Project acquisition terminations, rapidly expanding losses, and joint venture equity transfers... Constrained by tight operating capital, domestic hydrogen fuel cell leader Sinohytec faces uncertainty in its strategic advancement and development.
On October 10, 2025, Beijing Sinohytec Co., Ltd. (Sinohytec, 688339) released a "Progress Announcement on Capital Increase to Joint Venture Company," stating that it recently signed an "Equity Transfer Agreement" with Toyota Motor Corporation. Under this agreement, Sinohytec will transfer to Toyota the equity corresponding to the subscribed but unpaid capital increase amount (950 million yen, equivalent to approximately RMB 44.8068 million) to joint venture Huafeng Fuel Cell Co., Ltd. ("Huafeng Fuel Cell"). After the transfer, Sinohytec's stake will decrease from 50% to 35%, giving Toyota controlling interest in Huafeng Fuel Cell.
In December last year, Sinohytec and Toyota announced plans for proportional capital increases to joint venture Huafeng Fuel Cell, with a total planned increase of 1.9 billion yen (equivalent to approximately RMB 89.6135 million). Based on the 50:50 equity ratio, Sinohytec's subscribed capital increase amount was approximately RMB 44.8068 million. Currently, the capital increase has completed industrial and commercial registration changes, with no change in equity structure. However, Sinohytec has not yet made the actual capital contribution.
Sinohytec stated in its announcement that this equity transfer is based on Huafeng Fuel Cell's capital needs and made in consideration of the company's current operating conditions and strategic development plans. Sinohytec's half-year report released at the end of September shows that operating capital shortage has become the main risk affecting the company's strategic development advancement.
**Financial Dilemma**
In the first half of this year, Sinohytec posted losses of RMB 163 million, an increase of RMB 21.94 million compared to the same period last year. The gross margin was -25%, compared to 17% in the same period last year. Regarding the first-half losses, Sinohytec attributed them to overall declining market demand in the fuel cell industry, year-on-year industry scale reduction, and decreased sales volume due to the company reducing marketing efforts based on liquidity considerations.
Sinohytec also cautioned that while the company seeks to enter upstream hydrogen source segments to achieve synergistic operations from fuel cell systems to hydrogen supply across the industrial chain, if future industry development falls short of expectations or industry competition intensifies further, the loss situation may continue if the company cannot secure sufficient orders.
Persistent negative operating cash flow represents Sinohytec's greatest current risk. In its half-year report, the company stated that accounts receivable and inventory occupy substantial working capital, resulting in persistently negative operating cash flow. The industry is currently still in the early stages of R&D and industrialization, with capital needs continuing to grow rapidly, while debt financing capabilities are relatively limited. If operating cash flow conditions cannot be effectively improved in the future, the company faces the risk of insufficient working capital.
Financial data shows that Sinohytec's accounts receivable in the first half reached RMB 1.478 billion, with inventory at RMB 161.3 million, accounting for nearly 60% of total current assets. The accounts receivable turnover days doubled from 1,898 days in the same period last year to 3,785 days.
Notably, Sinohytec terminated in September its transaction to acquire 100% equity in Dingzhou Xuyang Hydrogen Energy Co., Ltd. ("Xuyang Hydrogen Energy") through share issuance and raise supporting funds, citing failure of transaction parties to reach consensus on the final transaction plan. The transaction had been in progress for six months, with reports indicating final disagreement on valuation.
As a leading domestic fuel cell company, Sinohytec was established in 2013 and maintained profitability from 2013 to 2019, entering a continuous loss phase starting in 2020. Losses reached RMB 243.2 million in 2023, up 46% year-on-year; losses rapidly expanded to RMB 456.4 million in 2024, up 87% year-on-year. Gross margin declined from 45% in 2019 to 31% in 2023, rapidly dropping to just 12% in 2024.
**Challenges in Strong Alliance**
Huafeng Fuel Cell was jointly established by Sinohytec and Toyota in June 2021, with each holding 50% stakes. Its main business involves producing and selling fuel cell systems developed by United Fuel Cell System R&D (Beijing) Co., Ltd. ("United Fuel Cell"). United Fuel Cell was established one year earlier than Huafeng Fuel Cell, essentially serving as Toyota's R&D entity for fuel cell technology in China. United Fuel Cell was jointly established by Toyota and five other Chinese companies, with Toyota holding 65%, Sinohytec holding 15%, and four automakers—GAC Group, Dongfeng Group, FAW Corporation, and BAIC Group—each holding 5%. Toyota's hydrogen fuel cell technology leads globally, and its binding with Sinohytec and Chinese automakers represents Toyota's primary pathway for landing hydrogen energy technology in China. The specific business model involves: based on Toyota technology, United Fuel Cell handles fuel cell system R&D, while Huafeng Fuel Cell handles production and sales of fuel cell systems and stacks.
In August this year, the new factory for Huafeng Fuel Cell and United Fuel Cell officially commenced production in Beijing Economic-Technological Development Area. Phase one maximum annual capacity can reach 10,000 units. Phase two is expected to begin construction in 2026.
Sinohytec emphasized in its announcement that according to the "Equity Transfer Agreement" signed by both parties: after the equity transfer, subject to prior mutual agreement between Sinohytec and Toyota Motor Corporation, Sinohytec has the right to claim repurchase of the agreement equity from Toyota Motor Corporation under the same conditions as this agreement before December 31, 2025. If repurchase cannot be achieved for various reasons by that time, Sinohytec has the right to require Toyota Motor Corporation to acquire all or part of Sinohytec's equity in the joint venture company, to be implemented after mutual agreement.
The strong alliance between Toyota and Sinohytec has attracted considerable attention, being considered the project most likely to achieve commercial-scale hydrogen energy promotion. However, the domestic hydrogen fuel cell industry outlook remains challenging. In the first half of 2025, the sector showed trends of weak demand and increased industry adjustment pressure, with continued decline in hydrogen fuel cell vehicle production and sales, including sales of 1,373 units, down 46.8% year-on-year.
For hydrogen fuel cell companies, beyond insufficient market demand and persistently high costs, the main reasons include hydrogen energy commercial scenarios and infrastructure construction still being in development stages, and fluctuations in some customer demand and orders. Upstream and downstream industry chain companies generally face increased capital turnover pressure risks. Overall, as a policy-driven technology, the market ecosystem for fuel cell commercialization has not yet been established.
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