Before debt woes, China Evergrande's ambitious car making goals stunned industry

HANKOOK & COMPANY

18/10/2021 07:19

SHANGHAI/HONG KONG, Oct 18 (Reuters) - At the Shanghai Auto
Show in April, the booth for China Evergrande Group's new energy
vehicle (NEV) unit  0708.HK   3333.HK  was hard to miss.
    One of the largest exhibitions at the event, in a prime spot
opposite BMW  BMWG.DE , the property developer-backed unit
showed off nine concept vehicle models under its brand
"Hengchi", which translates to "eternally speeding." 
    "There has never been a car company that has been able to
deliver such a diversified product line in such a short amount
of time," Daniel Kirchert, who joined Evergrande NEV days before
the auto show as vice president, told industry executives and
reporters in a speech at the event.
    Analysts and industry executives say there have long been
questions about how Evergrande NEV, founded in 2019, would meet
its ambitious goals - chairman Hui Ka Yan had declared that it
wanted to sell one million EVs a year by 2025, a level Tesla Inc
 TSLA.O  is only expected to hit this year after 18 years of
operation.
    Six months after the auto show, the doubts are stronger than
ever as the company's parent wrestles with more than $300
billion in liabilities.  
    "Those targets would be really aggressive, nearly impossible
to achieve even for established, well-managed automotive
companies because of the capital and human resources required to
even attempt executing on the plan," said Tu Le, an auto analyst
at Sino Auto Insights. 
    Between 2019 to 2021, Evergrande's NEV arm raised more than
50 billion yuan ($7.78 billion) from its parent, as well as
investors such as Sequoia Capital China, ride-hailing giant Didi
Global Inc  DIDI.N  and Alibaba-linked fund Yunfeng Capital.
    It has announced 14 models and plans to have 10 factories
across China and Sweden. So far, it has built or is constructing
six, including one in Shanghai. A recent Reuters visit there
found about 20 Hengchi electric vehicles for testing parked
outside. But the company has yet to reveal a production model or
sell a single vehicle. 
    In comparison, Nio  NIO.N  and Xpeng  9868.HK , two of
China's most successful NEV startups by sales, struggled to
raise money in their early years, and raised a combined $7.3
billion through stock market listings and pre-IPO fundraising. 
    Nio has four models and is building its second factory.
Xpeng has three and is expanding production sites to four from
current two. Tesla sells four models and has four car plants.
    Evergrande NEV did not immediately respond to a request for
comment.
    
    'CARS ON PAPER'
    Lofty goals and investor bullishness in March helped push
Evergrande NEV's market capitalisation to over HK$700 billion 
($89.99 billion) - a value greater than that of Ford Motor Co
 F.N . Its market capitalisation has since slumped to about
HK$38 billion.
    The company has managed to lure top executives from auto
giants, such as designer Walter De Silva and battery scientist
Junesoo Lee from SK. Kirchert had been chief executive at Byton,
another Chinese EV startup struggling in a crowded sector. He
did not respond to a request for comment. 
    But the rapid expansion also prompted criticism from
Beijing, including Chinese state news agency Xinhua, which in
March singled the company out as an example of the problems with
the industry. 
    "The vast market potential has given birth to some
'powerpoint car companies' that 'make cars' on paper," Xinhua
said in a report on the high valuations about electric
carmakers. 
    Evergrande NEV warned in stock exchange filings last month
that it was still seeking new investors and asset sales, and
that without either it might struggle to pay salaries and cover
other expenses. 
    It also ended plans to issue shares in China's mainland and
said in an exchange filing that it had failed to pay some plant
construction suppliers. A memo seen by Reuters also showed that
it has instructed contract workers to stop working at Shanghai
factory from September. 
    But three sources familiar with the matter say the company
is not abandoning the project, and is in talks with external
investors to pay for the project, leveraging precious production
licenses it has obtained through an acquisition and land linked
to the auto projects. 
    On Monday, it told suppliers and local authorities in the
coastal city of Tianjin, where it is building a car plant, that
management would make sure it began mass production next year. 
    Last week, its Swedish vehicle unit, National Electric
Vehicle Sweden AB, told Reuters it is in talks with U.S. and
European venture capital firms and industrial partners to find
new owners. A source familiar with the situation told Reuters
the unit could be valued at as much as $1 billion.  urn:newsml:reuters.com:*:nL1N2RC00M

($1 = 6.4262 Chinese yuan renminbi)
($1 = 7.7786 Hong Kong dollars)

 (Reporting by Yilei Sun and Zhang Yan in Shanghai, Julie Zhu
and Kane Wu in Hong Kong; editing by Brenda Goh and Gerry Doyle)
 ((Y.Sun@thomsonreuters.com; +86 10 66271262; Reuters Messaging:
y.sun.thomsonreuters.com@reuters.net))