China Evergrande New Energy Vehicle Group recently released its long-awaited financial results for 2021 and 2022, reporting a combined net loss of 71.12 billion yuan ($9.95 billion). The NEV company, a subsidiary of China Evergrande Group, has been grappling with significant financial pressure since its parent company faced a debt crisis in mid-2021. The situation became so critical that the company warned in March about the possibility of winding up operations if it failed to secure new funding.
The financial difficulties had repercussions on the company’s plans for its flagship model, Hengchi 5, as mass production had to be delayed in 2022. Nonetheless, the firm managed to deliver over 1,000 units of the EV as of May, after commencing sales in October the previous year. Looking ahead, Evergrande New Energy Vehicle Group expressed its commitment to ensuring continuous and stable production and delivery of Hengchi 5, while also planning to introduce other competitive new models in line with market demand.
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The challenges faced by Evergrande NEV are not unique, as over 100 auto brands in China are grappling with declining demand and intense price competition in the world’s largest auto market. Established automakers have had to implement production cuts and layoffs, while new players have incurred substantial losses. Consulting firm AlixPartners predicts that only 25 to 30 out of the current 167 NEV brands in China will survive by 2030. The firm highlights that an EV brand must sell at least 400,000 units annually to achieve profitability.
For 2021, Evergrande NEV’s net loss amounted to 56.27 billion yuan, while the net loss from continuing operations was 14.85 billion yuan for 2022. This contrasts with a net loss of 7.4 billion yuan in 2020 when the company’s primary focus was health management. The company’s revenue for 2021 stood at 2.53 billion yuan, with revenue from continuing operations totaling 134.0 million yuan for 2022, compared to 15.5 billion yuan in 2020.
In 2020, Evergrande New Energy Vehicle Group underwent a significant shift in its business, changing its name from Evergrande Health to reflect the transition towards the automobile venture. This move was part of the group’s Chairman Hui Ka Yan’s vision to make the automobile venture the primary business of the company within a decade. However, with Evergrande Group currently holding a staggering $330 billion in total liabilities, it has become the world’s most indebted property developer. The group defaulted in late 2021, causing ripples in the China real estate sector.
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In light of the recent financial disclosures and diminishing cash reserves, concerns have arisen regarding the viability of Evergrande Group’s restructuring plan and ongoing operations. The group presented an offshore debt restructuring plan in March, offering creditors a range of options, including swapping their debt for new bonds and equity-linked instruments backed by the group and its two Hong Kong-listed companies, Evergrande NEV, and Evergrande Property Services Group. The success of these measures remains uncertain as the company continues to navigate its challenging financial landscape.
