Shares of China Evergrande New Energy Vehicle Group (Evergrande NEV) plummeted by 23% on Monday following the announcement that the company's Vice Chairman, Liu Yongzhuo, has been detained under suspicion of "illegal crimes." The specifics of the allegations remain undisclosed, and the filing to the Hong Kong exchange provided no details on the nature or timing of the alleged crimes.
This recent development marks another significant blow to the electric vehicle subsidiary of the beleaguered property giant China Evergrande Group, which is already grappling with a massive debt crisis. The parent company, known as the world's most indebted property developer, has been under intense scrutiny with over $300 billion in total liabilities and ongoing offshore debt restructuring efforts. These efforts include proposals to exchange part of its debt for equity in the EV unit.
The news of Liu's detainment comes shortly after Evergrande NEV halted a planned share sale to U.S.-listed NWTN, causing shares to tumble more than 18% last week. The termination of this deal, which was valued at nearly $500 million, adds to the company's financial distress. Evergrande NEV has repeatedly warned that it might have to cease operations unless new funding is secured. The company reported a staggering net loss of 6.9 billion yuan ($964 million) in the first half of 2023, following substantial losses in the preceding two years.
The detainment and ongoing financial troubles have significantly eroded investor confidence, with the automaker's market value dwindling to just HK$4.2 billion ($540 million). Despite once harboring grand ambitions to produce a million vehicles a year by 2025, Evergrande NEV managed to sell only a little over 760 units of its sole EV model, the Hengchi 5, in the first half of the previous year.
The developments surrounding Evergrande NEV and its parent company reflect the broader challenges facing China's property sector and raise questions about the future of the country's burgeoning EV market. As investigations continue and the company navigates its financial predicaments, the global community watches closely, mindful of the potential ripple effects on China's economy and international markets. The fate of Evergrande NEV and its ability to weather this storm remains uncertain, with stakeholders and observers alike awaiting further details and developments.
