BEIJING • The billionaire chairman of China's LeEco has admitted his technology empire is running out of cash to sustain a headlong rush into businesses ranging from electric cars to smartphones.
In a lengthy letter to employees, company co-founder and chairman Jia Yueting also apologised to shareholders and pledged to slash his income to 1 yuan (20 Singapore cents), slow LeEco's madcap pace of expansion, and move the firm towards a more moderate phase of growth.
LeEco is the umbrella holding company for a sprawling family of businesses that includes sports media, cars, smartphones and TVs. The company known for its LeTV streaming service has aggressively pursued funding and placed bets on new ventures, from an electric car plant in Nevada to a US$2 billion (S$2.8 billion) acquisition of California TV maker Vizio.
"No company has had such an experience, a simultaneous time in ice and fire," Mr Jia wrote in the letter, obtained by Bloomberg News, describing LeEco's rise and subsequent issues. "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."
Analysts have begun to question LeEco's longer-term prospects, given the opacity surrounding investments by its various subsidiaries and a reliance on equity-backed loans. Shares in Leshi Internet Information & Technology and Coolpad Group, the two listed companies Mr Jia chairs, were little changed yesterday, after Monday's sell-off.
"The company spread itself too quickly. They have a big ambition to create an ecosystem for different devices, not only for phones and TVs and set-top boxes but also for vehicles," said Ms Sandy Shen, a research director with Gartner. "They have a big ambition that is too big to swallow at this moment."
In Mr Jia's memo, circulated widely on social media on Monday, he highlighted measures to lessen the company's burden.
LeEco will immediately begin cost-cutting programmes, decrease subsidies for customers and focus on existing businesses instead of new ones, Mr Jia added, apologising to shareholders of Leshi in response to criticism that he has not paid them enough attention.
"They definitely need to cut back quite a bit to sustain the cash flow," Ms Shen said. "Their core business is still quite strong because they have a lot of good content."
A self-made billionaire who got his start working in IT at a local tax bureau, Mr Jia founded Leshi Internet Information & Technology in 2004, one of the first companies in China to stream TV shows and movies to paying subscribers. He entered the smart TV businesses in 2013 and the smartphone market last year.
But his growing empire relies on a risky financing model. Leshi is publicly listed on the Shenzhen Stock Exchange and the only profitable entity, said Mr Winston Cheng, LeEco's head of corporate finance. Mr Jia has borrowed against his shares in Leshi for cash that he invested in his other companies, regulatory filings show. That practice has invited scrutiny in the United States, where Mr Jia is trying to get electric car-making venture Faraday Future off the ground.
Leshi's stock has plummeted by almost a third since the start of the year. Mr Jia has shown off an electronic concept car dubbed the LeSee, and in September raised more than US$1 billion from a consortium of Chinese investors to make it. But in his memo on Monday, he singled out the car division for its profligacy, saying it had already spent 10 billion yuan in early development.
"Our fundraising ability isn't strong," Mr Jia wrote. "The scale of our external fundraising had trouble satisfying the demands of our rapid expansion."