LeEco’s financial woes worsen, Chairman blames cars and mobiles biz for cash burn

Chairman Jia Yueting says the company didn’t prepare adequate capital reflecting its inexperience in dealing with cash-flow risks in the hardware business.
LeEco’s financial woes worsen, Chairman blames cars and mobiles biz for cash burn
LeEco’s financial woes worsen, Chairman blames cars and mobiles biz for cash burn
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Things are not getting any better for Chinese technology major LeEco. Chairman Jia Yueting told investors that the cash crunch afflicting his LeEco technology empire has worsened in recent months, thanks to expensive forays into cars and smartphones, reports Bloomberg.

Jia, who built his fortune on a Netflix-like service now operated by Leshi Internet Information & Technology Corp., in past years branched out into electric vehicles and mobile devices.

At the company’s annual shareholders meet, he said that LeEco had over-extended itself. And it realised the extent of the shortfall only in the past 2-3 months. This is well after its cash-flow issues became public in October.

“Since last October we’ve taken a series of measures and made some mistakes. The unlisted side of LeEco faces a worse cash crunch than when the crisis began,” Jia told shareholders.

Bloomberg reports that Jia is struggling to revitalize a sprawling conglomerate he once portrayed as superior to Tesla and Apple. 

The company was forced to cut costs and lay off employees and even had plans to sell assets to take care of the cash crunch. It also received funding from strategic investors including $2.2 billion from real estate developer Sunac China Holdings.

But none of that seems to have helped. LeEco still faces debt.

The company raised 9.7 billion yuan as it expected 9 billion yuan ($1.3 billion) to be enough to solve its funding issues last year. Instead, he and the company jointly paid off about 15 billion yuan in debt that year.

Cars were the single most important factor in LeEco’s cash problems, Jia said in the transcript.

“It imposed great pressure on our capital and resources,” he said. “The other factor was smartphones, even though we performed miracles in that business.”

Jia admitted that he was responsible for pushing LeEco too rapidly into new realms. “We didn’t prepare adequate capital. That reflected our inexperience, as an Internet company, in dealing with cash-flow risks in the hardware business,” he said.

To make things worse, several suppliers to LeEco’s sports and hardware businesses in the US, Hong Kong, India and China have taken the company’s units to court over allegations of unpaid bills. 

Despite the severe cash crunch, Jia continues to be confident of the business. “I believe LeEco can succeed in all of its seven divisions. Everyone will gradually see the big moves we have planned,” he said.

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