Faraday Future: How a “Tesla-killer” became a zombie company

Construction equipment and workers’ temporary housing on the site of the future Guangzhou factory. (Image credit: Bailey Hu/TechNode)

About one hour’s drive south of Guangzhou, in southern China’s Guangdong Province, a vast plain of upturned soil is dotted with a few concrete-loaded trucks and a handful of piling rigs. The faint clanging of construction echoes through the air.

Here, electric vehicle startup Faraday Future (FF) is building its much-anticipated China factory.

One truck driver, who looks like he’s in his twenties, stops pacing outside his vehicle and removes his spotless white earbuds. He’s been working on-site for a month now, he tells TechNode, ferrying in concrete tubes for the groundwork-laying phase.

As he speaks, he mispronounces Faraday’s Chinese name (法拉第, faladi) as falaji. Spoken quickly, the last two syllables sound almost like laji, meaning “trash.”

His mistake is telling, hinting at the deeper confusion and uncertainty surrounding Faraday—its production plans for China and the US, as well its broader strategy and leadership.

The electric vehicle’s startup may have begun with high hopes for futuristic concept cars, but its narrative has since turned into a saga of ugly corporate wrangling and unbridled ambition gone awry. Faraday Future offers a cautionary tale about the pitfalls of charging full speed ahead into China’s alluring yet still developing electric and autonomous vehicle industries. It’s also a story of how Chinese investment paired with US tech talent can go terribly wrong.

 

A step back

From the outset, the company was a California startup with an international outlook. It brimmed with ambition. Employees were recruited from Tesla, BMW, Apple, and other top companies, with more than 100 former Tesla employees making the switch to Faraday.

Chinese tech tycoon Jia Yueting was among the founding members and also its majority shareholder, tying Faraday’s fortunes together with those of his conglomerate LeEco. Later, he also became Faraday’s chief executive officer.

In the beginning, Faraday planned to expand into autonomous driving and other fields, registering 380 patents in the US and China related to batteries, connected vehicles, self-driving cars, and more.

In addition, Faraday is one of 60 companies—including China’s Baidu, Didi Chuxing, Nio, and Pony.ai—with a permit to test-drive autonomous vehicles in California.

Faraday hasn’t been the only promising cross-culture company with a mixed bag of investors. EV startup Nio, which went public in the US this past September, has received funding from both Baidu and Tencent, which are each developing their own autonomous driving initiatives. Although Nio is headquartered in Shanghai and outsources manufacturing to a state-owned company, its design and self-driving team members are spread out across California and Europe.

However, the fact that Faraday’s CEO specialized in producing content, not cars, may have affected its prospects. In 2004, Jia Yueting founded streaming platform LeTV (now Leshi or Le.com). Eventually, Le.com became the basis for a sprawling tech empire that produced televisions, smartphones, and—even as Jia was still supporting Faraday—an electric vehicle branch that has since stalled.

Photo credit: Sohu News.

As LeEco’s expansion efforts overloaded the company with debt, Faraday too began seeing its cash flow cut short. But the problems started even before that. In early 2015, The Verge reported that when company executives wanted to build a small factory to produce 50,000 vehicles a year, Jia insisted on a much larger, more expensive facility like Tesla’s.

The plan to construct a $1 billion plant from the ground up in North Las Vegas, Nevada, eventually fell through. Instead, Faraday opted for the considerably less flashy option of renovating a former Pirelli tire factory in Hanford, California.

Jia, who ranked 37th on Forbes’ 2016 Rich List, saw his personal fortune plummet, and was placed on a national blacklist last year for defaulting on payments. When Chinese authorities ordered him to return to the country by the end of 2017, he didn’t comply, saying that he needed to stay in the US to oversee Faraday.

But Bill Russo, founder and CEO of advisory firm Automobility, said that choosing to manufacture in the US contributed to the Faraday’s ongoing cash crunch. In an already “capital-intensive” industry, Faraday should have first chosen a country with cheaper component supply chains where “more than half the world’s EVs” are already built—China.

New energy vehicles and equipment are one of 10 priority sectors highlighted in Made in China 2025, the comprehensive road map for development laid out by President Xi Jinping’s administration three years ago.

Production of electric and hybrid vehicles have since surged phenomenally thanks to a combination of subsidies, quotas, and tax breaks. By 2020, the government predicts, the country will be producing 2 million vehicles annually, by which time there will be 5 million electric vehicles on Chinese roads.

Yet while the stakes are high, Faraday could lose out on the opportunity. Russo describes the current company as belonging to “the walking dead of the EV startups.”

“They’re still animated but there’s no way to determine whether there’s a pulse,” says Russo. 

Rivalry and wrangling

Based on news headlines over the last two years, it seems miraculous that Faraday is still alive.

Late last year the California-based company appeared to have reached the end of the line. Facing suits from unpaid suppliers and forced to scrap plans for its Nevada factory, it announced a last-minute cash infusion in November from what was then an unnamed benefactor. The investor has since been revealed to be a unit of the Chinese real estate conglomerate Evergrande.

In return for $2 billion to be paid out over two years, Evergrande Health acquired a 45% stake in FF through a network of offshore holding companies. The deal also extended to at least some of Faraday’s “technical assets,” and in August, a new company named Evergrande FF Intelligent Automotive (China) Co. Ltd. was established to handle the startup’s new operations in China.

Prior to the announcement Evergrande, like LeEco, had little to do with electric cars. In a statement published this past June however, the real estate giant announced it was “diversify[ing] its businesses” by entering the “fast-growing new energy automotive industry.”

Evergrande has a history of holding a diverse investment portfolio in apparently unrelated companies and industries. It has, for example, invested in mineral water, milk powder, and agriculture, as well as high-tech areas such as aerospace and AI. Evergrande set an industry record for first-half profits this year, suggesting that the company’s strategy is successful—its gigantic debt pile notwithstanding.

The EV investment also gave the real estate giant a chance to acquire extra land, a prized commodity in China. The 99-acre construction site near Guangzhou, which was leased for $58 million via a Faraday affiliate in April of this year, was part of a local government initiative to attract tech companies.

Yet since their deal was struck, Evergrande and Faraday’s relationship has rapidly deteriorated. On October 7 Evergrande filed a statement on the Hong Kong Stock Exchange claiming Faraday was attempting to get out of their arrangement. It alleged that less than a year after their initial agreement, Faraday had already spent $800 million and requested an advance of another $700 million, to be paid out over seven months.

In a suit filed on November 8, FF said that that advance came with a price. In return for the money, Evergrande demanded that Jia step down from the country’s China operations. The real estate giant never delivered on the first installment of the $700 million, however, citing Jia’s continuing influence over the company as well as his status as a debtor.

On that basis, Faraday filed for arbitration in Hong Kong. In a fiery official statement, the company declared its biggest shareholder intended to gain control and ownership over Faraday China and all of its intellectual property.

Evergrande “shouldn’t be permitted to withhold the funding and simultaneously prevent FF from accepting alternative financing or investments,” Faraday asserted.

On November 14, a suit filed by three Faraday employees also claimed that Evergrande took advantage of the situation to assume control over the car company’s China operations, The Verge reports. In addition it allegedly withheld money from “key suppliers,” contributing to FF’s financial straits.

While the arbitration case is still ongoing, in late October Hong Kong’s International Arbitration Centre allowed for FF to receive up to $500 million in emergency funding pending Evergrande’s approval. Both sides claimed it as a victory.

Yet with Faraday facing financial uncertainty and Evergrande’s investment in jeopardy, the issue seems far from resolved. Neither Evergrande nor Faraday Future representatives responded to requests for comment from TechNode.

Faraday’s troubles are once again spinning out of control, with a “serious and unexpected cash shortfall” resulting in downsizing and pay cuts, a press statement from Faraday in late October said.

Five days later, Faraday’s senior VP of product strategy Nick Sampson resigned. On LinkedIn, he wrote that the troubles of the company he helped found are having a negative “ripple effect on lives throughout our suppliers and the industry” and a “devastating impact on lives of our employees, their families and loved ones.”

His departure followed those of three other key employees earlier in the month. (Last year, a similar exodus took place, with two former executives setting up electric car competitor EVelozcity.) On November 1, FF manufacturing manager Hector Padilla even created a GoFundMe campaign to help team members affected by “lay off[s] or mandatory furlough.” So far 40 contributors have raised $21,172 in donations, but the campaign is still $28,000 short of its goal.

Blockchain electric car startup EVA.IO says it’s currently in negotiations with Faraday over a $900 million investment over the next three years through indirect security token offering, or STO—a form of funding viewed as less vulnerable to fraud than ICOs. But even if it were successful, it wouldn’t address Evergrande’s apparent claims over at least some of Faraday’s operations and intellectual property.

Hype machine

Despite, or perhaps because of, all the drama surrounding it, Faraday has yet to deliver on its smart, “autonomous-ready” luxury electric SUV, the FF91. The company still promises to begin production at its California plant by the end of this year. 

In July, local media outlet the Hanford Sentinel published a piece on Faraday taking over the former Pirelli factory. The cover image shows a beaming Jia Yueting in an orange hard hat shaking hands with a local senator. The article cites Hanford Community Development Director Darlene Mata saying that Faraday employees were collaborative and even “gracious” in their dealings with city government.

More recently, Mata told TechNode that Faraday officials “haven’t told us they aren’t moving forward,” adding: “We are not involved in the daily operations of Faraday Future.”

Faraday hasn’t released an official statement about its operation plans for China, but work is clearly underway and local community members are being relocated because of the new plant.

A line of houses and gardens lie just across the street from the Guangzhou construction site. (Image credit: Bailey Hu/Technode)

Elderly lifelong resident Fang Gundai says that last April, authorities informed her that she’d have to move away. That’s also the month that a Faraday affiliate bought up the neighboring land. She’s reluctant to leave her home and says the district government isn’t offering fair compensation for her family’s property.

Her neighbor, who lives in a two-story tiled building across the street from the construction, echoes Fang’s opinion. From her backyard, the construction equipment being used to build the new plant can be seen in the distance. She says that the noise doesn’t bother her very much, but she doesn’t want to move away from her vegetable patch and the clean air.

Residents were told they’d have to leave the vicinity of the construction site, although no timeline has been given yet. (Image credit: Bailey Hu/TechNode)

The local neighborhood committee secretary, who gave only his surname, Liang, tells TechNode that “of course people who grew up here won’t want to move.” But most of the 500 or more residents there understand the need, he said. Many younger residents have already left, searching for work closer to Guangzhou’s city center or other urban hubs. “All of Guangdong is developing,” he said.

In line with that goal, authorities in the district have reportedly been recruiting new energy vehicles and other high-end tech enterprises, offering preferential policies for companies who open up shop. Even if Faraday and Evergrande’s efforts fall through, new facilities for building connected cars or advanced IT equipment may rise in their place, laying the groundwork for the area’s future.

Additional reporting by Alysha Webb. With contributions from Tristin Zhang.