Media

Le Dream

LeEco mounts challenge to the BAT tech triumvirate

Jia Yueting, co-founder and head of Le Holdings Co Ltd, poses for a photo in front of a logo of his company in Beijing

Taking on Tesla: Jia Yueting

Taking potshots at Apple is nothing new. Last October Elon Musk took his turn, calling the world’s most valuable tech firm a “graveyard” for Tesla staff. “If you don’t make it at Tesla, you go work at Apple,” he told a German magazine, likely piqued that it had hired one of his top executives for the long-awaited Apple Car, which may compete with Tesla’s electric vehicles (EV).

Now a Chinese tech boss has joined the Apple bashing. Not too surprisingly, his company is also working on next-generation vehicles. Step forward Jia Yueting, the chairman and CEO of LeEco, the parent firm of Faraday Future, an EV startup based in Apple’s home state of California (see WiC309).

“Apple is outdated and losing momentum in China,” Jia told CNBC in the first international TV interview he’s ever given. “One of the most important reasons [for slowing sales] is that Apple’s innovation has become extremely slow,” he explained. “For example, a month ago Apple launched the iPhone SE. From an industry insider’s perspective, this is a product with a very low level of technology.”

Jia picked a good time to deliver the jab, as Apple would report disappointing quarterly results a month later, weighed down by slower sales in China (see WiC323).

But the 43 year-old is keen to outmuscle Musk as well. “We hope to surpass Tesla and lead the industry leapfrogging to a new age,” he told Reuters in another interview last month. “But we’re not just building a car. We consider the car a smart mobile device on four wheels – essentially no different to a cellphone or tablet.”

Jia’s firm has started attracting more attention. At last month’s Beijing Auto Show, he unveiled Faraday Future’s LeSEE self-driving car. “Today, we’re one step closer to our crazy dream,” Jia told the audience as tears rolled down his face, the LeSEE supercar parked beside him.

His company has been hiring hundreds of business executives and engineers in the US and Fortune magazine reported this week that Faraday Future has poached Tesla’s head of government relations.

Jia was also admitted as a new member of the exclusive China Entrepreneur Club last month, following nomination by a certain Jack Ma (see WiC325 for more of this 49-member elite).

LeEco also made headlines this month with a mega deal to bring it closer to becoming China’s answer to Netflix. Leshi Internet, the Shenzhen-listed unit which runs LeEco’s streaming website, said it had agreed to acquire its film production affiliate Le Vision Pictures for Rmb9.8 billion ($1.5 billion).

The purchase is the largest yet for a Chinese studio and it values Le Vision at almost 100 times its past earnings. To settle the acquisition, Leshi Internet will pay Rmb2.98 billion in cash plus stock valued at a 29% discount to its pre-deal price. (Trading in Leshi Internet was suspended last December pending the details of this announcement, and the company hasn’t provided a timetable for its resumption.)

Leshi Internet’s circular to the Shenzhen Stock Exchange also disclosed Le Vision’s glittering list of shareholders for the first time. It comprises dozens of local celebrities such as the director Zhang Yimou, Huang Xiaoming (the husband of Angelababy, see WiC300) and Guo Jinming (China’s richest novelist turned-director, see WiC1).

Le Vision’s owners will be very happy about the deal. Zhang Yimou, for example, invested Rmb12 million as a founding member of the studio in 2011. His stake is now valued at Rmb1.4 billion (including a 0.17% stake in Leshi Internet).

Working together, Le Vision and its shareholders have produced a number of box office hits, such as Guo’s Tiny Times movie series (see WiC202). Zhang is also working on The Great Wall, a $150 million English-language fantasy featuring Matt Damon. Leshi’s latest dealings will foster other relationships, adding to its offering. “Jia Yueting must have befriended half of China’s showbiz circle in one deal,” suggests Sohu Entertainment.

But Jia’s ambition looks much greater than nurturing China’s Netflix or turning into China’s Musk. As the recent rebranding of the company may have suggested (formerly it was known as LeTV), LeEco is building an ‘ecosystem’ of some of the buzziest industries, including smartphones and self-driving cars.

Jia’s “crazy dream” is to transform LeEco into China’s all-in-one equivalent of Apple, Amazon, Tesla and Netflix. Such ambitions may sound far-fetched, but Jia must have done something to convince his investors that he can deliver.

According to a popular WeChat article written by Zhou Haibin, a renowned biographer, there were two pivotal moments in LeEco’s brief history. The first arrived when Jia founded LeTV in 2004 as one of 500 video websites in China. While others thrived on pirated content and Hollywood movies, LeTV focused on copyrighted material and domestic TV series. “This gave LeTV the first-mover advantage on copyrighted content, which has since become an industry norm,” Zhou writes.

By 2012, Leshi had already been listed on the Shenzhen exchange for two years, while most of its competitors were either going out of business or being acquired by stronger internet firms (Tudou, for example, was bought by Youku in 2012, and the merged entity then became a unit of Alibaba this year).

LeTV could have found a wealthy suitor itself. But then came LeTV’s second pivotal moment: Jia decided that his internet firm would venture into manufacturing TV sets and smartphones. The decision came after a meeting in June 2012 between Jia and Terry Gou of Foxconn, the company that assembles Apple products. Jia’s cooperation with Foxconn (see WiC194) helped LeTV to defeat the likes of Samsung and Sony in taking the top spot in smart TV sales in China (the internet TVs are bundled with LeEco’s streaming service). Its new smartphone model Le2 has presale orders of 20 million too, according to China Business Journal, and it could become “the best selling smartphone of 2016”.

But LeEco’s stellar rise has not been without a few bumps too.

Jia was born in Shanxi and began his business career in the coal-producing province. It, of course, is infamously home to the so-called ‘Shanxi Gang’, which state mouthpiece Xinhua has described as a clique of corrupt officials headed by Ling Jihua, the longtime aide of former President Hu Jintao (see WiC265).

As long-term WiC readers might recall, Jia went missing for nearly five months in 2014, fuelling speculation that he had been caught in the crossfire of the power struggle with the faction (see WiC262). During his absence Leshi’s market value fell by as much as Rmb12.5 billion, amid questions about how Jia had financed his firm’s growth.

Jia reappeared, reporting that he was away from China undergoing an operation, as well as hammering out the details on foreign deals, including Faraday Future’s EV project.

The decision to go into electric cars is set to become the third pivotal moment for LeEco, Zhou says. Competition will be huge, as most of China’s automakers and internet firms have the same idea. Another risk is that Jia is spreading himself too thin. Since starting out in video streaming, LeEco now has businesses in smartphones, virtual reality, smart TVs, electric smart cars, cloud computing, music streaming, sports, film production, wine e-commerce, internet finance, and real estate. But Jia says he wants a complex business model, because it will be harder for his rivals to copy it. He also believes that LeEco’s diversity will help it compete. Launching his self-driving car last month, he championed it as an all-in-one content machine, complete with movies, TV shows, and music. LeEco’s connected cars will be completely free in the future, he claims, financed by the sales of movies, TV shows, music, and other content.

In the meantime Jia seems happy with his status as a challenger to some of the country’s more established tech firms. “If LeEco can do it right, it can surpass BAT [China’s leading tech trio of Baidu, Alibaba and Tencent],” reckons Rupert Hoogewerf, the compiler of the well-respected Hurun Rich List. “People should pay more attention to companies outside the BAT.”


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