How ‘China’s Steve Jobs’ bit off more than he could chew and saw his tech empire collapse
Visionary or reckless risk-taker? Self-made internet entrepreneur Jia Yueting once ranked among China’s richest men, but overexpansion and a funding crunch have him scrambling to save his sprawling tech empire
Jia Yueting, the founder of the beleaguered LeEco technology conglomerate, does not believe in half measures or in the impossible.
From a humble start as the “IT guy” at a county taxation bureau in China’s northern Shanxi province, Jia struck out as a 23-year-old and over two decades built an empire that spanned internet video streaming and connected bicycles to smartphones and virtual reality headsets. At one point, he was the 17th richest person in China, a billionaire, feted as a daring visionary and referred to as “China’s Steve Jobs”.
His ultimate quest, though, was the automobile. The integration of the internet and self-driving, emission-free vehicles, he once said, would not only clean up the country’s polluted cities, it would free up millions of people to consume more of LeEco’s services on their commutes.
In his own words, Jia went “all in” and the poker reference is illustrative of his attitude toward risk-taking. It was also the hand that brought down the house. LeEco’s listed Leshi internet Information & Technology Corp unit is suspended from trading in Shenzhen, Jia is on a government blacklist as a defaulter and is in the US while his wife and brother help with a regulatory probe into LeEco in Beijing.
For the company, October 20, 2016 was the public turning point in its fortunes. Even by the company’s standards of holding grand and lavish events, the unveiling of the LeSee Pro electric car at the Palace of Fine Arts was a lush and expensive affair. The company had flown hundreds of journalists into San Francisco, put them up at the Fairmont hotel and billed the presentation as the “Big Bang” of the future of mobility.
It instead turned out to be a damp squib, described by Fortune as a “debacle” because Jia spent his much-anticipated speech explaining why the internet-connected, self-driving car with retractable steering wheel could not pilot itself down the T-shaped fashion show-style runway. At one point, he asked the audience in Mandarin for “some encouragement.”
The Verge called the LeSee Pro as “the kind of pretty that makes you assume it will never actually get made”. The car was parked in an “experience zone” away from the main stage and guarded by security who kept the journalists from getting too near.
“The diagnosis [of LeEco] is pretty clear now. The company grew and grew, they borrowed and borrowed, they went into venture after venture until it all became too unsustainable,” said Jeffrey Towson, an investment professor at China’s elite Peking University. “If you don’t have the cash and then try to borrow money to play against the big boys it tends not to work out.”
How LeEco pans out will have ramifications for broader China Inc, where conglomerates and billionaires binged on easy loans and took on high levels of leverage to place bets on “hot” areas that were often unrelated to their main businesses or venture overseas to acquire trophy assets.
The Chinese government has reined in the investment spree to prevent instability should the music stop and unpaid debts reverberate through the country’s financial system. Some of the most enthusiastic buyers of overseas assets, such as Wanda, Fosun, HNA and Anbang have come under intense scrutiny by government regulators.
Jia and his wife, Gan Wei, did not respond to requests for comment sent to their official Weibo accounts. LeEco declined to make Jia available for an interview, while Faraday Future did not immediately respond to an emailed request to interview him.
Jia’s early successful foray into video-streaming encouraged LeEco to expand into new businesses, during which he borrowed heavily against equity in Leshi, the largest listed arm of LeEco, now controlled by Sunac China’s Sun Hongbin after the property giant extended a 15 billion yuan (US$2.3 billion) lifeline in January 2017.
Leshi was one of China’s earliest providers of a Netflix-like video streaming service, founded in 2004 and taken public in Shenzhen in 2010. At its height in May 2015, the company had a market valuation of more than 150 billion yuan.
Since 2013, LeEco has branched out in quick succession into a multitude of businesses including smartphones, football sponsorships and the production of television mini series and movies. It also staged an unsuccessful bid to buy US television maker Vizio for US$2 billion.
Jia’s ambitions and his seemingly Midas touch led to Chinese netizens and media alike referring to him as “China’s Steve Jobs” and later, with the foray into electric vehicles, as “China’s Elon Musk”.
His most ambitious undertaking by far is Los Angeles-based Faraday Future, of which he is the main backer though he is not listed on the company’s website as part of the management team. In an empty lot outside Las Vegas in Nevada, Jia planned to realise his dream of assembling the world’s fastest electric sports car – the FF91.
At the peak of LeEco’s breathless expansion in 2016, the company was holding at least one press event a week to announce some new business, tie-up or update on developments. Past and present employees described LeEco as a company where Jia was the decision-maker and staff placed their faith in Jia to pull off the impossible, even as they wondered where the company would get the funds to pay for all the new ventures.
Things began to go downhill quickly after the San Francisco unveiling of the LeSee Pro, as LeEco scrambled for funding to keep afloat an empire that was spread too thinly across unprofitable segments. Jia has since tumbled out of the ranks of China’s tech billionaires and onto a government blacklist as his sprawling technology empire fell apart under a mountain of debt. His status as a “discredited debtor” means that should he return to China, he may not be able to check into high-end hotels, travel first class on trains, or even leave the country.
Once boasting an “ecosystem” that included connected bicycles, smartphones, TVs, virtual reality headsets and electric cars, LeEco has laid off more than 10,000 employees, sold properties to raise funds, and aborted its overseas expansion.
But even as he admitted cash-flow problems in late 2016 resulting from overexpansion, Jia stuck to his auto dream, claiming in media interviews that LeEco would probably be the company in the best position to surpass Apple when cars integrate with the internet.
By July 2017, things were beginning to crumble – and fast. About 26.2 billion yuan worth of assets owned by Jia and the non-listed part of LeEco were frozen by a bank, the result of an asset-preservation action triggered by a 1.2 billion yuan loan Jia took out to finance LeEco’s smartphone business.
That prompted more financial institutions to call in their loans, leading to the freezing of most LeEco’s assets and eventual collapse of the entire group, Jia said on his official Weibo social media account this week.
The explanation is part of Jia’s response to the China Securities Regulatory Commission’s order for him to return China to handle the company’s financial woes properly. He left China in July for what was supposed to be a routine two-week business trip to the US.
In the personal letter, Jia said he had asked his wife and younger brother to represent him in handling regulatory questions on billions of yuan in debt back in China, but while in the US he would “do everything he could to solve any debt problems with both the listed and unlisted companies”. As for his future, Jia said “there is a lot of work that needs done, to guarantee volume production and to ensure the delivery of the FF91”.
A post from about a year ago, published to unveil Faraday Future’s FF91 at the CES trade show in Las Vegas, perhaps sums up Jia’s own attitude toward business and explains how things have got to this point.
“There will be challenges after challenges on the road to disruption,” he wrote in the Weibo post dated January 4, 2017. “But I am willing to give all I have to fulfil my dream. Dream on and All in!”
Additional reporting by Sarah Dai in Beijing