With LeEco’s Jia Out of Picture, Company to Focus on Cleanup, Analysts Say

Investors in the embattled LeEco tech empire are likely to turn their attention to halting a downward spiral for the former online video highflier, following the departure of passionate founder Jia Yueting from most of his roles, observers said.

Jia’s resignation late on Thursday from the chairman’s job and all executive duties at the company he founded marked a dramatic development in a cash-crunch saga that began in the fall.

The charismatic Jia now is likely to put his energy into LeEco’s futuristic new-energy car division, one of many ambitions that stretched LeEco to the limit and eventually led to its current crisis.

Jia’s exit from LeEco’s other businesses could signal the start of a chapter that will see a new group of more-pragmatic managers start trying to deal with the expansions of the past three years that many considered impulsive, analysts said.

Jia is likely to be succeeded by the chairman of Sunac China Holdings Ltd., the land developer that became the second-largest stakeholder when it promised a 15 billion yuan ($2.2 billion) cash infusion to prop up LeEco in January. Real estate mogul Sun Hongbin has been nominated as a new board member, according to the statement announcing Jia’s resignation on Thursday by LeEco’s Shenzhen-listed LeShi.

“From this point forward, we can expect a major pivot back to LeEco’s familiar territory — video streaming and TVs,” said Yu Bin, founder of the tech website Chaoqi. “Sumac is a traditional business and will likely stick to the basics and play defense,” he added. Such an approach would contrast sharply with the adrenaline-fueled expansion often seen at many Chinese internet companies.

Jia’s New Drive

At nearly the same time as the surprise announcement of Jia’s departure, LeEco’s smart-car unit, LeSee, said that Jia would become its global chairman. Sunac has previously distanced itself from that part of the business, saying in May that it would not invest because “the timing is not ripe.”

With Jia now out of the picture at most of LeEco’s video-related businesses, Sunac may be able to focus on streamlining LeEco’s ventures and prevent cash troubles from nonlisted ventures, such as cloud computing and smartphones, from spilling over onto the books of the listed LeShi, analysts said.

“Jia can pursue whatever he wants with the car business,” Sun said during a May news conference. “As for the rest, what must be sold will be sold.”

Jia’s passion for his company’s futuristic-car unit has been well-known for a while. On relinquishing his other roles as general manager and CEO from the listed LeShi earlier this year, he said he wanted to devote his attention to the car unit and make sure that FF91, the smart vehicle it was backing in Silicon Valley startup Faraday Future, met its production timelines.

Jia has made a personal investment of undisclosed size in Faraday Future, whose FF91 made a splashy debut in January and boasted over 60,000 reservations, according to LeEco. But the project has been plagued by financing difficulties and recently scaled down its plans for a major Nevada factory, according to media reports. LeEco’s own homegrown vehicle, the LeSee, remains a prototype even after billions of yuan in investment.

“The car business is a farfetched obsession of his, one that will have a very hard time materializing, simply because at this point, no one in their right mind will trust him with their investments,” said tech blogger Ma Jiguang.

No one has been able to pinpoint what caused Jia to suddenly embark on his breakneck expansion into a wide range of new areas as diverse as smartphones and new-energy cars following his creation of one of China’s earliest and most-successful online video companies. But some are guessing that changing government connections, which are key to doing business in sensitive areas like video, may have been a factor.

“Jia may have realized in 2014 that government connections are not unshakeable, and that the key to a great company was a core product or strategy that people remember,” Yu said. “After all this, unfortunately, LeEco still has little to show except stacks of PowerPoint presentations.”

Contact reporter April Ma (fangjingma@caixin.com)