China's Evergrande Automobile (HK: 00708) recently published its performance report for the first half of 2023. The report indicates a loss of CNY 6.87 billion in the first half of the year. The loss includes CNY 1.06 billion from the original real estate business, CNY 3.72 billion from non-operating losses such as asset disposal and impairment, and CNY 2.09 billion from the operating loss of the automobile business.
As of the first half of this year, Evergrande Auto had total assets worth CNY 42.852 billion and total liabilities worth CNY 75.692 billion. The net liabilities were reduced to CNY 32.84 billion, resulting in an asset-liability ratio of 177%.
This financial report contains two other important pieces of information worth noting:
According to the financial report, Evergrande Auto has successfully sold its real estate business, resulting in a reduction of net debt by CNY 43.1 billion. Additionally, the company plans to further lower its debt by CNY 17.3 billion through debt-to-equity swaps. As a result, Evergrande Auto will not only focus on new energy vehicles but also decrease its net debt by more than CNY 60 billion.
Furthermore, based on the financial report released by Evergrande Auto, its revenue for the first half of 2023 is expected to be CNY 155 million, marking a substantial year-on-year increase of 540.98%. This revenue surge is primarily attributable to the successful delivery of the HENGCHI 5. It has been reported that out of all the pre-orders for the HENGCHI 5, which were made available in July 2022, more than 760 units have already been delivered.
Despite investing heavily in past years, Evergrande Auto has yet to make headway in the new energy vehicle market. How much money has Evergrande lost?
On July 25th of this year, Evergrande Auto reissued its mid-term and financial reports for 2021 and 2022. According to the reports, the net profit loss for Evergrande Auto in 2022 was CNY 27.66 billion, and the accumulated loss as of the end of 2022 was CNY 98.906 billion. Additionally, the total debt is as high as CNY 183.9 billion.
Based on the available data, it appears that the loss incurred by Evergrande Auto, which is nearly CNY 100 billion, exceeds the total losses of NIO, Xiaopeng, and Li Auto combined. This indicates that Evergrande Auto may be at risk of facing a capital chain break.
According to China Evergrande Group, if they do not receive new capital, there is a risk of suspending production for Evergrande's New Energy Vehicles. However, with more than CNY 29 billion in future financing, the group can plan to introduce multiple flagship models and achieve mass production.
The harsh reality is that Evergrande Auto is facing significant challenges and is currently not an attractive investment. To stabilize its financial position, Evergrande Auto has been forced to lay off a considerable number of employees. The latest financial report reveals that as of December 31, 2022, the company had 4,506 employees. However, this number decreased to 2,795 as of March 31, 2023, and further down to just 1,597 employees as of June 30, 2023.
Despite the unsustainability of car manufacturing, Evergrande Auto has brought a renewed sense of hope to the industry.
On the evening of August 14, Evergrande Auto received the first US$500 million (approximately RMB 3.63 billion) strategic investment from NWTN, a U.S.-listed company held by the UAE National Sovereign Fund. Another CNY 600 million transitional funds arrived in the account within 5 working days after the announcement. All funds will be used for Evergrande's Tianjin factory to ensure the normal production of HENGCHI 5 and the successive mass production of HENGCHI 6 and 7.
China Evergrande Group (HK: 03333) has submitted a request to the Hong Kong Stock Exchange to lift the suspension of trading for the company's shares starting at 9:00 a.m. on August 28. This announcement was made on the same day when Evergrande Auto published its financial report. The suspension of China Evergrande's shares has been in effect for 17 months as of March 2022.
On August 27th, the China Securities Regulatory Commission released a set of policies aimed at benefiting the capital market. One of the policies proposed that listed real estate companies would be exempt from break, net break, and loss restrictions when it comes to refinancing supervision. It remains to be seen whether this will provide a lifeline for China Evergrande in the long run.
The official resumption of trading in China Evergrande has led to the successful resumption of trading for the three listed companies under the China Evergrande Group family, namely China Evergrande, Evergrande Property (HK: 06666), and Evergrande Automobile. However, the resumption of trading does not signify the end of the crisis, especially for new energy vehicles which face fierce competition in the industry. Additionally, the difficulties faced by Evergrande Auto also cast a shadow over its prospects.