China Evergrande’s EV production at risk due to funding shortage

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    23rd March 2023 – (Beijing) China Evergrande New Energy Vehicle Group Ltd, the electric vehicle (EV) manufacturing unit of the beleaguered China Evergrande Group, announced on Thursday that it may have to stop production of EVs if it fails to secure fresh funding. The company has already delivered over 900 units of its flagship Hengchi 5 model.

    The unit is aiming to reduce costs by cutting staff numbers and improving management efficiency. However, it would need financing of more than 29 billion yuan ($4.2 billion) “in the future” to launch new flagship models and achieve mass production, the company said in a statement. If it fails to obtain additional liquidity, the unit is at risk of discontinuing production.

    Evergrande’s EV unit had previously announced plans to begin mass production of its second EV model in the first half of 2023 and a third in the latter half of this year. The unit aims to manufacture 1 million vehicles per year by 2025. In December 2022, it implemented cost-reduction measures, including layoffs and salary cuts for some employees.

    The EV unit is a critical component of China Evergrande’s transformation plans. Once China’s top-selling property developer, the group is now at the center of a deepening debt crisis. The unit’s shares have been suspended since April 2022.

    China’s property market has been cooling, leading to a drop in China Evergrande’s sales and cash flow. The company’s net debt stood at CNY 1.97 trillion ($299 billion) at the end of June 2022, making it the world’s most indebted developer. Its debt crisis has spilled over into its EV unit, which has been seeking new funding to keep its operations running.

    China’s EV industry is facing a challenging environment, with the government tightening regulations and cutting subsidies for EV makers. The industry has also been hit by a global shortage of semiconductors and rising raw material costs. Several Chinese EV makers have reported lower sales and delayed deliveries due to these issues.

    The future of China Evergrande’s EV unit remains uncertain, as the company struggles to secure the financing it needs to launch new models and achieve mass production. With the group’s debt crisis deepening, it is unclear how much longer the EV unit can continue to operate. Investors will be watching closely to see how the situation unfolds.