Summary of Key Points
Chery Automobile has invested $75 million to subscribe for convertible bonds issued by KGM (formerly Ssangyong Motor) of South Korea. Upon conversion, Chery will hold approximately 10% of the shares (but not control the company). The two companies have previously collaborated on a technical level (with Chery providing the vehicle platform and electronic and electrical architecture). This capital investment is aimed at deepening their partnership: KGM relies on Chery to address its shortcomings in new energy technology development, while Chery uses KGM’s brand, channels, and production capacity to expand its technological output, exploring a new model of “lightweight asset overseas expansion.” Unlike SAIC’s failed attempt to acquire Ssangyong in 2004, this collaboration focuses more on technology transfer rather than control rights, marking a shift for Chinese automakers from being mere learners to becoming providers of technical solutions.
1. The Cooperation Model Has Changed: No Control This Time, but Capital Is Used to Secure Technological Partnerships
In 2004, SAIC’s acquisition of Ssangyong was a “controlling” approach, which ultimately failed due to labor disputes and cultural differences. This time, Chery will only hold 10% of the shares and explicitly will not participate in daily management, essentially using a small investment to secure a long-term partnership:
- For Chery: It avoids direct involvement in the internal governance of the South Korean company (such as union issues), reducing risks.
- For KGM: There is no concern about being controlled by foreign capital, allowing them to use Chery’s technology with peace of mind.
This “technology licensing + joint development + minority equity” model is more flexible than outright control and better suits the role of Chinese automakers today, who have shifted from being providers of capital to exporters of technology.
2. Why Did KGM Choose Chery? Lack of Funds and Technology for New Energy Transformation
KGM (formerly Ssangyong) has annual sales of only around 100,000 vehicles, resulting in meager profits—its operating margin in 2025 was only 1.3%, barely sufficient to cover daily operations, let alone the substantial research and development costs required for new energy transformation. A new energy platform can cost billions, and it requires significant sales volumes to spread the expenses (KGM’s current sales volume is far from enough).
Previously, KGM collaborated with BYD on batteries but lacked the fundamental “vehicle platform” (which determines the car’s size, chassis, and power layout) and “electronic and electrical architecture” (the core of the vehicle’s intelligence systems). Chery can provide these elements; for example, its T2X platform is already mature, and using it to develop new vehicles could save KGM half of the R&D time and costs.
3. What Does Chery Gain from This Investment?
Chery’s investment is not aimed at profiting from price differences in stock prices but rather by selling a “complete vehicle manufacturing solution”:
- Locking in Long-Term Customers: With KGM using its platform, Chery can continuously earn licensing fees and component sales.
- Economies of Scale: The more automakers use the platform, the lower the R&D costs. For instance, if Chery uses the T2X platform to produce 100,000 vehicles at a cost of $100 per unit, using it for KGM’s production of 50,000 vehicles could reduce the cost to $70 per unit.
- Entering Markets Through Partners: KGM has established channels in Europe and the Middle East. Chery does not need to build its own brand; by providing technical support from behind the scenes, it can benefit from these markets.
4. A New Model of Overseas Expansion: Chinese Automakers Moving From “Selling Products” to “Selling Solutions”
In the past, Chinese automakers either exported complete vehicles (with low profits) or acquired foreign brands (such as Geely’s acquisition of Volvo, which was costly and risky). Chery’s approach is to “sell capabilities”: by providing platforms, technology, and supply chains, they enable local companies to produce cars under their own brands.
- Stable Partnerships with Minority Equity: This model ensures stability without taking on excessive management responsibilities.
A similar partnership exists between Geely and Renault Korea, where Geely holds 34% of the shares and provides the CMA architecture, which Renault Korea uses to develop new vehicles. This indicates that Chinese automakers have evolved from selling vehicles to offering comprehensive manufacturing solutions, generating more sustainable profits through technology.
5. Can They Enter the U.S. Market? Tariffs and Regulations Pose Challenges
Chery intends to use KGM as a gateway to the U.S. market, where South Korean cars are subject to a 15% tariff, which is lower than that for Chinese cars. However, the situation is complex:
- Origin Rules: Just because a car is assembled in South Korea does not mean it is considered Korean; the proportion of locally sourced components (at least 50%) must be met. If most components come from China, the car will still be taxed as Chinese.
- U.S. Regulations: The U.S. has strict regulations for connected vehicles, and while the law limits foreign ownership to 15%, it also examines who controls the software and data. Chery’s provision of electronic and electrical architecture may be deemed a form of “technical control,” and even with a 10% stake, it might not pass the review.
Therefore, a more realistic focus for both parties is on markets in South Korea, Europe, and the Middle East, with the U.S. market requiring further gradual progress.
Conclusion
Chery’s partnership with KGM represents a new attempt by Chinese automakers to globalize their business. They no longer rely on selling cars at low prices but earn profits through technology transfer and light asset models to establish partnerships. This reflects a shift in China’s automotive industry from being a follower to a competitor, even a leader in the global market—now we can provide core technologies to other companies. While such collaborations come with challenges (such as technical integration and cultural differences), they offer a more sustainable path for overseas expansion.