During the past two weeks, Chinese Internet and technology company LeEco has been hit with multiple negative news. It was late in paying its smartphone suppliers and a construction contractor tasked to build its smart vehicle factory in Nevada. It has also incurred massive delays in smartphone shipment.
As a result, the company's stocks plummeted as much as 6.7% today in Shenzhen, on top of a 10.42% drop since November 2. A total market capitalization of RMB9.1 billion (US$1.3 billion) has evaporated.
LeEco's founder and chairman Jia Yueting is forced to hit the brakes, as overexpansion in the past few years strained the company's finances. LeEco might need to end some ambitious projects and cut back on expansion plans dramatically.
"It was never a secret that LeEco has been short on cash. But two months ago, I found that the rapid expansion has led to elevated financial risks and organizational strains," Jia told Tencent Technology during the weekend.
There has always been great skepticism as LeEco promised to disrupt industries from automotive to sports and conquer markets around the world in unrealistic time frames. Now, the company appears to be in the most perilous condition in its 12-year history.
To cope with its immediate cash squeeze, LeEco plans to raise capital internally and externally to fix its smartphone payment delays. It will also cut costs, integrate production and sales in-house in order to reduce dependence on distribution channels and suppliers.
The reorganization will take one to two years, and involves eliminating the bottom 10% worst performing staff and managers.
Jia said LeEco made unrealistic expansions in different sectors from smart cars to film production, as well as geographically. The company planned to launch in the U.S., Asia Pacific, India and Russia at the same time, which was too ambitious.
Just last week, the company made its U.S. debut with plans to sell smartphones, televisions and bicycles in the world's largest economy.
The company's headcount more than doubled to 13,000 from 6,000 in a period of over six months, creating series management challenges.
In his usual fighter spirit, Jia said LeEco will not change its overall strategy to become what he describes as a combination of Netflix, Apple, Amazon and Tesla. The set back is temporary and will not shift the company's objective.
LeEco's smart car business has received investments of over RMB10 billion (US$1.5 billion), and will continue to be invested and grow as planned.
"We refuse to be mediocre," Jia told Tencent. "We will either be great, or we would rather die."
As LeEco sinks into deeper financial trouble, it looks like the company is in a critical moment to escape the latter fate.