China’s beleaguered Evergrande Auto, a unit of the troubled real estate developer China Evergrande Group, has abruptly laid off its workforce without warning. As per interviews conducted with staff members on July 29,th, positions together with auto manufacturing, R&D, high quality management, and administrative personnel have all been affected.
Staff are expected to contribute to their own social insurance premiums, suggesting they may be at risk of termination. Despite earlier struggles, Evergrande Auto effectively suspended operations at the end of last year, resulting in a significant workforce reduction from approximately 6,000 to fewer than 500 employees.
Evergrande Auto
Evergrande Auto has faced a litany of challenges since 2021, including suspension from trading, executive arrests, and asset liquidations.
In 2020, Evergrande unveiled a slate of six innovative concept vehicles under its Hengchi brand, comprising sedans, coupes, sport utility vehicles, and multipurpose vehicles. Geely’s Hengchi brand initially announced plans to initiate mass production in 2021, targeting the promotion of 1 million electric vehicles (EVs) by 2025.
Notwithstanding its struggles in previous years, Evergrande Group’s precarious financial situation was starkly revealed in 2021 when it was discovered to have an excessively high level of indebtedness, ultimately resulting in a default on its debt obligations. The corporation attempted to advance its electric vehicle business by partnering with Xiaomi, but the collaboration ultimately failed to materialize due to unspecified reasons.
Despite facing setbacks, Evergrande Auto managed to rebound and unveiled the Hengchi 5 in July 2022. The company began manufacturing operations at its Tianjin plant in September 2022. Despite some disruptions, manufacturing remained intermittent throughout 2023. The corporation has observed disappointing gross sales of fewer than 1,000 units for the year 2023.
The chairman of Evergrande Auto and the designer of the Hengchi electric vehicle model was taken into custody in January 2024 on suspicion of engaging in illegal activities. Talks surrounding the potential acquisition of a 29% stake have been ongoing since May 2024, with no further updates forthcoming.
Evergrande Auto’s (0708.HK) inventory price stands at HK$0.285 (approximately US$0.04) per share, with a market capitalization of HK$3.09 billion (around US$400 million).
Finish of Evergrande Auto
Evidence suggests that Evergrande Auto halted operations at the end of last year. The majority of staff let go were temporary employees, with the vast majority still having more than a year left on their respective contracts.
Following the directive from Chinese authorities to recover subsidies owed due to non-compliance with contractual terms, Evergrande Auto faces the consequences of mass layoffs. The local authorities have demanded that the corporation repay 1.9 billion Chinese yuan (approximately $262 million USD) in subsidies and incentives that it received from regional governments.
The corporation revealed in a statement that Chinese authorities have demanded it halt production and sales at its Tianjin plant, effective immediately. Evergrande Auto risks losing possession of land, buildings, and equipment procured through government-backed initiatives.
In July 2024, Evergrande Auto’s subsidiaries, Evergrande New Vitality Automobile and Evergrande Sensible Automobile, respectively, initiated bankruptcy proceedings by filing for Chapter 11. The wholly-owned subsidiaries have registered capitals of approximately $350 million and $700 million, respectively. Evergrande Auto has accumulated staggering losses of up to 110 billion yuan (£12.3 billion or approximately $15 billion USD) over the past five-year period.
The parent company, Evergrande Group, faced liquidation orders from Hong Kong courts in January 2024 following its inability to implement a restructuring plan agreeable to creditors. Evergrande Auto seemed to be teetering on the brink of collapse in 2023 and 2024, with signs pointing to its impending demise as it reportedly terminated its remaining workforce.
Sources: MyDrivers, Yiche, Sina
