Evergrande EV unit fights for survival after vowing to overtake Tesla
CHINA Evergrande New Energy Vehicle (NEV) Group’s billionaire founder vowed to overtake Tesla as the world’s biggest maker of electric cars within three to five years back in early 2019. Four years later, the company’s stock has gone from boom to bust and it’s struggling to survive.
Evergrande NEV, the brainchild of Hui Ka Yan — the tycoon behind beleaguered property developer China Evergrande Group, is seeking a lifeline after last month warning it would need to stop production at its Tianjin factory unless new funds were secured. However its overtures are getting a lukewarm reception, according to people familiar with the discussions, as some of Evergrande NEV’s terms deter would-be investors.
With output effectively paralysed and Evergrande NEV yet to mass produce vehicles, most prospective investors are eyeing up the company for its carmaking licence, a core asset as China seeks to limit the number of new entrants into the overcrowded electric vehicle (EV) space. But concern red tape could complicate the transfer of that licence is discouraging some parties, the people said, asking not to be identified because the negotiations are private.
Evergrande NEV’s wish that at least some of the management team that have been involved in car production stay on also doesn’t sit well with several potential new investors, the people said, with those investors preferring to start with a clean slate and not inherit legacy staff, particularly if they’re aspiring EV makers of their own.
Representatives from Evergrande NEV didn’t immediately respond to a request for comment.
Evergrande NEV’s woes underscore how difficult it is to manufacture cars at scale, even when a company has many billions of dollars behind it. After years of grand proclamations, the automaker has only delivered 900 units of its much-delayed flagship model. It said in an exchange filing last month that it’s looking for financing of more than 29 billion yuan (S$5.6 billion) however gave no details on when or where it could raise those funds. Even with a fresh capital injection, Evergrande NEV said it would still have cumulative negative cash flow of 5 billion yuan to 7 billion yuan from 2023 to 2026.
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The EV maker’s own struggles haven’t been helped by the disastrous track record of its parent. Evergrande, the world’s most indebted property developer, recently laid out details of a multi-billion dollar restructuring plan that calls for offshore creditors to swap their debt for new securities, 15 months after Evergrande first defaulted on its public dollar bonds.
At the same time, China’s electric car market is becoming increasingly cutthroat. Models from new companies like Nio, Xpeng and Li Auto have flooded into the arena, adding to existing offerings from more established players like Tesla and China’s BYD, which is now the world’s second-largest maker of electric cars after Elon Musk’s pioneer. That, combined with recent lacklustre consumer demand after Covid, has sparked a huge price war in China, with discounts north of 15 per cent on some electric car variants not uncommon.
Evergrande NEV secured its carmaking licence in 2019 by virtue of its acquisition of a stake in National Electric Vehicle Sweden, a Swedish electric vehicle company and owner of Saab Automobile assets. Officials in China are now stepping up scrutiny over those sorts of licences after hundreds of companies rushed into the sector, lured by state subsidies and tax breaks for EVs and ultimately leaving a trail of bankruptcies and deserted factories. As a result, any change in ownership or transfer of the licences is tightly controlled, a factor weighing on investors’ minds, the people familiar with the matter said.
Any transfer of the carmaking licence would also need approval from Beijing, which requires recipients to prove their financial and technological capabilities and show they meet stringent sales track record requirements.
While officials from Guangdong province, where Evergrande is headquartered, would be open to having new investors come in to help resume production at Evergrande NEV’s Nansha factory in Guangzhou, the fact that the licence is registered in Tianjin, the northeastern city where Evergrande NEV’s plant is located, may complicate the situation, the people added. Any new investors would first need to recover at least 80 per cent of the Tianjin facility’s production capacity, around 40,000 cars a year, which takes time and money, they said.
Keeping Evergrande NEV above water is also crucial to China Evergrande Group creditors, who were offered the ability to convert part of their soured debt to equity instruments that are linked to Evergrande NEV, according to a restructuring proposal released in March. Those equity instruments include mandatory convertible bonds that would be converted to shares in the electric car unit at HK$3.84 two years after the effective restructuring date. The conversion price is 20 per cent higher than the HK$3.20 last trading price of Evergrande NEV, meaning its future prospects will also make a crucial difference to creditors’ recovery prospects.
With Evergrande NEV’s debt amounting to about 7.5 billion yuan, fresh investors are also weighing whether there would ultimately be any financial gains for them, the people said. BLOOMBERG
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