonable, but it's not fair to say it lacks sincerity. Ford simply wants more.

"Oh, by the way, Jimmy probably hasn't had much contact with our boss, has he?"

"Yes, is there a problem with that?"

Yu Liguo smiled and said, "You should ask Goldman Sachs and Wall Street about our boss's style of doing things. Our young boss doesn't have much patience, so he is used to high efficiency."

The normal merger and acquisition process takes between five and seven months. It is currently May, and if this merger and acquisition is completed, it will be at the end of 2021. However, Tan Jincheng hopes to expedite the process.

This allows time for subsequent electrification upgrades.

Jimmy Farley smiled as well: "Really? I'm looking forward to meeting Tan. Elon has told me that Tan is a very interesting person and a very good partner."

Tan Jincheng didn't hear this; if he had, he would definitely have laughed out loud.

Tesla's model names are supposed to be defined by "SEXY". The Model 3 should actually be the Model E, but the Model E trademark is currently owned by Ford. Musk once negotiated with Ford, but Ford refused.

In addition, Rivian, which has been making headlines in the North American capital market this year, has Ford as a major investor besides Amazon.

(End of this chapter)