With e-car plant work, LeEco sig­nals grip on cash flow woes

China Daily (Hong Kong) - - BUSINESS - By MA SI in Bei­jing and SHI XIAOFENG in Hangzhou

Chi­nese tech ma­jor LeEco kicked off its $3 bil­lion auto plant project in De­qing county, Zhe­jiang prov­ince, on Wed­nes­day.

The ground-break­ing cer­e­mony marks the firm’s bid to re­store in­vestor con­fi­dence that got dented by its cash­burn­ing elec­tric car ini­tia­tive. LeEco had bought a 900,000square-me­ter plot of land for 279 mil­lion yuan ($40 mil­lion).

Wed­nes­day’s start to the e-car plant work ap­pears to in­di­cate the pri­vately held firm is con­fi­dent about its fi­nan­cial sit­u­a­tion, sug­gest­ing the cash crunch is­sue may have been blown out of pro­por­tion.

Zhang Hail­iang, pres­i­dent of LeEco’s au­to­mo­bile branch in China, said the car fac­tory’s first phase will cost 11 bil­lion yuan. Upon com­ple­tion, the plant’s an­nual out­put ca­pac­ity would be 400,000 e-cars.

Jia Yuet­ing, CEO and founder of LeEco, said ear­lier this month that the firm plans to mass-pro­duce e-cars as early as 2018, but did not dis­close ini­tial-stage vol­umes.

LeEco said it is still de­vel­op­ing its first pro­duc­tion car. But Fara­day Fu­ture, the US-based e-car startup backed by Jia, will un­veil its first pro­duc­tion model at the Jan 5-8 Con­sumer Elec­tron­ics Show in Las Ve­gas.

LeEco, which started in 2004 as a video-stream­ing ser­vice in the mold of Net­flix Inc, di­ver­si­fied into the au­to­mo­bile sec­tor in 2014. It re­leased its first self-driv­ing elec­tric con­cept car in April this year. En route, it es­tab­lished its pres­ence in smart­phones, TVs, cloud com­put­ing and sports.

But, in Oc­to­ber, LeEco found it­self short of cash af­ter ex­pand­ing its busi­ness to In­dia and the United States. In an in­ter­nal let­ter, Jia had ad­mit­ted the global ex­pan­sion “has gone too far”.

In­vestors in LeEco’s listed arm, Leshi In­ter­net In­for­ma­tion and Tech­nol­ogy Corp, crit­i­cized the e-car project, which has al­ready cost the un­listed par­ent 10 bil­lion yuan, as a fi­nance-strain­ing lux­ury.

On Wed­nes­day, Leshi sus­pended trad­ing in its shares, say­ing it was “in dis­cus­sion with strate­gic in­vestors in a deal which will ex­ceed 10 bil­lon yuan”.

Lu Zhen­wang, CEO of the Shang­hai-based Wan­qing Con­sul­tancy, said it is pos­si­ble for LeEco to build an e-car fac­tory within 18 months.

But con­cerns about its cash flow re­main, Lu said, even though LeEco had as­sured ear­lier this month that it would re­solve its cash flow crunch within three to four months.

“Pro­duc­ing cars is far more com­pli­cated than mak­ing smart­phones. The faster an auto fac­tory grows, the more re­sources firms will need to keep it run­ning. It will take at least three to five years be­fore en­ter­prises gen­er­ate any profit from a car fac­tory,” Lu said.

“It is highly dif­fi­cult for a firm like LeEco to suc­ceed in the cash-in­ten­sive sec­tor be­cause its core video-stream­ing busi­ness can’t pro­vide per­sis­tent cap­i­tal sup­port.”

Con­tact the writ­ers at shixf @chi­nadaily.com.cn and masi@ chi­nadaily.com.cn

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