Deal focus: National team drives Hithium towards China IPO

A handful of large-ticket VC deals – of USD 200m or more – have closed in China this year. They tend to involve assets in strategically important industries and a “national team” of government investment vehicles and state-owned enterprises provide the capital. Xiamen Hithium Energy Storage Technology’s CNY 4.5bn (USD 622m) Series C is unusual by virtue of its size and the breadth of the investor base.

Beijing Financial Street Capital and China Life Insurance's private equity unit led the round, which values Hithium – a manufacturer of storage batteries – at about CNY 30bn. Other commitments came from the likes of Bank of China Asset Management, ABC International, SDIC Fund, China State-Owned Venture Capital Fund, CICC Capital, and Hefei Industry Investment.

They were joined by several GPs arguably better known for their exploits in the US dollar-denominated fund space: Goldstone Investment, CDH Investments, Matrix Partners China, and Dayone Capital.

“Traditional US dollar investors may not fully understand China’s manufacturing sector because historically they have focused on consumer tech start-ups. This is partly due to a lack of relevant benchmarks in the US,” said Ning Yang, a partner at Dayone, which also took part in a CNY 2bn Series B led by ABC International last October.

Few would dispute the scale of China’s new energy opportunity. The country dominates the global solar panel supply chain, accounting for 80% of output at every single key stage, according to International Energy Agency. Since 2021, the government has been promoting solar-plus-storage, requiring newly built photovoltaic plants to install storage capacity that covers 5%-20% of output.

Battery storage would appear to be a logical choice. China enjoyed a 60% global market share in electric vehicle batteries last year, according to Korea-based renewable energy consultancy SNE Research, and this capacity could be transferred relatively easily to storage batteries. AVCJ Research has records of several bumper rounds – in the CNY 600m-CNY 1bn range – for storage battery players in recent months.

“Looking at the long-term perspective, storage batteries represent the greatest market potential in the overall energy storage sector because of the maturity of battery technology and the availability of standardised solutions. You can simply pile up batteries to build a project of a certain size, much like assembling Lego blocks,” said Yang.

He endorsed the notion that EV power battery production lines can be adjusted to deliver storage batteries but warned that modifications can lead to significant differences in efficiency, cost, and defectiveness ratios. While large players like CATL and BYD have expanded from power into storage using discrete production lines, others have not. This increases quality control risks in manufacturing.

In this respect, Hithium’s relative youth works to its advantage. The company, founded in 2019 through a spinout from CATL, has concentrated on energy storage from day one. A breakthrough came with the release of a lithium iron phosphate (LFP) battery with lower energy density and operating voltages than most lithium-ion batteries. Lower costs, high safety levels, and long lifecycles added to the appeal.

Hithium – which claims to work with over half the top 10 global players across wind, solar, and renewables systems integration – expects to generate a 5x rise in production volume this year compared to 2022. Its existing factory in Chongqing is running at the full capacity of 15 gigawatt hours (GWh) and around USD 4.7bn has been committed to building a new facility with 135 GWh in capacity by 2025.

In April, the company launched a new generation of energy storage batteries featuring 320 ampere-hour (Ah) prismatic cells versus 280 Ah in the existing product line. They can be recharged 10,000 times. Hithium described the new offering as a "super product” featuring higher energy density, longer life cycles, enhanced security, and increased compatibility.

The company officially launched its IPO process earlier this month, making a registration filing with regulators. "Support from the so-called national team [of investors] is a significant endorsement ahead of an A-share listing,” said Yang. “Although there are no restrictions on new energy start-ups raising US dollars, we have yet to see strong synergies between US dollar and renminbi investors.”

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• Topics
• Greater China
• Cleantech
• Expansion
• China
• energy storage
• Growth capital
• Dayone Capital
• Goldstone Investment
• CDH Investments Management
• Matrix Partners
• CICC
• Bank of China
• China Life
• SDIC Fund Management