Faraday Future – The wrong man.

Leadership unconnected with past is needed.

Faraday Future has secured a life line that ushers it back into the increasingly crowded electric vehicle start-up space, but I have concerns as to whether Jia Yueting is the right person to lead the company from here.
Despite its already very chequered history, Faraday Future has managed to secure $2bn in funding that should, in theory, see it through to getting a vehicle on the road and in showrooms.
Faraday’s saviour is Evergrande Health which is a subsidiary of the Evergrande Group which is China’s second largest real estate developer.
Evergrande Health also focuses on real estate but also has an investment arm that focuses on the high-tech industry which presumably is where this investment will sit.
The investment is being transacted in an unorthodox manner with Evergrande Health taking over ownership of Season Smart Limited which had previously struck a deal with Faraday Future to make this investment.
Evergrande Health is paying $860m for Season Smart Limited of which $800m will be invested in Faraday Future in return for a 45% stake.
Evergrande Health has also committed to invest a further $600m at the end of 2019 and another $600m by the end of 2020.
These further payments are almost certain to be contingent upon certain milestones being met meaning that Faraday Future will now have to move aggressively into execution mode.
This is where I have concerns as this deal will leave Jia Yueting in charge of this company as global CEO and there is plenty of evidence to suggest that he is not the right person to lead the company at this critical time.
This evidence includes:
- First, poor judgement: Jia Yueting was also at the helm of LeEco which attempted to build a complete ecosystem of devices and services in both China and USA.
- Jia Yeuting was very bullish on the future of LeEco which resulted in a series of large investments that the company simply could not afford.
- These included: the $2bn acquisition of TV maker Vizio, the purchase of 40 acres of land from Yahoo for $250m to build a big headquarters, $1.8bn to build a connected car factory in China and a large increase in headcount in USA whose costs the USA subsidiary could not pay.
- These goals were financed by borrowing against the shares of Leshi Internet, the parent company in China but falls in the share price of Leshi Internet caused the whole structure to unravel.
- The result was that the company ended up overstretched on its commitments resulting in the unwinding of all of the investments, unpaid suppliers and the lay off of almost all its USA staff.
- The result was that LeEco immediately lost all of its credibility and with it any hope of ever seeing any success as a digital ecosystem.
- It would appear that these misfortunes were the result of over optimism from Jia Yueting as well as a failure to execute on the strategy, which makes me wonder how well Faraday Future will fare under his stewardship at this critical time.
- Second, Financial soundness: At the end of December 2017, Jia Yueting was ordered by the China Securities Regulatory Commission in Beijing to return to China in order to deal with the debts owed by LeEco it its creditors.
- His personal assets were also seized by a Beijing court.
- As far as I am aware, he has still not returned to China to meet his obligations, meaning that this issue is still outstanding.
- In my opinion, this is a significant black mark on his record and again raises the question as to whether he is the right person to be the CEO of a global enterprise.
- Third, company first: Faraday Future is currently embroiled in a dispute with its previous CFO Stefan Krause who left the company about 6 months after joining.
- According to Mr. Krause, a previous CFO of BMW, he resigned on October 14^th 2017, while Faraday Future announced that he was terminated on November 10^th 2017 citing a possible legal violation and severe damage to the interests of Faraday Future and its investors.
- During Mr. Krause’s tenure, the company was almost certainly under severe financial stress resulting in a dire need to secure financing.
- It is thought (see here) that Mr. Krause championed a range of options and exits that would secure the financial position but cost Jia Yeuting control of the company which he declined.
- Given Mr. Krause’s track record with BMW, Deutsche Bank and Deutsche Postbank, I think it unlikely that he acted improperly leaving me to believe that the main reason for his leaving the company was a profound disagreement with Jia Yueting.
- This also leads me to question whether Jia Yueting will put the interests and wellbeing of Faraday Future above his own personal interests, further raising the question as to whether he is the right person to lead this company going forward.
Faraday Future has secured a life line but to get the remaining $1.2bn it will need to meet a series of milestones.
This will require great execution and management’s track record in this department is less than exemplary to date.
Furthermore, the electric vehicle markets is becoming increasingly crowded with new comers meaning that Faraday will have to do something pretty special in order to be a commercial success.
Again, the history of the company and current management does not fill me with confidence that this will come to pass.
I am more than ready to stand corrected on this one, but from the evidence I can see, Faraday Future best chance of success will be achieved with wholly new leadership unconnected to its very rocky past.
I would rather back Byton