Faraday Future Hanford plant rendering via Kings County EDC
Written by David Castellon
The plight of would-be electric carmaker Faraday Future to break ties from its Chinese investors is being cited by the Trump administration as an example of that country’s unfair business practices with the U.S.
Chinese investors have incentives to invest in industries favored by China’s industrial plan, including electric car manufacturing, states the report prepared by the U.S. Trade
The U.S. and China currently are involved in a massive tariff war over U.S. claims of improper and illicit trade practices by China and claims by the Trump administration that current trade deals are unfair to the U.S.
President Donald Trump directed in August that the report be done to determine if the policies, practices or actions by China “may be unreasonable or discriminatory, and that may be harming American intellectual property rights, innovation or technology development.
“An illustrative example is the recent acquisition of NEV [new electric vehicle] manufacturer Faraday Future (FF) by Evergrande Health,” a division of China’s largest real estate company, the report states.
Late last year, FF was strapped for money until a Chinese investment group that Evergrande later acquired came to the rescue, investing $800 million with a commitment of $1.2 billion more over the next few years for a 45 percent stake in the fledgling business looking to go up against Tesla Motors in the electric car market.
That investment allowed Gardena-based FF to go forward with plans to convert a million-square-foot former tire factory in Hanford into the startup’s first car plant.
Though plans were to finish the conversion by the end of this year and start full production on luxury all-electric sports utility vehicles early next year, all of that is up in the air, as FF officials have tried to break ties with Evergrande amid claims the investors are holding back hundreds of million dollars they were supposed to provide by now and accusations Evergrande seems to be trying to push FF into bankruptcy.
That has put the company back in a financial bind that has prompted the layoffs – at least temporarily – of FF’s newly hired workforce in Hanford, Gardena and China and pay cuts for those still working.
Court documents have stated FF could become insolvent without a new major investor.
“Collaborating with full-service brokerage and investment banking firm Stifel, Nicolaus & Co., as well as Miller Buckfire & Co., FF is actively pursuing $500 million in additional financing from outside investors. The firms are working with FF to secure supplier relations, with FF now in the very last stages needed to bring the 1,050-horsepower FF 91 EV to life,” states a company press release.
In it, founder and CEO YT Jia, a Chinese billionaire who initially backed the electric car startup with his own money, states, “Before successful financing, I am willing to take out my personal equity as a pledge and guarantee for all suppliers. We will not let them have any payment risks.”
It goes on to say all of FF’s 177 suppliers of 1,524 unique parts remain committed to delivering the FF 91.
But the federal report raises questions of whether FF’s potential failure is a concern for its investors.
“Evergrande’s focus on acquiring technology is evident in the press release announcing the acquisition, which claimed that ‘by taking control of FF, Xu Jiaying [Evergrande’s owner] will bring the peak of world technology into China, greatly improving the core competitiveness of China’s vehicle engine industry,’” according to the U.S. Trade Representative’s 50-page report.
It goes on to say that Evergrande’s financial report for the first half of 2018 includes an entire section about the FF investment and its role in providing Evergrande new technology.
“Evergrande also emphasizes that FF, between its U.S. and Chinese operations, has already acquired 380 patents,” and NEVs are a major focus of China’s industrial policies, the report states.
“Currently, the large gap between the technology of domestic electric vehicle enterprises and global leaders is obvious. By becoming the dominant player in FF, Evergrande comprehensively masters world-leading technology and is able to synchronize the sharing of research and development, which will help China realize its strategic goal of becoming a strong automotive nation.”
The federal report goes on to say that Chinese venture capital investments in U.S. firms “can enable Chinese government access to cutting-edge U.S. technology and private technology-related information. U.S. business leaders, technology industry experts, and China experts have emphasized this risk.
“Some Chinese VC firms make no secret of their intention to access U.S. technology through VC investment to build Chinese companies in sectors that the Chinese government has deemed strategic.”
FF officials didn’t respond immediately to queries about the U.S. Trade Representative’s report.