In a shocking revelation, employees have collectively reported the chairman and chief financial officer.
Last night, a new car company named "XEV Joyful Automotive" released a shareholder disclosure on its official WeChat public account, outlining in detail several wrongdoings by the management.
Employees of the company believe that the company is currently facing a series of crises, and shareholders have the right to know the truth.
The shareholder letter alleges that the company has recently encountered numerous serious issues, including but not limited to suspected fabrication of sales figures, concealment of facts, erroneous decision-making, and management chaos.
In addition, it specifically points out that the Chairman, Lu Di, and Chief Financial Officer, He Jianghao, as members of the management team, bear undeniable responsibility for this.
In terms of the explosiveness of its content, it can be considered a model of employees rebuking executives, and these accumulated contradictions are evidently long-standing.
As early as the end of March, media reports stated that employees of its affiliate company, Hefei Youyao Technology, had been unpaid, and relevant company personnel were also "unreachable."
What exactly has happened to this relatively unknown car manufacturer?
Significant management errors exist.
This shareholder letter, released by XEV Youyao Automobiles, is bilingual in Chinese and English, totaling about 2,500 Chinese characters, and is signed by all employees of Hefei Youyao Technology Co., Ltd., Shanghai Youyao Technology Co., Ltd., Shanghai Yaoyou Technology Co., Ltd., and Shanghai Youyao Intelligent Manufacturing New Energy Vehicle Sales Co., Ltd. The release date was yesterday.
At the end, there is also a photo with signatures and red thumbprints from multiple employees.
The shareholder letter states that since the establishment of the company, all employees have been committed to steady growth. However, recently, there have been some issues, and fingers are being pointed at the company's management – Chairman Lu Di and Chief Financial Officer He Jianghao.
The company faces numerous issues in its operational management, such as suspected fabrication of sales figures, concealing facts, erroneous decision-making, and organizational chaos. Here's a summary of the concerns we've identified:
Organizational Chaos and Insolvency
Firstly, employees believe the company has never established clear, market-oriented goals and plans. Due to a lack of basic market judgment from the management, annual goals often dissolve after the first quarter.
Moreover, in an attempt to hide the true state of affairs, the company ceased holding management and production-sales meetings. This, they argue, has led to significant fluctuations in production and sales and resulted in substantial resource wastage.
Furthermore, the company lacks a clear budgeting system and separate cost centers since its inception, resulting in financial management being a tangled mess.
According to allegations in the shareholder letter, as of September last year, the company had over $100 million in cash flow, but by year-end, the cash flow was nearly depleted.
Employees attribute this to financial mismanagement and a series of poor business decisions. They claim that continued investments in Europe led to losses, and the rush to expand the pilot program for the battery swap project before its commercial viability was established resulted in ongoing expenses.
Additionally, $70 million in sales expenses were fabricated in the annual report, with over $44 million representing outstanding warranty claims for older vehicle models, which were previously unaccounted for in past reports.
Simultaneously, management frivolously spent money in non-essential areas, leasing a waterfront office in Hong Kong and indulging in luxurious renovations.
Adding insult to injury, since January 2024, the management unilaterally ceased payments to all suppliers, resulting in a squeeze on suppliers. Several suppliers have already filed lawsuits and sought asset preservation.
In a shareholder disclosure, it was revealed that XEV Group's external consolidated debt has exceeded 300 million, while its asset value is less than 100 million, leading to a severe imbalance between assets and liabilities.
Forced suspension of production and sales
Yoyo Auto's management further exacerbated the situation by blaming the company's failure to meet sales targets and subsequently dismantling the global sales team, without confirming specific sales targets with the team.
It is reported that in September 2023, the global sales team took over the relevant business, subsequently completed the construction of domestic warehouses, overseas forward warehouses, and the global sales DMS system, and reclaimed sales rights in the EMEA region.
The shareholder disclosure mentioned that at a time when product strength and quality were improving, and sales were developing well, the management abruptly halted factory production in January 2024, citing tight cash flow. They also ceased all support for expanding overseas business, resulting in the loss of a large number of potential customers and forced termination of orders.
To demonstrate the improvement in product strength and quality, as well as the positive development of sales operations, the shareholder report lists the achievements of Yoyao Motors, such as securing partnerships with several large dealer groups in key markets like France, Spain, and Germany.
Simultaneously, the company has seen significant advancements in product research and development, along with enhancements in quality standards. Many models have received unanimous praise from overseas dealers, with new products even making appearances at last year's Munich Motor Show, resulting in a substantial influx of potential customers and orders.
However, the shareholder report also mentions that Yoyao Motors faced issues of falsified sales figures and failed financing.
Regarding the achieved 30% gross profit margin in 2023, it's worth noting that this figure is remarkable. Even prominent new players in the market struggle to achieve positive gross margins per vehicle, and established companies like BYD and Tesla typically hover around the 20% mark.
Yoyao Motors' 30% gross profit margin can be considered quite impressive.
Reportedly, in 2023, Yoyao Motors registered 1,904 vehicles in Italy, accounting for 75% of the total L7e category and 12% of all L6/L7 category vehicles.
Employees consider this to be a significant achievement, indicating that the sales targets claimed by the management to investors were unreasonable. In other words, it's highly likely that Yoyao Motors has been exaggerating its sales figures.
Indeed, the shareholder letter also mentions this, stating that the company's financing situation has been poor for the past two years, but the financing team fabricated false sales data and demanded cooperation from the sales team.
Moreover, under the pretext of unified management, they forcibly took over inventory financing operations, producing a large amount of inventory without sufficient order expectations, subsequently financing these inventories in the short term, calculating them as sales revenue, thus creating the illusion of high sales to deceive investors.
As a result of such operations, there have been repurchase runs after inventory financing matures, leading to a deterioration in the company's cash flow.
Employees believe that the management lacks a fundamental understanding and judgment of the market, fabricating sales figures that do not conform to actual market laws, all for the purpose of financing, deceiving investors and shareholders.
Company-wide salary suspension, violent layoffs
What's even more disheartening for employees is that, in the chaotic situation within the company, instead of taking action, the management started targeting employees by suspending salary payments and initiating layoffs.
The shareholder letter mentioned that the company stopped external payments since January this year, and the management began cashing out inventory cars, ignoring the company's future development, leading to the forced suspension of all business operations.
The company first conducted the first round of layoffs in January, while simultaneously reducing salaries for middle-level employees. At the end of February, the second round of layoffs began. Subsequently, February salaries were suspended, and compensation for employees who had already been laid off in the two rounds was also stopped.
It's evident that Yoyao Motors has reached a dead end. Not only are they unable to pay salaries, but they haven't even paid office rent. Yet, at such a critical juncture, the company's management has "vanished," with no one stepping forward to explain the situation to employees and shareholders.
In times of financial difficulty, layoffs are often the preferred option for businesses struggling to stay afloat. However, the approach taken by Youyao Motors has left employees feeling even more disheartened. They allege that on March 18 this year, management instructed HR to carry out a sudden and comprehensive layoff of the global sales, operations, marketing, and finance teams in Shanghai, without any prior communication, negotiation, or compensation plans, including for pregnant employees.
In the closing remarks of the shareholder letter, it was stated, "We deeply regret the current state of the company. All employees believe that shareholders have the right to know the truth."
One can only wonder how Youyao Motors' shareholders reacted upon reading this.
Unconventional Business Model
While XEV may not have a significant presence, what's interesting about the company is its use of China's electric vehicle supply chain to create a "dedicated" car for Europe, and it's 3D-printed.
"We never thought about the Chinese market from day one," said XEV founder Luo Di.
Unlike other domestic newcomers in the automotive industry, this new player founded in 2018 doesn't sell electric cars in China but has opted to enter the European market.
XEV's first model, the XEV YOYO, is a low-speed micro electric four-wheeler priced at around 16,000 euros (approximately 120,000 RMB), with a range of only 150 kilometers.
However, it's the world's first electric car to be mass-produced with 3D-printed body interior and exterior parts. Components like the side panels, wheel covers, and front fascia can all be customized by users.
After its launch in Europe in May 2021, XEV YOYO sparked considerable discussion in the European market and emerged as the top-selling Chinese new energy vehicle brand in Europe that year.
XEV YOYO's popularity in Europe stems not only from its high cost-effectiveness but also from its unique approach to recharging. Apart from charging, it also supports battery swapping, similar to electric motorcycles in China. This method allows for quick replenishment by swapping cartridge-style batteries at fixed battery swapping stations.
To facilitate large-scale deployment, XEV partnered with an Italian oil company to deploy battery swapping stations within its refueling stations. According to official statements, it is expected that by the end of 2024, the number of battery swapping stations will reach two to three thousand.
In addition to stationary battery swap stations, XEV also offers a "door-to-door battery swap" service, where electric vehicles are delivered directly to users' doorsteps to provide battery replacement services upon request.
This model is similar to NIO's battery swap service, but without the significant investment in constructing battery swap stations. Currently, XEV charges a fee of 10 euros per battery swap service.
XEV is said to utilize domestic resources for overseas sales because all production and assembly are completed domestically. According to its official website, its manufacturing base is located in Xuzhou, China.
In December 2019, XEV signed a contract with Shandong Fulu Vehicle Co., Ltd., a well-known four-wheeled low-speed electric vehicle company in the industry, for YOYO product OEM and strategic cooperation. In 2020, industrial investment firm "Yongmintou" invested in a joint venture company established by XEV and Fulu Group, and signed an agreement to export 30,000 units to Europe.
In November of the same year, XEV and the Management Committee of Hefei Xinzhan High-tech Industrial Development Zone jointly invested in the establishment of Hefei Youyao Co., Ltd., with a total investment of 150 million, holding 25% of the shares.
After its establishment, Hefei Youyao Company mainly engages in XEV YOYO brand management, vehicle development, overseas sales, and additive manufacturing of customized automotive parts related to XEV YOYO. Currently, Hefei Youyao owns 50 3D printers and can produce 3,000 to 4,000 electric vehicles annually.
It is evident that from research and development to contract manufacturing, the entire supply chain is based in China.
However, it is worth noting that perhaps inspired by the popularity of the domestic pure electric micro-car market driven by Wuling Hongguang MINI EV, XEV YOYO also intends to re-enter the domestic automotive market. In March 2023, the domestic version of YOYO was included in the approval directory of the Ministry of Industry and Information Technology.
According to the MIIT report, the car's dimensions are 2530 x 1500 x 1575mm, with a wheelbase of 1685mm, equipped with 155/65 R14 and 155/60 R15 tires, and powered by Guoxuan High-Tech's lithium iron phosphate battery with a peak motor power of 30kW.
Former JAC executive embarks on a new venture
The reason XEV chose to pioneer the European market is closely related to its founder, Luo Di.
Public records show that the founder, Rudi, is also a veteran in the industry. He graduated from Coventry University, the world's top automotive design school, with a master's degree in automotive design. His graduation project, "Chinese Luxury," is housed in the Coventry Automotive Museum and is the only Chinese work in their collection.
Rudi also served as the China Design Project Manager at the British design firm ARUP before joining Jianghuai Automobile. During his 12 years at Jianghuai, he rose to the position of General Manager and Design Director of the former Jianghuai Italian Design Center, of which he was also a founding member.
Rudi's acquaintance with Jianghuai dates back to the end of 2005 when, after graduating, he returned to China to visit relatives and stopped by Jianghuai Automobile. This homecoming trip changed Rudi's career trajectory and also altered the design development history of Jianghuai Automobile.
He led nearly 40 mass production and concept car projects, including the iconic JAC Ruifeng S3, until his departure from Jianghuai in 2018.
XEV YOYO was founded in the same year, with its headquarters established in Turin, Italy, in early 2018. In July of the same year, Shanghai Uoyo Technology Co., Ltd. was established domestically.
It's worth noting that Rudi's years of experience overseas prompted the company to prioritize entering international markets, with Italy being its largest overseas market.
Although specializing in manufacturing micro electric vehicles, the executives behind it boast impressive backgrounds.
Chen Qingquan, a member of the Chinese Academy of Engineering and founder & acting chairman of both the World Electric Vehicle Association and the Asia-Pacific Electric Vehicle Association, known as the "Father of Asian Electric Vehicles," joined XEV Automotive in 2021 as its Chief Scientist.
Additionally, XEV's co-founder, Lu Bin, was previously a co-founder of WM Motor. At the inception of WM Motor, Lu Bin served as the Vice President of Strategic Planning, overseeing strategic planning and execution. In September 2019, Lu Bin was appointed Chief Mobility Officer, reporting directly to Shen Hui.
Utilizing a domestic supply chain for both research and development and production, yet exporting vehicles overseas instead of selling domestically, presents a dubious business model. Thus, it comes as no surprise that numerous employees have collectively filed complaints against the company.
As of now, the future of XEV, struggling to stay afloat, remains uncertain in terms of its domestic sales prospects.
