Evergrande's electric car division vowed to beat Tesla at its own game, but it's taken $740 million in losses so far this year and still hasn't sold a single car
Evergrande, China's second largest property developer, has its sights set on beating out Tesla.
- It's announced nine different models of electric cars, and said it would sell 1 million of them by 2025.
- But the
real estategiant is now $305 billion in debt, and still hasn't sold a single car.
In 2020, real estate giant Evergrande outlined a bold plan for itself - it was going to conquer Tesla.
The property developer unveiled six electric car models, ranging from sedans to minivans to SUVs. It boasted that its cars would have "cockpits" that rival aerospace vehicles and would use a new smart operating system integrated into drivers' homes. Reports emerged of its vehicles being able to withstand extreme hot and cold temperatures, exciting investors.
At the start of this year, Evergrande Auto's valuation surged to $87 billion, higher than Ford and General Motors.
Mass production would start in 2021, said the company, which announced another three models in April.
But it still hasn't sold a single car. Evergrande Auto said in June that car production is "in its final stretch." Yet, as its parent company now reels from a $305 billion debt crisis, its factories have stalled, and the fate of the burgeoning car company remains uncertain.
Experts told Insider that while these losses aren't monumental for Evergrande Group given the scale of its debt, they exemplify how the Chinese developer's wanton ambition has brought it to the precarious situation it's in today.
Evergrande boasted it would deliver twice as many cars as Tesla when it launched
Each of Evergrande's nine car models are dubbed "Hengchi," followed by a numeral from 1 to 9. Hengchi combines Evergrande's name in Mandarin and the Chinese character for "spreading rapidly" or "speed."
The concept mirrors how quickly Evergrande and its billionaire Chairman Hui Ka Yan expected to dominate the global auto market. The company said in June 2020 that it wants to become "the largest and most powerful new energy automobile group in the world" within three to five years.
Evergrande broke into the auto industry in 2019. Without a functioning car business at the time, Evergrande used its healthcare arm, Evergrande Health, to buy a Swedish car manufacturer.
That year, it spent $23 billion building car production facilities, per state-owned tabloid The Global Times.
Now, the company said it has stopped projects after failing to pay its suppliers. One of its facilities, just outside Shanghai, showed few signs of activity and had only a few workers hanging around last week, reported The South China Morning Post.
Evergrande's bold announcements have formed "crazy bubble stories" in the electric vehicle industry, said Zhiwu Chen, Director of the Asia Global Institute and an economics professor at Hong Kong University.
"Businesses that are good at telling stories and boast often expand and stretch without bound in China," Chen told Insider, adding that this was due to a lack of discipline that investors and lenders impose on those who manage their funds.
"It is 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 overstate their capabilities.
Paul Schulte, the founder of Hong Kong-based financial analysis firm Schulte Research, said Evergrande's foray into the electric vehicle business screams of a "fear of missing out" while the auto business is hot.
Both analysts said Evergrande will likely look to sell its auto business in the future, but will probably have difficulty doing so because its investment has not been profitable.
"They are going for pennies on the dollar now, and there are still no takers," Schulte told Insider, noting that Evergrande will likely miss out on the opportunity to sell to a well-positioned rival,
"If China was getting along better with the West, a company like Tesla, KKR or Blackstone, or Apollo could enter and see what assets were salvageable. But this is not going to happen."
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