Faraday Future CEO accused of trying to break investor deal after spending $800 millionOctober 7, 2018
Faraday Future averted disaster at the end of 2017 when it secured a major new investment from the healthcare division of Chinese real estate group Evergrande. But that money — some $800 million — was gone by July, according to a new filing with the Hong Kong Stock Exchange. Now, Evergrande is accusing Faraday Future founder and CEO Jia Yueting of trying to back out of the deal, and says it will take “all necessary actions” to protect itself and its shareholders. News of the filing was first reported by Reuters.
The Chinese conglomerate says Jia used “manipulating” tactics to persuade the board of directors who oversaw the deal to advance another $700 million. In the meantime, The Verge has learned that Faraday Future has struggled after having spent the first $800 million. Some of the company’s vendors and suppliers have not been paid, and layoffs are being considered, according to three former employees and sources close to the company, who asked not to be named out of fear of legal retribution. Representatives for Faraday Future did not respond to a request for comment prior to publication.
The new financial trouble comes at a critical time for Faraday Future. The company has spent all of 2018 retooling a factory in Hanford, California, where it plans to manufacture its first car, an ultra-premium electric SUV called the FF91, by the end of the year. Even that process has stumbled, though, as The Verge learned that the company’s first and only preproduction version of the car — the first thing to be made at the Hanford facility — caught fire in late September.
The fire happened hours after the company showed off the car at a “Futurist Day” event for its employees and families. The full extent of the damage is not clear, as the company has made employees sign non-disclosure agreements specifically related to the fire, the former employees say. But it’s viewed as a major setback ahead of the start of production later this year.
The more pressing trouble, though, may be that some of Faraday Future’s suppliers and vendors have not been paid for weeks. The stopped payments were a direct result of Jia having spent the first $800 million installment by July, which came from Evergrande through a complex structure of offshore companies, the former employees and sources close to the company say.
Emails reviewed by The Verge that date back to the beginning of August show Faraday Future representatives trying to explain this as “delays” in payment processing. Others show repeated promises that checks were being issued, but awaiting signature, or held by the company’s “treasury department” for over a month, which two former employees who worked closely with Faraday Future’s finances say was the same stall tactic used in 2017 when the company was nearly out of money.
One vendor, who asked not to be named because they are afraid of damaging their chances of being paid, say a Faraday Future representative suggested this person’s company hire a collection agency. At least three others have filed liens with the California Secretary of State, one for nearly $400,000 owed over equipment it sold to Faraday Future, official documents show.
The company previously had trouble paying suppliers in 2017, with some going so far as to sue Faraday Future in court for repayment. The company owed at least $100 million at the start of 2018, and the company began using the new investment money to make good on those debts. Faraday Future held a “supplier summit” in February, which the company’s supply chain head said was meant to help these companies “walk away with renewed confidence about our plans and our funding.” Not all debts have been repaid, though. In a previously unreported lawsuit filed this summer, Nevada-based Astound Group claims Faraday Future still owes around $1.5 million for work dating back to 2016, including unpaid invoices from the 2017 launch of the FF91 at the Consumer Electronics show.
Jia has a history of money trouble. Best known as the founder of troubled tech conglomerate LeEco, he is currently living in the United States after having his assets frozen in China in 2017. He was placed on a national debtor blacklist, and while he still controls the listed arm of LeEco, a different real estate giant (Sunac) recently took control of some of the conglomerate’s subsidiaries.
It was also Jia’s handling of the company’s money that helped put Faraday Future in the tenuous financial straits last year, as The Verge reported in December. A private-turned-public clash between him and Faraday Future’s then-CFO got in the way of new investments, and derailed an attempt to restructure the company through bankruptcy.
While Jia was eventually able to secure funding from Evergrande, the deal came with severe terms, like assigning away the rights to Faraday Future’s intellectual property and many of its assets. Evergrande has spent the intervening months setting up Faraday Future-branded research and development centers in China, and recently purchased a $2 billion stake in a major Chinese auto dealership company.