Chinese clean energy firms dominate top 10 VC deals globally amid tough market: Preqin

China accounted for five of the top 10 venture-capital deals involving clean energy - and two-thirds of such deals by value - in the first half of 2024, according to Preqin.

The five China deals primarily involved companies in the supply chain for battery-powered and hybrid vehicles, according to Preqin, which provides data on private capital and hedge funds.

Together, these deals raised US$2.93 billion from private investors - mainly domestic institutions - in the year's first six months, or 65 per cent of the US$4.5 billion raised by the top 10 deals involving low-carbon energy globally.

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China's dominance in the first half builds on a trend. In 2022, the aggregate volume of clean energy deals in China reached US$12 billion, surpassing the US at US$11.6 billion. In 2023, China's deal volume for clean energy increased 22 per cent to almost US$15 billion - more than double the US total of US$7 billion - with a third coming in the electric vehicle (EV) sector.

In addition to clean energy, artificial intelligence (AI) and semiconductors were the sectors where unlisted companies in China drew the most funds from investors in the first six months, Preqin said in a report on Wednesday, adding that the Chinese government intends to grow and support these industries.

"Of these mega deals, AI was a driving force, with volume by May this year reaching almost US$6 billion - around half of 2023's full-year total [for AI deals] of US$12 billion," the report said.

This is despite substantial weakness in overall China deal volume, which fell 42 per cent quarter on quarter to US$12 billion in the first three months of this year, much steeper than the global decline of 12 per cent in the same period.

Higher interest rates, a lack of exit pathways and heightened geopolitical tensions between the United States and China have hit venture funding globally, particularly in China, Preqin said.

"It's a challenging environment for venture capital in the Greater China region, as investors struggle with exiting their investments in private companies," said Valerie Kor, lead author of the report. "However, as foreign investors pull back, Chinese domestic investors such as technology firms and state-backed funds have stepped in to fill the gap."

For example, in clean energy technology, Shanghai-based EV maker IM Motors raised US$1.1 billion in March from investors including autonomous driving technology firm Beijing Chusudu Technology, ICBC Capital Management and Bank of Communications Investment.

IM Motors is a joint venture controlled by China's largest state-owned carmaker SAIC Motor, and also owned by e-commerce giant Alibaba Group Holding and the state-backed property operator Shanghai Zhangjiang Hi-tech Park Development. Alibaba owns the South China Morning Post.

In April, Shanghai-based Hozon New Energy Automobile raised US$698 million from Tongxiang City Construction Investment Group, Minsheng Equity, and Yichun Jinhe Equity Investment. This followed fundraising rounds of US$200 million in March this year and US$960 million in August last year. The company just applied to be listed in Hong Kong.

Employees work at Tesla's Shanghai Gigafactory in Shanghai on December 22, 2023. The EV sector accounted for a third of clean-energy venture deals in 2023. Photo: Xinhua alt=Employees work at Tesla's Shanghai Gigafactory in Shanghai on December 22, 2023. The EV sector accounted for a third of clean-energy venture deals in 2023. Photo: Xinhua>

The outlook for raising private capital for clean energy in China is "reasonably optimistic", said Chan Ka-keung, CEO of Nature Elements Capital, a private-equity firm focused on the sector.

"Domestic investors are playing a more important role, and deals must demonstrate strong technology advancement or application to compete for limited capital," he said.

Lucas Zhang Liutong, director of Hong Kong-based consultancy WaterRock Energy Economics, said that because clean energy technology aligns with Beijing's policies for bolstering economic growth and energy security, deal flow is likely to continue to increase.

"However, most of this will be from domestic state-backed players, which have the capital and the patience to invest in cleantech under the current environment," he said.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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