In the third quarter of 2005, Tan Xuguang led Weichai Power’s acquisition of Hunan Torch for 1 billion yuan, during a low point in China's heavy truck industry. This bold move earned him the nickname "Tan Bold." After the merger, the industry rebounded strongly, and Tan later remarked that "4 billion yuan wouldn't be enough now." The acquisition significantly boosted Weichai's competitiveness. Reflecting on the success, Tan emphasized that their key to success was thorough research and understanding of industry trends. He believed that China's heavy truck industry had entered a new phase, prompting Weichai to prepare for a shift toward 12-liter high-power engines, which could become a new competitive advantage.
Kong Peng/Wen
Modern entrepreneurs, according to Tan Xuguang, must drive business through both product and capital management. Over two decades ago, Chinese entrepreneurs focused primarily on product development. In the past decade, many shifted their attention to product management alone. However, Weichai stayed ahead by integrating capital management into its strategy. "This is an area with infinite potential," he said.
On August 8, 2005, Weichai outbid competitors such as Wanxiang, Xifei International, and others to acquire a 28.12% stake in Hunan Torch for 1.023 billion yuan. This deal marked a turning point in China's heavy truck industry and a milestone in Weichai's development.
Talking about the acquisition, Tan described it as a thrilling process filled with suspense and strategic thinking. At the time, Delong's assets were being managed by Huarong Asset Management. Tan anticipated a public bidding process but realized that Wanxiang had already established a relationship with Huarong. To counter this, Huarong set strict conditions, including a 200 million yuan deposit within 10 days and full payment after winning the bid—conditions that favored larger players.
In the week before the bid, Tan surprised everyone by forming a joint venture called "Weifang Investment" with local state-owned enterprises like Shandong Haihua and Weifang Yaxing. Through three rounds of capital increases, the company's registered capital reached 16.38 billion yuan, with Weichai holding 45% equity. This approach allowed Weichai to bypass many procedures typically required for acquiring Hong Kong-listed companies.
"I bid high, I was right, and I was forward-thinking," Tan said. At the time, the heavy truck industry was at its lowest, and the acquisition price was very low. After the merger, the industry fully recovered, becoming one of the best-performing sectors in the automotive industry. By 2007, the profits from Hunan Torch alone exceeded 1 billion yuan, far surpassing the initial investment.
"I don’t do superficial things," Tan emphasized. The acquisition wasn’t just about low prices; it was about gaining high-quality assets like Shaanxi Heavy Duty Truck, Fast Transmission, and Hande Axle. This helped Weichai evolve from an engine supplier to a powertrain integrator. "I proposed two concepts: powertrain and synergy, where one plus one is greater than two."
From an international perspective, major manufacturers like Mercedes, Volvo, and MAN all have their own engine production facilities. Tan questioned whether Weichai should expand into vehicle manufacturing. "At present, the average gross profit margin of vehicles in China is around 8%, while our engines and transmissions have margins of 25-30%. Making money is the goal. I don’t do superficial things."
He also pointed out that the concentration of China’s heavy truck industry was declining. Major players like FAW, Dongfeng, and Sinotruk each held 20% of the market, while smaller companies accounted for 40%. With total capacity reaching 700,000 units in 2007, but sales only at 480,000, Tan predicted a tough future. He expected the industry to face a shake-up by 2012, with weaker companies struggling to invest in R&D.
Tan criticized the homogenous competition in the Chinese auto industry, arguing that it hindered innovation and profitability. "Chinese companies rarely have unique products. Even if we have similar products, it doesn’t mean higher margins. We need to focus on profitability and core technology upgrades."
"The most important thing in the capital market is integrity," Tan said. As a technical expert, he transitioned into trade and then leadership roles. When Weichai re-listed in 2002, he chose Hong Kong over mainland China due to the lack of share reform. "Few people knew Weichai before 2002, but in Hong Kong, we were well-known. Top global funds became our shareholders."
Regarding the capital market, Tan stressed the importance of honesty. During the 2005 acquisition, many fund managers doubted him, but by 2006, they recognized his reliability. "For four years, I promised a super-low drop, and I kept my word," he said. Now, some investors even question if he's being too conservative.
Another example of his honesty came when he predicted a decline in the heavy truck industry in 2008. While many analysts were optimistic, Tan insisted that the implementation of National III standards would cause a sharp drop in sales. "The capital market can't lie. Once you lie, no one will trust you again." However, he added that Weichai was prepared, having already started developing 12-liter high-power engines, which could provide a new opportunity for growth.
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