Auto Industry

Under fire

Is LeEco’s extensive “ecosystem” sustainable?

LeSee-w

But will it ever hit the road?

When Jia Yueting unveiled the LeSEE Pro last October, the self-driving electric vehicle LeEco has been developing, the founder of LeEco apologised to the San Francisco audience that the prototype car hadn’t made it to the press conference. That’s because, he explained, the car was stuck in London so director Michael Bay could include it in the fifth Transformers film.

For those who are eager to see the LeSEE Pro in action, the only current means to do so will be to watch the Bay film (which comes out later this month). At the moment, the car is way behind in its production schedule – while its cash-strapped parent is frantically trying to save its electric vehicle business.

In late May, Jia opted for a more optimistic tone, saying that LeEco will launch a fundraising round for the electric car unit, without specifying the target amount.

The Economic Observer has warned it is going to be a tough sell. LeEco has already sunk over Rmb10 billion ($1.5 billion) into its electric car venture but the LeSEE Pro is nowhere close to being ready. LeEco has not yet even received approval from its own government to manufacture electric cars in China. Most analysts reckon that the business requires at least another Rmb20 billion in investment.

Moreover, LeEco appears to have taken on too many challenges too hastily.

“It [LeEco] let the public know that it was going to be everything to everyone — a little bit Apple, a little bit Netflix, a little Tesla and a little Amazon. Oh, and there was a VR headset, a bicycle and a Michael Bay cameo thrown in for good measure, along with footage from The Great Wall [LeEco’s mega Hollywood co-production featuring Matt Damon, which also turned out to be a flop this year],” a columnist writes on Techcrunch, recalling the rosy picture Jia was trying to paint last year in San Francisco.

But the wheels appear to be coming off quickly.

Without fresh capital coming its way, LeEco has had no choice but to cut costs. The company recently laid off two-thirds of its workforce in the US, reducing it to a rump of about 60, says Sina Technology, a portal. Recent high profile hires like Danny Bowman, who it lured from Samsung, and Rob Chandrok from Qualcomm have both been paid severance as the company restructures its different business units.

“Even though Jia had very high expectations for the US market, he is now forced to face the reality, which is to ensure that his biggest dream – building electric cars – stays afloat,” one industry insider told Sina.

It also suggests that after years of touting the limitless possibilities of LeEco’s “ecosystem” – which envisages content and hardware connected seamlessly – the company has finally decided to change tack.

“In the face of diminishing funds and the continued pressure from shareholders, Jia Yueting finally has to put an end to his crazy ecosystem dream for his empire. So now he is picking up the scalpel and trimming off businesses that are burning cash while streamlining others,” says Sina.

While he mulled these group cost-cutting plans, the founder dramatically announced in late May that he would step down from the helm of Shenzhen-listed subsidiary LeShi Information and Technology. He will retain the chairman role at both Leshi (the online video business) and LeEco, the unlisted parent group. The move, he says, is so he can focus on “making cars”.

Shares in LeShi have fallen more than 60% over the past two years amidst the group’s liquidity concerns, says 21CN Business Herald.

Meanwhile, times are tough for most of LeEco’s subsidiaries. Last week, LeSports, the online sports streaming platform, missed out on screening the English FA Cup final between Chelsea and Arsenal on its channel in Hong Kong. MP & Silva, the sports broadcasting rights firm, later explained that LeSports had defaulted on a scheduled payment.

And then there is Faraday Future, a separate US-based electric car start-up that is also backed by Jia.

Even though the US job cuts don’t affect Faraday, they haven’t stopped it from making its own separate plans. Last week, Bloomberg reported that Faraday is planning a $1 billion fundraising round to protect itself from LeEco’s financial troubles. Faraday had previously run into capital issues which saw a series of top executives leave the company in quick succession late last year.


© ChinTell Ltd. All rights reserved.

Exclusively sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.