LeEco’s value drops by nearly $2 billion on reports of cash shortage

Photo credit: Pixabay.

Is the music finally about to stop for China’s LeEco? The internet and smart gadget company has been a whirlwind of expansion and investment for the past several years, going from a streaming video company to a firm with hands in everything from self-driving cars to smartphones. But as it’s about to put its hardware products on sale in the US for the first time, the company has seen its stock drop sharply in China, shedding nearly US$2 billion in value in less than a week.

This latest slide has been punctuated by reports in both the Chinese and international press that LeEco is facing a cash crunch. Founder Jia Yueting reportedly wrote in a letter to employees on Sunday that the company had expanded too far, too fast. Now, the company has irons in too many fires and is having trouble raising the capital to keep its pace up. This is the fault of management, Jia wrote in the letter. He also made an exceedingly rare gesture for a Chinese exec, volunteering to accept a salary of just US$0.15 per year in perpetuity as penance.

Jia Yueting (left) shows off the all-electric LeSee sedan at a Beijing event in April. Photo credit: LeEco.

Jia’s letter isn’t really the cause of the company’s stock slide; rather it is confirmation of issues with the company’s funding and supply chain issues that have become increasingly apparent as LeEco expands. Questions about the company’s approach have been swirling for a while now, and have contributed to the stock’s overall decline. Early in the year, LeEco was selling at more than US$8 per share, but a relatively steady slide all year capped by a precipitous drop this month have seen it reduced to less than US$5.50 per share.

A chance to make a change

Fortunately for LeEco, two opportunities to turn things around are rapidly approaching.

First, on Wednesday the company will begin flash sales for its products in the United States. A strong showing there could convince investors that LeEco’s future is worth betting on.

Second, on Friday, China celebrates its Singles Day online shopping holiday. LeEco will be offering deals on its own LeMall site, as well as on third-party B2C sites like Tmall and JD. If LeEco can post impressive sales numbers across these channels – especially when compared with competitors – it could send its stock price back in the right direction.

In the longer term, LeEco’s apparently funding squeeze is still cause for concern, though. The company has invested heavily in its self-driving car project, but that appears to be nowhere near ready for consumers. Will the company be able to find the funding needed to sustain its development? That’s one of the issues LeEco investors are currently worried about, and a strong Singles Day showing still might not answer that question.