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Chinese Tech-Giant LeEco Faces Extreme Financial Crunch; CEO Cuts Salary to 15 Cents!

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leEco Max 2 Pro

When earlier this year LeEco entered the Indian market with the hopes of making unprecedented sales like it did in China, little did it know that it will run out of cash so quickly. The company had even started working on ‘Make in India’ to manufacture inexpensive smartphones locally.

However, in a mail to all its employees, the company admitted to being in a cash crunch, one that is not very hopeful of getting heavy funding anytime soon, and one where the company realised that it expanded too fast too soon.

Amidst so many Chinese smartphone makers, LeEco and Xiaomi specifically took the top two positions because of innovative products and relatively lower pricing of its devices. LeEco started as an online content platform and soon expanded to smartphones, televisions and even a smart car.

“The pace of LeEco’s strategic development is moving too fast. We blindly sped ahead, and our cash demand ballooned. We got over-extended in our global strategy. At the same time, our capital and resources were in fact limited,” said Jia Yueting, LeEco founder said. The company launched its products too fast, without keeping in mind the capital it was getting.

Early this week, LeEco even entered the US market, keeping the success in India as basis for its plan. While the company might be able to do well there, there is insufficient capital to support its expeditions.

History of LeEco’s fundings

Founded in 2004, the company received its first funding of $17.5 million in August 2008. In August 2013, the company raised another $32.5 million in series A funding. Finally, LeEco received $55.4 million in funding in September 2014 from CHT capital.

LeEco unveiled its first electric sports car, LeSee, this year in China, for which it raised $1.1 billion this year. However, all this capital will get absorbed in the electric car manufacturing, as the market becomes mature in the coming year.

Other than this as well, the Chinese giant has spread over too thin in too less time – it acquired Vizio, the television maker, for $2 billion, while it has also purchased real-estate companies in China for $460 million. This further raises questions about LeEco’s ability to continue its operations.

Will the company be able to survive?

The letter from the founder to the employees did not show a positive emotion and the company’s future could be dubious if no investor invests in it. Many have been skeptical of LeEco’s plans as it diversifies into every industry like Google without a proper contingency plan.

Jia also said that they are facing a lot of difficulty to raise funds. He even said that he will reduce his salary to 1 Yuan or 15 cents. CEOs across the globe are known for reducing their salaries to $1, but not only because of cash crunch, and this is a bold move as well.

The car division itself has already spent over 10 billion Yuan for research and development, while the funding isn’t able to cover that. The inability to raise funds added to extreme diversification might kill the brand sooner than expected.

The share prices have already plummeted by 5% since the announcement, and if no investor comes forward, LeEco might have to close the loss-making departments and focus on just the smartphone and content division. We hope that doesn’t happen as LeEco has only started gaining massive following in India.

Source: Bloomberg

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