Who is responsible for the bankruptcy of Evergrande Automobile?

Professor Hong Hao, a financier

2024-08-04 14:56Published in Beijing, Chief Financier, China Financial Think Tank

Recently, the news of the bankruptcy and reorganization of Evergrande Automobile has aroused the attention of the society, Evergrande Automobile has lost more than 100 billion yuan, should it go bankrupt, and who is responsible for the bankruptcy of Evergrande Automobile?

First of all, why do the creditors of Evergrande Automobile demand the bankruptcy reorganization of Evergrande Automobile?

Evergrande Auto has been mired in financial crisis in recent years. According to public data, as of the end of December 2023, Evergrande Automobile's cumulative losses have reached a staggering 110.841 billion yuan. The company's total assets are 34.851 billion yuan, while the total liabilities are as high as 72.543 billion yuan, which has long been insolvent.

From a legal and economic point of view, creditors usually ask for bankruptcy reorganization to protect their own interests and ensure that they can get as much debt repayment as possible. In the case of Evergrande Automobile, we can analyze the reasons for creditors to request bankruptcy reorganization from several aspects:

Deterioration of financial situation:

Evergrande Auto and its affiliates are facing serious financial difficulties, which are caused by a chronic shortage of funds, huge losses, or the inability to repay debts as they fall due. According to reports, Evergrande Automobile's loss in the past five years has reached 110.841 billion yuan, which indicates that the company has fallen into a serious financial crisis.

Difficulties in debt restructuring:

Although Evergrande Auto has previously tried debt restructuring to ease its financial pressures, these efforts have not been effective enough. For example, Evergrande's proposed debt restructuring plan, while making some progress, was not enough to persuade all creditors to accept its terms.

Increased Operational Risk:

The company's continued losses and cash flow problems can lead to production stagnation, which further exacerbates the financial situation. If it does not have access to additional financing support, Evergrande Auto may face the risk of stopping production, which is undoubtedly bad news for creditors.

Legal Routes:

In China, creditors can request bankruptcy reorganization of the debtor through legal channels. This usually happens when the creditor believes that the debtor cannot continue to operate normally and that the debt cannot be collected by other means. Bankruptcy reorganization aims to restore the solvency of an enterprise by restructuring debts and selling assets.

However, in this feast of capital, Evergrande's car dream seems to have become a phantom. The glory and glory of the past are now only left with chicken feathers. Creditors stand at the center of the storm, seeing what was once glittering and rusty, and they have to resort to a last resort – bankruptcy reorganization – to recover some of the remaining value.

The state of mind of the creditor is like the yellow leaf after autumn, although it is unwilling to fall, but it is helpless. What they had hoped for was a great return, but the reality was bitter. In the game of Evergrande Automobile, they have become the most direct victims and have to face a cruel fact - the dream of investment has been shattered.

Creditors chose this path because they realized that if decisive action was not taken, all investment would be in vain. In Evergrande's debt quagmire, creditors see a bottomless black hole, and they do not want to be swallowed up again, so they can only fight hard, hoping that through the legal tool of bankruptcy reorganization, this crumbling ship can find a new direction, even the faintest glimmer of life.

Bankruptcy reorganization is a difficult choice for creditors. It is not only a reset to the fate of the enterprise, but also a protection of the interests of creditors themselves. They may have realized that it is only through such extreme means that they can find a ray of light in the midst of chaos, and that even a faint hope is better than complete despair.

However, in the process, creditors also have to bear huge psychological pressure and the pressure of public opinion. After all, bankruptcy reorganization means that all the investments that were once made will be lost. But this may be the only way out for them to find their last shred of life in despair.

Secondly, who caused the failure of Evergrande Automobile

The failure of Evergrande Automobile is doomed to failure from the beginning, and before Evergrande invested in automobiles, Xu Jiayin asked me to consult me. I told Xu Jiayin at the time that there is only one business model for Evergrande to invest in automobiles that can be successful, and Evergrande tries not to invest and not build its own cars. If Evergrande builds its own car, it will not be able to build a car with an investment of 100 billion, and even if it is built, it will not be able to sell it. Why?

Because, Evergrande has never built a car, re-start to build a car, this is not Evergrande's strength, Evergrande's senior management team is engaged in real estate, their management is simple and rude, let them manage the car must be a loss, hire a professional team from the outside, start to build a team of cars is not realistic, how much money the car team spent to recruit are a patchwork team, can not solve the problem of car making and new car brands to be recognized by the market, therefore, it is also how much to lose.

Whether it is a traditional car or a new energy vehicle market is a large number of surplus, Evergrande car, up to build a market-oriented industrial fund of 10 billion yuan to build a smart car industry cluster platform, a large number of surplus automobile industry integration and upgrading, to create a smart car brand pyramid, from auto parts to batteries, to intelligent systems, to the whole vehicle, let everyone build a smart car industry cluster, with the new economic model of the industrial cluster created by Honghao for industrial upgrading, in all the successful industrial upgrading of enterprises, Successful listing of a company, such a business model is suitable for Evergrande Automobile, Evergrande Automobile is an asset-light operation of the intelligent automobile industry cluster platform, this new business model, a few years of time boss Xu Jiayin can become the richest man in the world, the most important five years of China's own brand of intelligent cars can occupy the national market, the formation of China's intelligent car brand pyramid, ten years, China's intelligent car industry cluster and China's intelligent car brand pyramid can occupy the commanding heights of the global automotive industry.

However, Xu Jiayin didn't listen to it at that time. If Xu Jiayin had listened to me back then, Evergrande would not have fallen, Xu Jiayin would not have gone to prison, and Xu Jiayin might have become the richest man in the world by now. Xu Jiayin insisted that Evergrande invest and build its own car, and Evergrande's business model was doomed to fail from the beginning.

The failure of Evergrande Automobile provides an important lesson for automotive industry participants.

On the stage of capital, Evergrande Automobile is like a dancer in full costume, dressed in gorgeous neon clothes, but falls into the abyss between spins. The root of this tragedy is not how brilliant its starting point is, but that it has chosen the wrong dance steps and is moving towards an irreversible end step by step.

Once, Evergrande Automobile stepped into the blue ocean of new energy vehicles with great ambitions, as if everything was under its control. However, reality is always much harsher than fairy tales. On the road of chasing scale and speed, it ignores the most critical point - the core competitiveness of products. It's like a dancer who wears expensive shoes and forgets the most basic dance techniques.

When Evergrande Auto was immersed in its own fantasies, the market had quietly changed. Competitors have gained a firm foothold in the market by virtue of accurate market positioning, efficient management mode and continuous technological innovation. Evergrande Automobile, on the other hand, is still stubbornly repeating its outdated business model.

What's even more fatal is that the Evergrande Group behind Evergrande Auto is mired in debt, which is like a dancer whose feet are bound by heavy chains and can no longer jump freely. The end of the old business model in the real estate market has tightened the capital chain of Evergrande Group to the extreme, and this force has finally been transmitted to Evergrande Automobile, making it even worse in an already difficult environment.

In this context, every investment of Evergrande Automobile is like dancing on the tip of a knife, and the slightest carelessness will fall into the abyss. Every time it struggled, it seemed so powerless, like a paper crane trying to stand in a raging storm, and finally it could only go with the wind.

In the end, when creditors stood up and demanded bankruptcy reorganization, the fate of Evergrande Auto seemed to be doomed. It is like a brilliant firework, short and brilliant, leaving only endless sadness and reflection.

The story of this failure is not only a business lesson, but also a mirror, reflecting that on the way to chasing dreams, if you do not defeat the new business model of the global giants in the same industry, and use the old business model to compete with the giants of the global industry, how much investment will be lost.

Third, who is responsible for the bankruptcy of Evergrande Automobile

When discussing the attribution of responsibility for the bankruptcy of Evergrande Automobile, we need to analyze this issue from several different angles. This involves aspects such as corporate governance structure, management decision-making, and external oversight.

At the corporate level

Board of Directors & Executives:

The company's board of directors and senior management are directly responsible for the company's strategic direction and day-to-day operations. If a company's decisions lead to a deterioration in its financial position to the brink of bankruptcy, the board of directors and senior management are held liable.

On the issue of Evergrande Automobile, Xu Jiayin, as the founder and key figure of Evergrande Group, has an important influence on the company's strategic decision-making. As a result, he and his management team need to take responsibility for the company's financial woes.

Internal Audit & Risk Management:

The internal audit and risk management team is responsible for assessing the financial health of the company and making recommendations to management. These teams also need to be held accountable if they fail to effectively identify risks or warn management.

3. Legal Liability

Misrepresentation and Fraud: If there is evidence of misrepresentation or fraud in the financial reporting of a company's management, those responsible may face legal liability. For example, Evergrande Group and its main responsible person were penalized by the CSRC for fraudulent financial problems, which indicates that there may have been illegal acts.

To sum up, the attribution of responsibility for the bankruptcy of Evergrande Automobile involves many aspects:

Management: Executives, including Xu Jiayin, are accountable for their decisions.

Regulators: Bodies such as the Securities and Futures Commission have responsibilities for oversight and enforcement.

Creditors vs. investors: Legal remedies may be required.

Social impacts: Governments and other relevant agencies may need to step in to mitigate the social impact of bankruptcy.

Evergrande's car dream, like a gorgeous bubble feast, rose and fell in the ocean of capital, but finally ended up in ruin. Behind this, who is behind the fire, and who is responsible for this?

On this stage, Xu Jiayin is undoubtedly one of the protagonists, the once glamorous entrepreneur who has pushed Evergrande into a new field outside real estate - new energy vehicles with his ambitions. But there is always a distance between dreams and reality, when the capital chain is tight and debts are like mountains, those "rising stars" that have been pinned on high hopes have not been able to shine after all.

Of course, business mismanagement is not the fault of one person. From management's strategic decisions to changes in the market environment to the impact of regulatory policies, every step can be the straw that breaks the camel's back. And in this big drama, whether it is those far-sighted or short-sighted characters, it is difficult to escape the blame.

At the end of the day, when the fate of a business is tied to the lives of tens of thousands of employees, any rash decision can seem extraordinarily heavy. In the story of Evergrande Automobile, we see the ruthlessness of the capital market, and also witness the greed and blindness in human nature. And behind all this is a microcosm of the times, a complex picture of countless people's hopes and disappointments.

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