LeEco’s co-founder has admitted to turbulent financial conditions that may pull back the Chinese technology conglomerate’s plans to compete in electric “supercars” through its LeEco and Faraday Future ventures.
In a letter to employees obtained by Bloomberg News, company co-founder Jia Yueting admitted that the company is running out of cash through its rapid expansion. He apologized to shareholders and pledged to slash his own salary to 1 yuan (15 cents), and to slow down toward a more moderate phase of growth.
“No company has had such an experience, a simultaneous time in ice and fire,” Jia wrote in the letter to employees. “We blindly sped ahead, and our cash demand ballooned. We got over-extended in our global strategy. At the same time, our capital and resources were in fact limited.”
LeEco is known for its LeTV streaming service and other entities including sports media, smartphones, TVs, and cars. The conglomerate has made large investments in the past year including the Faraday Future electric car plant in Nevada and a $2 billion acquisition of California TV maker Vizio Inc.
Jia started up Leshi Internet Information & Technology in 2004, which was one of the first companies in China to stream TV shows and movies to paying subscribers. In 2013, he entered the smart TV business and smartphones in 2015.
Jia has been relying on publicly traded Leshi in his financing, which is the only profitable entity in the LeEco network of companies. He has borrowed against his shares in Leshi for cash that he invested into his other companies, according to regulatory filings. Leshi’s stock has plummeted by almost a third since the start of 2016.
That risky practice has brought scrutiny in the U.S., where LeEco has been investing to get Faraday Future and its factory moving forward. Nevada Treasurer Dan Schwartz has balked at issuing bonds needed to get the factory built, citing doubts about Jia’s ability to raise funds.
Jia has showed off LeEco’s LeSee electric concept car, and in September raised more than $1 billion from a consortium of Chinese investors to manufacture it. In his employee memo, Jia singled out the car division for its excess, saying it had already spent 10 billion yuan (about $1.47 billion) in early development.
“Our fundraising ability isn’t strong,” Jia wrote. “The scale of our external fundraising had trouble satisfying the demands of our rapid expansion.”
Last month, U.S. introduction of the LeSee at a staged event in San Francisco failed to happen. Jia had to walk out on the stage and, through a translator, told the audience it would not be viewing the LeSee.
The debut car had been involved in a serious collision as it was being driven from Los Angeles to San Francisco. The company was able to get the LeSee Pro, which was in London for the filming of the Transformers 5 movie, to San Francisco on short notice. However, that show car was stalled out in Bay Area traffic and was later unveiled outside the event room.
Correcting the company’s financial picture was laid out in Jia’s employee email. LeEco will immediately begin cost-cutting programs, decrease subsidies for customers and focus on existing businesses instead of new ones. Jia also apologized to Leshi shareholders in response to criticism that he hasn’t paid them enough attention.
Analysts had begun to question LeEco’s longer-term prospects. The company has multiple investments in its subsidiaries and has been relying on equity-backed loans.
“The company spread itself too quickly. They have a big ambition to create an ecosystem for different devices, not only for phones and TVs and set-top boxes but for vehicles,” said Sandy Shen, a research director with Gartner Inc. “They have a big ambition that is too big to swallow at this moment.”