China Evergrande’s business outlook has taken a darker turn with the group’s electric vehicle unit reportedly suspending mass production of its only model due to a lack of new orders.
China Evergrande New Energy Vehicle Group said in September it had started producing its Hengchi 5 model at a plant in the northern city of Tianjin and in late October said it had delivered its first 100 cars.
However, the company has paused production as there are not enough new orders for the electric sport-utility vehicle, according to two sources who declined to be named because they were not authorized to speak to the media.
The two people also said many employees have yet to receive salaries for October and November.
The news is not a great surprise, given the scale of troubles facing the group, which was once the country’s biggest developer but reportedly accumulated debts of more than $300 billion before defaulting on offshore bonds late last year.
Evergrande did not immediately respond to a request for comment.
Two other people said some work was still continuing. One of these two said the unit planned to lay off 10% of workers and would suspend salary payments to 25% of its workers for 1 to 3 months.
It was not immediately clear how long mass production would stay suspended for.
Once China’s top-selling property developer, Evergrande has been at the centre of a deepening debt crisis that has seen multiple developers default on offshore debt obligations over the past year, leaving many negotiating restructuring.
The group had touted the EV unit as key to its transformation plans, with chairman Hui Ka Yan vowing to shift the group’s primary business within 10 years from real estate to the automobile venture, and to make 1 million vehicles a year by 2025.
In July, the unit said it had received non-binding pre-orders for more than 37,000 units of the Hengchi 5.
The suspension at Evergrande’s EV arm comes as automakers and investors are bracing for a downturn in the world’s largest car market due to a sputtering economy, despite government incentives starting in June to boost sales, such as tax cuts and subsidies.
Competition in the EV sector has also been intensifying, with Tesla cutting prices and offering incentives in China, weighing on other loss-making competitors.
- Reuters with additional editing by Jim Pollard