Less than a year ago, Chinese tech giant LeEco landed in Silicon Valley with dreams of crushing both Apple and Tesla at their own game.
Now, the Beijing-based tech empire is strapped with a severe cash crunch as it tries to salvage its electric car and smartphone ambitions.
News of its cash crunch comes just three months after LeEco cut 300 jobs, or about 70 percent, of its U.S. staff based in San Diego and Los Angeles. Last year, the company had said it planned to hire 12,000 workers in Silicon Valley.
LeEco’s chairman Jia Yueting said in a shareholders meeting in China on Wednesday that the company is bleeding out more money than it has raised.
Jia received a 15 billion yuan ($2.21 billion) lifeline from Chinese property developer Sunac, which included 9 billion yuan in buying LeEco’s non-listed entities earlier this year. But that was not enough to solve its financial struggles; Jia and LeEco had to pay 15 billion yuan in debt alone, according to Reuters.
“The cash problem of our unlisted businesses is far more severe than we expected. The cash situation in the recent months is worse than last year,” said Jia, according to South China Morning Post.
“We thought that we could use nine billion yuan to solve all the problems. But we made some mistakes and it turns out that it (the money) is not enough.”
Jia admitted the electric vehicle project was the biggest drain of resources. LeEco raised more than $1 billion last September to accelerate its plans to take concept cars, such as its electric sedan LeSEE, to the market.
After reaching success through its Netflix-like service in China, LeEco spread itself thin by expanding into televisions, smartphones and other consumer electronics. LeEco sought to buy television manufacturer Vizio for $2 billion but called it off in April.
“We didn’t prepare adequate capital,” said Jia according to a transcript from Bloomberg. “That reflected our inexperience, as an Internet company, in dealing with cash-flow risks in the hardware business.”
In April, LeEco faced a “second cash crunch” that worsened the company’s prospects, according to Jia. He says he will further consolidate its non-listed units and dispose of other assets within the next three months to fight the worsening crunch.
But LeEco intends to push through its car and television ambitions. Jia said LeEco’s electric cars are looking to complete its round-A financing and start production as soon as possible.
“I believe LeEco can succeed in all of its seven divisions,” Jia said. “Everyone will gradually see the big moves we have planned.”
Photo: LeEco Global Head of Corporate Finance and Development Winston Cheng at a LeEco and Vizio press conference in Hollywood announcing LeEco’s purchase of Vizio on July 26, 2016 in Los Angeles. The deal was later called off. (Dan Steinberg/AP for LeEco)