KG Mobility (KGM) and Chery Automobile Co. said they signed a strategic investment deal worth $75 million (about 110 billion won). KGM, which has been preparing to expand its eco-friendly vehicle lineup, gained a foothold to secure future car technology represented by Autonomous Driving while cutting new car development expense and time through this partnership. Chery expects to use KGM's export network to broaden its global sales channels and secure stable demand for its own platforms.
Chairman Gwak Jae-seon of KGM said at the signing ceremony for the investment deal held at the Grand Hyatt Hotel in Yongsan-gu, Seoul, on the 2nd, "Alliances among global corporations are essential to secure future growth engines," adding, "We will combine KGM's 70 years of technical know-how with Chery's technological prowess to become a sustainable mobility company." Chairman Yin Tongyue of Chery also responded, "We will combine the strengths of both companies, complement each other, and turn our vision into reality."
Under the investment, KGM will issue about 110 billion won in three-year convertible bonds (CB), which Chery will acquire. It is structured so that Chery's investment money comes in an amount equivalent to what KGM borrowed from financial institutions on the 28th to introduce Chery's plug-in hybrid (PHEV) T2X platform technology.
If the entire investment is converted into equity, Chery's stake in KGM will be about 10%. KGM, however, drew a line, saying, "This is an equity investment to signal cooperation between the two companies, and it will not lead to participation in management."
For KGM, Chery's involvement could only be welcome. Although it has posted profits for four straight years, it lacked the capacity to make full-scale investments in future growth engines, and its past court receivership made financial transactions tough.
The two companies agreed to pursue medium- to long-term cooperation beyond cars, exchanging technology and networks in fields such as robots, steel, and semiconductors. A task force (TF) for this is already in place.
KGM will speed up new car development with the investment. It is developing the successor to the mid-size sport utility vehicle (SUV) Rexton, "SE10 (project name)," using the T2X platform, and plans to release it early next year as a PHEV and a gasoline model.
Not stopping there, the two companies also decided to push a second joint development project, including an extended-range electric vehicle (EREV) and a C-segment (compact) SUV. They will also join hands to develop Level 3 or higher Autonomous Driving vehicles beyond advanced driver-assistance systems (ADAS).
KGM already has experience developing vehicles by incorporating Chinese technology. When it developed the Torres hybrid, it purchased and used plug-in hybrid technology from China's BYD.
Chery also stands to gain plenty. While saving on parts and development expense, it has secured a chance to attack the global market by using KGM's export network as a springboard. Chery CEO Zhang Guibing said at a briefing after the investment signing ceremony, "In some regions, tariffs are applied differently to Korea and China," adding, "If we cooperate in this area, it will help both sides, and this is the most important value KGM has." He added that producing jointly developed vehicles at Chery's overseas plants is also possible.
KGM, however, stressed it will not serve as Chery's "tariff workaround." KGM CEO Hwang Ki-young said flatly, "There are no plans to produce Chery vehicles at the Pyeongtaek plant, nor have we ever considered it."
Chery has also secured a bridgehead for entry into the Korean market through this partnership. CEO Zhang Guibing said, "Chery has multiple platforms, and there are customers who want them. I don't think there should be only one brand in a country," adding, "If Korean consumers come to like Chery, we will consider entering the market."