Equilibrium & Sustainability

Embattled Chinese real estate firm looks for salvation in budget EVs

The Evergrande Group headquarters logo is seen in Shenzhen in southern China’s Guangdong province, Friday, Sept. 24, 2021. (AP Photo/Ng Han Guan)

The world’s most indebted property developer is seeking escape from its enormous liabilities through unusual means: a new line of budget electric vehicles (EVs).

Embattled Chinese real estate company Evergrande delivered its first 100 Hengchi 5 electric SUVs over the weekend, Reuters reported. 

The company has pitched its pivot to the EV market as a means of getting out from under its $300 billion in debt, according to Beijing-based tech news site Pandaily.

At about $26,000, Evergrande’s new SUV is about half the price of Tesla’s competing Model Y.

But the company’s move to EVs reflects the simmering turmoil in China’s housing market and larger economy, which threatens to spill far beyond China.

Evergrande entered China’s burgeoning EV market in mid-2018 but began to view it as a lifeline after the country’s real estate crisis began in 2022, the South China Morning Post reported.

Over the next 10 years, the company aims to become primarily a carmaker, with its real estate business relegated to auxiliary status, according to Pandaily.

That’s a tough road, Chinese vehicle consultancy head Chen Jinzhu told the Morning Post. 

“If it cannot make its first production car a hit, Evergrande Auto is unlikely to survive the fierce competition,” Jinzhu added.

Evergrande became a watchword last year for the slow collapse of China’s property sector, which had relied on two decades of steadily increasing prices, The Guardian reported.

Its rise has been compared to a Ponzi scheme, in which developers relied on incoming funds from current investors to buy parcels of land for the next project.

When the government cut down on “reckless” lending in 2020, the bubble began to deflate.

That left many developers unable to finish homes they had already sold — since the money had already been spent on the next project. 

With property values falling and no money to complete construction on the inflated properties it had already sold, Evergrande began missing payments to suppliers, contractors, bondholders, and foreign and domestic creditors, according to the Morning Post.

That left 2 million homes in limbo — paid for by customers to companies such as Evergrande that no longer have the money to complete them, according to The Guardian.

But to conserve cash, it is relying on a model similar to that which got it into such trouble in the real estate sector, the Morning Post noted. Evergrande is conserving money by preselling models it cannot yet mass-produce.

“The outcome may not be very promising. People probably will not make the decision to buy before mass production,” David Zhang, a research fellow at the North China University of Technology, told the Morning Post. 

Evergrande’s woes bespeak a floundering Chinese property market, which in turn threatens to undermine a broader economy that has long been a primary driver of world economic growth, according to a report from think tank Atlantic Council.

With more than 29 percent of its home loans categorized by Citigroup as bad debt, the country’s property sector has already experienced a wave of multibillion-dollar defaults, Bloomberg reported.

The company’s massive debts represent a “systemic threat” that it is not clear Beijing is addressing.

Tags Chinese economy Electric vehicles Evergrande
See all Hill.TV See all Video

Most Popular

Load more

Video

See all Video