Failing to “self-fund” , Evergrande Auto Seeks RMB 29 Billion Cash Injection

In recent days, 15 months after defaulting on its overseas debt, China Evergrande disclosed its offshore debt restructuring plan and the latest update on Evergrande Auto, which has been suspended from trading for a year. According to its recent announcement, the company will be at risk of ceasing production without access to additional liquidity funding.

Nevertheless, Evergrande also stated that as of the date of its announcement, mass production of the Evergrande 5 was continuing and over 900 new vehicles had been delivered. It’s also mentioned that Evergrande plans to launch a number of flagship models and put them into mass production if it can seek financing in excess of RMB29 billion.

Despite current mass production of Hengchi 5 according to the announcement, only 900 units have been delivered, which is hardly enough to make a difference in current NEV market. Even if the financing goes well, there is uncertainty as to whether the other models of Evergrande will go into production and open up the market.

Reduction of staff and costs

In August 2019, Evergrande auto officially launched its NEV brand Hengchi, and unveiled six new cars under Hengchi in August 2020, covering the full range of models from sedans to SUVs and MPVs, and from Class A to Class D. And three models of Hengchi 7-9 was released again after that.

Unlike the “grandeur” of its launch, Hengchi Auto is now deep in a whirlwind of debts.  According to Evergrande Auto, as of December 31, 2021, the total assets of the company were RMB59.521 billion and the total liabilities were RMB58.830 billion, with a gearing ratio of 98.84%, which was nearly insolvent.

In order to maintain essential business operations under financial pressure, Evergrande has taken steps to cut costs, taking the initiative to reduce the workforce at a subsidiary in Sweden---National Electric Vehicle Sweden AB (hereinafter referred to as NEVS), which plans to lay off 320 employees, nearly 95% of its workforce. If the layoffs take effect, the number of employees on board of NEVS will be reduced to 20.

To ease the financial pressure, Evergrande Auto has laid off nearly 1,000 employees in total. An expert knowing well about Evergrande Auto said, “The staff remaining in Evergrande Auto City located in Nansha, Guangzhou has been very few, and the Tianjin factory of Hengchi 5 production base has basically been in a semi-stopped state. If the company can get enough funding, the next models may still take a chance.”

Are customers still willing to buy an Evergrande?

According to Evergrande Auto’s latest proposed schedule for mass production of its new models, Evergrande 6 and Evergrande 7 will be put into mass production next year. However, with non-liquid assets and unsuccessful attempts at financing, it is not yet known whether mass production will be carried out as planned. 

Evergrande Auto once officially released a sales target of completing the first 10,000 deliveries by the first quarter of 2023, but only 900 units of the Hengchi 5 have been delivered so far, less than 10% of the target. These delivered Hengchi 5 reveal many quality problems when it needed good word of mouth to initially: overlapping fonts on screen, braking noise, shorter range, unavailable Level 2 driving assistance, and switch failure of seat ventilation and heating, etc. Hengchi 5 failed to win its first battle, undoubtedly bringing a series of negative effects. With consumers’ trust worn out, how many people are still willing to buy an Evergrande car?

With an unknown market prospect, it will be even more difficult for Evergrande to secure another $29 billion in financing. The competition in domestic NEV market has long gone through the stage of ensuring mass production and delivery, and the price war has been fully played out, with a mature supply chain and the ability to bargain with the suppliers becoming the key.

Some industry insiders believe that Evergrande Auto’s lagging product and quality failures have become the core of its deep predicament, and the longer it stays in the “mud”, the slimmer its chances of turning it around.

Translator：Wei Xiong                                                                  

Reviser：Yan Luo