- Evergrande, China’s second-largest real estate developer, aims to knock out Tesla.
- It announced nine different models of electric cars and said it would sell 1 million of them by 2025.
- But the real estate giant now has $ 305 billion in debt and has still not sold a single car.
In 2020, real estate giant Evergrande outlined a bold plan for itself – it was to conquer Tesla.
The property developer unveiled six electric car models, ranging from sedans to minibuses to SUVs. It boasted that its cars would have “cockpits” that compete with aviation vehicles and would use a new smart operating system integrated into the drivers ’homes. There were reports that its vehicles could withstand extreme hot and cold temperatures, exciting investors.
Earlier this year, Evergrande Auto’s valuation rose to $ 87 billion, higher than Ford and General Motors.
Mass production would start in 2021, the company said, announcing three more models in April.
But it still has not sold a single car. Evergrande Auto said in June that car production is “in its final stages.” Yet, as its parent company now recovers from a $ 305 billion-dollar debt crisis, its factories have stalled and the fate of the burgeoning car company remains uncertain.
As of Tuesday, the stock price has lost 96% of its value since peaking in April and is heading for a loss of $ 740 million during the first half of 2021.
Experts told Insider that while these losses are not monumental to the Evergrande Group given the scale of its debt, they exemplify how the will of the Chinese developer’s ambition has brought it to the precarious situation it is in today.
Evergrande boasted that it would deliver twice as many cars as Tesla when it was launched
Each of Evergrande’s nine car models is called “Hengchi” followed by a number from 1 to 9. Hengchi combines Evergrande’s name in Mandarin and the Chinese character for “fast spread” or “speed”.
The concept reflects how quickly Evergrande and its billionaire chairman Hui Ka Yan expected to dominate the global car market. The company said in June 2020 that it wants to become “the largest and most powerful new energy vehicle group in the world” within three to five years.
Six months later, it announced that it would supply 1 million cars a year in 2025 and 5 million in 2035. By comparison, Elon Musk’s Tesla produced and sold about 500,000 cars by 2020.
Evergrande broke into the car industry in 2019. Without a functioning car dealership at the time, Evergrande used its health arm, Evergrande Health, to buy a Swedish car manufacturer.
That year, it spent $ 23 billion on building car production facilities per year. State-owned tabloid The Global Times.
Now the company said it has stopped projects after not paying its suppliers. One of its facilities, just outside Shanghai, showed few signs of activity and had only a few workers hanging around last week, The South China Morning Post reported.
Evergrande’s bold announcements have created “crazy bubble stories” in the electric car industry, said Zhiwu Chen, director of the Asia Global Institute and economics professor at Hong Kong University.
“Companies that are good at telling stories and boasting often expand and stretch without borders in China,” Chen told Insider, adding that this was due to a lack of discipline imposed on investors and lenders by those who manage their funds. .
“It’s not just Evergrande that did this. Many other Chinese companies do it too,” he added.
Chen cited HNA Group, Anbang, Alibaba, DiDi and Bytedance as examples of other Chinese companies that tend to overestimate their capabilities.
Paul Schulte, the founder of Hong Kong-based financial analysis firm Schulte Research, said Evergrande’s attack on the electric car company screams of a “fear of being missed” while the car business is hot.
Both analysts said Evergrande is likely to sell its car business in the future, but will likely have difficulty doing so because the investment has not been profitable.
“They’re going for pennies on the dollar now and there’s still no one taking,” Schulte told Insider, noting that Evergrande is likely to miss out on the opportunity to sell to a well-placed rival,
“If China was better off with the West, a company like Tesla, KKR or Blackstone or Apollo could come in and see what assets could be saved. But that’s not going to happen.”