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SHANGHAI—Guests at a private August dinner hosted by billionaire entrepreneur Jack Ma were intrigued by a fellow diner who introduced himself as a humble car salesman.
It was Xu Jiayin, better known as the chairman of China Evergrande Group, the country’s biggest real-estate developer and one of China’s most indebted companies. At the time of the dinner Evergrande was just weeks away from a potentially devastating showdown with its creditors.
If he was feeling desperate, Mr. Xu didn’t show it, according to one of the people present at the meal at one of Mr. Ma’s houses in Hangzhou, where Mr. Ma’s Alibaba Group Holding Ltd. is based. He was pitching his most audacious venture to date: a new electric-vehicle company that aims, according to its own public statements, to surpass Tesla Inc. and others in becoming the world’s “largest and most powerful” EV maker by 2025.
The Chinese government’s drive to make the country a world leader in electric vehicles has spawned dozens of startups jockeying for position in its small but fast-growing market. Mr. Xu’s unlikely fusion of car-making and property development, which he’s building from scratch, is the wildest of them all.
Evergrande’s Hong Kong-listed EV unit, China Evergrande New Energy Vehicle Group Ltd., or Evergrande Auto, saw its market capitalization soar last month to roughly $87 billion, more than most global auto makers, including Ford Motor Co. and General Motors Co., and four times the value of its own parent company—all without having sold a single vehicle.
Other electric-car makers burn billions of dollars developing one production model. Evergrande says it is developing 14 at once. It is also building multiple factories even though the company has no industrial or technical background.
Evergrande’s debut at the Auto Shanghai expo in April raised more questions than it answered about the company’s progress. Its huge stand was roughly as large as the nearby BMW AG booth. It showcased nine of Evergrande’s first production EVs, all eye-catching cars designed by internationally renowned figures including Anders Warming, formerly of BMW and Mini. The cars were mock-ups with foggy plastic windows, not working vehicles.
In August last year, Evergrande said it had launched trial production at two facilities, only to say in March that trial production would begin in 2021, with mass production starting next year.
Earlier in February, Evergrande Auto’s share price jumped when the company released a video it said showed its vehicles engaged in cold-weather testing in China’s far north. None of those functioning cars appeared at expo.
Competitors at the show regarded Evergrande with skepticism. “Their cars look great on PowerPoint,” said Hu Zhenfang, a user experience manager at Beijing-based EV maker Arcfox. “It will be a long time before their cars hit the market, if they even have the ability to produce cars.”
A spokesman for Evergrande said the company “has integrated the world’s top talents, technology and equipment for our use, and opened up a unique way to build cars. The mass production work is being carried out as planned.”
Mr. Xu—China’s richest man as recently as 2017, according to Shanghai-based research firm Hurun Report—freely acknowledges his company’s approach is untested.
“When it comes to building cars we have no technology and no experience,” Mr. Xu said in a speech at an auto suppliers’ conference in the southern city of Guangzhou in 2019, which can be viewed online. “If we want to change lanes and overtake, we’ll have to take an unusual road, one no auto maker has ever taken in history.” The company declined to make him available for an interview.
Part of Mr. Xu’s unusual road has been to “buy, buy, buy,” he told the gathered suppliers, including acquiring a Swedish supercar producer, a Chinese battery maker and a British electric-drive developer.
No one has ever attempted to create an auto maker by welding together so many disparate constituent parts, said Bill Russo, founder of Automobility, a Shanghai-based consulting firm.
“They have an impressive array of pieces, but it could end up like Frankenstein,” he said.
Mr. Xu, 62, also known as Hui Ka Yan, has a history of overcoming the odds. The son of a woodcutter, he worked for a decade at a state-run steel mill before starting a trading company and then founding Evergrande in 1996 with a handful of staffers. Today, it employs more than 130,000.
His real-estate powerhouse has endured a turbulent few years. With debts of around $110 billion, roughly the size of Iraq’s, Evergrande has been scrambling to raise funds to pay bills accumulated over a decade of rapid expansion. And just when Evergrande needed to borrow more to meet its obligations, the Chinese government, anxious that overextended property developers might destabilize the broader economy, last year instructed the country’s banks to reduce their exposure.
The company managed to survive a potentially devastating cash crunch last year by persuading creditors to waive $19 billion in repayments which fell due in September.
That makes Evergrande’s EV unit, with its fundraising potential, a potential white knight for Mr. Xu’s business empire.
In September, after Mr. Xu’s dinnertime pitch to Mr. Ma, Evergrande Auto named in a regulatory filing Yunfeng Fund, a private-equity firm that Mr. Ma co-founded and in which he retains an interest, as one of four investors that had acquired roughly $515 million in company shares. Tencent Holdings Ltd. and ride-hailing giant Didi Chuxing Technology Co. also took part. There is no indication that Mr. Ma personally invested in Evergrande Auto.
Mr. Ma and Yunfeng Fund didn’t respond to questions.
Earlier this year the company said it raised another $3.35 billion by selling shares equivalent to 9.75% of Evergrande Auto to six investors, all Hong Kong- and China-based tycoons with close ties to Mr. Xu, including Liu Minghui, chairman of China Gas Holdings Ltd.
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Their commitment, which left Evergrande with a 67.64% stake in Evergrande Auto, triggered a surge in the car maker’s share price, with investors regarding Mr. Xu’s powerful friends as willing to stand behind his EV play. This month Evergrande said it was selling a further 2.66% of the vehicle unit for around $1.36 billion.
In many ways, Evergrande is jumping in at the right moment. Analysts forecast a rapid uptick in Chinese EV sales from last year’s 1.1 million units. In a February research note, brokerage HSBC Qianhai estimated they could account for 58% of Chinese auto sales in 2030—potentially equivalent to 15 million vehicles.
Chinese EV startups, notably New York-listed NIO Inc., XPeng Inc. and Li Auto Inc., have also dazzled investors in recent months, though as pure-play EV companies their business models are far simpler than Evergrande’s hybrid.
Combining real estate and car production produces synergies, said an Evergrande spokesperson. Evergrande’s six million homeowners “will become our huge customer base,” while the company’s thousands of property agents would effectively double as EV salesmen, this person added.
Evergrande could feasibly try bundling apartments and EVs together, said Matthew Chow, China property director at S&P Global Ratings, though nothing like that has ever been tried.
Evergrande has a genuine incentive to grow new businesses beyond real estate to offset the slowing of China’s decadeslong building boom, said Mr. Chow, pointing to Evergrande’s recently opened healthcare and tourism units.
Ultimately Evergrande will always be a real-estate company at heart, Mr. Chow believes, and pledging to build EVs—creating jobs and paying taxes in the process—plays well with local Communist Party officials who control access to land. The promise of an EV factory could create leverage to “negotiate with the local government to acquire land at a lower cost,” he said.
Though it has strongly pushed EV development, Beijing has lately expressed worries about nonautomotive players joining the overheated sector, which comprises scores of companies mostly selling few or no EVs. In November, the National Development and Reform Commission, the central planning agency which oversees the auto industry, ordered Evergrande to submit detailed information about its EV projects for official scrutiny.
Despite such misgivings in Beijing, local officials across China have more than embraced Evergrande’s automotive dreams. Smaller cities don’t want to be left behind as China strives to become the world leader in EV production, creating openings for companies such as Evergrande, which can offer prestigious manufacturing facilities.
In 2019, Evergrande pledged to invest the equivalent of about $2.7 billion in an EV plant in Nantong, a city of seven million people across the Yangtze River from Shanghai, according to documents published by the local authorities, which said the company planned to eventually produce 200,000 EVs a year there.
During a March visit by a reporter to the city’s flagship technology park, the steel shell of the future plant awaited completion. A security guard said the framework had been built last year, and he didn’t know when work would resume.
The plant has already paid dividends for Evergrande. In September, Nantong auctioned off a plot of land for residential development—stipulating that qualifying bidders must have invested at least $1.55 billion in local EV production. Only one company fitted that description.
As the sole bidder, the Evergrande subsidiary that secured the residential plot only had to pay the minimum price of $744 per square meter, bringing the cost to $134 million in total. In competitive auctions, developers typically pay a premium of up to two-thirds more than the floor price to fend off rivals.
“Evergrande’s choice of production base location has nothing to do with the purchase of residential land,” said the company spokesperson. “For the residential land in Nantong, we obtained the land through open bidding and market price in strict accordance with the relevant regulations.”
Authorities in Nantong didn’t respond to questions.
The company has struck similar deals to produce EVs or EV parts with the cities of Huzhou, Lu’an, Nanning, Xiangyin and Zhengzhou—cities that range in size from roughly 1 million to 10 million people—according to local media reports and official announcements.
The company has also announced big plans for larger cities that are already major car-production centers. In June 2019, Mr. Xu attended a ceremony in Guangzhou at which he committed to investing $24.7 billion in a local EV base. Four days later, he was in the northeastern city of Shenyang signing an $18.6 billion EV production deal.
Evergrande’s actual spending has so far been a fraction of the sums promised by Mr. Xu. It has invested $7.3 billion in its EV project to date, Liu Yongzhuo, vice chairman of Evergrande Auto, said at the auto show in Shanghai in April.
In Shanghai, Mr. Xu’s promises are taking shape: Evergrande has built at least the shell of an EV plant in the city’s southwestern suburbs—externally it is complete, though its inner workings aren’t known. And it boasts a research-and-development center nearby. This month the company said in a filing that it had been granted 1,355 patents relating to vehicle development.
Evergrande aims to build 1 million EVs annually by as early as 2023, the company says. Tesla, by comparison, made roughly half a million EVs last year.