OptimumNano Energy Halts Shenzhen Operations to Save Costs
Xu Wei
DATE:  Jun 29 2018
/ SOURCE:  Yicai
OptimumNano Energy Halts Shenzhen Operations to Save Costs OptimumNano Energy Halts Shenzhen Operations to Save Costs

(Yicai Global) June 29 -- A debt-laden unit of Shaanxi J&R Optimum Energy that is one of China's biggest suppliers of batteries for new energy vehicles plans to cut costs by halting output at its Shenzhen headquarters and giving managers six months off.

Shenzhen OptimumNano Energy will continue to pay wages and benefits in line with China's labor laws, state news outlet The Paper reported today, citing a company statement. The shutdown will begin on July 1. Operations at the firm's other factories are unaffected, The Paper said.

The company's financial woes, which started this year, have been widely reported. The imminent stoppage seeks to reduce the impact on employees' career development caused by a lack of orders and the firm's straitened financial circumstances, the Securities Times said yesterday. A small number of front-line staff will remain at work to fill existing orders.

OptimumNano ranked after Contemporary Amperex Technology and BYD in terms of power battery shipments in China last year. Shares of J&R Optimum [SHE:300116] edged up less than 1 percent today to CNY2.76 (USD0.42) each, after tumbling more than 6 percent yesterday.

J&R Optimum acquired OptimumNano in September 2016. It has become the parent company's largest profit source. J&R Optimum's net profit soared fivefold to CNY558 million (USD85 million) in the first half of last year, while OptimumNano's net income was CNY628 million. But its circumstances have deteriorated rapidly.

The company fell into arrears on April 1, with total liabilities of CNY22 billion (USD3.33 billion) and overdue debt of CNY2 billion. Its shares pledged by the controlling shareholder and real controller face the risk of liquidation, and a court has frozen those held by Chairman Li Yao.

The company had a CNY3.68 billion loss of for the year, while it made a profit of CNY425 million in the same period of the year before, according to last year's earnings report.

OptimumNano underestimated the difficulties and complexity of last year's new energy auto industry policy adjustments, when the government slashed subsidies to the sector to stamp out rampant fraud. Its use of short-term loans for long-term investment exacerbated the impact of this volatility, Zhong Mengguang, former general manager of OptimumNano, said in a previous interview with The Paper.

The company has started taking measures such as negotiating with suppliers, using goods to offset debt; expanding storage battery production, negotiating with financial institutions and introducing private equity investors to ease existing problems, Zhong said.

This case is a cautionary tale that illustrates the volatility of an emerging segment like NEVs that relies heavily on government subsidies for growth when these cease or diminish.

Editor: Ben Armour

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Keywords:   Shenzhen,Shaanxi J&R Optimum Energy,OptimumNano Energy,Battery