Buffett-backed Chinese EV Maker BYD Mulls IPO Of Electronic-parts Unit

BYD Co., the Chinese electric-carmaker backed by Warren Buffett, is considering an initial public offering for a unit that makes a power-management device that’s produced by just a handful of companies globally, said people familiar with the plan.

The listing would involve the business that produces so-called insulated gate bipolar transistors, or IGBT, said the people, who asked not to be identified discussing matters that haven’t been made public. Shares in the division might be offered to investors on China’s mainland, though no final decisions on the timing or location have been made, the people said.

IGBTs are high-efficiency switches that reduce power loss and improve reliability in electric cars, but production is limited. Even as automakers worldwide commit themselves to an electrified future, only a handful of technology companies including Infineon Technologies AG and Mitsubishi Electric Corp. have the know-how to make IGBTs. BYD is the sole Chinese automaker that produces them independently.

The market for IGBT is expected to almost double to $8.55 billion between 2019 and 2024, driven by Asia and demand for electric and hybrid vehicles, according to forecasts by Mordor Intelligence. Citic Securities Co. estimates IGBT accounts for 41% of the cost of an electric vehicle’s electronic control unit — or about $450 per car.

An IGBT business spinoff isn’t the only deal BYD’s working on. The company is also hiving off its vehicle-battery operations into a separate company.

A spokeswoman for BYD said the company doesn’t have any information to disclose at the moment.

Still, there are growing signs that a bubble in China’s electric car market is poised to deflate, which may cloud the outlook for an EV-related IPO. China’s sales of electrified vehicles fell for a second straight month in August as the government scaled back subsidies. NIO Inc., China’s home-grown answer to Tesla Inc., on Tuesday plunged to a record low after reporting a worse-than-expected quarterly loss, prompting analysts to openly question whether the company will be able to survive.

BYD shares have slumped more than 20% in Hong Kong this year amid China’s car-demand contraction. Buffett’s Berkshire Hathaway Inc. is the top holder of the Hong Kong-traded stock, with a 25% stake.

The Chinese company, which started out as a manufacturer of mobile-phone batteries, expanded into car production in 2003 and then into IGBT development two years later. The aim was to ensure the supply of an essential component as well as tighten control of costs.

In an interview in December, BYD Chairman Wang Chuanfu said the carmaker had started supplying the chip to other companies, a line of business that was more profitable than selling cars themselves. IGBT demand was so high last year that carmakers had to wait as long as 52 weeks for delivery, about four times longer than usual, BYD has said.

Bloomberg