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AsianFin -- NETA Auto, once a rising star in China's competitive new energy vehicle (NEV) sector, finds itself in the spotlight again—but this time for wrong reasons.
On Tuesday, rumors started to fly that the company had begun disbanding its research and development (R&D) team, offering employees who signed resignation agreements this week an N+1 compensation package, with payments scheduled for May 30.
The company quickly denied the rumors, stating that claims of "disbanding the R&D team" were false. NETA Auto explained that it was merely optimizing its organizational structure and processes to reduce costs and improve efficiency. However, insiders tell a different story.
An employee told AsianFin that the R&D team, which once numbered 2,000, has been reduced to just 200. One employee revealed that HR announced on Tuesday afternoon that all R&D staff would be forced to resign, and social security contributions for February had already been halted. "For the past six months, salaries have only been paid at half the usual rate, and the company unilaterally reduced the housing fund contribution from 10% to 7%," the employee said.
Another former employee disclosed that only half of their September 2024 salary was paid, and severance compensation remains unpaid. "The arbitration settlement I received has already passed its due date. The promised N+1 compensation is turning into 'Schrödinger's cat,'" the employee remarked, highlighting the uncertainty surrounding the company's financial commitments.
NETA Auto's troubles extend far beyond layoffs. The company, a subsidiary of Hozon New Energy, has been grappling with a severe financial crisis. Founded in October 2014, Hozon New Energy has raised approximately 22.8 billion yuan ($3.2 billion) over 10 disclosed financing rounds, with investors including CATL, Hefei High-Tech, Tongxiang Municipal Finance Bureau, 360 Group, and HD Capital.
However, the company's financial health has deteriorated rapidly. According to its initial public offering (IPO) prospectus, NETA Auto's net assets stood at 2.931 billion yuan ($413 million) at the end of 2023, with cash and cash equivalents totaling 2.837 billion yuan ($400 million). Compared to its previous financing amounts, the company has already "burned through" approximately 20 billion yuan ($2.8 billion).
This financial strain was exacerbated by its sales performance. After a brief surge in 2022, NETA Auto's sales began to decline. The company stopped publicly disclosing sales figures starting in October 2023. Data from January to September 2023 shows that it sold only 85,900 vehicles, a far cry from its earlier ambitions.
The financial turmoil has led to a cascade of problems. Since the beginning of 2024, reports of delayed salary payments and postponed year-end bonuses have surfaced repeatedly. In November 2023, the company faced lawsuits from upstream suppliers, including Dongfeng Yanfeng and EFORT, over overdue payments and contract fees.
The situation worsened in March 2024 when Hozon New Energy, NETA Auto's parent company, saw multiple instances of equity freezing. The affected companies include Guangxi Ningda Automotive Technology Co., Ltd. and Nanning Yonghe Investment Co., Ltd., with a total frozen equity value of approximately 1.1 billion yuan ($155 million). The freezing period is three years, and the cases are being handled by courts in Tongxiang city, Zhejiang province, and Linyi county, Shandong province.
The financial strain has also impacted NETA Auto's customers. Since November 2023, numerous users across China have reported shortages of spare parts, leaving their vehicles inoperable. One Nezha U owner revealed that the lock block on the left front door broke, and they've been waiting for the part since before the Chinese New Year. "Whether the car door can open or not depends on luck," the owner said.
In December 2023, NETA Auto attempted to address the crisis with a leadership change. Zhang Yong stepped down as CEO and transitioned to the role of company advisor, while founder and chairman Fang Yunzhou took over as CEO. However, this move did little to alleviate external concerns.
Since the beginning of 2024, NETA Auto has been signaling a new round of financing. In January, Hozon New Energy held a shareholder communication meeting to discuss its ongoing Series E financing plan, targeting a funding scale of approximately 4 to 4.5 billion yuan ($560 to $630 million). The lead investor was expected to contribute about 3 billion yuan ($420 million).
However, no official confirmation of the financing has been made. During a supplier conference at NETA Auto's headquarters on March 19, the company revealed that it had engaged with potential investors as early as August 2023, with the original plan to close the deal by the end of March 2024. Due to the company's high debt risk, the timeline has been postponed to April.
NETA Auto has also proposed a debt restructuring plan to its suppliers, offering to convert 70% of their claims into equity in Hozon Auto, with the remaining 30% retained as interest-free debt to be repaid in installments.
Amid the crisis, NETA Auto's overseas markets have emerged as a rare bright spot. In September 2023, an insider revealed that the company had identified South America, the Middle East, and Southeast Asia as key regions for its overseas expansion.
The company is not only exporting its vehicles but also exploring contract manufacturing opportunities. For instance, NETA Auto is reportedly in talks with a Middle Eastern NEV brand for an "OEM" partnership, where it would handle vehicle manufacturing while the local partner manages brand operations.
The focus on overseas markets is driven by substantial profit margins. For example, the Nezha X, priced at 89,800 to 124,800 yuan ($12,600 to $17,500) in China, sells for 119,888 Malaysian Ringgit ($25,000) in Malaysia and 739,000 to 799,000 Thai Baht ($20,000 to $22,000) in Thailand. These premiums allow the company to subsidize its domestic operations.
To support its overseas expansion, NETA Auto entered into a strategic partnership with Nanning Industrial Investment Group at the end of 2023, securing supply chain financial support to ensure the stability of its overseas operations.
From layoffs and salary disputes to financing obstacles and mounting debts, NETA Auto's crisis is no longer an isolated incident but a comprehensive survival challenge. If the company fails to secure financing, resume production and delivery, and stabilize its supply chain in the short term, it risks becoming yet another cautionary tale in the volatile NEV industry.
Once hailed as a "dark horse," NETA Auto now faces a critical juncture. Its ability to navigate this crisis will determine whether it can reclaim its former glory or fade into obscurity.
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