As we step into December, the final month of the year, the automotive industry finds itself at a critical junctureThis month is pivotal for many car manufacturers as they scramble to meet sales targets before the year's endWhile this period typically signifies a seasonal buying spree, some companies face a harsher reality than simply striving for numbersFor them, the primary challenge has shifted from achieving sales goals to merely surviving.

Take, for instance, the cases of NETA (formerly known as Nezha) and Jiyue, two companies that are emblematic of this struggleNETA has been navigating a crisis over the past few months, culminating in the resignation of its CEO, Zhang Yong, who has taken on a role as a consultant, with the company's founder and chairman, Fang Yunzhao, stepping in as the new CEOIn light of these changes, Fang has announced a series of reform initiatives aimed at reversing the company's fortunes by achieving a positive gross profit margin by 2025 and overall profitability by 2026.

Jiyue, on the other hand, faces an even more dire situation

The whispers of its impending dissolution have now solidified into harsh realityEmployees have resorted to confronting CEO Xia Yiping in a bid to secure their rights, capturing chaotic scenes in Jiyue's headquarters where slogans proclaiming "every Jiyue worker's name will be etched in the history of Chinese smart cars" still adorn the walls, despite the turmoil.

Both NETA and Jiyue were once shining stars in the wave of new car manufacturingNETA achieved the impressive title of the best-selling new energy carmaker in 2022, while Jiyue, backed by tech giants Baidu and Geely, drew significant attention from the automotive community upon its inceptionYet today, they find themselves mired in financial difficulties, struggling under the weight of debts to suppliers and unpaid wages to employees—stripped of the glamour and prestige that once surrounded them.

The growing trend of publicized debt collection is perhaps the most distressing issue confronting these companies

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Rather than breaking news about layoffs or dwindling sales, the open pursuit of unpaid debts by suppliers and partners represents a dire threat to their operational viabilityIn China’s intricate business landscape, while contracts dictate formal engagements, the underlying relationships often dictate the terms of survivalFew companies are willing to irreparably sever ties with their partners until absolutely necessary.

When the issue of unpaid debts garners public attention, it not only tarnishes a company's reputation but can also significantly erode investor confidenceFor NETA, the crisis perhaps intensified when debt issues manifested in a lawsuit lodged by Aft, a listed company in China's A-share marketThe suit claims that NETA’s parent company, Hozon New Energy, and its subsidiary owe over 48 million RMB due to contract disputes, demanding immediate payment along with penalties for delayed remittance.

In early December, another alarming revelation surfaced when Fushih Holdings announced its legal proceedings against Hozon regarding service contract disputes, resulting in a court-ordered freeze on over 53 million RMB of Hozon’s bank deposits

The plight of both NETA and Jiyue symbolizes a broader trend in the automotive market, where emerging car manufacturers frequently find themselves in the spotlight for financial mismanagement.

The tumultuous stories of these two companies weave into a larger narrative concerning the perils faced by newer models in vehicle productionHistorically, firms like Aiways, Skyworth, and WM Motor have also faltered, leaving a trail of unpaid debts in their wakeThe revelation that companies like WM Motor owe workers over 40 million RMB in salary and benefits, with additional liabilities to various suppliers reaching astronomical figures, highlights the systemic risks within this sector.

Some companies have reported leaping into the fray, increasing pressure on their debtors by threatening legal action in hopes of recouping losses, particularly as the year draws to a closeSuppliers have often found themselves at the mercy of these new powerhouses, driven by the fear of being left empty-handed if they hesitate in their collections.

Moreover, even historically reputable figures within these companies—who might otherwise inspire confidence—often find themselves powerless against the tide of unpaid debts

The founder of "Niu" Electric, Li Yinan, once famously stated that in the event of business failure, he would prioritize repaying suppliers and employeesHowever, even after announcing his own venture's failure, many suppliers are still engaged in the arduous task of recovering their dues, underscoring the often unpredictable nature of the business landscape.

The reality of the automotive industry in China reveals that for every emerging star, the risks and challenges are magnifiedCompanies that have publicly battled through supplier debts appear trapped in a downward spiral, with few managing to reclaim stabilityThus far, there are no signs that NETA or Jiyue will break this trend of declineNETA has begun producing small batches but is primarily focused on re-establishing itself in overseas markets like ThailandNonetheless, this international strategy requires substantial funding that may not be readily available.

Jiyue's future seems bleak as well, with joint statements from Baidu and Geely indicating an inability to move forward with Jiyue's business plans due to shifting market dynamics

Their commitment to resolving employee-related issues stands in stark contrast to the vague promises concerning supplier debts, which are seemingly brushed aside.

Despite these challenges, both NETA and Jiyue still have potential roads to recovery if new investors emerge to take overHowever, given the crowded landscape of cash-strapped automotive ventures, the prospects appear slim, as potential investors grow increasingly cautious amidst overwhelming debt obligations.

As the automotive industry continues to evolve, the heavy financial burdens carried by companies like NETA and Jiyue serve as a stark reminder of the volatile nature of this sectorEvery failed venture reverberates through the supply chain, impacting stakeholders from manufacturers to partners and employees alikeThe once-glorious narrative of innovation is shadowed by the reality of economic pressures, suggesting that the road ahead may be fraught with obstacles for both NETA and Jiyue, with the possibility of collapse looming ever closer.