Evergrande’s electric-car unit said to have stopped paying staff and factory suppliers

China Evergrande New Energy Vehicle Group is likely to miss its target to start mass delivery next year

China Evergrande New Energy Vehicle Group's Hengchi electric vehicles at the Auto Shanghai 2021 show in Shanghai, China. The financial crisis of the Evergrande parent company is said to have stopped Evergrande NEV from paying staff and factory suppliers. BloombergShow less

China Evergrande Group’s electric-car unit has missed salary payments to some of its employees and has fallen behind on paying a number of suppliers for factory equipment, according to people familiar with the matter.

It suggests the stricken property developer’s debt woes are having a detrimental effect beyond its core business.

The cash-flow problems mean China Evergrande New Energy Vehicle Group will likely miss its target to start mass deliveries next year.

Trial production of electric vehicles at its factories in Shanghai and Guangzhou has been scaled back, the sources said, asking not to be identified as they are not authorised to speak publicly.

Most employees at Evergrande NEV are paid at the start of every month and again on the 20th, but for some mid-level managers, the second instalment for September has not arrived, the sources said. Several equipment suppliers, meanwhile, began withdrawing their onsite personnel from the Shanghai and Guangzhou sites as early as July after payments for machinery in Evergrande NEV’s factories were not made.

Those people were on hand to provide the timely adjustment of production equipment and fix any issues, the sources said. Now that they’re not around, Evergrande NEV has been forced to rely on its own employees, who are not as familiar with the equipment, resulting in only a handful of trial cars being made daily.

Representatives for Evergrande NEV did not immediately respond to requests for comment.

The financial stress of Evergrande’s parent has heightened in recent weeks, prompting some to describe the potential contagion as China’s Lehman moment, given that the risks associated with Evergrande are threatening to freeze global credit markets. The property developer, whose assets also span banks and media businesses, is $300 billion in debt and widely expected to default on bond payments. Whether Beijing will engineer a resolution rather than allowing a chaotic collapse into bankruptcy is something investors around the world are now watching.

Evergrande NEV said during its half-year results last month that it might have to delay car production unless it could secure more capital in the short term. The company reported a 4.8bn yuan ($744 million) loss for the six months to June 30.

The startup, which vowed in March 2019 to take on Elon Musk and become the world’s biggest maker of EVs within five years, has unveiled nine models under its Hengchi brand but has yet to mass produce a single car. It made a great splash at this year’s Shanghai auto show, with all nine prototypes on display and promises of 5 million cars a year by 2035.

However, four models – the Hengchi No. 1, 3, 5, and 6 – are still at what is known as the Engineering Trial phase, a preliminary step that calibrates a car’s standards and quality controls while it has an all-white body, the source said. It typically takes at least six months from completion of the ET phase to mass production.

Like investors in China Evergrande Group, shareholders of Evergrande NEV have become disillusioned. The Hong Kong-listed stock is down 90 per cent this year, a huge slump considering the company used to have a market value greater than Ford Motor Co and General Motors.

Officially created when Evergrande Health changed its name to Evergrande NEV in July last year, most of the money it does bring in still comes from community health services and aged-care facilities, despite the company billing itself as a carmaker.