Faraday Future teeters on the brink of collapse say insiders

January 20, 2017

The photo above was taken last April at the groundbreaking ceremony for Faraday Future's $1 billion plant in Nevada.

In light of new reports from company insiders, it could double as a shot of folks shoveling dirt on the company's grave.

Those reports suggest that Faraday faces several major problems--problems that, if not resolved very, very soon, could force the company to shut down within months:

Problem #1: A lack of leadership. On Faraday's (glitchy, crash-prone) website, the company lists a six-person executive team. None of those executives bear the title of CEO, and that's a major problem. Every company needs an official leader, one with the ability to make decisions, sign checks, and set goals. Faraday has no such person. All they have is...

Problem #2: Faraday's founder, Chinese entrepreneur Jia Yueting (who occasionally goes by YT). Because the billionaire bankrolled the company, he apparently feels entitled to call the shots. But while YT may know how to build smartphones and TVs in China, as he's done with his company LeEco, he clearly doesn't know how to build cars in the U.S. Since the company's founding three years ago, he's been on hiring and spending spree, and only recently came to the conclusion that he'd overextended his resources.

YT's rude awakening could signal the beginning of a turnaround for Faraday. However, it's undoubtedly an ominous sign for the company's 1,400 employees--not to mention the many vendors to whom Faraday owes some $300 million. Which brings us to...

Problem #3: Serious cash shortages. Faraday isn't yet selling cars, so at the moment, it's relying solely on investors for operational funds. Money does come in, but employees don't know where it's from, YT doesn't explain, and it's only about 10 percent of what the company needs to stay afloat. YT and his well-heeled pals have generated about $1 billion in bond funds in China, but there are serious doubts as to whether Beijing will let that much cash out of the country. In which case, the money may go to...

Problem #4: LeEco. Faraday exists in partnership with LeEco, where YT serves as CEO. Though the two companies are supposed to be working on electric, autonomous cars together, it appears that LeEco is taking the lead, with Faraday as a secondary, foreign subsidiary. Some insiders suggest that YT has prioritized launching cars in China first, neglecting Faraday in the process. Which would explain...

Problem #5: The lack of a jaw-dropping prototype. The FF 91 that Faraday unveiled at CES earlier this month got a very lukewarm reception. There were hopes that the debut would generate huge numbers of reservations, which, at $5,000 a pop, would create some much-needed cashflow. Unfortunately, the car failed to impress, and estimates are that only 60 people ponied up, resulting in an underwhelming infusion of $300,000. 

According to one insider, if Faraday doesn't get money out of China and/or generate loads of cash from new investors by May, it may have to shut down entirely. Another insider suggests that the window could be closing faster--as soon as 60 days.

Our take

Faraday's collapse wouldn't be all that surprising. The red flags have been waving for well over a year. Among them:

1. Faraday's first vehicle was a non-functioning supercar that the company created solely for show, not for production. There's something to be said for drawing attention, but for a brand-new company with no history of automobile production to devote all of its time to building such a rarified concept with no hint of what's to come? Well, it was a little odd. And let's face it, the FFZERO1 wasn't that attractive anyway.

2. Rather than take over an existing facility, Faraday opted to build one from scratch, to the tune of $1 billion. That's not in itself unheard of, but again, you might think that a start-up would be a tad thriftier. Like the FFZERO1, it seemed like another case of "all hat, no cattle".

3. The company began backtracking on production plans. Initially, Faraday said that its cars would be rolling off the assembly line by 2018, but the dust from April's groundbreaking hadn't even settled before executives walked back that timeline. It made the company's previous statement sound reckless, as though Faraday didn't understand the realities of manufacturing cars. 

4. Two months later, Faraday began exploring the idea of building a second plant--this one in California. This is before the company had even started construction of the facility in Nevada, and long before it had shown off its vaguely working FF 91 prototype. 

5. In October, word broke that tensions between Faraday Future and the contractors it had hired to build its Nevada plant were coming to a head because of unpaid bills. The two firms tried to put a good face on things, but a few weeks later, construction totally ground to a halt. It hasn't re-started. 

6. Earlier this month at CES, Faraday unveiled a prototype of the FF 91, its first production model. Everyone knew that the car needed to wow the press and the public, but the design was a bit meh, and the car didn't seem to do anything that other high-tech rides hadn't already promised to do. Frankly, it felt bloated: it had so many bells and whistles that it was hard to see what the car or Faraday stood for.

Worse, the car didn't perform as it needed to onstage, glitching in one major demonstration. And YT failed to get onlookers pumped up. He desperately needed to charm the pants off everyone in the room. He needed to pull an Elon Musk and didn't--not by a long shot. 

None of this is to suggest that the reports of Faraday's imminent collapse are accurate. (Faraday itself has characterized them as "speculation".) The reports quote anonymous sources, and anytime there are anonymous sources, you have to maintain a very critical eye and rely on the integrity of the reporter who filed the story. 

All we can say is that, given the many warning signs that we've seen over the past year, the report doesn't seem too surprising. In fact, in some ways, we've been expecting it.

Stay tuned as "deathwatch in the desert" continues.

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