Graphic credit Jim Cooke/Gizmodo Media

Inside Sources Say Faraday Future Is A Bigger Catastrophe Than You Can Possibly Imagine

The billionaire’s money stopped showing up. Senior executives resigned left and right. Suppliers said they weren’t getting paid. You have no idea what a mess things are behind the scenes at the mysterious car startup Faraday Future.

For a year now observers in both the automotive and tech industries have wondered what kind of money the Chinese-backed auto startup Faraday Future really has, and how it could pull off its grandiose, world-beating plans. But all is not well there now.

Sources close to Faraday Future, including suppliers, contractors, current, prospective and ex-employees all spoke to Jalopnik over a number of weeks on conditions of anonymity and said the money has been M.I.A., the plans are absurd and the organization verges on the dysfunctional.

A year ago, things seemed very different. In late November of 2015, Faraday Future burst onto the scene with promises as big as its name was mysterious.

Staffed by prominent industry figures poached from companies like Tesla, Apple, Ferrari and BMW, FF made bold, unprecedented promises: an electric car that could not only drive itself but connect to its owner’s smartphone and learn from their daily habits to become the ultimate personalized vehicle. And if ownership didn’t suit their lifestyle, fine; the company was eager to expand into ride-sharing and autonomous fleet services.

With a $1 billion facility in Nevada, the company promised production by 2017. Forget what you know about cars, the teaser videos proclaimed. A revolution is coming and we would see it at the CES trade show in Las Vegas. Everyone anticipated an actual car that could live up to these claims.

Then January and CES rolled around and the company revealed that yes, that wild rocket-looking supercar that leaked onto the internet via an app really was Faraday Future’s show car. But not its actual production car. That would come later, the company swore after an embarrassing debut that laid the hype and the buzzwords on thick but had seemingly little to back it up. In the meantime the company promised a “skateboard” modular electric platform that could be adapted to suit several different body styles.

But everything would be fine, right? After all, FF was getting $335 million in state tax incentives and abatements from Nevada for its plant, and it was sponsoring a Formula E team. And in the company’s own words, it would do for cars what the iPhone did for communications in 2007. And Faraday Future is funded by Jia Yueting, a tech mogul in China known for starting the country’s first paid video streaming service. It’s often nicknamed “The Netflix of China,” and it brought Jia the billions he needed to start a whole tech empire, selling everything from smartphones to TVs to cars.

What could go wrong?

That was in January. FF spent the next several months in the news over and over again, almost always for reasons no company wants to be in the news. There was the lag on payments to the factory’s construction company, the senior staffers jumping ship, the confusing debut of a seemingly competing car from the company helmed by its principal backer, the lawsuits from a supplier and a landlord who said they weren’t getting paid, the work stoppage on the factory, the state officials in Nevada who said Jia didn’t have as much money as he claimed (something that Jia denied in a haters-are-my-motivators statement), and the fact that leaders in that state copped to never really knowing much about FF’s financials before approving that incentive package.

Now, when industry observers and consumers—eager to see what’s next in car technology as our notions of mobility start to change, and wonder what this infusion of mysterious Chinese money really means—look to Faraday Future, they wonder what the hell is really going on. And whether the company can actually deliver on any of its hype in the coming year.

Faraday Future declined to comment, and declined to comment on behalf of Jia, saying he is merely “an investor.” Its so-called strategic partner, LeEco, Jia’s flagship Chinese tech business that is also seeking to build an electric car of its own has not yet responded to requests for comment.

The Supplier Lawsuit

The story of what happened to Faraday Future must start with suppliers—the third-party companies who make various parts and components for cars—not getting paid.

Faraday Future is now getting sued by the supplier that makes its seats, a company called Futuris, over allegedly unpaid bills, as BuzzFeed News broke Thursday. Futuris says that Faraday Future owes no less than $10 million, a stark $7 million of which is more than 30 days overdue.

The suit claims that Faraday Future was paying Futuris monthly for developing the seats for Faraday Future’s car, the Beta. Over the summer, FF’s payments just stopped, the lawsuit alleges.

According to the complaint, at first Futuris was asking Faraday Future if its work was satisfactory, and if they were going to be sending back payments. Each time Futuris asked, Faraday would say that Futuris’ work was satisfactory and that money was on the way from China. But at no point did Futuris get its money, all the way through the end of November of this year, the lawsuit alleges. Ultimately, the suit said Futuris asked Faraday Future again where the money was. Faraday Future’s purchasing manager explained that the money was still tied up in China and Futuris would be paid in full as soon as the money came through. Futuris, as it alleges in the suit, still has not been paid.

Futuris waited two weeks after its last communique with Faraday Future, then filed the suit we see now. [Update Friday 6:35 p.m. ET: The case, mysteriously, has been dismissed according to According to Los Angeles County Superior Court records, on Wednesday. The reasons for this are unknown, and a lawyer for Futuris declined to comment.]

This was not an isolated issue. Internal corporate documents from July seen by Jalopnik describe overdue bills in the tens of millions of dollars to several more suppliers in addition to Futuris. And sources who spoke to us indicate suppliers are still not getting paid. (Those suppliers have not provided any official confirmation or denial in any of Jalopnik’s requests for comment.)

These partners ceased business with Faraday Future, our sources explain, and it is unclear how the company can keep going without them.

Faraday Future does not have an operating factory at the moment. With missing key suppliers and no factory, what does it have?

The Infamous Yahoo Land Deal

But we’re going to have to look to a single moment in Faraday Future’s history that illustrates better the even deeper issues within the company, and it’s one that at first seems fairly innocuous: back in June of this year, LeEco bought just under 50 acres of land from Yahoo in Santa Clara for $250 million.

Recall that LeEco is the Chinese tech giant owned by Jia Yueting, FF’s principal backer. Guess who guaranteed that land deal for LeEco? Faraday Future.

Now, this doesn’t make a lot of sense, because Faraday Future and LeEco are officially not the same company. That part is important.

Faraday Future is based out of the United States and got started before LeEco got into cars, while LeEco is based out of Beijing and started getting into cars after Faraday Future. The two companies say they are “strategic partners,” but it’s not clear what exactly divides them.

Faraday Future doesn’t even list a distinct CEO as one of its senior officers, and has never announced one; BuzzFeed News’ report says the company won’t even confirm it is looking for one. Particularly painful is news reported Thursday that Faraday Future was actually ordered to design LeEco’s first car at the expense of development at Faraday Future.

Just as well, Faraday Future employees said their company never got paid for the work, according to the story. At best, Faraday Future’s place in Jia Yueting’s auto empire seems to be that it has a more “American” face than LeEco, that it has more hype, and that it seems like it has its own money.

Again, that part is important.

Back in June, LeEco received a $140 million loan from a lending company called Mesa West to buy Yahoo’s Santa Clara land and put Faraday Future down as the guarantor for the loan, according to sources familiar with the deal speaking to Jalopnik under conditions of anonymity, and internal company documents.

Having a guarantor was good for LeEco, as it made the loan and thus the land purchase possible. Being the guarantor was very much an added risk for Faraday Future, because it was now on the hook if LeEco could not pay, the sources said.

Six top executives, ranging from heads of manufacturing to human resources, implored Jia to not use Faraday Future as a guarantor, according a signed letter dated to June 2016 and viewed by Jalopnik, noting that Faraday Future had enough problems of its own.

The letter explained that Faraday Future had a history of being late on payments to suppliers, with $30 million outstanding, $23 million of which was overdue at the time of the deal. The letter pleaded that at this time, behind on bills, Faraday Future forecasted another $445 million in payments over the next thirteen weeks. In essence, it was not in any condition to back a side project for LeEco.

The Yahoo land purchase begrudgingly went through after adjustments from FF’s top lawyer, enough to assuage fears from some key executives who were being asked to sign documents in connection with this deal. Without these changes these executives—who were not lawyers—feared they would go to jail, as seen in internal company emails. After that was over, however, Faraday Future hired outside accountants to go over the company’s books.

The $300 Million Question

This was not an extraordinary move. Sources close to the situation explained to Jalopnik that the financial team at Faraday Future thought that the books seemed fine when they themselves reviewed them. They were only looking to close the books to prep them for a larger financial firm’s overview—standard steps towards an eventual initial public offering on the stock market. But what the outside accountants discovered was troubling, our sources said.

The covenants of the loan from Mesa West included terms that required Faraday Future and LeEco to maintain a combined net worth of $120 million, and if the net worth fell below that number it would be in violation of the loan agreement and had 10 days to correct it. If FF’s net worth went below $90 million, it was automatically in default, according a source who has requested anonymity as well as an internal email sent between the company’s lawyers and finance officers.

Faraday Future was told by its outside accountants in July that it had $300 million in liabilities that it hadn’t recorded. Documents seen by Jalopnik, whose veracity was confirmed by another source with knowledge of the company’s affairs, indicate that nobody at FF—even its top accounting and financial officers—had any idea about how much liability it hadn’t even accounted for. One source had to tell his coworkers, the outside accountants indicated that the company didn’t have the roughly $100 million positive net worth it thought it had, but rather approximately negative $200 million.

I will briefly pause to say that this is insane. Finance, accounting and legal executives were arguing whether or not the company had a $300 million hole they didn’t even know was there.

And these were not irrelevant line items: these were agreements to pay suppliers for work, for tooling, for the very prototypes we see Faraday Future hyping in the news.

The issue was brought forward in July by executives to the then-director of accounting and administration at Faraday Future, Chaoying Deng, worried that now the company was not only in trouble in terms of funding on a very basic level, but also in violation of its loan agreement with Mesa West, according to documents seen by Jalopnik.

The response was bewildering, both to me and presumably to the six executives who quickly quit the company. Documents seen by Jalopnik show Faraday Future’s then-accounting and admin director denying that there was any problem at all. The issue of the $300 million was only partially true, she said; it was just the result of some accounting errors and late-filed documents. “My bad,” was the precise wording. And the financial requirement to Mesa West only needed to be fulfilled by LeEco and Faraday Future together. Everything was going to be fine.

This is a company that was behind on bills, planning on spending an order of magnitude more in the immediate future and still is behind on bills as alleged in the Futuris suit. Which is how six of Faraday Future’s top executives came to resign, the sources said. For months they had dealt with promises of money coming in from China.

Month after month, the money never arrived, but spending kept up. At a certain point, it became clear that those in charge of Faraday Future had no idea what they were doing.

With CES a month away, skepticism abounds more than ever. Eternal optimist Nevada’s Governor Sandoval issues a response on Thursday against naysayers, stating “the state and taxpayers are fully protected should Faraday not meet its $1 billion investment.”

The Man At The Top Who Wanted More

I wish I could say this in front of every sentence I write about Faraday Future, but from everything I’ve seen there is good and serious engineering work getting done at the company.

If anything, Faraday Future has too many people working on one of the most interesting cars we’ve seen in years, engineers crammed computer to computer, even on fold up-picnic tables as one anonymous interviewee told Jalopnik. All-electric, eyes on autonomy, with incredible performance and design. “There’s a lot of good people there,” one source noted. “That’s the worst part.”

But you can’t have this engineering side without a solid business to back it up, and the good work at Faraday Future seems like it has been constantly undone by the unrealistic demands of its top leadership and a money gulf across the Pacific.

Documents seen by Jalopnik reflect that finance executives repeatedly asked Jia for more money, money the company needed desperately to pay off its debts to suppliers. At each turn, these executives were turned away, told that money on its way from China, and to continue spending money and making new supplier commitments.

One top executive was asked to price out Jia’s wishlist for the business that included a dramatic, multi-billion dollar projected product plan. He presented the estimate to Jia at a meeting in China and came away with impression that the plans were—and this is perhaps the most forgiving assessment of Faraday Future’s plans given what others have told us—“almost delusional.”

But, like the suppliers, the executive was assured the money would come eventually.

If you have any information about Faraday Future, please email raphael at jalopnik dot com.

Raphael Orlove is features editor for Jalopnik.

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DISCUSSION

chrisnugget
Chris Nuggets

So I was a former Fisker employee who was asked to interview for a position in Finance at Faraday a year or so ago with the promise of some fairly outrageous compensation at least for the position level. I took one meeting with them and decided they were full of as much shit as Fisker was, if not more so. But I reflected on my lessons learned there and compared it to what I was hearing about Faraday Future’s ambitions and concluded that this was the same story, different faces. At least Fisker had a working production line in Valmet and had a product to sell on the market. The quality and ultimate success of that vehicle is debatable but they got much farther than this Chinese clown’s company. It’s little consolation and despite that caveat, I see that Faraday Future’s failure shares some similar circumstances with Fisker’s.

First of all, these automotive startups are too enamored with hiring big-wig “industry titans” in executive roles who can’t look past their ego or “business as usual” management style to really look after and foster a legitimate automotive startup. These “experts” are brought in to add a veil of legitimacy around the new company. People like Richard Kim or Marco Mattiaci have great careers in their prior roles at various other car companies like BMW and Ferrari but that doesn’t mean they can translate that into a startup automotive company. The board of investors care more about the brand and marketing message than the actual product. The executives they hire view their role as guiding their investors to an IPO payday and nothing more in the short-term. Long-term, they insist it’ll be someone else’s problem. But actually it becomes MANY other people’s problem such as suppliers, goverment agencies and public tax payers, as well as the employees of the company.

With chasing an IPO in mind, large promises are made both to the public and to 3rd party tier 1 and tier 2 suppliers who sadly suffer and are severely cheated in these situations. The suppliers will try to protect themselves with premium pricing contracts that reflect the low volume nature of the vehicle so that it becomes worth it to them to take the risk. But when the risk is so high, no premium pricing contract can get them their money when the customer doesn’t plan to honor invoice payments in the short term in the first place. The goal here is to get a product out to hype up and bring them a step closer to the holy IPO grail, suppliers be damned.

Also, cozying up to local state or federal government agencies for tax incentives and subsidies on manufacturing facilities is another big tactic common between these automotive startups. These poor (not really) government chumps face so much pressure from their constituents to create jobs and economic stimulus that they will gobble up any flashy marketing message regardless if it’s from some skeevy unknown business corporation, hook line and sinker. They’ll believe the promises of thousands of jobs and help shovel along the marketing bullshit to the public.

Finally, employees of the company also suffer obviously, especially the engineers who are building and developing the vehicle. Like at Fisker, I am positive that there are genuinely talented folks at Faraday Future and they took the only job available to them at the moment so they could provide for their families. These good hard working people could do fantastically if they had the funding and freedom to really do the job. But shortcuts on the development of the car are encouraged by the higher up execs because they’re interested in getting a car to market as quickly as possible.

The early “testing” stories I’ve heard during my time at Fisker only reinforced how surprising it was that they were able to get the car certifiable and sellable to the general public. I’m sure the stories at Faraday would reflect the same type of pressures. The way Faraday shows off “design concepts” also indicates to me the company prioritizes the marketing over the engineering and this can have very adverse effects on the quality and safety of the final product. Strict concept designs can create packaging constraints can limit the practicality of engineers to make a safe and effective car. Fisker Karma was praised as an example of when the final car looked exactly like the concept vehicle shown years before it but there’s a practical reason why production cars never look like their concept counterpart. Most final production cars are designed to work and work well, while the initial concept car is designed to generate hype and market interest. But if the production car is the same as the concept car, it’s likely that the company’s intention follows the concept car’s which is to generate hype and not actually work very well. If Henrik could be swayed to change his initial design with the foresight and experience input from his employees, the Karma might not have been a packaging clusterfuck and had the ECU and drivetrain electronics inches away from an unshielded turbo in the engine bay, or faulty fan switches that helped cause customer cars to burn to crisps.

Faraday Future should be renamed to False Flags because that’s all their company has been since the start. The Chinese financial backers don’t automatically mean success, just like Fisker drawing on a $500M DOE loan doesn’t automatically mean success. The taps could turn off at the drop of a hat especially when you look at Jia Yueting’s other flailing businesses. I viewed the promise of a big paycheck working with Faraday Future like I would a third party automotive supplier. I could ask for as much as I wanted, but that payday would not come good for long, if at all.

The automotive industry is incredibly capital intensive and I find it surprising so many automotive industry “insiders” hired at these startups ask themselves “how hard could it be” and are shocked at the difficulty of being successful in this space. It’s a shame because Tesla is the only semi-successful newcomer but the market needs to see more than just one automotive EV company for America to really shift its infrastructure from fossil fuels.

TLDR: Faraday and other auto startups fall into the same traps and bad business practices. Sad to see suppliers, taxpayers, and good employees suffer because of the poor business sense and short-sightedness of big wig “industry” executives.