Faraday Future – The wrong man pt. II.

Red flags everywhere

• The saga of Faraday Future continues with further evidence of terrible financial management which serves to underpin my view that while Jia Yueting has control, the venture is doomed.
• The latest twist in the story is a statement from Evergrande Health (see here) that alleges that Jia Yueting has manipulated his majority board seat position in the joint venture to begin arbitration against his biggest investor Evergrande Health.
• Evergrande rescued Faraday Future by taking over the obligations and ownership of Season Smart Limited which invested $800m in Faraday Future on 25^th May 2018 in return for a 45% stake.
• Evergrande Health also committed to invest a further $600m at the end of 2019 and another $600m by the end of 2020.
• On 25^th July, Jia Yueting informed his investor that the $800m had already been exhausted and asked it to bring forward its 2019 investment and some of its 2020 investment into 2018.
• Evergrande Health agreed to advance another $700m under certain undisclosed conditions.
• However, it appears that these conditions were not met (in Evergrande’s opinion) and so it did not pay the $700m, leading Jia Yueting to force the company to do so via arbitration as well as strip it of its shareholder rights.
• Irrespective of the arbitration, this dispute raises some very serious questions about Faraday Future and its management:
  • First, $800m. The agreement was struck between Faraday Future and Season Smart on 30^th November 2017 and, presumably, a solid financial plan was in place.
  • This would have fitted with the schedule of tranches of investment meaning that the $800m was meant to last for the whole of 2018.
  • However, just 58% of the way through 2018, Faraday Future is already out of money and is asking for all the money for 2019 and some of 2020’s too.
  • This strongly suggests that Faraday Future’s fiscal discipline and financial management are in total disarray as it would appear that the spending plan has gone out of the window.
  • This combined with the fact that Faraday Future is still embroiled in a dispute with its previous CFO who I think has a good track record (see here), further adds to my concerns surrounding Faraday’s financial management.
  • Second, suppliers: Once again, Faraday appears to be failing to pay its suppliers.
  • The group that helped Faraday Future launch the FF91 at CES in 2017 has still not been paid and filed a lawsuit this summer (see here).
  • Furthermore, The Verge (see here) claims to have dug up more suppliers who have not been paid for the work they have put in or for equipment they have supplied.
  • This raises further questions around what happened to the $800m that was spent by Faraday Future between 25^th May 2018 and 30 July 2018.
  • Third, product: Again, according to the Verge (see here), the first and only prototype of the FF91 caught fire after it was shown to employees and their families.
  • Thanks to non-disclosure agreements, the extent of the fire is not known but this can not be a good sign as volume production is supposed to begin during Q4 18.
  • I can find no corroboration of this incident elsewhere and the sources are unnamed making it difficult to give any weight to this supposed fire.
  • However, it raises yet more questions to which Faraday Future has given no answers.
• This arbitration raises yet more red flags regarding the soundness of Faraday Future which certainly has money problems and may also have serious defects with its product.
• The red flags combined with the history of the company and current management does not fill me with confidence that the FF91 will ever see the light of day.
• Furthermore, the last thing one should do when one has been bailed out is to pick a fight with one’s benefactor again leading me to question Jia Yueting’s suitability to lead this venture (see here).
• From the evidence I can see, Faraday Future best chance of success will be achieved with wholly new leadership completely unconnected to its very rocky past.
• I would rather back Byton which also raised a similar amount of money this year and seems to be doing just fine.