Interview with Yuan Feng of GAC Capital: Focus on the "new four modernizations" of automobiles, and make the most professional CVC in the field

This article is reproduced from: Securities Times

In recent years, GAC Group has continued to build an "ecosystem" for the whole industry chain and has achieved good results. According to the 2021 annual report of GAC Group, the total operating income was 75.676 billion yuan and the net profit was 7.335 billion yuan, achieving double growth. At the same time, the Group has achieved new breakthroughs in many scientific and technological fields around intelligent networking and new energy.

As the group's capital operation and equity investment and financing platform, as well as the vanguard of the "new four modernizations" transformation, GAC Capital has frequently shot in the primary market in the past two years and has become a very active CVC representative in the field of new energy intelligent travel. Over the years, which tracks has GAC Capital invested in? How to achieve all-round empowerment of the industry? What are the unique ways to play in the face of the industry situation in which car companies have gone down to do investment layout? With these questions in mind, the Securities Times reporter recently interviewed Yuan Feng, general manager of GAC Capital, in order to review the development trajectory of GAC Capital in depth.

Yuan Feng, General Manager of GAC Capital

Yuan Feng said that GAC Capital focuses on the direction of the "new four modernizations" of automobiles, and forms an ecosystem of four core tracks through investment, in addition to the forward-looking layout of cutting-edge technologies in the field of travel, it pays more attention to post-investment industrial empowerment. He believes that a number of enterprises with international influence will be born in the fields of China's new energy intelligent network, and GAC Capital hopes to be the long-term runner behind it.

Focus on the "new four modernizations" of automobiles and continuously extend the circle of investment circles

Securities Times reporter: What is the overall operation of GAC Capital at present? What is the unique positioning of itself?

Yuan Feng: GAC Capital is a wholly-owned enterprise established in line with the A+H share listing of GAC Group, and after the group reformed and established the financial business headquarters in 2019, it also gave a new positioning at the same time: to build GAC Capital into a capital operation platform and equity investment and financing platform for the entire GAC Group, with "investment empowering travel" as the development concept, focusing on the development direction of the "new four modernizations" (electrification, intelligence, networking, and sharing) of the automobile, investment layout and post-investment empowerment, helping GAC Group to do the "new four modernizations" Transform and enhance its core competitiveness in the "New Four Modernizations".

Up to now, GAC Capital has managed 5 billion yuan of funds and has invested in 56 projects, of which 18 have been exited through listing or mergers and acquisitions, and 22 companies are in the process of counseling and listing planning. Overall, the order scale of GAC Capital's invested enterprises and GAC Group has exceeded 10 billion, and the IRR of newly established funds in the past three years has reached 86%.

Specifically, the investment positioning of GAC Capital, first of all, must be an outpost of leading industrial technology, which means that not only to pay attention to the current industrial development, but also to look forward, with the accumulation of capital and industrial chain, to find, identify, and invest in cutting-edge technologies and strategic projects in the field of travel; second, to do the link between industry and capital, to cultivate high-quality projects in the field of automobiles and travel with its own funds or social capital, and to lay out the future automobile industry ecosystem; third, to be an enabling platform, after the completion of investment, Through the industry-finance synergy mechanism, industries and investment projects are docked to carry out all-round empowerment.

Securities Times reporter: From the perspective of specific investment tracks, what areas does GAC Capital mainly focus on? How to further expand around the "new four modernizations" of automobiles?

Yuan Feng: In the direction of investment, we focus on two main lines: first, through investment to support the development of the new energy vehicle supply chain, what we invest in; second, when the entire automotive industry encounters transformation and change, we have to lay out the shortcomings in technology through investment, what we lack. At present, the company's investment in the "new four modernizations" is more than 85%.

Around the goal of "new four modernizations", we have also established GAC Capital's own investment ecosystem, focusing on the four major tracks of new energy, chips, Internet of Vehicles, and autonomous driving. Specifically, first of all, around the battery industry to establish an ecosystem, through cooperation with Sunwoda, AVIC lithium battery, Ningde times and other companies, the battery industry chain is comprehensively sorted out, the upstream and downstream of the battery is extended, and the core industrial links in the upstream of the battery, including copper, lithium, anode materials, etc. have been laid out, and the future forward-looking technology, including solid state and fuel cells, has been invested accordingly, paving the way for the next step of GAC's independent battery research and development.

The second ecosystem is dominated by chips. Lack of core is a common problem facing the automotive industry, and GAC Capital began to lay out chip investment two years ago, and is also the only car company that has invested in two wafer foundries, taking Guangdong Core Semiconductor as an example, it is the only 12-inch chip production platform in Guangdong Province that has entered mass production, a local independent innovation enterprise. Since the chip foundry engaged in by Yuexin Semiconductor belongs to the upstream of the industrial chain, we can jointly do the planning of future car chips, and after a good interaction with these wafer foundries, we will look for domestic alternative chip opportunities together to incubate and cultivate Enterprises that may shift from consumer and industrial to automotive chips in China.

The third ecosystem revolves around the Internet of Vehicles, which makes up for the shortcomings of the entire GAC Group's software research and development. In the field of automotive intelligent networking, GAC Capital has successfully covered the key links of the Internet of Vehicles such as intelligent cockpit, Vehicle Networking technology, perception cloud, and safety MCUs through investment, typically representing galaxy intelligent connection incubated with iFLYTEK, horizon, an industry unicorn enterprise that mainly produces artificial intelligence chips, and companies such as Chengxin Technology and Shanghai Core Titanium.

The fourth ecosystem is autonomous driving (assisted driving), around the automatic driving technology, GAC Capital has entered the autonomous driving chip, automatic driving middleware, automatic driving technology, lidar chip and other core resource areas, such as Heduo Technology and other enterprises, to fully assist the scientific and technological transformation of GAC Group.

Around these four tracks, GAC Capital has continuously extended the "circle of friends" of investment, deeply bound important partners through capital ties, and made many contributions to related industries in Guangdong Province and Guangzhou, such as introducing Heduo Technology to take Guangzhou as the southern headquarters and helping AVIC lithium batteries to enhance the status of the industry.

Take the order to invest and strengthen the industrial synergy and empowerment

Securities Times: What kind of strategy does GAC Capital adopt in its specific investment practice? What are the differences between early and late project play?

Yuan Feng: We contact 200-300 projects a year, select the best from the inside, and match the demand industry, and finally invest in only a dozen projects, so the whole institution is constantly doing subtraction. Our investment strategy will not be distinguished by the stage of the project, but according to the different development stages of the project in the industrial chain, there are projects with a relatively large investment amount in the mature stage of development, and there are also early technical exploration attempt projects.

Taking battery investment as an example, this industry is relatively mature after years of development, and benchmarking enterprises such as the Ningde era have obvious leading role, the volume is relatively large, but many are not early projects, and it is rare to see that the investment amount of battery companies is several million or ten or twenty million. Taking AVIC lithium battery as an example, GAC Capital invested 700 million yuan. The second type of relatively early projects are companies related to chips and autonomous driving. For example, we invested in Heduo Technology, which focuses on the field of domestic autonomous driving mass production solutions, and is at the leading level in China in ADAS algorithm, automatic driving technology or mass production capacity, through the continuous collision of the two teams, it has accelerated the iteration of technology and products, and also improved the intelligent driving layout of GAC Group, and the results of cooperation between the two sides will be mass-produced on a variety of models.

We judge that in the future, in the field of new energy intelligent networking in China, there will be enterprises with international influence, ANDC Group and GAC Capital will use the bond of capital to bind the most important partners together to support and help these suppliers in the field of intelligent networking or enterprises with core technologies to go to a higher and world stage.

Securities Times reporter: Combined with the cases that have been invested, how can GAC Capital empower it from the perspective of industrial resources?

Yuan Feng: AVIC Lithium Battery is a typical representative case of industrial empowerment, GAC Capital first provided financial support to AVIC Lithium Battery, through docking the different business needs of the group, bringing strong order support to AVIC Lithium Battery, and really using production capacity products to support empowerment; second, recommending suitable investment institutions when financing, jointly doing their best to jointly invest together, and ultimately helping them to become bigger and stronger; third, when expanding and building factories, help them dock with local banks in Guangzhou to give loan support, help enterprises finance and optimize costs. At the same time, AVIC Lithium Battery has also carried out special technology development and support on the basis of ITS original technology and products around the product needs of GAC, and truly realized the effect of "1+1>2" combining production and finance.

According to the data released by Frost & Sullivan, according to the 2021 installed capacity, China Innovation Airlines (formerly known as AVIC Lithium Battery) ranks second among China's third-party power battery companies and seventh in the global power battery companies; according to the calculation of installed capacity in January 2022, China Innovation Airlines has jumped to the sixth place in the global power battery companies.

Optimistic about the future direction of chips and batteries

Securities Times reporter: In recent years, traditional car companies have set up private equity funds to increase their investment layout in the primary market, what are the differentiated ways for GAC Capital? How to view the competitive relationship with new car-making forces such as "Wei Xiaoli"?

Yuan Feng: Gac Capital's biggest differentiated advantages are two points, first, very closely around the new energy development of the industry to do industrial capital, can be measured by one indicator is that within a year of the investment of enterprises and industries generated by the orders, GAC Capital is the highest of all automobile groups; second, our industrial capital and other auto manufacturers' industrial capital is not a competitive relationship, but more is cooperation, because each has its own development path. Take the recent investment of Sunwoda as an example, is the domestic several car companies to support the battery enterprises, the new car-making forces of "Wei Xiaoli", GAC SAIC have participated in the investment, under our common support, this type of enterprise may really run out in the battery field.

At present, the core suppliers of new energy are only the industry benchmarks of the Ningde era, and have truly become an enterprise with international influence, and other world-class car suppliers are dominated by Japan, Europe and the United States. With the intensification of market competition, we believe that a group of very competitive enterprises will gradually rise. The development of these new energy automobile enterprises in China, must be accompanied by the rise of China's core components in the field of new energy intelligent networking, these suppliers with core competitiveness, absolutely not a car company can support it, the need for all traditional car companies, new car-making forces, etc., jointly from the capital, investment, production capacity, research and development level of organized support to have the opportunity to run out, China has a special opportunity to borrow this wave of new energy to achieve curve overtaking.

Securities Times reporter: How does GAC Capital view the "focus" and "diversification" of investment direction? What areas will be strengthened in the future?

Yuan Feng: As a state-owned enterprise of automobile industry capital, the competitive advantage of GAC Capital is to focus, in the big track of automobile travel, targeted choice of investment areas and control the pace of investment, because of our own knowledge reserves and circle of friends in the continuous change, such as the investment layout in the field of intelligent networking, began to pay attention to the upstream of the battery, and in the field of chips projects. Focus does not mean focusing on only one area, but with the changes in technology and the rapid development of the automotive industry, to update our investment direction, but the change must be related to travel.

The investment direction to be focused on in the future revolves around two aspects: the first is chips. Data show that the localization rate of Chinese chips is only 3%, and the shortage of chips especially to the automotive industry has brought a lot of challenges, and later with the development of new energy intelligent networked vehicles, the role and status of chips will be significantly improved in the automotive industry, how to grow together with China's chip companies, so that it becomes a globally competitive on-board chip company, is a very long-term road.

According to my observation, there are also several major trends in the automotive chip itself: first, with the increase of intelligence, large computing power chips will be widely used; second, with the increase of electrification, whether it is a power chip or a separate device, it will be significantly improved; third, with the increase of networking, communication modules will be widely used. So we see that the chip is not only the current supply chain security, independent controllability, domestic substitution, but also China's chip industry opportunities are due to the supply chain security has brought a large number of chip companies into the convenience and advantages of car companies, bringing opportunities to lead.

The second is the battery, China manufactures 80% of the world's batteries, but the upstream nickel cobalt manganate lithium resource self-sufficiency rate is only more than 20%, in the upstream battery material market, the most critical technology scarcity, production capacity scarcity or resource scarcity of these enterprises need to continue to tap. In addition, we are also continuing to pay attention to which direction the future car battery will develop, currently doing the layout of fuel cells and solid-state batteries, and then continuing to do the layout in different technical routes of solid-state batteries, such as sulfide technology directions.

In the future, GAC Capital hopes to become a professional investment institution leading the development of the entire new energy industry, and continue to innovate and make breakthroughs to truly achieve investment and empowerment.

Editor: Yue Yanan