Faraday Future has revealed the source of a mysterious financing round that saved the company from running out of cash at the end of 2017. Evergrande Health, a subsidiary of the Chinese conglomerate and real estate giant Evergrande Group, is now the largest shareholder of Faraday Future after acquiring a 45 percent stake in the automotive company for a total of $2 billion.
But as the company takes renewed aim at its goal of starting production on the FF91, an ultra-fast, ultra-luxurious electric car, at least one of its founding figures won’t be along for the ride. Tony Nie, a former Lotus executive and one of Faraday Future’s three co-founders, left his role as senior vice president of the company near the beginning of the year, three sources with knowledge of the startup’s leadership tell The Verge.
The other two co-founders, CEO Jia Yueting and senior vice president of product strategy Nick Sampson, remain. Nie did not respond to a request for comment. A spokesperson for Faraday Future said that he “can’t divulge the status of employees within the organization.”
The investment was reviewed by the Committee on Foreign Investment in the United States
The investment in Faraday Future comes at a time of high tension between the US and China. Chinese investment in US companies is under scrutiny as the two countries continue to trade tariff threats, and Evergrande’s investment in Faraday Future was reviewed by the Committee on Foreign Investment in the United States, which investigates foreign involvement with US companies in order to protect national security interests. Evergrande said in a public filing that CFIUS completed its review on June 18th, and no reason was found to block the investment. But what once looked like a flashy new American car startup is now, more than ever, being controlled by Chinese influence.
Faraday Future is far from alone in the world of EV startups when it comes to Chinese investment or involvement. Many other high-profile startups that are pushing toward making electric or autonomous cars, even ones with an American face on their business, have deep ties to China, which is the largest EV market in the world. Jia himself is a shareholder in Lucid Motors, another stalled startup that is financially backed by state-run automaker BAIC. SF Motors and Byton have R&D centers in Silicon Valley, but are respectively owned by Chinese automaker Sokon and backed by state-run FAW Group. NIO, which also has a presence in Silicon Valley and reportedly plans to launch an IPO in the US sometime later this year, is based in China and backed by Tencent.
Faraday Future has received $800 million of the $2 billion investment so far, which is about $250 million more than had been previously reported. According to a filing with the Hong Kong Stock Exchange, Evergrande Health will disburse the remaining $1.2 billion in two parts. As long as Faraday Future meets certain goals laid out in a merger agreement signed between the companies, the details of which have not been made public, the startup will get $600 million on or before December 31st, 2019, and another $600 million on or before December 31st, 2020.
As was previously reported by The Verge, the investment technically came from a company in the British Virgin Islands called Season Smart Limited. Season Smart Limited and Faraday Future’s top holding company (a British Virgin Islands entity called FF Top Holding) created a joint venture called Smart King Ltd, which sits above all the companies that make up the web Jia has created around the EV startup. (More than a dozen Faraday Future-related companies have been set up in at least six different countries or territories.)
Season Smart Limited pledged $2 billion to obtain a 45 percent stake in the joint venture in early December 2017, and FF Top Holding pledged “technical assets and business owned by the Faraday Future Group,” which includes the young startup’s many patents and trademarks, to obtain a 33 percent stake in the joint venture, according to the Evergrande Health filing. The remaining 22 percent in equity is for employee shares.
Evergrande Health is now taking over that joint venture, and Season Smart Limited’s 45 percent stake with it, according to the filing. It has also nominated two of its own chairman to run the new board of directors. What’s more, should Evergrande find reason to believe that Jia “is unable to perform [his] duties” in managing the company, the voting shares that FF Top Holding controls will transfer to Evergrande.
Faraday Future’s remaining independence could vanish if Evergrande believes Jia is “unable to perform [his] duties”
It’s a striking amount of leverage that reflects the fact that the investment came at a critical time for Faraday Future. The company was weeks away from not being able to make its $12 million per month payroll in late 2017, multiple sources told The Verge at the time, in large part thanks to Jia.
Jia, who is the company’s main financier and current CEO, moved to the US last summer as LeEco, the Chinese tech conglomerate he founded in 2011, struggled under the weight of massive debt. His financial mismanagement left LeEco and its subsidiaries owing millions of dollars to suppliers. Jia was named to a national blacklist of debtors, and some of his assets were frozen by Chinese courts.
LeEco still struggles today, even after receiving its own $2.2 billion influx from a different massive Chinese real estate company, Sunac. At one point, suppliers were so desperate for restitution that they camped out in the lobby of LeEco’s offices. Two companies, Hong Kong-based O-Film and Beijing-based MVC Consulting have now even filed suits against Jia here in the United States seeking restitution, according to previously unreported court records reviewed by The Verge.
The empty coffers meant that Faraday Future, which Jia treats like a subsidiary of LeEco, had to back out of its ambitious plan to build a $1 billion factory in the Nevada desert. The company eventually settled for a more modest (and already-built) facility in Hanford, California that it is currently retrofitting to build the FF91.
As Faraday Future limped toward the end of 2017, founding executives and employees left the company in droves, shrinking what had been a workforce of nearly 1,500 employees down to about half that size. One of the most high-profile departures was CFO Stefan Krause, a former BMW and Deutsche Bank executive who was hired in early 2017 to get the company’s finances on track.
Krause became fed up with Jia, multiple sources told The Verge, because the founder increasingly dictated the day-to-day operations of the company after he came stateside for good in July. That included scuttling plans to take investment from automotive companies as well as another to explore Chapter 11 bankruptcy. One of the things Krause was able to do to keep the company alive was leverage the Los Angeles headquarters as collateral to receive a $14 million loan last August. (The loan was paid back after the new investment.)
Krause resigned in October, but news of his departure was kept quiet as the two sides negotiated a potential return, according to people familiar with the matter. When the deal fell through in November, Jia ordered a polemic press release that claimed Krause and fellow former BMW executive (and Faraday Future CTO) Ulrich Kranz had instead been fired. The company accused Krause and Kranz of “malfeasance and dereliction of duty,” and eventually filed a lawsuit against the new company that the duo started after they left Faraday Future, alleging that they got their own startup off the ground by stealing employees and trade secrets.
Part of the investment has already gone toward building up Faraday Future’s presence in China
It was during this volatile time that Jia secured the new funding, which has allowed the company to start 2018 with a few tangible strides toward entering vehicle production. It started demolition at the Hanford facility, built a handful of “gamma” cars, and recently obtained permits to start full-on construction.
Faraday Future also used some of the funds from the investment to secure land in China through a series of new affiliate companies, where the startup plans to build a Chinese headquarters and production facility. It recently broke ground on that facility, and the company has even sent at least two of its beta test cars to China in preparation of expanding its operations there, while also rolling LeSee — Jia’s not-so-separate effort to build an electric car with LeEco — into these efforts, former employees tell The Verge.
But while Faraday Future moves forward, backed by Evergrande, the company has curiously taken another loan against its LA headquarters. In April, Faraday Future VP Chaoying Deng (who helps Jia control the money across all his companies, as The Verge discovered in an investigation last year) created a new company called Faraday SPE that now holds the deed to the facility. In May, Deng used the headquarters as collateral to obtain another loan, this time valued at $17 million, from a company called iBorrow that specializes in “fast, flexible and reliable” bridge loans, according to property records obtained by The Verge.
Asked about the new loan against the company’s US headquarters, the spokesperson said he cannot “comment on specific company finances.”