Faraday Future CEO Ownership Stake Frozen by Federal Judge in California
【Summary】Struggling electric automaker Faraday Future, once seen as becoming the biggest rival to Tesla, has suffered another major setback and is on the brink of insolvency. A federal judge has frozen Faraday Future CEO Jia “YT” Yueting’s ownership stake in the company, according to new court documents filed Thursday.
Struggling electric automaker Faraday Future, once seen as becoming the biggest rival to Tesla, has suffered another major setback and is on the brink of insolvency. A federal judge has frozen Faraday Future CEO Jia "YT" Yueting's ownership stake in the company, and put a protective order on the mansions he owns in California, according to new court documents filed Thursday.
The new freeze is a result of a lawsuit filed earlier this week in the central district court of California by a Chinese company called Shanghai Lan Cai Asset Management Co, Ltd (SLC). The company claims Jia never paid back a 50 million yuan (~ $7 million) loan to his other company LeTV, a subsidiary of LeEco, the multinational conglomerate founded by JT in 2011.
Jia is on a national debtor blacklist in his home country of China where he reportedly owes hundreds of millions of dollars to various creditors of LeEco and its subsidiaries. SLC requested that the court freeze JT's assets while the court proceedings play out. SLC asked the court to put a temporary protective order on JT's 33 percent ownership stake in Faraday Future.
Faraday Future's first electric vehicle is the FF91, a 1,000 hp, luxurious, fully-electric, autonomous-ready SUV providing high-performance with an intelligent user experience. The state-of-the-art vehicle was designed to complete with the Tesla Model X. However, the company struggled to develop the FF91 and its release date was continuously pushed forward.
In October, Faraday announced significant layoffs and employee salary cuts of 20 percent, as the company burned through its cash in pursuit of Tesla and other electric vehicle startups in the luxury electric car space. CEO Jia "JT" Yueting also agreed at the time to forfeit his salary and be paid a salary of just $1 per year.
The layoffs turned into additional mandatory furloughs for hundreds of workers, including employees from the company's Hanford, California facility.
Faraday posted a letter on Twitter on Dec 4 explaining that the mandatory furloughs and layoffs are necessary as the company struggles to secure new funding, which it said might take two or three months.
"We will continue to push forward on the delivery of the hyper-performance FF 91 luxury vehicle and secure our medium- and long-term strategies," the statement concluded. "We hope to solve the funding issue in 2-3 months."
Faraday Future claims its financial crisis was brought about by Evergrande, its largest financial backer and shareholder, for its refusal to make scheduled payments. Company officials said Evergrande has further breached its contractual obligations to Faraday by refusing to release its liens over the company's assets, making it more difficult to achieve short-term financing through asset-backed loans, resulting in the current cash flow difficulties.
"This action has unequivocally harmed [Faraday Future] employees worldwide, our suppliers, our partners and all of our reservation holders," said the statement from Faraday.
Faraday Future CEO Jia "YT" Yeuting shows off the FF91 at CES 2017
Faraday accused of wasting hundreds of millions of dollars
In December 2017, FF announced its has secured $2 billion in funding from Evergrande Health Industry Group to keep the automaker afloat. Evergrande agreed to invest the money over the span of three years, in exchange for a 45 percent share of FF stock, starting with an initial payment of $800 million, which was made at the time.
However, the disbursement of funds was contingent on FF meeting agreed upon production goals for its luxury electric SUV, the FF91.
In June, Evergrande announced the acquisition of Hong Kong-based Season Smart Limited for 6.746 billion HK dollars ($860 million). Season Smart Limited already had a deal in place with FF in a separate joint venture.
The acquisition allowed Evergrande Health Industry Group to indirectly obtain a 45-percent stake in Smart King Limited, the joint venture (JV) previously established by Season Smart Limited and Faraday Future.
By July 2018, FF spent all of the original $800 million and asked that Season Smart further advance the company another $700 million lifeline, which was declined.
Documents state Evergrande agreed to advance $700 million of the remaining $1.2 billion, but only with the condition that founder and CEO YT Jia step away from his roles at any offshore companies affiliated with Faraday Future, and that he also turn over his controlling stake in the company to a neutral third party.
Evergrande claims Faraday has wasted hundreds of millions of dollars, while Faraday insists that Evergrande has broken agreements to make payments to the company.
"Evergrande argued that Jia's involvement in the company was getting in the way of building up the EV startup's presence in China," The Verge reported, adding JT is on a national debtor blacklist in China and has had many of his assets frozen due to unpaid debts.
After coming to an impasse with Evergrande, Faraday decided to take the case to an arbitrator in Hong Kong, where the case is being heard.
The arbitrator has made two decisions on emergency requests from Faraday since the case was opened, including the decision to allow the company to seek $500 million in new funding.
However, the arbitrator recently denied another request from Faraday, which had asked Evergrande to loosen the grip it has on Faraday's intellectual property and assets.
Faraday officials said they will file a new emergency relief application on the arbitral tribunal soon, but since the ruling may be delayed two to three months, the company worte in a letter that it "will continue to experience a negative impact on its already very tight cash flow."
"This was an extremely tough decision to make, and we recognize the emotional stress and financial strain this puts on people's personal lives," Faraday officials said in the letter, adding they hope to receive support and understanding from suppliers and partners as the company overcomes its difficulties.
Despite its bleak financial situation and departure of several top executives, Faraday Future remains optimistic the company will survive.
Company officials said that FF is receiving interest from investors from "around the world who see strong value in FF's seasoned tech and automotive management."
Whether or not that is true remains to be seen.
Iowa Senator Says Trump is Inclined to Increase Tariffs on Imported Autos From the EU
Evergrande Buys a Controlling Stake of NEVS, the Company that Purchased the Assets of Saab
Mapping Company HERE Technologies to Supply Audi Vehicles with Live Traffic Data
Ford & Volkswagen Announce Global Alliance to Build Pickup Trucks and Vans
Highlights From This Week’s CES 2019: Bell Unveils Flying Air Taxi Concept that Might Become a Flying Uber, World Premier of the Electric Mercedes Benz EQC
BMW i Ventures Announces Investment in Tekion, a Silicon Valley-based Cloud Platform Provider of Automotive Retail Services
NVIDIA Announces 'Drive AutoPilot' Level-2 Automated Driving System at CES
Tesla Seeking Tariff Exemption for the Chinese-made “Brain” of the Model 3 Sedan
- Dyson Settles on Singapore as Location for Production of its Electric Vehicle
- Scientists Create Micro Wasp Drones Capable of Opening Doors
- Tesla Announces Price Cuts & Record Output While Stock Slips on Expected Falling Demand
- Harley Davidson Joins 21st Century with Electric Motorcycle Lineup
- Premium E-bike Maker Biomega Debuts Four-passenger EV Concept
- Why Ford Should be Rushing to Deliver the All-Electric F-150 Pickup
- Iowa Senator Says Trump is Inclined to Increase Tariffs on Imported Autos From the EU
- EV Startup Faraday Future Restructures its $2 Billion Investment Deal With Evergrande
- BMW & Daimler in Talks to Share Key Automotive Technology, Including Self-Driving Tech
- Electric Loading Says it Can Charge a Porsche EV in Just 4 Minutes