Evergrande Group's Electric Vehicle Subsidiary Stock Soars 17% at One Point on Hong Kong Exchange

Chairman Shija announces plan to foster electric vehicle business instead of real estate

[Photo by Reuters Yonhap News]

[Asia Economy Reporter Park Byung-hee] The stock price of Evergrande Group's electric vehicle subsidiary, the second-largest real estate developer in China currently facing a liquidity crisis, surged temporarily on the morning of the 25th (local time) in the Hong Kong stock market.

It appears that the positive news was driven by Evergrande Group Chairman Xu Jiayin's announcement in an internal meeting that the company will focus on developing electric vehicles as its core business going forward. Additionally, Evergrande's payment of $83.5 million in dollar bond interest on the 22nd and the subsequent announcement that it has resumed halted housing construction projects were also interpreted as favorable factors.

According to Bloomberg News, the stock price of Evergrande New Energy Vehicle, Evergrande Group's electric vehicle subsidiary, surged as much as 17% intraday in the Hong Kong stock market that morning. Evergrande Group's stock price also rose nearly 6% at one point in the morning. However, in the afternoon, the stock prices of both companies mostly gave back their gains and settled near the previous closing levels.

According to local Hong Kong media, Evergrande Group Chairman Xu Jiayin stated in an internal meeting on the 22nd that the company plans to reduce the proportion of its real estate business and focus on the electric vehicle business going forward.

It also seems likely that the Chinese government has imposed sanctions on Evergrande Group. Chairman Xu revealed in the internal meeting that Evergrande will not be able to purchase land for the next ten years. Accordingly, he forecasted that real estate transaction revenue, which was 700 billion yuan in 2020, will decrease to 200 billion yuan after ten years. This explanation suggests that Chairman Xu is in a situation where he has no choice but to reduce the real estate business proportion.

Therefore, the company must grow other businesses instead of real estate, and Chairman Xu appears to have chosen electric vehicles as an alternative to the real estate business. Evergrande Group also stated in a press release posted on its website on the 11th that the first electric vehicle of Evergrande New Energy Vehicle, 'Hengchi,' will be produced at the Tianjin factory starting early next year and delivered to customers.

Lisa Zhou, an analyst at Bloomberg Intelligence, explained regarding the rise in Evergrande Group's stock price that "the news of construction work progressing likely eased investors' anxiety." However, she added, "Evergrande Group's liquidity crisis will continue, and it will need to keep selling subsidiary shares and other assets."