A new memo from Chinese tech billionaire Jia Yueting shows him finally recognizing how overambitious he’s been with his mysterious electric and autonomous car startups Faraday Future and LeEco. Worryingly, it’s unclear if he can get them the money they need, or if things are about to go from bad to worse.
Ever since Faraday Future and LeEco emerged on our collective radar, we wondered how they were getting sufficient funding to break into the notoriously expensive world of making cars.
Faraday Future showed up about a year ago, only to receive widespread criticism over a rocket-like car that debuted at CES despite being not meant for actual production—though it swears an actual car is coming soon. FF is heavily backed by Jia Yueting, but his company is also launching its own car line dubbed Le Eco, one that had a very unfortunate U.S. unveiling last month.
But now, thanks to this memo from Jia, we know his would-be tech empire is running out of cash before the car projects can even get off the ground.
Jia Yueting issued a memo widely circulated on Chinese social media today, as Bloomberg reports. In it, Jia explains that the goals he set for his ballooning empire of businesses didn’t have the money to support them:
“No company has had such an experience, a simultaneous time in ice and fire,” Jia wrote in a letter, obtained by Bloomberg News, describing LeEco’s rise and subsequent issues. “We blindly sped ahead, and our cash demand ballooned. We got over-extended in our global strategy. At the same time, our capital and resources were in fact limited.”
As shown by regulatory findings and Winston Cheng, LeEco’s head of corporate finance, Jia’s strategy rested on a “risky financial model” of borrowing off of shares from the one corporate entity he controls that is actually making any money.
That would be his first business Leshi, the so-called Chinese Netflix, that made him his money before he started talking about an operating system that controls everything from your bicycle to your phone to your car’s infotainment screen.
So Jia was funding all of his crazy startup businesses off the back of his one secure original idea. How has this been going? Not great, as Bloomberg notes:
Leshi’s stock has plummeted by almost a third since the start of 2016. Jia has showed off an electronic concept car dubbed the LeSee, and in September raised more than $1 billion from a consortium of Chinese investors to make it. But in his memo on Monday, Jia singled out the car division for its profligacy, saying it had already spent 10 billion yuan in early development.
“Our fundraising ability isn’t strong,” Jia wrote. “The scale of our external fundraising had trouble satisfying the demands of our rapid expansion.”
Emphasis mine. Jia singled out his car division for spending a lot of money? He does know that building cars is, like, extremely expensive, right?
As to how much more support Jia will be giving his auto startups in the coming months and years is unclear. Jia said he’s slashing his income down to a single yuan to open up more money to his businesses, but he also apologized to Leshi shareholders for not investing enough money in his core operations. And Jia also said that he’ll be cutting costs from his more adventurous programs, particularly LeEco.
This lines up with what we at Jalopnik have heard from sources close to Jia-backed Faraday Future, that executives and leaders were lured to the company on promises of a massive war chest that may not be accessible after all.
Critics have said Jia needs to get serious about the monetary demands of his auto startups. Certainly what we’re seeing today is Jia reckoning with those demands, but it’s not clear if he’s about to turn to giving Faraday Future and LeEco the money they need, or if he’s starting to turn away from them and re-focus on the businesses that are safely making him money.
So I’m not sure if this reality check from Jia is particularly heartening for Jia’s car business LeEco or its technical partner Faraday Future, which has gotten $335 million in tax breaks from the state of Nevada to fund a billion-dollar factory in the state. It still needs state support for a few minor additions, such as power lines, water lines and roads. It was also recently in the news for being a solid $21 million late on payments to its construction company.