(Bloomberg) –
The extensive pop-up showroom of China Evergrande New Energy Vehicle Group Ltd. is in the heart of Shanghai’s National Exhibition and Conference Center. With nine models on display, it’s hard to miss. The start-up of the electric car has one of the biggest booths at the 2021 motor show in China, which starts on Monday, against the German car manufacturer BMW AG. Yet its bold presence is an awkward truth – Evergrande has yet to sell a single car under its own brand.
China’s largest real estate developer has a range of real estate investments, from soccer clubs to retirement resorts. But it is the recent entry into electric cars that is captivating investors’ imaginations. Shareholders have boosted Evergrande NEV’s listed shareholding in Hong Kong by more than 1,000% over the past twelve months, allowing it to raise billions of dollars in new capital. It now has a market value of $ 87 billion, larger than Ford Motor Co. and General Motors Co.
Such exuberance over a carmaker that has repeatedly pushed back predictions for car production is indicative of the foam that has built up in EVs over the past year, with investors plowing money into a rally that Elon Musk briefly made the world richest. person and is concerned about a bubble. Nowhere is this as clear as in China, home to the world’s largest market for new energy cars, where a staggering 400 EV manufacturer is now attracting the attention of consumers, led by big startups that value more than established car players, but which has not yet made a profit.
Evergrande NEV was a relatively late participant in the scene.
In March 2019, Hui Ka Yan, Evergrande’s chairman and one of China’s richest men, promised to tackle Musk and become the world’s largest manufacturer of EVs in three to five years. Tesla Inc. ‘s Model Y crossover has just had its worldwide debut. In the two years that followed, Tesla gained an enviable foothold in China, established its first factory outside the US, and delivered about 35,500 cars in March. The Chinese competitor Nio Inc. reached a major milestone earlier this month when it rolled its 100,000th EV off the production line, prompting Musk to tweet its congratulations.
Read more: Nine, Xpeng Exude Optimism as EVs Tree: Shanghai Auto Show
Despite his high ambitions and the rich valuation of Evergrande NEV, Hui has repeatedly pushed back car production goals. The tycoon’s cute rich friends, among others, have raised billions, but making cars – electric or otherwise – is difficult and extremely capital intensive. Nio’s gross margins only turned to a positive area in mid-2020 after years of heavy losses and a bailout of a municipal government.
Hui spoke at the end of March after Evergrande increased NEV’s annual loss for 2020 by a gaping 67%. Hui said the company plans to start trial production by the end of this year, delaying from the original timeline of last year September. Delivery is not expected to begin until 2022. The expectations for the annual production capacity of 500,000 to 1 million EVs by March 2022 have also been pushed back to 2025. Nevertheless, the company has issued a vibrant new forecast: 5 million cars per year by 2035. By comparison, global giant Volkswagen AG delivered 3.85 million units in China in 2020.
It’s not just Evergrande’s delayed production schedule that is raising eyebrows. A closer look under the hood of the company reveals practices that are causing veterans in the industry headaches: from the sale of apartments to the KPIs of car drivers to an attempt at a model range that will be ambitious even for the most established carmaker.
‘Weird Company’
“It’s a strange company,” said Bill Russo, founder and CEO of consulting firm Automobility Ltd. in Shanghai. ‘They’d dumped a lot of money that did not really yield anything, plus they were entering an industry in which they had very little understanding. And I’m not sure if they have the technological edge of Nio or Xpeng, ”he said, referring to the New York-listed Chinese EV manufacturers that already use intelligent features in their cars, such as laser-based navigation.
A closer look at the operations of Evergrande NEV reveals the extent of the unorthodox approach. Although it has established three production bases – in Guangzhou, Tianjin in northern China and Shanghai – the company does not have a general assembly line for running cars. According to people who have seen inside the factories but do not want to be identified and discuss confidential matters, the equipment and machinery are still being adjusted.
In response to Bloomberg’s questions, Evergrande NEV said they were preparing machinery for trial production, and that they would be able to make ‘one car per minute’ once full production was reached.
The company is aiming for next year’s production and delivery of four models – the Hengchi 5 and 6; the luxury Hengchi 1 (which will compete against Tesla’s Model S); and the Hengchi 3, according to people familiar with the matter. The company has told investors that they want to deliver 100,000 cars by 2022, one of the people said. Approximately the number of units that Nio, Xpeng Inc. and Li Auto Inc., the other U.S.-listed Chinese EV candidate, delivered last year.
Its workers are also being asked to help sell real estate, the backbone of the Evergrande empire.
New rental staff must undergo in-house training and attend seminars that discuss the history of the company’s property and have nothing to do with car manufacturing. In addition, employees from all departments, from production line workers to back office staff, are encouraged to promote the sale of apartments, either by placing ads on social media or bringing family members and friends to the sales centers to make them look busy. People familiar with the measure even have performance bonuses at staff level at management level.
Meanwhile, the ambitious targets are that Evergrande NEV has switched to outsourcing and skipping procedures that are considered normal practice in the industry, say people with knowledge of the situation.
Some of the people said that Daniel Kirchert, a former BMW CEO, who was co-founder of the start-up company Byton Ltd., aggressively hired and recently achieved a score. Expanding most design and engineering work is an unusual approach for a business looking to achieve such a scale.
14 models simultaneously
One of the companies is Canada’s Magna International Inc., which is leading the development of the Hengchi 1 and 3, one of the people said. Evergrande NEV has also partnered with Chinese technology giant Tencent Holdings Ltd. and Baidu Inc. developed a software system for the Hengchi series. It will allow drivers to use a mobile app to set up the car to drive to a certain location via a motorboat and use artificial intelligence to turn on devices at home while on the road, according to ‘ a statement last month.
An Evergrande spokesman said he was working with international partners including Magna, EDAG Engineering Group AG and Austrian parts manufacturer AVL List GmbH to develop 14 models simultaneously. Representatives of Magna declined to comment. A Baidu spokesman said the company had no further details to share, while a representative of Tencent said the software business at a related firm Beijing Tinnove Technology Co. is what works independently. Tinnove did not respond to requests for comment.
Instead of staggering model releases, the Evergrande NEV seems to be rolling out every type of car under its Hengchi brand at the same time, carrying a roaring golden lion on the badge and loosely translating to ‘unstoppable gallop’. The nine models introduced cover almost all major passenger vehicle segments, from sedan to SUVs and multi-purpose vehicles. A celebrity said prices range from about 80,000 yuan ($ 12,000) to 600,000 yuan, although the final cost may change.
This is a very different strategy for product development than EV pioneers like Tesla, which offers only four models. Nio and Xpeng also chose to concentrate on just a handful of marquises and even struggled to break into the black.
“The market has proven the effectiveness of the ‘one in a fashion’ strategy,” said Zhang Xiang, a researcher in the automotive industry at North China University of Technology. “Evergrande offers many products and expects a victory. There is a question mark as to whether it will work. ‘
Without any long-term car manufacturing, Evergrande has, according to the people, issued uncompromising prescriptions to achieve its latest production goals. Two models, including the Hengchi 5, a compact SUV that faces Xpeng’s G3, envisage mass production in just over 20 months. To achieve the timing, certain procedures in the industry, such as making mule vehicles or test bed vehicles equipped with prototype components that need to be evaluated, can be skipped, people familiar with the situation said. Evergrande told Bloomberg he was in a “sprint stage towards mass production”.
As it is, Bloomberg could only find one case where the Hengchi 5 was publicly displayed, on photos and grain material that Evergrande released in February when the cars were driving in a snow-covered field in Inner Mongolia. The company’s shares rose to a record high.
It is unusual to believe about these steps, says Zhong Shi, a former car project manager who has become an independent analyst.
“There is a standard engineering process of product development, validation and verification, which includes various laboratory and road tests” in China and elsewhere, Zhong said. “It’s hard to compress it into less than three years.”
Although there is no suggestion that Evergrande’s approach violates any regulations, the stock market may be able to do so. After similar solid gains in the market, some start-ups in the US that have yet to prove their viability as profitable, lucrative entities have lost their luster over the past few months due to concerns about valuations and because established carmakers like VW are faster in the EV battle wrapped. .
Read more: The end of Tesla’s dominance may be closer than it appears
The multibillion-dollar boom in the industry also did not escape Beijing’s attention. Evergrande NEV shares fell last month after an editorial by the state-run Xinhua news agency expressed concern about how the EV sector is developing. It is of particular concern that companies are weakening their responsibility to build quality cars, a blind race by local governments to attract EV projects, and high valuations by companies that do not yet have to deliver a single mass-produced car, according to the mission. Evergrande specifically in this regard. “The large gap between production capacity and market value shows that there is hype in the NEV market,” he said.
Nevertheless, the share of Evergrande NEV has since risen by 18%, bending below the outlook for the Chinese electric car market. According to Bloomberg data, EVs currently account for about 5% of China’s annual car sales. Demand is expected to rise as the market declines and the price of electric cars falls. EV sales in China could climb just over 50% this year, research firm Canalys said in a February report.
As competition increases, some outside Evergrande NEV’s loyal shareholder base remain skeptical.
“The market is getting busy, but unless you have a preferred job, there is not much chance of winning,” said Russo of Automobility. “Maybe there is synergy with the real estate business, but at the moment it’s an EV story and a pretty expensive story.”
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