On July 3, the ¥1.2 billion in assets under the name of YT (Yueting) Jia, co-founder and head of Le Holdings Co., Ltd., also known as LeEco (formerly LeTV), was frozen.
LeEco has been called “the Netflix of China” for its streaming video service, but it also makes mobile phones, TVs and eventually, automobiles. However, the LeEco automobile empire is on the edge of collapse.
LeEco sold its cash-strapped ride-hailing subsidiary, Yidao Yongche, to a Beijing investment group. It may imply that Jia finally gave up Yidao, in spite of his ambition in the auto industry. On the same day, he admitted that LeEco ran into funding challenges last year, acknowledging a shortage of cash at the annual meeting of shareholders.
Andy Palmer, CEO of Aston Martin, told Reuters on June 26 that due to the withdrawal of cash-strapped LeEco, they will produce only 155 of its first electric vehicle, the RapidE, about a third of the initial plan. “We’ve decided to make this car rare, which will obviously tend to push the price higher,” Palmer was quoted as saying.
It is not the first time that LeEco got into trouble due to lack of money. At the end of 2016, work on the Faraday Future plant stalled as LeEco failed to provide the $1 billion investment on time as it promised. Faraday Future responded that the $1 billion investment plan from LeEco would remain unchanged, but the factory in Nevada would be scaled back.
During the hard time, LeEco did receive some good news. Faraday Future unveiled its FF91 in Las Vegas in January at CES 2017, and Sun Hongbin, chairman of Sunac China Holdings, made a ¥15.041 billion strategic investment in LeEco’s automobile ambition. However, neither has helped LeEco out of the downward trend.
The coinage of “EcoAction”
In October 2014, LeEco announced its plan of producing “super cars,” triggering competition among investors. It secured $1.08 billion in series A financing from Yingda Capital Management Co., Ltd., Lenovo and Minsheng Trust Co., Ltd. The capital infusion stimulated the rising of LeEco’s market value, extending ¥100 billion on April 28, 2015.
In the following year, Jia started his large-scale promotional campaign. Emulating Steve Jobs, he held a series of press conferences, and created packs of concepts. “CP2C”, abbreviation of “Customer Planning to Customer”, is one of them. It tried to advertise the idea of consumer participation. However, excessive marketing efforts meant that LeEco overlooked product R&D efforts, which is the core of a company’s competitiveness.
Another concept, “EcoAction (i.e. Ecosystem Chemical Reaction),” illustrates LeEco’s bundling sales strategy. It means taking full advantage of the existing product line to expand services, and building up independent operating system within each sub-areas. Investing Yidao, Faraday, and co-funding electric vehicle project with Aston Martin are all links of LeEco’s automobile “EcoAction.”
The coinage of concepts and the promotional campaigns were indeed lavish. However, the fragile automobile “ecosystem” is breaking down during the current financial woes.
Dream vs. reality
Jia enjoys talking about dreams, notions and big concepts. Foreign media once questioned his personal commercial style: “Is LeEco a real disruptor with an exceptional vision of the future, or is it just a braggart recklessly boasting about ambiguous concepts?”
The LeEco’s venture in the auto industry is viewed by many as unpromising. It is when Ding Lei (former vice president of SAIC Motor) joint the project that the questioning voices ceased to circulate. On September 10, 2015, Ding took up the post of co-founder and CEO of LeSEE (formerly LeEco Auto).
During his two years at the helm, LeSEE invested in Yidao, Faraday Future and Lucid, and has signed cooperative contracts with Aston Martin, BAIC Group, BYD and Dongfeng.
However, Ding quit LeEco in March 2017. Another vice president from SAIC Motor, Zhang Hailiang, took his position, but left only two months later. The successive resignations suggest that LeEco is under difficult circumstances.
Sunac: The white knight riding to LeEco’s rescue?
Sun, the chairman of property developer Sunac, emerged as LeEco’s white knight after providing the troubled battled tech company with a ¥15 billion cash infusion, becoming the second largest shareholder of LeEco.
Sun explained that he supported LeEco for two reasons: One is that he appreciates the idea of “EcoAction,” another is that the optimism of Jia impressed him. Entering technology arena is also a consideration for Sunac’s development in the future decade.
As a real estate magnate, Sun may not regard ¥15 billion as a big deal. He has a positive vision of LeEco’s future, but definitely, he will not spend too much. “To consolidate or sell when necessary” is his principle of dealing with LeEco’s sub companies. Yidao Yongche was the one that needed to be sold.
There is a lesson that LeEco could learn from Sunac: Sun has ensured that his company is cash-rich. Since going public in Hong Kong in 2010, Sunac has always kept enough in its coffers to cover short-term bonds and loans, whether the funds came from operations or new debt.
Generally speaking, Sun is quite optimistic. He said in March that to him, many negative news about LeEco sounds quite positive. “The investment will not pay off immediately, but we should be far-sighted to predict the future trend in the long run.”
However, when the heyday of electric cars will come has yet to be answered. Batteries, charging technologies and the limitation of current infrastructure put so many uncertainties on this market.
The Future of LeSEE
LeEco is seeking new leadership amid deepening financial woes and incessant resignation of senior executives. On May 21, Jia stepped down as the CEO of the group’s main listed unit, and Liang Jun took over this place. “I had expressed my apologies and gratitude to investors at the end of last year and promised to refocus on our listed businesses,” Jia said in the letter.
However, Jia is far from giving up his automobile ambition. After ceding control of LeEco, he told the press that series A financing for LeSEE will immediately start, and probably will be finished within 2017. “After securing investment, LeEco will produce cars on the basis of concept models as soon as possible.”
Also, Jia remains Faraday Future’s largest shareholder, insisting that he would dedicate his energy to getting the company’s first production-ready model, FF 91, into mass production. LeEco has three pillar businesses: listed company business (video streaming service and television service), non-listed company business (LeSports, cellphone and film industry), and automobile business. The first is now under the governance of Sunac, the second is shrinking under a shortage of cash. Jia invests lots of his hope and dream in the third one, the car industry.
Leading LeEco into an array of businesses that have not panned out, and speeding ahead blindfolded, Jia has already learnt a lesson. Instead of intensively focusing on promotion and coinage of concepts, LeEco is now busily buying land property, constructing car factories, and applying production qualification. LeEco spent ¥140 million to acquire 111 acres of land in Zhejiang, a province on China’s southeast coast.
Talking about the future of LeEco’s presence in the auto industry, Jia said, “We must expand our advantages in technology, production and strategy to market and customers.”
(Rewritten by Shi Shengyuan based on author’s article on Qichedaguan and Reuters, New York Times reports)