Faraday Future lays off some employees without severance while it seeks new fundingOctober 26, 2018
Faraday Future has received a small lifeline after announcing drastic measures earlier this week to keep the company afloat during a fight with its main investor. The electric car startup was given permission by the Hong Kong International Arbitration Centre to seek up to $500 million in new funding from investors outside the existing $2 billion deal with China’s Evergrande Group. Evergrande gets first right of refusal for any potential investors who step up, according to a filing with the Hong Kong Stock Exchange.
Meanwhile, the 20 percent cut to salary and wages initiated earlier this week remains in place, and layoffs have already started, according to multiple people inside and close to the company. Some people have even been let go with those 20 percent cuts applied to their final check, and without severance, The Verge has learned. And while there are still hundreds of employees who remain focused on getting the company’s luxury electric SUV into production, others have described to The Verge an atmosphere of gloom and paranoia — including fears of electronic monitoring — at Faraday Future’s Los Angeles HQ.
Faraday Future called the arbitration result a “decisive victory” in a public statement released Thursday. A spokesperson for the company confirmed to The Verge that layoffs have been happening all week, but said he “cannot divulge the extent nor duration of this process.” That spokesperson also did not deny that the company’s management monitors employee communications.
Faraday Future received the first $800 million installment of Evergrande’s investment at the start of the year, and put that money to work readying a factory in Hanford, CA, where it hoped to start production of its FF91 electric car by the end of 2018. The remaining $1.2 billion was supposed to come in separate $600 million tranches pegged to production goals in 2019 and 2020. The investment was approved by the Committee on Foreign Investment in the United States.
That $800 million was basically gone by July, though, Evergrande said earlier this month in a filing with the Hong Kong Stock Exchange. Faraday Future founder and CEO Jia Yueting asked Evergrande — which is run by China’s third-richest billionaire — for an advance of $700 million, and when the Chinese real estate conglomerate eventually declined, Jia sought arbitration in Hong Kong. In the meantime, the company stalled payments to suppliers and vendors.
Faraday Future said Thursday that the arbitrators decided the startup can now look for outside investment while the fight with Evergrande continues. “Today’s ruling definitively enables FF to accept new funding from investors around the world, and we welcome all investors who share our vision,” the company said in a statement.
“Due to confidentiality, we are unable to disclose any information in relation to arbitral proceedings,” a spokesperson for the Hong Kong International Arbitration Centre said in an email. Representatives for Evergrande could not be reached.
While the decision provides potential room for some relief at Faraday Future, the wage cuts and layoffs announced earlier this week are still being put in place. In fact, Faraday Future was already letting people go after the first signs of a spat with Evergrande, according to one manager inside the company, who wishes to remain anonymous because they signed a nondisclosure agreement. Managers across the company were told to take advantage of the situation with Evergrande to fire people they didn’t like, this person says.
More than 100 people have been cut so far this week, and between 30 and 50 percent of the company’s 1,000 or so staff could be in jeopardy, according to two people with knowledge of the layoffs who wished to remain anonymous out of fear of legal repercussions.
One employee who was let go Thursday, who was granted anonymity because he signed a nondisclosure agreement, says the company cut his final paycheck by 20 percent and is not offering a severance package. The same has happened to other people who have been with the company for a short amount of time, one of the people familiar with the layoffs says.
“Employees were let go without severance, the law does not require employers to pay severance,” Faraday Future spokesperson John Schilling said in an email.
A second employee who was laid off this week after two years at Faraday Future, however, said he was offered a typical severance package. (He was also granted anonymity because of the nondisclosure agreement required at the company.)
No notice of layoffs has been filed with the state of California, according to the Employment Development Department. The EDD tells The Verge that the state’s Worker Adjustment and Retraining Notification Act requires companies with 75 or more employees to provide notice 60 days before a layoff of 50 or more employees during any 30-day period. The act defines “employee” as a person employed for at least six months of the trailing year, though. “We are in compliance with all California employment laws and regulations, that is all I can say on this now,” Schilling said.
Faraday Future had hired about 300 people since May, according to the manager. Many of the people let go so far were also contractors, and not full-time employees, one of the people close to the company said. In a previously unreported lawsuit filed this week in Los Angeles Superior Court, technical staffing company Tentek says Faraday Future owes more than $200,000 for employees it placed at the company.
Faraday Future has always had a secretive culture, but it has bloomed into paranoia in recent months, according to the manager and a former employee who left earlier this month. Some workers fear that communications on their company-issued phones and computers are being monitored, and that the conference rooms are bugged, these people tell The Verge. One employee found emails marked as “read” that they never opened, the manager said. What’s more, according to the manager, the hundreds of new hires over the summer created redundancies that sparked competition. “It’s like a big prison,” this person said.
“FF employs an electronic-usage policy similar to most companies, this is something all employees agree to prior to employment with FF,” Schilling said in response to a question about these fears.
Faraday Future narrowly escaped collapse at the end of 2017 thanks to Evergrande’s money, but the startup now finds itself nearly back where it started before the investment. Jia is now tasked with finding investors willing to take a gamble on a luxury EV startup with a troubled past. The company is racing a financial clock, since Evergrande — which is currently mired in its own potential financial trouble in a sagging Chinese economy — isn’t willing to advance more of the $1.2 billion that remains to be paid out.
Many of the company’s employees, the people inside and close to Faraday Future, are once again looking for other opportunities, especially because now that their high salaries (one of the startup’s main tools for attracting talent) aren’t quite so high. “It’s a complete madhouse, things are so upside down,” said the employee whose final paycheck was cut.
Others still have faith in Faraday Future. “I’m fully confident I’ll be returning,” the employee who was let go after two years said. The company is much closer to entering production of the FF91 than it was at this time last year (though the first preproduction unit suffered a small fire). And Jia is notorious in China for wriggling out of tight financial situations by whatever means necessary.