China Evergrande Group’s Hong Kong-listed electric vehicle (EV) unit said on Sunday its agreement to raise $355 million by selling shares to an outside investor had lapsed.
Evergrande Seeking Funds for Ambitious EV Plans
Evergrande, once China’s top-selling developer, has been struggling for over a year to raise capital as it grapples with over $300 billion in liabilities. One area the company has emphasized is its ambitious plans for electric vehicles.
However, the cash-strapped developer has faced setbacks in its EV efforts recently. Evergrande’s EV division China Evergrande New Energy Vehicle Group Ltd said in exchange filings that a share subscription deal with Dubai-based firm Accelo Holdings had failed.
Under the now terminated July 2022 agreement, Accelo had agreed to buy 1.12 billion Hong Kong dollar-denominated shares of China Evergrande NEV at an issue price of HK$0.316 per share. This would have represented about 26.36% of the enlarged share capital of Evergrande NEV.
The outside investment would have raised much-needed funds that Evergrande aimed to use for working capital and to support its electric vehicle projects. However, with the deal failing to close by the end of 2022 as originally planned, the agreement has officially lapsed.
Evergrande NEV Facing Cash Crunch Amid High EV Goals
The collapsed Accelo agreement represents yet another setback for debt-laden Evergrande as it scrambles to raise funds to keep operations afloat.
Earlier in 2022, Evergrande NEV said it was in talks with potential investors to sell some of its assets and raise cash, warning it was still facing significant short-term liquidity problems.
However, Evergrande has maintained ambitious targets for its EV business, stating goals of becoming the world’s largest “new energy” vehicle company within the next few years.
Analysts have long been skeptical of Evergrande NEV’s lofty objectives given its financial instability and lack of mass production capabilities so far. But the company has pushed ahead with flashy model unveils and partnerships, despite its precarious cash position.
“Evergrande NEV’s repeated failures to bring in new investors and financing show its big EV ambitions may be impossible to achieve given its parent group’s financial problems,” said Rogelio Hu, auto analyst at Shanghai Securities Co. “Its lack of core technology, production infrastructure, and funding ability are too substantial to simply overcome.”
Evergrande Seeks New Investors But Options Dwindle
In its latest filings and statements, Evergrande NEV said it continues to look for potential new investors and alternate financing channels.
However, analysts say options are shrinking fast for the company to secure major outside investment for its EV plans with its poor financial track record and massive debt overhang from the larger Evergrande group. And market conditions have worsened considerably over 2022.
“New investors will struggle to justify infusing billions of dollars into Evergrande’s EV unit when there’s no clear path to profitability or even getting meaningful production going,” said Edison Yu, auto sector analyst at Guangzhou Securities Group.
Yu said most potential investors that could provide meaningful financing are likely waiting on the sidelines to see how Evergrande’s high-stakes debt restructuring plays out. Without some resolution of Evergrande’s wider liquidity crisis, hopes of jumpstarting its EV business on a large scale look very slim.
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What’s Next for Evergrande?
Evergrande faces pivotal months ahead as it tries to navigate through restructuring talks and make progress on stalled real estate projects to restore faith with angry investors and homeowners.
If Evergrande reaches some initial resolution that shores up its core property development business in 2023, it could potentially open the door for its EV division to court new investors. With some signs of potential support still from local Guangdong authorities where Evergrande is headquartered, a path exists but looks very narrow.
“The only conceivable option left is the Guangdong government engineering some type of bailout package for parts of Evergrande’s EV and property units,” Yu said. “But even this may be wishful thinking unless Evergrande agrees to cede management control.”
Without a miraculous turnaround in Evergrande’s fortunes, most analysts think Evergrande NEV needs to seriously scale back its runaway EV objectives that seem completely divorced from commercial and financial reality.
Focusing on developing a single mass market EV model tailored for younger Chinese consumers could be a more realistic goal over the next 3-5 years instead of proclaiming imminent leadership of the global electric vehicle industry.
“Evergrande has proven over the last decade that its main talents are in property development, not building car companies,” said Hu of Shanghai Securities. “If its EV unit can even get one practical vehicle design into production by mid-decade for domestic sales, that alone would prove an accomplishment.”
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