China’s Evergrande Group’s only model to go to mass production is being suspended for production in large numbers. The change comes as there are no new orders for the company to continue manufacturing. This is the latest set of troubles the company is facing.
Evergrande New Energy Vehicle Group said that in mid-September it started mass production of the 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, said the people, 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. 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. Once China’s top-selling property developer, Evergrande has been at the center of a deepening debt crisis that has seen multiple developers default on offshore debt obligations over the past year, leaving many negotiating restructuring.
Automobile venture
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. Hengchi 6 will roll off the production line at the end of this year and mass production in the first half of next year. Hengchi 7 will roll off the production line in the first half of next year and mass production in the second half of next year, the company said at the time. Hengchi 5 began deliveries on October 29, with the first 100 units delivered, according to information published by Hengchi’s website in late October.