Electric vehicle startup Faraday Future debuts on Nasdaq valued at $5 billion

Electric vehicle startup Faraday Future (FFIE) went public on the Nasdaq yesterday, its shares dropping more than 18% on the first day.

The company raised $1 billion by going public through a special purpose acquisition company or SPAC (see explanation). The SPAC — which involves a kind of merger — included fundraising from Geely, China’s biggest privately owned automaker, and an original $175 million from an unnamed “tier 1 Chinese city,” which dropped out at the last minute. Industry experts “universally” believed this (in Chinese) to be the Zhuhai government of Guangdong Province. (Faraday Future’s operations are all in the U.S., so it has not been affected by China’s crackdown on companies seeking IPOs abroad.)

The financing will help launch the FF91, Faraday Future’s flagship all-electric vehicle, within the next 12 months. According to 36Kr (in Chinese), the FF91 will be priced at the highest end of the market ($180,000–$300,000) and more expensive than premium brands like BMW and Mercedes-Benz.

The funding marks a milestone for the seven-year-old company. Since it was founded in 2014, Faraday Future has been dogged by scandal, which has continually slowed its sales ambitions. The company planned to build a factory in Nevada in late 2015 but nixed the plan two years later after facing significant pressure from creditors.

Unusual origins

Faraday Future is a California-based company founded by Jiǎ Yuètíng 贾跃亭, a Chinese billionaire CEO known for founding the Chinese internet company LeEco (乐视). Founded as an internet video company, LeEco expanded madly under Jia’s maniacal leadership — in 2016, he compared himself to Steve Jobs and said, “Apple was outdated.” But the firm imploded in late 2017 after running out of cash. Jia was later blacklisted as a debt defaulter by the Chinese government. He fled the country that same year, leaving behind $1.7 billion in unpaid debt. In the U.S., he began focusing his time on his other project, Faraday Future.

At Faraday, Jia unsurprisingly scared away investors by refusing to give up control over any part of the company. He also continued his prodigious spending habits. He dumped nearly $900 million of his personal money on expensive technologies and a 1,500-strong workforce. The recklessness repelled investors and created tension with the executive team.

By 2017, Faraday Future, like LeEco, was running out of cash. The CFO, Stefan Krause, and CTO, Ulrich Kranz, departed in a dispute with Jia over restructuring the company for bankruptcy. Then, miraculously, it got a $2 billion lifeline from real estate conglomerate Evergrande, a company that has also been dogged by financial scandals. (Evergrande now holds 20% of Faraday Future.)

In 2019, the company began turning itself around. It went through a restructuring that convinced its debtors to trade their claims for stakes in a trust. It refinanced its debts. Finally, it brought on Carsten Breitfeld, a BMW executive, to become the new face of the company in its renewed fundraising efforts. Meanwhile, Jia has not escaped his debt woes. In October 2019, Jia filed for Chapter 11 bankruptcy in Delaware to settle over $4 billion of personal debts involving more than 100 creditors in China. In April, China’s securities regulator fined both Jia and LeEco $36.8 million each for securities fraud.

Now comes the hard part

With yesterday’s IPO, Faraday Future is staging an unlikely comeback. It has tried to play down its debt troubles, asking to be evaluated on its product’s merits. And some say that’s fair.

“The FF91’s technology was already competitive five years ago,” said (in Chinese) Wáng Xiǎnbīn 王显斌, the director of an automotive research institute. “Even now, the product’s intelligent cockpit design, interactive technologies, battery, and driving performance are also comparable with the current EVs on the market today.”

Faraday Future’s lithium-ion battery cells claim to be almost twice the energy density of other mass-produced EV batteries, with a range of 600 kilometers (378 miles). That means that an FF91 could run on the highway at 60 mph for more than seven hours on a single charge. According to Faraday Future, the number of pre-orders for the FF91 reached 14,000 this January, and the car is being produced in a factory in Hanford, California.

But Faraday’s FF91 cannot be its golden ticket. “For car companies, they must scale and sell volume,” Wang says, adding that Faraday’s plans for the FF81 and FF71 — two models priced lower — are more important to determining Faraday’s future. The FF91 is expected to go to market next year priced at $180,000–$300,000, the FF81 in 2023, and the FF71, priced at $50,000, at the end of 2024. The startup is also expected to make a China debut with help from its investor Geely. But Jia’s infamy in China may put a damper on those ambitions.