Electric car crash is double pain for Evergrande

Evergrande Group’s Hengchi electric vehicles (EVs) are displayed at the Hengchi booth during the media day for the Auto Shanghai Show on April 19, 2021 in Shanghai, China. REUTERS/Aly Song – RC2WYM980XKN

HONG KONG, Aug 30 (Reuters Breakingviews) – A conventional car doesn’t have to go through a lot of faults for it to come to a halt. So too with dreams of the Evergrande (3333.HK) electric car. The indebted Chinese property developer has seen the market value of its auto unit fall 90% from its April peak to just $10 billion. Investors are left with a sizable chunk of assets, whose survival as a business depends on Evergrande’s founder Hui Ka Yan.

Read the announcements from Evergrande New Energy Vehicle (0708.HK), also known as Evergrande Auto, and moving towards its goal of becoming the world’s largest and most powerful electric vehicle enterprise. Under the hood though it is mostly a healthcare business ranging from hospital joint ventures to health-focused property development. This is the engine on which it started pushing electric car deals in 2018. The investment there will help double its year-over-year first-half net loss to nearly $740 million, the company warned this month.

The real loss is to its parent and 65% of the shareholders. In May, Evergrande sold $1.4 billion worth of shares of Auto, saying it could sell more. Chinese regulators have publicly ordered Evergrande to get its debt under control. Auto’s 2020 accounts are being presented as an ongoing concern, with the term of an existing loan from its parent, a one-year letter of support from its parent, as well as Tencent (0700.HK) and Sequoia. Depends on the capital raised.

Market sentiments matter a lot to early-stage companies whose high valuations reduce regular share sales for huge expense. A planned Shanghai listing for the auto appears to have stalled, while Hui’s efforts to include it in Stock Connect have been overtaken by rivals Xpeng (9868.HK) and Lee Auto, both of which recently listed in Hong Kong. And ready to join. Powerful system that allows mainland investors to buy city shares directly.

Hui has a track record of finding spare gear and consolidating shares of his companies when the going gets tough, but the auto’s high value was also a hoped-for crutch for their flagship property developer. Instead, this car accident represents a double pain.

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Shares of Hong Kong-listed Evergrande New Energy Vehicles, also known as Evergrande Auto, have fallen 90% from April’s peak, valuing the company at $87 billion. The company warned on August 9 that its first half net loss would double due to the cost of its electric vehicle business, which is in the early investment stage.

Editing by Una Galani and Katrina Hamlin

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