Photo/Shetuwang

Jan. 3 (NBD) -- How further Chinese property conglomerate Evergrande Group ("Evergrande") could go in the new-energy vehicle sector is unknown following the settlement with U.S.-based electric car manufacturer Faraday Future ("FF") on Monday.

According to a restructuring agreement released on the last day of last year, Evergrande Health, Hong Kong-listed subsidiary of Evergrande, will hold a 32 percent stake in FF without any additional investment, and will also possess all assets of the electric car startup in China thanks to the ownership of 100 percent shares in Evergrande FF Holding (Hong Kong) Limited ("FF HK"). 

This indicates FF founder Jia Yueting has given up the Chinese operations and it remains uncertain whether FF will continue its business ties with FF HK, commented Dennis Huang, co-founder of investment banking service group Synergy Solution Management Group Limited. 

The settlement terms with FF are no good for Evergrande, Huang stated.

According to the restructuring agreement, Jia is entitled to a call option to purchase Evergrande Health's stake in FF within five years. If Jia found new investors in five years, Evergrande would stay out of FF's business completely, a person close to the property developer said.

To an auto manufacturer that hasn't achieved volume production, intellectual property rights are the most valuable assets, Huang noted. However, Evergrande didn't get hold of that. Meanwhile, Jia and FF's staff, research and development, and manufacturing are all based in the U.S., making it difficult for the real estate company to control or manage the carmaker. 

To Evergrande, it seems the only gain from the partnership with the electric car manufacturer is the plot of land secured in the name of vehicle development. 

In April 2018, FF secured a 99-acre plot of land through an affiliate called Ruichi Intelligent Automobile Co. Ltd. According to an internal email leaked, the land will house the future production site for FF in China. But if FF doesn't produce cars in China, how to fulfill the promises made to get the land will be a challenge to Evergrande, Huang pointed out. 

Yan Yuejin, director of the E-house China Research and Development Institution, predicted that Evergrande would ramp up investment in the new-energy vehicle industry for business transformation in the future, which in Yan's view is a good choice amid the growth slowdown of the real estate business. But he held the real estate behemoth should pay attention to risks arising in the process of diversifying into other sectors, or its main business would be heavily dented. 

To date, Evergrande has invested nearly 28 billion yuan (4.1 billion U.S. dollars) in the new-energy car sector, beating other property developers. 

In September 2018, Evergrande said it would pay 2.1 billion U.S. dollars for a 40.96 percent stake in Xinjiang Guanghui Industry Investment Group Co., Ltd. ("Guanghui"), becoming the second biggest shareholder in a company which has energy and vehicle sales businesses as well as logistics and real estate businesses. 

The new purchase is aimed at addressing issues related to new-energy vehicle distribution and services.

According to the incomplete statistics of the 21st Century Business Herald, eight property developers have made inroads into the new-energy vehicle industry through stake purchases, including Evergrande, Baoneng Group, Wanda Group, and Country Garden. Of them, four companies set sight on the development of power batteries. 

Email: lansuying@nbd.com.cn