(Yicai Global) Aug. 26 -- GAC Group’s shares rose after the Chinese car company said it will join with three units, including new energy vehicle maker GAC Aion, to invest CNY10.9 billion (USD1.59 billion) setting up its own power battery business.

GAC [SHA: 601238] gained 1.9 percent to close at CNY14.50 (USD2.10) a share today, while major Chinese stock indexes fell.

GAC’s board approved the plan with the aim of solving problems caused by the continuous rise in battery prices, the Guangzhou-based company said in a statement released late yesterday.

Prices of raw materials for power batteries have surged and been transmitted to automakers, GAC Chairman Zeng Qinghong noted at a forum held in February, making power packs an even costlier part of a new energy vehicle.

“Battery-related costs account for 40 percent to 60 percent of NEV costs, so does it not seem like I’m working for Contemporary Amperex Technology?,” Zeng asked, referring to the global leader in lithium-ion batteries. All NEV makers, apart from Tesla, are losing money, he pointed out.

GAC Aion can make 200,000 cars a year, and after new production capacity is added in the fourth quarter, output will double. But due to rising battery costs, it has amassed a CNY2.7 billion (USD393 million) loss over the past three years. Last year’s deficit was CNY1.4 billion, the firm’s earnings report showed.

A project company 51-percent owned by GAC will be set up to take charge of investment in the new battery plant and its construction. GAC Aion will have a 40 percent stake, and the other two units will hold the rest. No other details were forthcoming.

According to Securities Daily, the factory’s planned annual production capacity will be 26.8 gigawatt hours and it will use lithium iron phosphate as the battery cathode. Building work is due to start by year end and will be completed in 2025.

GAC also said the board had approved a plan by Guangzhou-based Greater Bay Technology, in which the carmaker owns a stake, to build a battery production base, with a total investment of CNY3.69 billion. The facility will make extremely-fast-charging, or XFC, power batteries. It gave no further details.

Founded by Huang Xiangdong, a part-time professor at South China University of Technology, Greater Bay develops and produces XFC batteries and new-generation energy-storage technologies and materials, according to its website. GAC and a wholly-owned unit own about 35.8 percent in Greater Bay.

While preparing to build its own battery plant, GAC has begun working with raw material suppliers. Ganfeng Lithium said last week that it will become a strategic investor in GAC Aion and provide reliable battery raw materials at beneficial prices.

Editor: Peter Thomas