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There is a saying that goes, "Sooner or later, you will pay for what you have done." The same is true for Boss Xu who has disappeared for a long time.

After the "movie king" Xu Da performed scenes such as jumping off a building, "working hard for a hundred days" and "delivering the building", as a follow-up to the "huge thunder" of debt reaching 2.44 trillion yuan, on August 5, Evergrande Auto was tragically filed for bankruptcy reorganization by its creditors.

The so-called "Evergrande" literally means forever big, and the current situation is that Evergrande is first of all very heavily in debt, with a total debt of 2.44 trillion yuan in 2023. Secondly, the losses are very large, with losses of more than 800 billion yuan in 2021 and 2022 alone, exceeding the GDP of Hainan Province. Then, Evergrande has suffered a lot of setbacks. First, it was the real estate industry, and now it is the new energy vehicle industry.

In terms of legal procedures, the relevant local people's courts, after hearings, ruled that the relevant subsidiaries entered bankruptcy reorganization procedures. The "relevant subsidiaries" refer to Evergrande Auto's subsidiaries, Evergrande New Energy Automobile (Guangdong) Co., Ltd. and Evergrande Intelligent Automobile (Guangdong) Co., Ltd. The relevant subsidiaries are wholly owned by Evergrande Auto.

This is also the biggest "thunder" in China's new energy vehicle field so far. According to the latest financial report data of Evergrande Auto, Evergrande Auto, which has delivered 1,389 vehicles so far, will have a total revenue of only 1.34 billion yuan in 2023, with a total net loss of 11.995 billion yuan (a year-on-year reduction of 56.64%).

At present, Evergrande Auto's total assets are 34.851 billion yuan, but its total liabilities have reached 72.543 billion yuan, and its cash and cash equivalents are only 129 million yuan. In other words, even if all of Evergrande Auto's assets are sold out, it will still be more than 30 billion yuan short of paying off its liabilities, which is a typical case of insolvency.

There is an important concept. From a legal definition, Evergrande isBankruptcy Reorganization, it is not bankruptcy liquidation (or bankruptcy liquidation).HiPhiThe parent company, Human Horizons, operates in a similar manner.

This reorganization and liquidation are legal procedures initiated by the company itself or its creditors when the company is insolvent. In other words, it is a last resort for other creditors of Evergrande Auto. What is going on here?

Let’s first look at the debts behind Evergrande Auto’s fake accounts. (The fake accounts involve PricewaterhouseCoopers, see below)

Debts are divided into several types. For example, 26.483 billion yuan isloanIn most cases, loans are secured debts, so when it comes time to repay, the debts will have a higher priority.

This type of debt is usually stipulated in a contract, which means that the movable or immovable property of the borrowing company is used as collateral. What if the debt cannot be repaid when due? The collateral is used to pay off the debt.

In addition to this type of secured debt, debts that rank higher among the debts are those that are not secured but have a higher priority, typically debts owed to employees, taxes owed, five social insurances and one housing fund, etc.

The next level of debt is general debt without security, such as accounts payable to upstream and downstream suppliers, rent, etc. From the debt structure point of view, Evergrande Auto has 26.483 billion yuan of secured priority debt alone, which shows how deep it is in debt.

Let's talk about bankruptcy liquidation first. Unlike bankruptcy reorganization, liquidation ends with the cessation of the company's operations and closure of the company. It goes straight to this goal. When the liquidation application is approved by the court, the court will appoint a liquidator to take inventory of the company's assets and then repay the creditors according to the priority of the debt.

If the debt is secured by a designated guarantee, the collateral must be delivered to the creditor. For example, if a factory building is used as collateral to borrow RMB 10 million from A, then if the debt cannot be repaid, the factory building will be delivered to A first. If a plot of land is used as collateral to borrow RMB 10 million from B, the land use right is 70 years, and if there are 60 years left, then the remaining 60 years of use right will belong to B.

In addition to these loans with designated collateral, the remaining debts are managed by the liquidator, who dismantles the company's assets and sells them, and then returns them to other creditors. Finally, the company is deregistered and ends its life. This is the general process of bankruptcy liquidation.

but,The purpose of bankruptcy reorganization is not to close the business, but to give the company one last chance to revive.

In other words, the company still needs to maintain its operations. It's just that the company's management and creditors can't reach an agreement, so the court intervenes and brokers a restructuring plan, which may be a bankruptcy restructuring proposed by the company's management or a restructuring proposed by creditors.

In the case of Evergrande Auto, it was the creditors who brought the case. However, we must note thatBecause debt repayment is related to priority, this priority has a lot of "tricks" and may harm the interests of creditors.

Moreover, the fact that the court intervened in this matter shows that the creditors and Evergrande Auto’s management could not resolve the issue through normal communication channels. Therefore, the purpose of introducing the court as an external authority is to adjust the unreasonable debt priority order.

What are the twists and turns here? By disassembling it, we can see how Boss Xu, the so-called top elite, cut the leeks and ran away in various ways, which is amazing. It is also an eye-opener.

Speaking of the Evergrande Auto scandal, the most ridiculous part is not that it is insolvent, but what is it?

Xu Jiayin himself is the creditor of Evergrande Auto. The trick is that when repaying the debt, according to the priority, the debt should be repaid to Xu Jiayin himself first. From common sense, isn't this equivalent to repaying oneself without repaying the debt?

In fact, this is the effect that is wanted, that is, to be one's own creditor, which is equivalent to preserving one's own property. Not only is it preserved, but the property can also be transferred to a safe place openly.

So how did Boss Xu do it? Simply put, Xu Jiayin, through the actual controlling company of Evergrande Auto, previously issued $1.8 billion in foreign debt in 2018, and made himself Evergrande's overseas creditor. So, when it came time to repay the debt, he had to repay this debt first, and the money was transferred overseas openly and without any sense of violation.

After the collapse of Evergrande Group and Evergrande Real Estate, the Evergrande Empire collapsed, and only Evergrande Auto was left as a high-quality asset. After all, the purchased intellectual property rights, production equipment and semi-finished raw materials were still there. And the responsibility of repaying the debt also fell on Evergrande Auto.

But what remains unchanged is that the "invisible" Xu Jiayin is still a priority creditor on the creditor list.

There is an obvious advantage to being your own creditor. When the company makes money, you can give yourself a very high return. When the company gets into trouble, you can join the collective negotiations of the creditors and make the repayment plan favorable to you.

Of course, there is still the possibility that the priority level of some other creditors is quite close to Xu Jiayin. Then the question arises, what should be done when other creditors also make claims for limited assets?

You have to admire these unscrupulous operations. Even more ridiculous is the "technical debt collection" of "suing oneself". In February 2024, Xu Jiayin's ex-wife Ding Yumei staged such a scene in Hong Kong, accusing her youngest son Xu Heteng of not repaying 1.05 billion Hong Kong dollars on time according to the loan agreement, so the mother recovered the debt through a lawsuit.

This wave of operations confused everyone, but the answer soon became clear.

It turns out that as the case progressed, the HK$1.05 billion involved in the case was frozen by the court. The result of "family members filing a complaint first" is that the court freezes the money, so doesn't that mean the money can be temporarily preserved? Although I can't withdraw it myself, other creditors can't touch it either, right?

After all, the money is still in your pocket, so just hold on for now. This is also one of the benefits of being your own creditor.

In addition, this scene was able to happen because Boss Xu had done a lot of preparatory work beforehand.

In the past decade, Xu Jiayin transferred many of the company's assets and debts to his wife Ding Yumei. In 2022, the couple "technically divorced" and Ding Yumei settled overseas, so she naturally took all these things with her. Moreover, the two have no legal relationship, and Ding Yumei can still claim debts from various companies under Evergrande in the name of a creditor, which is actually helping the family preserve its property.

In addition, according to statistics, since its listing, China Evergrande has distributed a total of 73.386 billion yuan in dividends. Since Xu Jiayin and his wife hold about 70% of China Evergrande's shares, this also means that the two of them may have taken away more than 50 billion yuan, accounting for about 68% of the total dividends. It's a lot of money.

However, judging from the current situation, it is unlikely that the creditor who proposed debt restructuring this time will be Boss Xu himself. After all, company restructuring will affect the company's operations, change management, etc., and may affect Xu Jiayin's control over the company. Therefore, it is more likely that other creditors are desperate and are also worried about "suing themselves" again, so they simply took the lead in proposing debt restructuring.

Therefore, the key to bankruptcy reorganization should be to re-examine the repayment order of the secured debt. The purpose, of course, is to move the Xu Jiayin family from the front row of the waiting queue to the back. This is to achieve this effect.

Are you impressed? It turns out you can play like this.

At present, the bankruptcy reorganization process of Evergrande Auto has been dragging on for a long time and is showing signs of getting out of control.

After all, Evergrande Auto is one of the few high-quality assets left in the Evergrande Group. High-quality means that in the boom of China's new energy industry, if you have money, you can build cars, which can extend the life of Evergrande and give Evergrande a faint hope of reviving the dead, although the possibility is very small.

From the past, as of the end of 2023, Evergrande Auto, a cross-border car manufacturer, has accumulated losses of more than 110 billion yuan, of which about 12 billion yuan was lost in 2023. And since it was renamed Evergrande Auto in 2020, it has accumulated losses of 91.673 billion yuan in three years. It is truly a "bottomless pit of burning money."

On July 26 last year, Evergrande Auto reissued its full-year 2021, mid-year 2022 and full-year 2022 performance reports at one time. Data showed that Evergrande Auto lost about 56.344 billion yuan in 2021 and 27.664 billion yuan in 2022.

Why did it lose so much? Let's take a look at the details to find out.

According to the 2022 financial report, Evergrande Auto's Global Research Institute has more than 3,200 scientific researchers, including 11 major professional research institutes, and has also recruited originalDongfeng MotorFang Chi, the director of the institute, and former U.S.Ford MotorSenior technical expert Xu Xingyi and other bigwigs. As of the end of 2022, Evergrande Auto has 4,506 employees and has applied for 3,512 patents in similar research fields worldwide, of which 2,632 have been authorized.

In terms of labor, even if each person is paid 200,000 yuan per year, the annual salary alone would be more than 900 million yuan. In addition, the establishment of these research institutes, factories, etc., all require a lot of money. During this period, Dai Lei, the "expensive hand", also came to make a profit. In other words, according to the style of Boss Xu, even if he is so "extravagant", 110 billion yuan cannot be spent.

Under the current circumstances, even if the company goes bankrupt and undergoes reorganization, it would probably be difficult for anyone to come forward to take over.

We know that China Evergrande is the largest shareholder of Evergrande Auto, holding 58.5% of the shares. This year, there was news that someone took over Evergrande Auto, which ignited the hopes of shareholders and creditors. However, it turned out to be another routine. After a while, everyone realized that it was just a story.

As a future star that Xu Jiayin had high hopes for, Evergrande Auto was also the hope that Xu Jiayin bet on for a final comeback. Now, its bankruptcy means that Evergrande Auto's hopes have been dashed. Next, it may also cause more chain reactions, and creditors from all walks of life will also lose hope and patience.

In fact, in addition to Evergrande Auto’s announcement, China Evergrande Group also issued an announcement on August 5, stating that the liquidator will seek to recover dividends and remuneration totaling approximately US$6 billion (approximately RMB 42.7 billion) from seven defendants including Xu Jiayin and Ding Yumei. At the same time, the company will continue to be suspended until further notice.

This money is said to be dividends and remuneration paid based on the financial statements of each fiscal year from December 31, 2017 to December 31, 2020. Among them is Xu Jiayin's ex-wife Ding Yumei, who was newly added in the "technical divorce". Previously, there were three people.

The most important reason is that PricewaterhouseCoopers, which has served Evergrande for 14 years, has always issued an "unqualified opinion" on Evergrande's financial reports, but now the accounting fraud has been completely exposed. In May this year, the China Securities Regulatory Commission disclosed that Evergrande Real Estate had violated laws such as falsely increasing its revenue by 564.1 billion yuan in its 2019 and 2020 annual reports.

Since it is a fake account, there must be something fishy about the money that was paid out. However, even if China Evergrande's creditors have reason to demand dividends and remuneration, it does not mean that it can get the money back.

We often say "learn from past experience", so, extending from Evergrande Auto to China's new energy industry, what is the key to future industry competition?

In fact, it all depends on who has the lowest debt ratio in the stock market after the demand for new energy is saturated and profits are declining. This is the same logic as the real estate industry, that is, companies with low debt ratios have more cash and more room for price cuts, so they are more capable of reducing inventory and have better survival.

So, how high is the debt-to-asset ratio of China's electric vehicle industry? It is not too high, but it is not low either. According to industry data in 2023, among the new forces in the automotive industry, Wei, Xiao, and Li,Ideal AutoThe total debt-to-asset ratio is 57.8%.Xpeng Motorsis 56.8%, andNIOIt is relatively high, reaching 74.79%.

In addition, the very "eye-catching"Xiaomi MotorsThere is no data in this regard, but the ratio of Xiaomi Group’s total liabilities to total assets is 49.3%, which is relatively healthy.

Generally speaking, a debt-to-asset ratio of 40% to 60% is considered healthy in financial data, and a debt-to-asset ratio of more than 70% is considered a warning. Based on this standard, NIO's financial situation is relatively risky. In addition, as the electric car brand with the highest market share in China,BYDThe debt-to-asset ratio reached 77.9% at the end of 2023, showing signs of over-indebtedness.

Compared with the first half of 2020 when China's housing prices were still high, the average debt-to-asset ratio of listed real estate companies exceeded 79%. Now the total debt ratio of China's auto industry is not very high, and is better than that of the real estate industry. However, if we do some deeper research, we will find problems.

Why are new energy vehicles selling well now? On the one hand, they are cheap. The cheap prices are based on a series of subsidies and policy support. For example, consumer car purchase subsidies and purchase tax exemption policies. Then, when the policy declines, the entire industry will be in decline.

The current vehicle purchase tax exemption policy is that new energy vehicles purchased from January 1, 2024 to December 31, 2025 are exempt from purchase tax, with a maximum exemption of 30,000 yuan. From January 1, 2026 to December 31, 2027, new energy vehicles purchased in these two years will be exempt from purchase tax by half.

Then, when these policies gradually fade away, coupled with the increasingly fierce price war, the new energy industry will face the problem of increasing competition and overcapacity. Of course, this will greatly test the ability of car companies to control costs.

According to relevant data, BYD and Ideal Auto will have gross profit margins above 20% in 2023.TeslaChina ranks second, with a gross profit margin of less than 20%, about 18%. NIO and Xpeng are in the same boat, with NIO's gross profit margin being 9.5% and Xpeng's being even worse, at only 1.5%.

If calculated by net profit margin, Xiaopeng Motors was in the red last year, so foreign industry insiders believe that they may be the first to be eliminated in the future. However, from a domestic perspective, at least Weilai's battery swap model is close to being successful. In the first half of the year, there was news that 20% of its stations were profitable, and the number of partners is constantly increasing, which is something that other companies cannot compete with.

In short, all of China’s new energy vehicle companies will have to go through a “big test” in the next few years.

Unfortunately, Evergrande was the first to expose the big thunder in China's new energy industry. However, Evergrande's Hengchi Automobile was not a successful car, and it should be considered "stillborn". It is not appropriate to compare it with the current car companies. Moreover, the competitive environment in China's new energy industry is changing too fast. Even if someone takes over Evergrande, I am afraid it will not be able to continue.

The warning significance of Evergrande Auto's bankruptcy is that with the drastic changes in the internal and external environment of the Chinese auto market, the "money-burning model" has come to an end. Only by truly investing and seriously developing technology can there be a way out. It is a bit unprofessional to say that Evergrande Auto is "actually a weather vane for China's entire electric vehicle industry". It has never been.

｜Wang Xiaoxi｜

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