Late last year, Faraday Future was supposed to meet with a Middle East sovereign wealth fund to discuss an investment that could have helped pull the struggling EV startup out of its perpetual financial nosedive. But the wealth fund retracted the invite shortly after Faraday Future founder Jia Yueting filed for bankruptcy to resolve billions of dollars of personal debt, according to a previously unreported transcript of one of the Chinese tycoon’s Chapter 11 proceedings.
“We were invited by a government entity to go to the Middle East to a sovereign fund, and the minute that we filed the Chapter 11 case and it became clear the financial issues, Faraday was uninvited,” Jia’s lawyer told a judge in December 2019.
The lawyer for Jia who spoke during the hearing did not specify which Middle Eastern sovereign wealth fund was interested, and a spokesperson for Faraday Future declined to comment. Saudi Arabia’s Public Investment Fund already owns a majority stake in fellow EV startup Lucid Motors, and the UAE and Kuwait have even bigger sovereign funds. Faraday Future’s communications director John Schilling declined to comment, saying “[t]his is confidential information regarding investor discussions.”
Whoever it was, the Middle East’s interest in Faraday Future is just one of a number of revelations to surface during Jia’s bankruptcy process, which dragged on for seven months before getting approved by his myriad creditors and the court in May. Here are a few others:
Jia told his creditors that Faraday Future is drawing a lot of interest
Despite its troubles, including losing a ton of talent to competitors, Faraday Future has maintained that the patented technology it developed since 2014 for the FF91 electric SUV is valuable. The company has insisted that investors or partners would line up once the drama and Jia’s bankruptcy subsided. While his bankruptcy did put a damper on deals, Jia told his many creditors in April as it was wrapping up that this was finally happening.
Jia says Faraday is still talking with investors in the Middle East, and governments in China
According to a presentation, Jia’s legal team told the creditors that Faraday Future is “in joint venture discussions with several potential investors in the Middle East,” that it is “working with 20+ potential debt investors” to provide short-term funding, and is even “working to apply for US government loans.” His team also said Faraday Future is “in talks with the governments of three provincial capitals in China about setting up” a Chinese headquarters, and that the startup is “in close communication with two major OEMs in China about partnership.”
That there may be interest from serious players in Faraday Future is not surprising; as The Verge first reported late last year, the company at one point held talks with Fiat Chrysler Automobiles. Electric vehicle startups are also once again a hot target for investment deals of all sizes, with Rivian continuing to raise an incredible amount of money, zero-emission trucking company Nikola recently raising hundreds of millions of dollars in a reverse merger deal, Fisker Inc. lining up a similar route to go public, and even Karma Automotive pulling down $100 million.
“I will confirm that we are in discussions with various organizations as Faraday Future continues to progress towards the delivery of the FF91, the nature and extent of the discussions are all confidential so I cannot share any further details,” Schilling said.
Faraday Future provided its new CEO with a multimillion-dollar home in LA
Faraday Future started down a new path to legitimacy last September when Jia stepped down as CEO and was replaced by Carsten Breitfeld. A former BMW executive, Breitfeld has lots of industry connections, and helped found another EV startup — China’s Byton — which nearly reached production before the COVID-19 pandemic hit. (Though he did not leave Byton on good terms.)
Breitfeld told The Verge last year that he told Jia he would only come to Faraday Future if he was made CEO. But he got more than the title in exchange, because Breitfeld now lives in one of the multimillion-dollar homes owned by Jia’s associates, according to the bankruptcy case.
It’s unclear exactly which house, though. Jia’s lawyers say that “part of the consideration for Dr. Breitfeld to accept the CEO position was that he would occupy one of the Marguerite Properties,” referring to the multimillion-dollar coastal mansions on Marguerite Drive in Rancho Palos Verdes that Jalopnik and The Verge first reported on in 2017. Jia has used these mansions to house past Faraday Future executives, host parties, and take loans against when money is tight. But Breitfeld recently tweeted an image from outside a $2 million home about a mile inland that’s owned by Faraday Future vice president Chaoying Deng.
In an email, Schilling said Breitfeld is living in a “property [that] is rented by FF and offered to executives for their stay as part of their relocation benefits.”
“I burned all the bridges to the past.”
Breitfeld had previously lived in Silicon Valley and frequently traveled to Germany and China while working with Byton, but he told The Verge last year that he moved to Los Angeles for the Faraday Future job.
“I burned all the bridges to the past. I left my house in Munich, everything else I had in the world, and I just moved here with my son, and now I’m here,” he said. “It’s so much better than Silicon Valley. Silicon Valley, if you like technology, you meet a lot of technology people and that’s very exciting. But the life, is boring. Here you’re very close to the sea which I love very much, and the quality of living is so much better.”
Faraday Future helped fund Jia’s bankruptcy
Faraday Future has been cash strapped for much of its existence. But money has been especially tight since it separated from a main investor, China’s Evergrande, in 2018. That split led to hundreds of layoffs and furloughs, and things eventually got so bad that Faraday Future sold its own headquarters in 2019 to generate some cash, as The Verge first reported last year.
And yet, Jia’s bankruptcy was funded by one of the main holding companies of Faraday Future, a Delaware LLC called Pacific Technology. He borrowed $2.7 million from Pacific Technology at the beginning of the process, and took on a $6.4 million “debtor in possession” loan from the entity earlier this year as the case wound up.
Jia’s lawyers originally said this was because the Faraday Future affiliate offered the most forgiving terms; in other words, other lenders unsurprisingly wanted better protections or more returns on any loans provided to a man who has billions of dollars of personal debt. But they eventually admitted that Jia had nowhere else to turn.
The bankruptcy process has helped clarify Jia’s tangled business interests
“Ultimately, Pacific Technology, an affiliate of the Debtor was the only party willing to provide ... financing to the Debtor under the circumstances of the chapter 11 case,” they wrote. Jia’s lawyers claim this was all above board, and that the creditor committee — a group made up of representatives of some of the companies that are owed money in the bankruptcy — helped negotiate the terms.
The money also did not come directly out of Faraday Future’s nearly exhausted coffers, either. Instead, these loans were largely made up of individual contributions from the members of Faraday Future’s “Global Partners” management team of executives.
Jia’s bankruptcy has been a clarifying event when it comes to untangling how all of his various companies interact. Take the mansions, for example. Jia originally purchased those houses through a company called Ocean View Drive, and even bought some with money borrowed from Faraday Future. He says he no longer owns a stake in them, but Ocean View Drive now leases the houses to Jia, who started subleasing them to a company called Warm Time Inc. for $43,810 per month in 2019. Warm Time Inc. — which lists the Faraday Future VP Deng’s home as its address in filings with the California Secretary of State — has since turned around and leased them to Faraday Future “on a full service basis, including hospitality services (i.e., food service, housekeeping, insurance, and utilities).”
Faraday Future has survived on borrowed money, and continues to be low on cash
One of the main reasons Faraday Future has been able to stay around as long as it has is that in early 2019 it started working with “bankruptcy legend” Jack Butler, whose firm Birch Lake has extended multiple loans to the startup as it searched for funding.
The downside of this is that, according to filings in Jia’s bankruptcy case, “[s]ubstantially all of [Faraday Future’s] tangible and intangible assets have been pledged as collateral.” That means it could be even harder for the startup to take out new loans, and that it is at risk of losing those assets if it can’t make good on the debt it’s been carrying. In fact, Faraday Future had to ask Birch Lake for (and was granted) an extension on a $45 million loan that was due in October 2019.
“all of [Faraday Future’s] tangible and intangible assets have been pledged as collateral.”
Faraday Future recently told The Verge that it made good on that loan, and that appears to be the case, as Birch Lake has released its hold on the startup’s intellectual property according to filings with California’s Secretary of State and the US Patent and Trademark Office. However, the interest in the collateral Faraday Future pledged for the loan has since been transferred to a California LLC called “Royod.” Schilling says this is a “current lender,” but there is almost no information about who is behind it. One address given by Royod in filings with the Patent Office is simply a Santa Monica PO box. Filings with the Secretary of State show the LLC is managed by a “Kai Dong.” Someone with that name appears to be, or was once, an executive assistant at Faraday Future.
Faraday Future had to keep borrowing money because it had just $6.8 million in cash at the end of July 2019 (the most recent data shared in Jia’s bankruptcy filings), having exhausted all $2 billion or so that Jia and Evergrande put in over the years. In December, one of Jia’s lawyers told the judge he didn’t believe the startup had the “financial wherewithal” to make it another 60 days, and that it was going to “basically run out of cash.” The same Global Partners group had to loan $16.5 million to Faraday Future in June 2019 “to support FF’s daily operations.” And the startup also received a $9.1 million loan from the COVID-19-related Paycheck Protection Program in April.
With Jia’s bankruptcy approved, Faraday Future has said it is now free to once again pursue those investments in the name of finally putting its luxury electric SUV into production. But even in a market where EV startups are suddenly getting money left and right, Faraday Future still has a long way to go. Breitfeld has said that Faraday Future needs $850 million in order to get to production. And in the near term, according to Jia’s bankruptcy, the startup has been trying to secure a $170 million loan “to sustain its operations and engineering efforts,” according to court filings.
If Faraday Future succeeds at pulling in new funding and getting into production, Jia’s creditors now stand to benefit, because when they approved his bankruptcy plan they agreed to swap their debt claims for stakes in a trust that will pay out if the startup IPOs or is sold. In a letter published last month, Jia, ever the salesman, spun his many troubles as a positive. “I am firmly convinced that the past success and failure will be invaluable experience for FF’s future success,” he wrote. “I have learned much from my past mistakes and I hope with this life knowledge that I will never repeat these past missteps again.”