The billionaire spent 8 years, burned 3 billion USD to build an electric car but received 0: 1 company in debt, 1 car prototype that was never produced

One Wednesday evening, Susan Swenson’s email inbox received a terrifying image: A portrait of her with her head grossly obscured in red ink and the word “kill.” (kill) is written in the bottom left corner. Hours after the incident, several of her colleagues received similar threats.

The threatening emails mark the culmination of a months-long battle for control of Faraday Future Intelligent Electric, an electric vehicle startup based in California, USA. This company once blew itself that it would become the next Tesla. In September, after death threats, persistent pressure from Faraday’s biggest shareholders, and the surprise factor that China Evergrande real estate mogul, Swenson – Chairman and three others agreed to leave from the Faraday board in a restructuring.

It is not clear who is behind the above threatening letters (Faraday has sent the file to the FBI) ​​– some leaders believe the case is related to the recent board fight that was started. by its largest shareholders, including an organization called FF Global Partners, which is managed in part by founder Jia Yueting.

Bloomberg had the opportunity to speak with a number of people (who wish to remain anonymous because of the sensitive nature of the case) to better understand what is happening in Faraday.

Seven months ago, Faraday’s board of directors pushed Jia (nicknamed YT) out of the company following an investigation into his influence on the company’s day-to-day operations as well as his connection to the company’s payments. Loans from employees over the past several years. For now, YT stands to benefit the most from a board reshuffle, which will be completed when Faraday holds its annual shareholder meeting.

He is also included as an advisor to the board and FF Global will add 6 new board members. As Faraday said in a recent SEC filing, “YT Jia and FF Global have consolidated their existing influence within the company.”

However, when YT regained power, the company was also under investigation by the SEC and the Department of Justice. This is also the time when the company is in dire need of more money. After burning more than $3 billion since its launch eight years ago, Faraday reports it has only $27 million in cash by October 25, and says millions more are needed if it wants to be able to deliver a car. The first electric SUV for customers.

WOMEN PACKED ONLY

YT emerged in China in the early 2010s when a storm of money hit the founder with his great vision. YT launched an app called “China’s Netflix” and made a successful bet on a consortium called LeEco that does everything from smartphones to ebikes running Android.

LeEco’s expansion has been at the expense of billions of dollars in debt, and YT itself has pledged personal assets for many loans. At one point, he mortgaged his 97 percent stake in a listed branch of LeEco in exchange for a loan of nearly $2 billion.

At the same time, Elon Musk is changing the auto industry. Investors started betting big in hopes of finding the next Tesla, and dozens of electric car startups from China to the US emerged. In that competitive environment, YT founded Faraday in California in 2014, betting he could beat Musk.

In the end, LeEco crumbled under the weight of YT’s ambition. In 2017, it laid off hundreds of employees and canceled its $2 billion acquisition of TV maker Vizio and also stopped expanding in the US. Chinese creditors started looking for LeEco and YT. This tycoon has been blacklisted by government debtors and has some assets frozen. Eventually, he went to America and started with Faraday.

YT’s connection to Faraday was difficult to discern at first. The company does not disclose the name of its CEO, and management also declined to talk about where the money comes from. According to the records, the first years of capital mainly came from YT – about 900 million USD. Heavy spending has helped Faraday attract talent from companies like Tesla and GM.

WAR OF WOMEN’S RIGHT

However, things were not easy as Faraday struggled to meet YT’s ambitions. He wanted an electric car with the coolest technologies. However, at the end of 2017, months after announcing the first prototype, the company ran out of money.

YT brought a duo of former BMW leaders to help them recover, but when they proposed to file for bankruptcy, YT was extremely dissatisfied. A restructuring could jeopardize his control of the company so YT dismissed the offer. The two leaders mentioned above have resigned and Faraday accused them of “neglect of duty”.

At the end of 2017, YT found an unexpected savior in China Evergrande – a company that pledged to pour $2 billion into Faraday in exchange for a 45% stake. YT also officially took over the CEO position. Faraday spent $800 million before the deadline set by Evergrande. Evergrade agreed to add $700 million by mid-2018, but on the condition that YT withdraw and sacrifice ownership.

YT is forced to comply with that request – at least on paper. He passed his shares to Vice President Faraday’s daughter. However, China Evergrande said that was not enough and so the $ 700 million was never sent. As a result, in late 2018, YT and Faraday sued Evergrande in the US, accusing the real estate giant of “deliberately starving” them. Evergrande accused YT of “playing the role of a manager in the shadows, directing every decision at Faraday”.

Faraday had to lay off and lay off hundreds of people, and suppliers who were in debt also sued them. Nick Sampson, a former Tesla executive and Faraday co-founder, is also leaving. “This company has become insolvent,” he said in his resignation letter.

In the last days of 2018, Faraday and Evergrande reached an agreement. Accordingly, Evergrande agreed to reduce its stake to 33% and allow Faraday to find another investor. The real estate giant also lent Faraday a short-term loan of $ 10 million and so Faraday was able to live, under the leadership of YT.

THINKING FOR CAPITAL

These acrimonious disputes — which largely revolved around YT’s control of the company — made it difficult for Faraday to raise money. In 2019, the company made a few moves to dilute the power of the founder: They set up a management group called FF Global Partners, which took the majority ownership of YT in Faraday (about 30%) . YT was also forced to leave the CEO position, replaced by a former BMW leader named Carsten Breitfeld.

In October, YT filed for personal bankruptcy in the US to settle billions of USSD debt of LeEco. Creditors exchanged their claim for a belief that owning Faraday Futures stock, would receive payment if the startup was acquired or IPO.

For his part, Faraday survived during that period thanks to a series of loans from employees and YT stakeholders.

In April 2019, the company received a $9 million loan from an employee of Faraday’s Global Capital Markets department. This loan comes from Ocean View Drive – an organization that YT established in 2014 to buy 3 large mansions in the US. (YT no longer controls this organization but it is run by his nephew’s wife who also works in Faraday).

In June, another employee in the same room lent Faraday $16.5 million. This loan was actually funded by FF Global Partners – by members borrowing money from a company called Dream Sunrise related to his wife Ruokun Jia.

When asked about the loans, a spokesperson for FF Global said Faraday “wasn’t able to get substantial funding from a third party at the time and so they had to rely on smaller loans with help from YT Jia”.

“Over the past few years, YT Jia and FF Global Partners have rescued FFIE many times,” the spokesperson said.

However, despite so many loans, through so many layers, Faraday still needs $9.2 million in loans from the Paycheck Protection Program. through loans 100% guaranteed by the federal government) to weather the crisis.

With just $1.8 million in a bank account at the end of the year, Faraday has come at the right moment of a boom in mergers with SPAC, which has helped rival companies like Nikola and Fisker go public. Immediately, Faraday cooperated with the SPAC company run by two American real estate tycoon brothers, Jordan and Scott Vogel. A source said that the Vogel brothers not only saw Faraday’s technological potential, but they also believed that YT no longer controlled the company, so they signed an investment agreement.

The deal comes in early 2021. In June, Faraday raised $1 billion and began trading on the Nasdaq with institutional backing including Citadel Advisors, Geely and Palantir. Breitfeld is committed to launching an electric SUV within 12 months.

THE BIG WAR OF THE BOARD OF DIRECTORS

Vogel joined the Faraday board in the wake of the merger. Over the course of three months, the board launched an investigation into YT, led by a special panel initiated by Swenson. The board hired Kirkland & Ellis as well as the accounting firms Alverzez and Marsal to examine the individual and interpersonal financial effects of the company.

The board concluded that senior executives misled investors about YT’s role in day-to-day control of Faraday. They also found that senior managers did not disclose YT-related “relationships, agreements and transactions”. YT was officially sidelined and stripped of its executive status.

Faraday also said that FF Global started the fight moves in February. In June, FF Global released a public filing of the replacement of one of Faraday’s directors, Brian Krolicki. According to the source, these troubles caused a funding round with Citi to fall apart and again in July, Faraday said that it delayed the launch of its model due to the need for more money to produce.

Meanwhile, a group of employees working with YT circulated a letter accusing Swenson of organizing a string of unfair investigations against leaders. Swenson, Krolicki, and the Vogel brothers declined to comment on the matter.

FF Global also concurred and told Bloomberg that the group ” does not believe that the special panel’s investigation was conducted fairly ” and that the investigation ” is unfairly aimed at punishing those involved.” FFGP ”.

This battle culminated when FF Global sued Fraday in Delaware Chancery court on September 19, accusing the board of violating fiduciary duties. FF Global pushed for the removal of Swenson and also offered an important advantage: Evergrande, which still holds a 20.5% stake in Faraday, backs FF Global to renew its board.

That’s when the death threats came in. Krolicki received a photo similar to the one Swenson received, and other executives including the Vogel brothers received numerous threatening messages in the days that followed.

WHO IS THE REAL BOARD OF FARADAY?

On September 26, Faraday announced a “ceasefire”. FF Global agreed to withdraw the lawsuit and arrange for $100 million as a short-term loan. In return, Swenson, Krolicki and the Vogel brothers agreed to leave the board at the next shareholder meeting. A week later, Swenson and the Vogel brothers resigned, citing ” threats and fears about their connection to the company that could harm not only themselves but those close to them “. Earlier this week, Krolicki resigned.

Whatever happens at the upcoming shareholder meeting – which Faraday has yet to set a specific date for – the startup has agreed to finalize a reshuffle of its board of directors from 10 members to 7. FF Global will select 3. 3 more will be chosen by Breitfeld. Breitfeld himself is also the 7th member.

Breitfeld’s name is not included in FF Global’s battle with the board and a person close to him says his connection is hard to separate. He was the manager for FF Global until May. He lived in one of the California residences once owned by YT.

Whether or not Breitfeld was instrumental during Faraday’s success or failure, one thing is for sure, he’s spent the past five years with YT, under YT’s watchful eye. In several meetings, one of the attendees recalled, Breitfeld – the moment he was given the leadership chair, sat in the chair, YT would pull a chair to sit next to him. This person asserted: “ Everything is too clear. In good times and in bad times, Faraday has always been the company of YT .”

Source: Bloomberg