Forty-three days after the pre-sale of its Hengchi 5 model began, Evergrande Auto is reportedly to be acquired by another automobile company, and this acquisition may be led by the local government, Jiemian News reported on August 17.
Hong Kong property developer Evergrande Group, parent of Evergrande Auto, is facing mounting debt pressures and was hoping that its automobile subsidiary could somehow save the group. One person familiar with the matter said that the M&A is a government act, and the parties involved are still discussing the deal.
Due to the financial problems of the group and the continuous losses of Evergrande Auto, Evergrande Group announced in August last year that it was “contacting several potential independent third-party investors to discuss the sale of some of its assets”, including Evergrande Auto. However, this discussion has not achieved any substantive results.
In October last year, Evergrande Auto expressed its ambition of rolling its first vehicle model off the assembly line after only three months. At present, only the company’s Tianjin factory has the necessary qualifications for production, so the Hengchi 5 model currently offered for pre-sale is being produced here.
To ensure that Hengchi 5 was able to roll offline on time, Evergrande Auto has also reformed its Tianjin factory and has transferred equipment and personnel from other factories to support it. The company met its target and on January 12 this year, the Hengchi 5 was officially rolled off the assembly line, 12 days ahead of schedule.
Considering Evergrande’s previous internal sales strategy in the real estate business, Hengchi 5’s sales were brought into question. Before Hengchi 5 opened its pre-sale, Jiemian News visited its store in Beijing. A salesman said: “The main orders in Beijing come from the middle and high-level leaders within Evergrande, and several house owners also placed orders.” Evergrande Auto announced that the cumulative order volume of the Hengchi 5 exceeded 37,000 units on July 20 and reached nearly 40,000 units on August 6.
While the sales performance is in doubt, the production of Hengchi 5 is also facing a storm. According to informed sources, last week, people who had purchased Evergrande’s wealth management products and real estate, as well as some suppliers, entered the assembly workshop in the Tianjin factory to stake their claim in the company’s products. The protest resulted in a production shutdown. In addition, due to insufficient material preparation, the Tianjin factory will also suspend operations on August 18. It has been more than half a year since the first Hengchi 5 model rolled offline, but the Tianjin factory has only produced about 200 cars.
In addition to financial problems, Evergrande Auto is facing a supply chain crisis. “Now all suppliers are unwilling to cooperate with Evergrande,” said people familiar with the matter. “When Evergrande pursues any cooperation with suppliers now, it often expresses its willingness to pay in full.”