Troubled China Evergrande may delay EVs without more funds

China Evergrande Group’s electric-vehicle unit said it might have to delay car production unless it can secure more capital in the short-term.

“The mass production of Hengchi vehicles has entered the final stretch, nonetheless the group is still facing challenges on its cash flows,” the company said in a statement to the Hong Kong stock exchange Monday. “If the group lacks further capital contribution in the short term, the mass-production timetable of new energy vehicles may have to be delayed.”

The Hong Kong-listed unit, China Evergrande New Energy Vehicle Group, reported a 4.8 billion yuan ($742 million) loss in the six months to June 30, it said earlier Monday, confirming a profit warning from the parent company last week. Revenue came in at 6.9 billion yuan, with the vast majority of that from the group’s health and aged-care business.

More than two years have now passed since Evergrande’s billionaire Chairman Hui Ka Yan pledged to overtake Elon Musk’s Tesla Inc. as the world’s biggest EV maker within three to five years. That is looking increasingly impossible as Tesla ships record volumes, while Evergrande has only teased the market with video of EVs undergoing testing in Mongolia and a lavish display of nine models at this year’s Shanghai Auto Show. 

Of greater concern to investors, and Hui, is the unit’s cratering share price. The stock has slumped 92 percent from its February high, wiping out more than $80 billion in market value from what was once the property developer’s most valuable listed asset.

Evergrande’s subsidiaries are being punished on concern the world’s most indebted developer will need to sell assets at a steep discount amid mounting pressure from Beijing.

Acknowledging challenges on cash flow, the EV start-up says it faces risks of defaulting on its loans and disputes outside normal business. It’ll continue the effort to discuss the sale of assets with potential investors and closely monitor the capital expenditure of the EV business.

The start-up has 12.5 billion yuan of cash buffer at the end of June, compared with 13.3 billion yuan of borrowings and 73 billion yuan of trade payables due within a year, the filing shows.

“Now that the parent company has a liquidity problem, it’s impossible for Evergrande New Energy to meet previous targets for car production.” Castor Pang, head of research at Core Pacific-Yamaichi International H.K. Ltd., said before the release.

Even at its relatively sound healthcare segment, payments to suppliers and construction fees in the “Health Valley” aged-care communities were delayed, the company said. Some projects were suspended as a result.

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