Introduction: From 2021, Evergrande Motors’ 14 new energy vehicle models will be put into mass production gradually. The market will tell us how well Evergrande Motors performs. Nobody can give an answer in advance now.
This afternoon, Evergrande Group replaced its chairman, general manager, and legal representative. Xu Jiayin no longer serves as chairman of Evergrande Real Estate, and Ke Peng resigned from positions including general manager and legal representative. The new chairman, general manager, and legal representative are all Zhao Changlong, who currently serves as executive director and vice chairman of Evergrande Property.
A few days ago, under heavy debt pressure, Xu Jiayin, chairman of Evergrande’s board, chose to cut losses to find a new way out and sell part of the equity of its real estate and automotive business to relieve the liquidity crisis. With Xu Jiayin stepping down as chairman of Evergrande Real Estate this time, many people have begun to worry that this is a prelude to Evergrande’s trouble. Is that the case?
Behind the storm: On August 10th, China Evergrande, Evergrande Motors, and Evergrande Property jointly issued a statement that the company is contacting several potential independent third-party investors to discuss the sale of some of its assets, including but not limited to the equity of China Evergrande New Energy Vehicle Group and Evergrande Property Group listed companies.
As soon as this news came out, it immediately aroused widespread discussion. Some industry insiders said that although Evergrande entered the automobile industry in 2018 and hasn’t even produced a car yet in less than 4 years, it is about to be forced to sell itself, which is really lamentable. But is that really the case? Is Evergrande really forced to sell itself?
Actually, not necessarily. First, although Evergrande is going to sell part of the equity of its new energy vehicle and property business, it is not selling its controlling power, which is the key factor. “Exchanging equity for financing” is a common means of new energy development.
Secondly, let’s take a look at the introduction of Evergrande’s new energy vehicle business. Its layout of new energy vehicle industry is an important measure to actively respond to the national strategy of building a strong technological nation and to create a national automobile brand. In other words, Evergrande’s development of new energy vehicle business is actually a positive development. The notion of selling itself is untenable.
As for this “Xu Jiayin stepping down as chairman” storm, it is actually a normal operation. Firstly, the chairman of Evergrande Real Estate who withdrew is only responsible for the business of one segment of Evergrande and not the entire Evergrande Group. Secondly, Evergrande has a tradition of rotating its chairman. Before October 2017, the chairman of Evergrande Real Estate was Zhao Changlong.Here is the Markdown English text with HTML tags preserved as requested:
By this, it can be seen that the outside world is too sensitive to Evergrande, whether it is the sale of new energy equity or the retirement of the chairman. In fact, with Evergrande drawing a red line and beginning to pay attention to cash flow in the past two years, Evergrande’s operations have improved significantly. Coupled with the central government’s participation in Evergrande’s adjustment, undoubtedly releasing positive signals.
A Rational View of Spending to Build Cars
Looking at the trends of Evergrande from the beginning of 2019 when they announced their plan to build cars until now, according to public data, Evergrande Auto has accumulated a loss of 17.4 billion yuan in the past two and a half years. The company lost 4.9 billion yuan in 2019, 7.7 billion yuan in 2020, and is expected to have a net loss of 4.8 billion yuan in the first half of 2021, almost double the net loss of 2.45 billion yuan last year.
Regarding this, Evergrande Auto stated in its announcement that the main reason for the loss in the first half of this year was due to the expansion of the new energy vehicle business, which is currently in the investment stage. The cost of purchasing fixed assets and equipment, research and development, and other related expenses increased, as did the interest costs. This is also reasonable.
It can be seen in the industry that even the three major new car forces with sales of tens of thousands of vehicles, “NIO,” have been in a loss state in recent years. From 2018 to 2020, NIO, XPeng Motors, and Ideal Motors had cumulative losses of 26.4 billion yuan, 8.3 billion yuan, and 4.5 billion yuan, respectively.
Therefore, Evergrande Auto’s losses were also expected. Building cars are one of the industries that are extremely “burning money,” and the initial capital required can often reach hundreds of billions of yuan. Li Bin, the founder of NIO, has said that if you don’t have 20 billion yuan, don’t build cars. And now, Evergrande has only spent 17.4 billion yuan, which is not much. Also, investing in new energy vehicles is not excessive.
The Electric Force Has Something to Say
It can be foreseen that Evergrande Real Estate’s scale will shrink, and the development focus will shift to strategic directions in coordination with the country, such as new energy vehicles. At that time, Evergrande will definitely be able to develop more comprehensively and healthily.
Perhaps Evergrande is in the midst of a transformational period, but those familiar with Evergrande know that the company does not lack the story of coming back against the odds, just as the Evergrande spokesperson said before, “We believe that with the support and efforts of all parties, we will be able to overcome difficulties, ensure stable and healthy development.”
Moreover, new energy vehicles are a high-tech, high-investment, and long-term investment. The 14 new energy vehicle models developed by Evergrande Auto will be put into mass production from 2021. The market will tell us how good Evergrande Auto’s products are. For now, no one can give the answer in advance.
This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.