Bloomberg
China’s $ 87 billion electric car giant has not yet sold a vehicle
(Bloomberg) – The expanded 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. However, the daring presence is an awkward truth – Evergrande has not yet sold a single car under its own brand name. 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. This exuberance about a car manufacturer that has repeatedly pushed back the predictions for the manufacture of a car is indicative of the foam that has been built into it. EVs over the past year, with investors plowing money into a rally that briefly made Elon Musk the richest person in the world and who is worried 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 what 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 threes. up 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 denies optimism as EVs Boom: Shanghai Auto Show Despite its lofty ambitions and Evergrande Hui’s rich valuation, 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 moved to a positive area in mid-2020, after years of heavy losses and a bailout of a municipal government. At the end of March, speaking on a call for earnings after the full annual loss of Evergrande NEV for 2020 gaped by 67%, Hui said the company plans to start trial production at the end of this year , delayed from the original timeline of last year September. Deliveries are 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. The company has nevertheless issued a lively new forecast: 5 million cars per year by 2035. By comparison, global giant Volkswagen AG is delivering 3.85 million units in China by 2020. It’s not just Evergrande’s delayed production scheme that is raising eyebrows not. A closer look under the company’s hood reveals practices that are causing veterans in the industry: from the sale of apartments to the KPIs of car drivers to an attempt to create a model range that will be ambitious even for the most established carmaker . ‘ Weird Company “This is 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 advantage of Nio or Xpeng, ” he said, referring to the New York-listed Chinese manufacturers that already use intelligent features in their cars, such as laser-based navigation. The operations of Evergrande NEV show 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 discuss confidential matters, equipment and machinery are still being adapted. 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, together The workers are also being asked to help sell real estate, the backbone of the Evergrande empire. New tenants are expected to undergo in-house training and attend seminars that inform them of the history of the business 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. According to individuals familiar with the measure, performance bonuses have even been linked to such efforts. Meanwhile, the ambitious targets are that Evergrande NEV is focusing on outsourcing and skipping procedures that are considered normal practice in the industry, say people with knowledge of the situation. While he aggressively hired and recently acquired Daniel Kirchert, a former BMW CEO, who was co-founder of EV company Byton Ltd., the firm did most of the design and development and development of its cars. contracted to overseas suppliers, some people said. Outsourcing most of the design and engineering work is an unusual approach for a business that wants to achieve such a scale. 14 Models At Once One of the companies is the Magna International Inc. of Canada, 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. This will allow drivers to use a mobile app to steer the car to drive to a certain location via an ATM and use artificial intelligence to turn on devices at home while on the road, according to a statement last month. An Evergrande spokesman said 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 incredible model releases, 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 sedans to SUVs and multi-purpose vehicles. The price will range from about 80,000 yuan ($ 12,000) to 600,000 yuan, though the final cost may change, a celebrity said. This is a very different product development strategy 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 that the effectiveness of the ‘one product in one fashion’ is at the same time ‘strategy,'” Zhang Xiang said. , a researcher in the automotive industry at the North Chinese 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 manufacturing equipment, Evergrande has, according to the people, issued uncompromising guidelines to achieve its latest production targets. 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 phase toward mass production.” As it is, Bloomberg could only find one case where the Hengchi 5 was on display in public, in photos and grain material that Evergrande released in February when the cars were driving around. a snow-covered field in Inner Mongolia. Zhong Shi, a former manager of the car project, became an independent analyst, says the shares of the company are very unusual. There is a standard engineering process of product development, validation and verification, which includes various laboratory and road tests. “In China and everywhere else,” Zhong said. “It’s hard to compress it into less than three years.” While there is no suggestion that the Evergrande approach violates any regulations, the stock market may be a reality check, and after similar solid market gains, some US start-ups have yet to prove their viability as revenue-generating, profitable entities. not, the last few months have lost their luster due to concerns about valuations, and as established carmakers like VW move faster to EV battle .. Read more: The end of Tesla’s dominance may be closer than it seems. Billions of dollars’ rise did not escape Beijing’s attention either, with Evergrande NEV shares falling last month after an editorial by the state-run Xinhua news agency expressed concern about the development of the EV sector. responsibility for building quality cars, weakening, a blind race by local governments to attract EV projects, and high valuations by companies that have yet 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. Evergrande NEV’s share has since risen 18%, threatened by 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. The research firm Canalys rose just over 50% in a February report in China, but also remains skeptical outside the Evergrande NEV’s loyal shareholder base. “The market is getting busy, but unless you have a preferred track, 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.” For more articles like this, please visit us at Bloomberg.com. Sign up now to stay ahead of the most trusted business news source. © 2021 Bloomberg LP