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October 25, 2021 03:54 AM

China's Evergrande plans to prioritize EV business

The group will move away from focusing on its property interests

Reuters
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    Evergrande Hengchi
    REUTERS

    Evergrande Group's Hengchi electric vehicles are seen displayed at the Hengchi booth during the 2021 Shanghai auto show in April.

    HONG KONG -- China's Evergrande Group plans to prioritize growth of its nascent electric-vehicle business over its troubled core real estate operations.

    An announcement by its Chairman, Hui Ka Yan, reported by Chinese state media on Friday, that it would make its new electric vehicle venture its primary business, instead of property, within 10 years, cheered investors on Monday.

    Evergrande rose as much as 6 percent while China Evergrande New Energy Vehicle Group as much as 17 percent, although both later trimmed their gains. The benchmark Heng Seng Index climbed 0.1 percent.

    Evergrande, which is reeling under more than $300 billion in liabilities, averted a costly default last week with a last-minute bond coupon payment, buying it more time to head off a looming debt crunch with its next major payment deadline on Friday.

    Evergrande's new vehicle business, founded in 2019, has yet to reveal a production model or sell a single vehicle.

    The company's first electric car -- called Hengchi -- will be delivered from its Tianjin factory at the start of next year, according to an Oct. 11 statement on Evergrande's website, which also referred to a "three-month war" to tackle the main challenges in EVs.

    In August, the company said it might have to delay mass production of cars unless it can secure more capital in the short term.

    The reported shift to the electric car business will be a challenge, despite Hui's ambitions to take on industry giants such as Tesla.

    Evergrande is struggling with a cash crisis that has led it to consider selling stakes in units including Evergrande NEV, which owns the assets of Saab.

    Messy collapse

    News that Evergande had averted a default by securing $83.5 million for the last-minute payment of interest on a bond has lifted confidence the company may be able to avoid a messy collapse that would have significant ramifications for global financial markets.

    Evergrande next needs to find $47.5 million by Friday and has nearly $338 million in other offshore coupon payments coming up in November and December.

    Evergrande, which also has operations ranging from a soccer club to mineral water, was recently criticized by China's central bank for "failing to manage its business well."

    In an usually harsh comment, People's Bank of China official Zou Lan said earlier this month that the developer "blindly expanded and diversified" in recent years, instead of operating prudently amid changing market conditions.

    Evergrande spent more than $3.7 billion on an array of EV-related companies after announcing in 2019 it wanted to be the world's premier manufacturer of green cars. That has yet to pay off, with Evergrande NEV reporting a 4.8-billion-yuan ($752 million) loss in the first half of this year. In September, the unit scrapped a proposed listing on Shanghai's Nasdaq-style Star board.

    Bloomberg contributed to this report

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