LeEco’s ride-hailing app loses chief after clash

Emily Feng
David Paul Morris | Bloomberg | Getty Images

China's LeEco has lost the chief of its Uber-style ride-hailing operation Yidao after a stormy showdown between the heads of the two companies, in the latest blow to the cash-strapped media and technology group.

LeEco, founded by Chinese billionaire Jia Yueting in 2004, made a splash on China's tech scene but has stumbled since, running up almost Rmb19bn ($2.7bn) in debts that have forced it to cancel several deals, including the planned purchase of television maker Vizio.

The exit of Zhou Hang as Yidao chief was confirmed by the company on Tuesday after a fiery war of words between him and LeEco. The exit followed allegations from Mr Zhou late on Monday that LeEco had "misappropriated" Rmb1.3bn of Yidao's funds to cover LeEco's debts, leaving Yidao unable to repay its own borrowings.

"As Yidao's founder and representing its original founding group and all of its clients, I strongly call on Yidao's effective controller — LeEco's Mr Jia Yueting — to prioritise his social responsibility and properly handle Yidao's problems," wrote Mr Zhou in a statement published on his social media accounts.

Mr Jia, LeEco's outspoken chief executive, said in an open letter in November that his company had expanded too quickly, burning through cash at an unsustainable pace.

LeEco hits another stumbling block

In January, the company received a $2.4bn emergency cash infusion from Tianjin-based Sunac China Holdings, Huaxia Life Insurance and private equity group Le Ran Investment.

The strategic investment made Sunac the second-largest shareholder in LeEco's online video, smart TV, and movie production affiliates, LeEco's core businesses.

Originally founded to offer limousine rides, Yidao is the last competitor to Didi Chuxing left in China after Didi, which dominates the market, bought out Uber's China business last August. Yidao is 70 per cent owned by LeEco.

Yidao claims it employs 6m drivers and has 40m registered users, but it trails leader Didi Chuxing with only 3.6 per cent of market share in terms of total rides taken.

Both LeEco and Yidao denied Mr Zhou's allegations in a joint statement. LeEco said the company's automobile division, of which Yidao is a subsidiary, took out a Rmb1.4bn loan in November 2016 using LeEco's assets as collateral. It said Rmb100m was spent on Yidao's operations while the remaining Rmb1.3bn was spent on LeEco's auto business.

A post on Yidao's official social media account called Mr Zhou a "modern edition of the farmer and the snake", a reference to a folk tale in which a snake fatally bites the farmer who saves it from freezing to death.

LeEco: All US businesses are 'on the right track'

LeEco has been plagued by cash-flow shortages since wandering out of its core media and technology businesses. In particular, it has poured resources into developing an electric vehicle business that it envisions will rival Tesla's.

To do so, LeEco backed Faraday Future, a US car start-up, with which LeEco plans to build a $1bn vehicle manufacturing facility in Nevada.

Nevada state treasurer Dan Schwartz told the Financial Times that construction on the facility was halted due to a lack of funds in November. He also said that Faraday Future owed "tens of millions of dollars" in missed payments to its contractor. LeEco has denied both statements.

Until Mr Zhou's public statement, Yidao had denied that its parent company's financial woes were affecting its own operations despite news reports that Yidao owed its drivers and suppliers back payments.