LeEco faces growing pains, switches focus

The LeSee Pro electric concept vehicle by LeEco is displayed during the 2017 CES in Las Vegas, the United States. [Photo by Steve Marcus/For China Daily]

The cash-strapped Chinese internet company LeEco is seeking funds to launch its long-awaited volume vehicle production, after its LeSee supercar projects burnt through billions of yuan making concept cars and plans to cooperate with Aston Martin couldn't get off the ground.

Jia Yueting, founder and chairman of conglomerate LeEco, attributed the group's cash crunch to the automobile business on Wednesday at shareholder meetings in Beijing for its listed arm, Leshi Internet Information & Technology.

He said the company will now focus on fewer projects and will continue this adjustment over the coming quarters, with the results only emerging in the future.

The group has to put money into its most demanding projects, for example electric car production, with a wise and forward-looking plan, according to Shu Chang, a partner of Roland Berger Strategy Consultants.

Shu said: "The automobile business requires a large amount of investment, but it generates clear outputs. However, the company still needs one or two years before it achieves volume production of its maiden electric car model.

"Selling shares could be one option to obtain sufficient money for the future development of the automobile business."

In August 2016, LeEco announced its 20 billion yuan ($2.95 billion) investment plan for an auto park in Huzhou, Zhejiang province, as part of the group's blueprint to mass-produce electric cars. The plan says the park will span 2.87 square kilometers and include an electric car plant with annual capacity of 400,000 vehicles.

Local media found no sign of on-site construction in the land adjacent to the Moganshan National Forest Park, although Jia said the company would "start building the factory as soon as possible" when he served as the CEO of LeEco. He stepped down from the role in May.

In April 2016, LeEco released its first electric concept car, the LeSee, 28 months after entering the industry.

The company claimed the vehicle featured automated driving, but the only proof of this was a low-speed automated parking demonstration in Beijing at a news conference.

Zhang Yu, managing director of Automotive Foresight (Shanghai), said he did not expect to see LeEco's car enter volume production soon, as it takes five to six years to move a concept car into production.

Jia is now expecting the automobile business to secure its first round of financing shortly, and to kick off volume production as soon as possible, despite the company's planned strategic adjustment for its unlisted portfolios.

"The financial problems in the unlisted portfolios are much more severe than we estimated. It has been worse in the past several months than the situation last year. We thought 9 billion yuan would settle all the issues. However, some mistakes were made and this amount is not sufficient," said Jia.

Shu at Roland Berger said feasible solutions for getting LeEco's first volume car on the road could be through outsourcing, purchasing, or establishing joint ventures in the production stages, while the company concentrates on the software, connectivity and experience aspects.

LeEco tried the outsourcing model through a venture last year with British luxury carmaker Aston Martin Lagonda, aiming to develop the blade electric supercar based on Aston Martin's Rapid S model.

The two partners pledged to build what would be the first volume electric model for both the Chinese and British brands.

Andy Palmer, CEO of Aston Martin Lagonda, said his company could offer expertise in handling refinement and aspects to driving quality, until LeEco pulled out without contributing any financial input to the project.

Sources familiar with the matter said that LeEco's auto business and Aston Martin Lagonda are both seeking opportunities to go public via initial public offerings.

As such, they both have the impulse to push valuations higher by launching an innovative product, especially newcomer LeEco, which is currently only getting by thanks to its big dreams, according to the sources.