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Faraday Future FF 91

FF91 image via Faraday Future

published on October 19, 2018 - 7:00 AM
Written by David Castellon

Faraday Future’s plans to build its first electric car plant in Hanford could have come to an abrupt end last year if not for a last-minute investment of $800 million with a promise of $1.2 billion more to come.

But that initial investment reportedly has been spent, as the 1-million-square-foot former tire plant on the north end of Hanford nears the final phases of conversion into a car plant.

Now, Faraday officials are going public with a feud involving their new investor, Hong Kong’s Evergrande Health Industry Group, Ltd., seeking to end the association and bring in one or more different investors to take its place.

 

Public spat

Things went public with an Oct. 7 announcement on Faraday Future’s Twitter page stating that “the only reason FF is trying to get out of the deal with Evergrande, “is because Evergrande has failed to live up to its end of the bargain and make the payments it agreed to make.”

That posting appeared to have been written in response to Evergrande officials filing a report that same day with the Stock Exchange of Hong Kong accusing Faraday Future officials of trying to undermine the company’s shareholder rights.

The initial bankrolling of Faraday Future’s plans to go up against Tesla Motors in the luxury electric car market originally came from Chinese billionaire Yueting “YT” Jia. But a series of financial problems forced him to cut back his investment, prompting the company to find new investors.

That came last year when Season Smart, Ltd., committed to the $2-billion investment, with $800 million of it paid up front to keep Faraday afloat in exchange for a 45-percent stake in the company.

Bloomberg.com lists Season Smart as a commercial finance company based in China, while the online tech magazine The Verge described it as “a twisting series of offshore holding companies that trace back to Hong Kong and mainland China.”

 

Musical chairs

Things changed in June, when Evergrande Health Industry Group – a division of Evergrande Group, China‘s second-largest property developer by sales – bought Season Smart, including its shares in the car company.

In its filing with the Hong Kong Stock Exchange, Evergrande officials state that the purchase came with a commitment to pay Faraday $800 million by the end of 2018, which already had been fully paid by May 25, along with another $600 million in 2019 and $600 million more in 2020, completing the total $2 billion investment.

It goes on to say that the joint venture was named “Smart King, Ltd.”

But on Faraday’s Facebook page, company officials state, “After its initial $800 [million] investment, Evergrande agreed in July 2018 to make further payments earlier than originally agreed, including $500 [million] of the $1.2 billion, in 2018. 

In its stock exchange filing, Evergrande reports that in July, YT Jia – the controlling shareholder in Faraday Future – “put forward that the $800 million paid by Season Smart had basically been spent, and asked that Season Smart further advance another $700 million. In order to give its full support to Smart King’s development, Season Smart, Smart King and the original shareholder [Jia] entered into a supplemental agreement, pursuant to which Season Smart agreed to, subject to fulfillment of payment conditions, pay in advance $700 million.”

The documents didn’t list those conditions.

 

Looking to split

It goes on to accuse Jia of manipulating matters through his majority interest to use the lack of payment as an excuse to request on Oct. 3 arbitration from the Hong Kong International Arbitration Center.

Jia’s goals, according to the Evergrande report, are to deprive Season Smart of its consent right as a shareholder in financing matters and to terminate all agreements and deprive Season Smart of its rights under the relevant agreements.

Evergrande insists it has fulfilled its obligations under the agreement. Faraday believes otherwise.

“Contrary to what Evergrande has told the press and its shareholders, neither FF’s CEO, YT Jia, nor anyone else ‘manipulated’ the board of Evergrande in reaching these agreements. In agreeing to bring a portion of its payments forward to 2018, Evergrande had a full understanding of why the funds were needed, and when they were needed, in order to achieve production and delivery of FF 91 in 2019,” states Faraday’s Facebook posting.

Faraday officials say Evergrande failed to make promised payments as part of an effort to gain ownership of Faraday’s assets in China and its intellectual property.

Trouble on the horizon?

The posting goes on to say Faraday “will continue to take decisive action, including pursuing funding opportunities from those who share our vision, to ensure that our vision is realized.”

As for what this latest financial hurdle will do for Faraday Future’s plans to start producing cars before the end of the year, that’s not clear. A report in online publication technode.com states that more than 60 Faraday employees in China weren’t paid their salaries this week.

While work still is underway to set up the Hanford factory, enough of the production area is up and running that workers have produced a few cars to test the system.

Faraday Future spokesman John Schilling stated in an email that officials there declined to discuss the dispute with Evergrande because “this issue is one of a legal nature…”

As such, company officials couldn’t be asked about whether enough money is available to finish the factory and whether it can pay its bills, employees and contractors.

 

A lot on the line

A lot is riding on Faraday’s success, as the company has announced plans to hire more than 1,000 people and the prospect of drawing other businesses supporting the first-ever automobile plant in the Valley.

“By all accounts, it sounds like they are on target to be fully operational by their target date,” said Joey Joslin, CEO of the Hanford Chamber of Commerce.

“None of my members have reached out to me with any concerns,” he said, adding, “That could change from day to day but at this point I don’t see any cause [for concern].”

When asked if Faraday’s newly-disclosed finance concerns worry him, Jay Salyer, economic development manager for the Kings County Economic Development Corp., said, “We’re not going to be really talking about that until we know what’s going on.


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