LeEco in dam­age-con­trol mode

Jia re­as­sures that cash flow crunch will be sorted out; swears by e-car in­vest­ments

China Daily (Hong Kong) - - BUSINESS | MARKETS - By MA SI masi@chi­nadaily.com.cn

Tech-to-auto ma­jor LeEco said it would re­solve its cash flow crunch within three to fourth months.

“We have tack­led 60 to 70 per­cent of our cap­i­tal prob­lems. The busi­ness will re­turn to nor­mal in three to four months,” Jia Yuet­ing, CEO of LeEco, said in an in­ter­view with Chi­nese mag­a­zine China En­tre­pre­neur on Sun­day.

In re­sponse, shares in Chi­nese smart­phone maker Cool­pad Group Ltd, in which LeEco holds a more than 28 per­cent stake, jumped 1.39 per­cent on Mon­day to close at HK$0.73 ($9 cents).

LeEco also said it would un­veil in Jan­uary its first elec­tric car model that will be mass-pro­duced.

Founded in 2004, LeEco started as a video-stream­ing ser­vice provider, akin to Net­flix Inc of the United States.

It evolved rapidly into a di­ver­si­fied group with a pres­ence in smart­phones, TVs, cloud com­put­ing, sports and elec­tric cars.

But after launch­ing op­er­a­tions in the US in Oc­to­ber, the Bei­jing-based group found it­self short of cash.

That was be­cause “its ex­pan­sion ef­forts have gone too far”, Jia said in a pub­lic let­ter last month. LeEco has been fac­ing mount­ing doubts about its elec­tric car project which has al­ready cost the com­pany over 10 bil­lion yuan ($1.45 bil­lion).

“We won’t change our am­bi­tion in elec­tric cars. It is the sec­ond most im­por­tant busi­ness unit in LeEco, only after our listed arm,” Jia said in the in­ter­view.

Ac­cord­ing to him, the car LeEco will un­veil in Jan­uary can run faster than Fer­rari mod­els. LeEco plans to masspro­duce the car in as early as 2018. But, it did not dis­close how many cars it would pro­duce at the ini­tial stage.

In Au­gust, LeEco said it would in­vest 20 bil­lion yuan to build an auto park in Zhe­jiang province, as part of the group’s broad plan to masspro­duce elec­tric cars.

Ac­cord­ing to the lo­cal gov­ern­ment web­site, LeEco has re­cently bought a 900,000square-me­ter land in De­qing county, Zhe­jiang province, for 279 mil­lion yuan, to set up the pro­duc­tion base for its elec­tric au­to­mo­biles.

Lu Zhen­wang, CEO of the Shang­hai-based Wan­qing Con­sul­tancy, said elec­tric cars con­sti­tute an in­vest- ment-in­ten­sive sec­tor. With­out per­sis­tent cap­i­tal sup­port, it can’t grow into a cash cow.

“It re­mains to be seen how LeEco can live up to its prom­ise. After all, dozens of bil­lions of yuan are needed to build a fac­tory. And I don’t think LeEco has enough cash in hand now,” Lu said.

As a green­horn in the car in­dus­try, LeEco will likely find the task of deal­ing with the com­pli­cated man­u­fac­tur­ing process and safety is­sues highly chal­leng­ing, he said.

In fact, the US-based elec­tric car startup Fara­day Fu­ture, which is backed by LeEco, is al­ready hav­ing trou­ble in its $1 bil­lion fac­tory plan in Ne­vada.

In a re­cent in­ter­view with China Daily, Ne­vada State Trea­surer Dan Schwartz ex­pressed con­cern.

“The projects Jia invested in, in­clud­ing in China, seem very dif­fi­cult for him per­son­ally to re­al­ize. If you look at Leshi (LeEco’s listed arm), it has roughly $6 bil­lion in rev­enue, but it’s net­ting about $50 mil­lion in profit. That profit mar­gin is less than 1 per­cent ... Gro­cery stores make 2 per­cent to 3 per­cent,” Schwartz said.

Trad­ing in shares of Leshi In­ter­net In­for­ma­tion and Tech­nol­ogy Corp re­mained sus­pended on the Shen­zhen Stock Ex­change on Mon­day, after the com­pany said last Wed­nes­day it was in­ves­ti­gat­ing why its stock price plum­meted more than 7 per­cent the day be­fore.

We won’t change our am­bi­tion in elec­tric cars. It is the sec­ond most im­por­tant busi­ness unit in LeEco, only after our listed arm.” Jia Yuet­ing, CEO of LeEco

Fan Feifei con­trib­uted to this story.

REUTERS

Jia Yuet­ing, co-founder and head of Le Hold­ings Co Ltd, also known as LeEco and, for­merly, as LeTV, ges­tures as he un­veils an all-elec­tric bat­tery “con­cept” car called LeSEE dur­ing a cer­e­mony in Bei­jing.

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