Samsung rumoured to invest half-a-billion in Chinese electric car company

Samsung Electronics (KRX:005930) is looking to take the plunge into electric vehicle (EV) technology with a sizable investment into BYD Co., (HKG:1211) the world's largest electric car manufacturer.

The division of Samsung, one of the most important "chaebols", or conglomerates in South Korea, said investing in BYD, backed by Warren Buffett’s Berkshire Hathaway Inc., (NYSE:BRK.A), is expected to bolster the South Korean company's semiconductor business for cars. Samsung Electronics is the largest maker of cellular phones and memory chips in the world.

Talks between the two companies have apparently been underway the last few days. Korea Economic Daily reported on Friday that Samsung Electronics is about to pull the trigger on a 3-billion yuan (US$450 million) investment in Shenzhen-based BYD for a 4% share of the company. However Samsung denies that report, saying that talks are still ongoing. BYD says the investment would most likely come in the form of a private placement.

“It puts Samsung into the electric-vehicle subsystem supply chain for a key Chinese electric vehicle and battery manufacturer"

According to Bloomberg the likely deal came about "…after [Samsung's] affiliate was among foreign battery makers left off a list of suppliers approved by China, where sales of electric vehicles are surging and the government has sped up construction of charging points. The talks with BYD also add to the global trend of technology companies and automakers collaborating as car buyers increasingly demand more advanced powertrains and features that improve connectivity and safety." Example of notable partnerships include the contributions of Korean battery manufacturer LG to the Chevy Bolt, and Panasonic's $1.6 billion investment in luxury EV car maker Tesla's $5-billion lithium-ion battery Gigafactory in Nevada.

“It puts Samsung into the electric-vehicle subsystem supply chain for a key Chinese electric vehicle and battery manufacturer,” Bloomberg quotes Bill Russo, the managing director at Gao Feng Advisory Co., based in Shanghai. “BYD gets a technology innovation pipeline partner with a reputable brand.”

China passed the United States last year as the largest market for electric vehicles.

The news of a possible tie-up between Samsung Electronics and BYD comes amid another media report indicating that the group's construction division piled up at least $700 million in losses over the course of constructing one of the world's biggest iron ore mines -Roy Hill owned by Australian billionaire Gina Reinhart.

The Wall Street Journal (subscription required) reported last Thursday that Samsung C&T Corp. had high hopes for taking advantage of the commodities boom when it embarked on its first foray into mining – having been involved in some high-profile megaprojects including the Burj Khalifa skyscraper in Dubai. Under terms of the $6-billion contract to build the mine, Samsung agreed to shoulder the risk for all cost over-runs and to pay penalties for not completing before the expected start of exports in August 2015. However according to WSJ, when the mine opened in December 2015, Samsung C&T "was embroiled in costly legal disputes with several subcontractors as well as Roy Hill."

Costly mistakes included hiring a less-experienced, small Australian firm to build the $1.1-billion processing plant, which would later become insolvent; a months-long delay in acquiring necessary conveyor belt components; hiring 1,500 new workers to make up for lost time; and having to defend itself  against a lawsuit from a subcontractor over up to AUD$90 million in payments. Samsung C&T also fought with Roy Hill over construction timelines, with Roy Hill saying the South Korean company slowed construction to save costs, even though it was penalized AUD$2 million a day for missing deadlines.