Divergent Clears Path for U.S. Defense Contracts as Hong Kong EV Maker Sells Stake

Hong Kong’s Apollo Future Mobility, known for making high-performance cars and electric vehicles (EVs), is cutting ties with Divergent Technologies, a U.S. firm that 3D prints components for supercars and other applications.

Apollo had invested in Divergent to tap into its pioneering technology. However, as Divergent’s involvement in U.S. defense projects grew, U.S. regulators increased their scrutiny over foreign ownership in the company, especially given its role in sensitive industries. To comply with these strict regulations and avoid potential legal and political complications, Apollo was compelled to sell off its shares in Divergent.

On July 26, 2024, Apollo and its subsidiary, Global 3D, agreed to sell 4.93 million shares in Divergent Technologies to Lateralus Holdings IV, LLC. Representing roughly 12.87% of Divergent’s issued shares, the total value of this sale was $101.53 million, about HKD 793 million. The sale was a direct response to the regulatory pressures, ensuring that Divergent could continue its operations without any legal obstacles.

As part of the sale agreement, Apollo’s appointed directors on Divergent Technologies’ board have resigned, effective immediately. This ensures that Apollo no longer holds any direct influence over the company’s governance, aligning with U.S. regulatory requirements and clearing the path for Divergent to pursue sensitive defense contracts without foreign ownership complications.

The U.S. has always been careful to keep its defense technologies under tight control. Strict rules, like the Committee on Foreign Investment in the United States (CFIUS) and the International Traffic in Arms Regulations (ITAR), are in place to monitor and regulate foreign investments and exports related to national security. These measures ensure that critical military innovations stay in American hands.

In fact, according to Apollo’s documents, one of the main reasons for the divestiture was that Divergent Technologies was applying for facility clearance status from the U.S. Defense Counterintelligence and Security Agency, which is essential for obtaining classified defense contracts. As a result, Divergent requested that foreign shareholders, including Apollo, reduce their stakes to comply with these regulations, avoiding any potential fines, penalties, or restrictions to secure these coveted defense contracts.

This raises additional questions about the future of other foreign investors in Divergent. For example, Horizons Ventures, a Hong Kong-based firm backed by billionaire Li Ka-shing, is also an investor in Divergent Technologies. With U.S. regulations tightening, Horizons Ventures may face a similar pressure to divest its stake, just as Apollo was compelled to do.

The sale to the investment holding Lateralus Holdings IV, whose ultimate beneficiary is a U.S. resident and a shareholder of Divergent, was arranged to ensure that Divergent could continue its operations without any legal or regulatory issues. According to a filing by Apollo, the trustee of the family trust that is the ultimate beneficial owner of Lateralus Holdings IV, LLC is The Goldman Sachs Trust Company of Delaware.

Apollo Future Mobility’s supercars. Image courtesy of Apollo Future Mobility.

Had Apollo kept its stake in Divergent, the company might have also faced scrutiny from Chinese authorities due to its investment in a U.S. firm with defense contracts. Although Hong Kong operates under a different legal and economic system than mainland China, the increasing integration of Hong Kong into China’s broader regulatory framework could have led to concerns. China has strict controls on capital outflows to prevent capital from leaving the country, so investments in U.S. firms could be closely monitored.

What’s more, Apollo’s original document highlights that remaining a shareholder in a U.S. military supplier or contractor could expose the company to political risks, given the escalating tensions between China and the U.S., particularly in sectors like technology and defense where both countries compete for dominance.

Although this move ends the partnership and clears the way for Apollo to refocus on developing hypercars and EVs, the decision to divest was probably not made lightly. Divergent has been a key player in the research, design, and production of 3D printed vehicle structures, using cutting-edge technology to create complex parts that traditional manufacturing methods struggle to produce. By investing in Divergent, Apollo was able to stay at the forefront of automotive innovation, benefiting from the latest breakthroughs in the industry.

Now, the company is doubling down on its core strengths, directing more resources toward its hypercars and EVs, which are central to its growth strategy. The funds from this sale are important for Apollo, which expects to net about HKD 790 million ($101.4 million) after costs. Most of this money, around HKD 711 million ($91.2 million), will go towards research and development of hypercars and EVs, with the rest used for general expenses like salaries and legal fees. Although Apollo says it will record a loss of about HKD 106 million ($13.6 million) from the sale, the loss is considered “manageable,” especially given the risks of keeping the shares.

Apollo Future Mobility’s supercars. Image courtesy of Apollo Future Mobility.

For Divergent, this divestiture not only resolves the ownership complications but also clears the path to secure more defense contracts without the challenges of foreign ownership. Its 3D printed components are gaining significant traction, particularly in sectors where precision and innovation are critical. The company has already made big advances, collaborating with six major U.S. government contractors, including General Atomics Aeronautical Systems.

What’s more, Divergent has been involved in projects like designing, 3D printing, and robotically assembling drones. With Apollo stepping back, Divergent can fully focus on expanding its footprint in these critical areas. Especially now that its 3D printing technology is seen as a potential game-changer for next-generation unmanned aerial systems (UAS), such as those being developed for the Air Force’s Collaborative Combat Aircraft program. With its production process being between 15 to 30 times faster than the fastest state-of-the-art machines and its ability to set up 3D printers in the field, Divergent is even more appealing to the defense sector.

Divergent Technologies process. Image courtesy of Divergent Technologies via LinkedIn.

Though complex, this divestiture ultimately strengthens Apollo’s position by allowing it to focus on key areas like hypercars and EVs, free from the constraints and risks of owning a stake in a U.S. defense contractor. For Divergent, the sale clears the way for more opportunities in defense, allowing the company to seek new contracts without foreign ownership issues holding it back.