Faraday Future's Parent Company Has a Compulsive Spending Problem

Matt Posky
by Matt Posky

Jia Yueting, head of China’s LeEco, is finally copping to claims that there was insufficient money to support the company’s wild expanse into new territories.

This is particularly bad news for the moderately sketchy American automotive startup Faraday Future, which is strategically partnered with LeEco and is quite possibly doomed if its parent doesn’t shape up.

According to Bloomberg, Jia has issued a memo apologizing to employees and shareholders for his reckless leadership. In the letter he also pledged to reduce his income to one yuan (15 cents), while reining in LeEco’s brazen expansion and ensuring a more reasonable pace of growth for the company in the future.

Jia says LeEco will immediately begin cost cutting, decreasing subsidies offered to customers and focusing instead on established businesses instead of new ones. Those new ventures ready to be ignored are likely to include a self-driving car named LeSEE, a concept vehicle built with Faraday Future, and a massive electric car plant being built in Nevada.

That desert EV factory has already come under heavy scrutiny. Nevada’s state treasurer, Dan Schwartz, had expressed repeated worry over Jia’s involvement with Faraday Future. Schwartz even traveled to China earlier this year and attempted to meet with executives at LeEco.

A Faraday Future representative explained to Business Insider in May that LeEco’s business was separate from that of Faraday Future, because Jia was backing Faraday Future with personal assets. Except LeEco actually is bankrolling Faraday Future, including the Nevada factory, and the company is already behind on its bills to the tune of several million dollars.

The LeeSEE and Faraday Future vehicle projects are both part of LeEco’s unlisted ventures; not officially claimed as part of the company but operated via separate unlisted entities. While LeEco has not disclosed any financial numbers for the non-listed companies, they are no less interconnected. Jia Yueting has also borrowed massive amounts of capital to finance the automotive ventures, using his own shares in the listed entities as collateral.

Matters relating to Faraday Future are further complicated as it’s unclear who actually runs and owns the company. It has no CEO and how many shares LeEco or Jia Yueting actually own is a complete mystery. The company has also seen key personal abandoning ship and its promised production vehicle was a no-show at its own Consumer Electronics Show unveiling last January.

We’ll see what happens next, but it sure sounds like Jai and LeEco are thinking of abandoning the automotive industry and focusing on its bread and butter business of video-streaming services. However, Gizmodo spoke with LeEco North America’s Chief Revenue Officer today, who attempted to reassure everyone by saying, “The United States is our highest priority within the company,” and that the car project with Faraday Future was “extremely important.”

Bowman then admitted that LeEco was definitely open to gaining more investors. “As we look through three prioritized countries we will be looking for capital partnerships in all three of those countries,” he said.

[Image: Faraday Future]

Matt Posky
Matt Posky

A staunch consumer advocate tracking industry trends and regulation. Before joining TTAC, Matt spent a decade working for marketing and research firms based in NYC. Clients included several of the world’s largest automakers, global tire brands, and aftermarket part suppliers. Dissatisfied with the corporate world and resentful of having to wear suits everyday, he pivoted to writing about cars. Since then, that man has become an ardent supporter of the right-to-repair movement, been interviewed on the auto industry by national radio broadcasts, driven more rental cars than anyone ever should, participated in amateur rallying events, and received the requisite minimum training as sanctioned by the SCCA. Handy with a wrench, Matt grew up surrounded by Detroit auto workers and managed to get a pizza delivery job before he was legally eligible. He later found himself driving box trucks through Manhattan, guaranteeing future sympathy for actual truckers. He continues to conduct research pertaining to the automotive sector as an independent contractor and has since moved back to his native Michigan, closer to where the cars are born. A contrarian, Matt claims to prefer understeer — stating that front and all-wheel drive vehicles cater best to his driving style.

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  • Psarhjinian Psarhjinian on Nov 08, 2016

    LeEco is one of a number of Chinese "lifestyle" flash-conglomerates that are trying to grow very fast and very wide, selling a suite of products and the promise of a "lifestyle". Xiaomi is probably the most successful of this type, but there are others. LeEco happens to be aiming much higher than most. Think of a Japanese keiretsu, but much faster-moving and without the financial stability of a bank, insurance and heavy-industry arms.

  • Ol Shel Ol Shel on Nov 08, 2016

    Why do investors keep falling for these supercar start-up scams? Every year at least 10 are launched, but none ever produce vehicles. The visionaries (and their connected 'advisors') always walk away with the fat salary they collected before the investors finally pull the plug. I could actually move some new products and hire some people if anyone wanted to invest a fraction in some practical ideas. But, churning out parts and creating a few stable jobs isn't sexy, I guess.

    • Brn Brn on Nov 08, 2016

      Making a production car is hard.

  • ToolGuy "Selling as I got a new car and don't need an extra." ...Well that depends on what new car you chose, doesn't it? 😉
  • El scotto The days of "Be American, buy America" are long gone. Then there's the mental gymnastics of "is a Subaru made in Lafayette, IN more American than something from gm or Ford made in Mexico?" Lastly, it gets down to people's wallets; something cheap on Amazon or Temu will outsell its costlier American-made item. Price not Patriotism sells most items. One caveat: any US candidate should have all of his/her goods made in the USA.
  • FreedMike Well, here's my roster of car purchases since 1981: Three VWsTwo Mazdas (one being a Mercury Tracer, full disclosure)One AudiOne FordOne BuickOne HondaOne Volvo I think I hear Lee Greenwood in the background... In all seriousness, I'd have bought more American cars had they made more of the kinds of cars I like (smaller, performance-oriented).
  • Kwik_Shift_Pro4X I'll gladly support the least "woke" and the most Japanese auto company out there.
  • Jmo2 I just got an email from the dealership where I bought my car and it looks like everything has $5k on the hood.
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