Electric car crash is double pain for Evergrande - Reuters

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Evergrande Group's Hengchi electric vehicles (EV) are seen displayed at the Hengchi booth during a media day for the Auto Shanghai show in Shanghai, China April 19, 2021. REUTERS/Aly Song - RC2WYM980XKN

HONG KONG, Aug 30 (Reuters Breakingviews) - It doesn’t take many bits malfunctioning in a traditional car to bring it to a screeching halt. So too with Evergrande’s (3333.HK) electric car dreams. The indebted Chinese property developer has seen the market value of its auto unit plummet 90% since an April peak to just $10 billion. Investors are left with a hodge-podge of assets whose survival as a business relies on Evergrande founder Hui Ka Yan staying on course.

Read the announcements of Evergrande New Energy Vehicle (0708.HK), also known as Evergrande Auto, and it is progressing towards its goal of becoming the world’s largest and most powerful electric vehicle enterprise. Under the hood however it is mostly a healthcare business ranging from hospital joint ventures to health-focused property developments. That’s the engine onto which it began bolting electric car deals in 2018. Investments there will help double the overall year-on-year first-half net loss to about $740 million, the company warned this month.

The real damage has been caused by its parent and 65% shareholder. In May, Evergrande sold $1.4 billion of Auto’s shares and says it could sell more. Chinese regulators have publicly ordered Evergrande to get its debt under control. Auto’s 2020 accounts being presented as a going concern relied on extending the term of an existing loan from its parent, a one-year letter of support from its parent, plus capital raisings that brought in Tencent (0700.HK) and Sequoia among others.

Market perceptions matter enormously to cash-guzzling early-stage companies whose high valuations underpin regular share sales to fund heavy spending. A planned Shanghai listing for Auto appears stalled, while Hui’s efforts to get it included in the stock connect have been overtaken by rivals Xpeng (9868.HK) and Li Auto , , both of which listed in Hong Kong recently and are poised to join the powerful system which allows mainland investors to buy the city’s shares directly.

Hui has a track record of finding an extra gear and bolstering his companies’ shares just when the going gets dicey, but Auto’s high value was also a hoped-for crutch for his flagship property developer. Instead, this car crash represents double pain.

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CONTEXT NEWS

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

Editing by Una Galani and Katrina Hamlin

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.

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