Alvarez already hinted the sequel was at a standstill at Comic-Con in July stating that they were struggling to think of a great story to tell. Sayagues is now saying he and Alvarez left the project months ago because they had no story to present. Sayagues told Gorosito.TV:
“Look, I am sorry to tell you this but that movie won’t happen. Evil Dead 2 is not going to happen, at least not with us involved. We left that project many months ago because we preferred to put our energies on other things. I don’t know if the producers still have intentions of making it. But what I can tell you is that we are not part of that project.”To me that sounds like plain arrogance that he believes that Evil Dead 2 won't happen without them. If the studio wants it bad enough they will find people to do it. Period. However, if Alvarez and Sayagues really left the project months ago and the studio hasn't publicly replaced them yet the sequel might not happen after all.
Alvarez and Sayagues are moving their focus onto their upcoming sci-fi film Machina. The original short film, Panic Attack!, is what landed Alvarez the Evil Dead directing chair to begin with.
I find this interesting in a way because Alvarez is the one who leaked that Sam Raimi was returning for Army of Darkness 2 and he has had no comment about leaving Evil Dead 2. Not to mention the studio has said nothing. I would classify this as rumor for right now and would advice Sayagues to shut the hell up.
[UPDATE] Changed to rumor patrol. Fede Alvarez has already taken to Twitter and is telling people, "Don't believe everything you read online."
Alvarez has said the interview Rodo Sayagues gave has been taken out of context and he meant Evil Dead 2 is not taking priority over Army of Darkness 2. He also included the sequel to the 2013 Evil Dead reboot is very much alive.