China Evergrande's EV units ordered into bankruptcy and reorganisation

China Evergrande New Energy Vehicle said on Monday that a local court has ordered two of its subsidiaries to declare bankruptcy and reorganisation. This decision comes at the backdrop of a petition filed by individual creditors only one week ago. It affects Evergrande New Energy Vehicle (Guangdong) and Evergrande Smart Automotive (Guangdong). Evergrande’s shares decreased by 7% on July 29, the day following the filing of the petition.

The August 2 ruling represents a new blow for the embattled electric vehicle division of China Evergrande Group, a key property developer. The bankruptcy and reorganisation proceedings come at a time when the company has been facing serious financial challenges. Earlier in May, Evergrande New Energy Vehicle had revealed that its liquidators were in discussions with a possible strategic investor for acquisition of a stake in Evergrande New Energy Vehicle. This was done in order to establish a new credit line for ongoing production and functioning of business operations.

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The move highlights the worsening situation in Evergrande’s electric vehicle segment, which has been in trouble due to the overall problems within the firm. The decision by the courts to put these units into bankruptcy and reorganisation shows the depth of financial problems in the company, and a continued stress in the Chinese electric vehicle market.

The outcome of this reorganisation process will be decisive to whether Evergrande’s electric vehicle businesses can carry on with their operations effectively and attract new capital investments.