Recently, the Chinese government has demanded that Evergrande New Energy Auto, a subsidiary of Evergrande Group, return approximately 1.9 billion Chinese yuan (about 262 million US dollars) in incentives and subsidies that had been disbursed, dealing another blow to the struggling company and causing a drop in Evergrande Auto’s stock price.
According to a report by Nikkei Asia on Wednesday, Evergrande disclosed information to the Hong Kong Stock Exchange on Tuesday, revealing that some subsidiaries of Evergrande New Energy Auto had failed to fulfill contractual obligations, including reaching specified investment scale, production capacity, and annual sales targets, as well as establishing a global headquarters within the jurisdiction of “relevant local administrative authorities” within a specified timeframe.
On Wednesday morning, the stock price of Evergrande New Energy Auto listed on the Hong Kong Stock Exchange plummeted 27% from the previous day’s closing price before rebounding.
The company disclosed earlier that since commencing production in September 2022, by the end of last year, its electric vehicle manufacturing plant in Tianjin had produced a total of 1,700 units of the Henchi 5 model. According to the company’s latest annual report released at the end of April, this figure “did not meet the relevant requirements.”
In its latest submission, the company stated that authorities had instructed them to return the incentives and subsidies disbursed within 15 days of receiving an administrative decision on May 22. However, the company has a 60-day period to appeal for review. Evergrande warned that if the decision is implemented, it could have a significant impact on the company, potentially leading to the forced reclamation of factory lands and the risk of using on-site buildings and equipment for repayment of incentives and subsidies.
Previously, the company announced that due to financial reasons, it had already placed some employees on leave and suspended production at its Tianjin facility before the end of April. Now, its Tianjin subsidiary has been ordered to halt new car production and sales, without a specific deadline provided.
At the end of January this year, following a winding-up order issued by the Hong Kong High Court, Evergrande sought to sell its electric vehicle business. Subsequently, repayment orders and trading suspension orders were issued by the court. By the end of May, Evergrande’s liquidators stated in a submitted document that they had only achieved “a small amount of asset realization” and saw no path to resuming stock trading.
Among Evergrande’s vast assets, the remaining valuable assets are scarce, and even those deemed valuable may not be relied upon, as its real estate business has become intertwined with the government.
According to information disclosed earlier by Evergrande to the Hong Kong Stock Exchange, it recorded 1.345 billion yuan in “government construction subsidies” cash income in 2019, followed by another government subsidy of 1.098 billion yuan in the same category the following year.
In recent years, the Chinese government has prioritized subsidizing companies related to electric vehicles with the goal of becoming a global leader in the electric vehicle industry. According to data from Chinese information provider Wind and a survey by Nikkei Asia, last year, battery manufacturer CATL received a staggering 5.72 billion yuan in subsidy income, ranking first among over 5,000 mainland companies in government subsidies for the first time, doubling from the previous year.