Announcement of Joint Venture between Lear Corporation and Shenzen XINRUI Technology Co., Ltd.

On November 2, 2021, Lear Corporation (NYSE: LEA), a global leader in automotive seating and electronics, announced that it has signed final agreements with Shenzen XINRUI Technology Co., Ltd. (300745.SZ) to form a joint venture company.

XINRUI Technology is a tier-one supplier of electronic products for electric vehicles in China, specializing in new energy automotive on-board power supply services.

As a listed company on the Growth Enterprise Market, XINRUI Technology issued a statement on the same day.

According to information disclosed by both parties, the joint venture is expected to complete the necessary approvals and registration for its establishment in the fourth quarter of 2021, and set up its management team this year. The joint venture will be located in Shenzhen, China, and will integrate both parties’ product capabilities on advanced on-board chargers and new-generation multi-functional integrated power supply modules to form a complementary advantage and serve numerous local and global automakers.

The enthusiastic response from the capital market can be seen from the stock price of XINRUI Technology. From the perspective of “those who are in the know”, this announcement has significant interpretative value. The automotive industry frequently engages in mergers and acquisitions, particularly from the vehicle to the system component level, but the information behind this partnership is enormous.

In fact, the author boldly speculates that this may be a new trend of joint ventures in the era of electrification and intelligence of automobiles.

It is well known that “technology-for-market” is the most solid underlying logic that almost all joint ventures and mergers in the automotive industry have followed for the past 30 years. Established TIR1 companies have rich application accumulation and basic technology, whereas the domestic market requires a mature and stable solution. Whether the technology is transferable or not is another matter, but the resulting market benefits are undeniable.

However, if we use this perspective to analyze this joint venture case, there are many things that are difficult to understand.

Firstly, the two parties did not focus on the same “market” before, and XINRUI Technology does not lack “technology”. XINRUI Technology is an on-board power supply company that started early in China, and its current core business focuses on BYD’s super hybrid business, Geely’s Haohuan platform, and new forces in car-making such as XPeng Motors. Although Lear has made trial and exploratory efforts in the domestic market early on, its core business is still in Europe and America.

The common feature of both parties is that they started early in the research of automotive power supply technology, and neither has any obvious technological, manufacturing process, or engineering experience shortcomings. Therefore, the matter of this “joint venture” is extremely intriguing.

It is well-known that behind the global construction of NINGDE TIMES and its partnership with numerous domestic and foreign OEMs, there are many factors such as first-mover advantage in the supply chain. However, industry insiders are aware that Lear’s on-board charger and DC-DC business did not start late, and it has already established an industry layout in China. On the surface, combining with the locally-grown XINRUI may not seem complementary, and even under traditional logic, they appear to be competitors.

However, by combining China’s electric vehicle industry development strategy with current situations, we can infer the following:The rapid rise of the new energy vehicle market in China has given birth to a group of local companies with bottom-layer technology, engineering experience, and market applications.

The Chinese capital market vigorously supports the rise of local high-tech companies, making it difficult for the world’s top 500 companies to enter a specific business through the acquisition of small high-tech companies in the industry. The best way is to promote technological cooperation through capital cooperation and share industry dividends with potential competitors.

Domestic technology companies can rely on the domestic capital environment and industrial policies to quickly rise independently, but still need to leverage the strength of the “big brother” of the world’s top 500 when entering the international market.

In summary, behind this seemingly “incomprehensible” joint venture case, there may be a “new normal” in the new energy vehicle industry in China. We can even see China’s use of the “internal circulation” to respond to the decoupling of the Chinese and American economies, which is gradually taking effect.

A Chinese new local technology company and an American local top 500 company, from competitors to business joint ventures, make us believe: whether it is our country or the automotive industry, we are experiencing a “great change that has not occurred in a century”!

This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.