Electric car startup Faraday Future plans to furlough hundreds more employees as a result of an ongoing cash crunch during a battle with its main investor, the company announced on Twitter today. The startup originally placed hundreds of employees on furlough, or unpaid leave, in October, reducing its US headcount from around 1,000 to about 600. At least 250 more employees are being furloughed today, multiple sources tell The Verge.
Faraday Future had laid off workers and cut salaries before the furloughs in an attempt to claw back expenses as it waits out an arbitration case against its financial backer and biggest shareholder, Chinese real estate giant Evergrande. It lost a number of key members from the leadership team in October, including one of three co-founders, and former Tesla and GM executives.
“We unfortunately must take further cost-reduction measures.”
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Until the arbitration case with Evergrande is decided, the EV startup said today it “will continue to experience a negative impact on our already very tight cash flow, therefore we unfortunately must take further cost-reduction measures to deal with the current financial situation which includes putting additional employees on furlough beginning this week.” The company is also extending the furloughs already in place, and says it doesn’t expect employees to be able to return to work until February or March of 2019.
Throughout 2018, Faraday Future looked largely on track to enter production of its luxury electric SUV by the end of the year. It finished 2017 by narrowly escaping bankruptcy thanks to a $2 billion investment from Evergrande, and began readying manufacturing facilities in both California and China as a result. Evergrande gave the startup $800 million up front, and promised to deliver the remaining $1.2 billion in small installments across 2019 and 2020. In return, the conglomerate received a 45 percent stake in Faraday Future, and the startup’s assets and intellectual property became collateral as part of the deal.
Update from Faraday Future on current business operations. pic.twitter.com/1psfWiFS0c
— Faraday Future (@FaradayFuture) December 4, 2018
But the relationship turned sour this summer, according to arbitration documents recently made public in a US court case. Faraday Future spent the first installment by July, and said it needed at least $663 million to enter production by the end of the year. Evergrande agreed to advance $700 million of the remaining $1.2 billion, but on two conditions. The Chinese conglomerate wanted CEO and co-founder Jia Yueting to step away from his director roles at the many offshore companies affiliated with Faraday Future, as well as turn over his controlling stake (Jia owns 33 percent of the company after the deal, but has more voting power) to a neutral third party.
Evergrande argued that Jia’s involvement in the company was getting in the way of building up the EV startup’s presence in China. Jia is on a national debtor blacklist there, and has had many of his assets frozen as a result of unpaid debts related to LeTV, the streaming platform he founded in 2004 that eventually morphed into LeEco.
The two sides haggled for months over whether Jia fulfilled both of these requests, and eventually came to an impasse. Faraday Future started missing payments to suppliers, and decided to raise the case in front of an arbitrator in Hong Kong (where Evergrande Health, the subsidiary that technically made the investment, is located).
The fate of Faraday Future is now largely dependent on an arbitration case in Hong Kong
The dispute over whether Evergrande wrongfully withheld the advance is still in front of the Hong Kong arbitrator. In the meantime, the arbitrator has passed down two decisions on emergency requests from Faraday Future. In the first one, the arbitrator decided to allow Faraday Future to seek up to $500 million in new funding unrelated to Evergrande. In the second, Faraday Future asked the court to loosen Evergrande’s grip on the startup’s intellectual property and assets in order to help entice new investors. That request was recently denied by the arbitrator.
Faraday Future had just $18 million in the bank at the start of September, according to the now-public arbitration documents. The company also took a previously unreported $10 million loan out against the land it owns in Las Vegas that was supposed to be used for the company’s now-defunct $1 billion factory, The Verge has learned. The loan was provided by Chicago-based real estate firm JDI Realty. Faraday Future also used its Los Angeles headquarters as collateral to secure a $17 million loan in June from a company called iBorrow.
But Faraday Future did not have enough cash to pay the 600 or so employees when the December 15th payroll comes due, even though they are working at reduced salaries of $4,167 per month and hourly wages close to California’s minimum, as The Verge previously reported. Tuesday’s decision is a way for the company to stretch the cash that’s left as far as possible. The remaining leadership is trying to keep the lights on until the arbitrator in Hong Kong decides whether Evergrande rightfully withheld the $700 million payment it agreed to. The company is also trying to pressure Evergrande to settle the matter outside of court, according to information shared at an all-hands meeting on Tuesday.
“This was an extremely tough decision to make and we recognize the emotional stress and financial strain this puts on people’s personal lives,” the company wrote in today’s statement. “In addition, we take our relationships with our suppliers seriously, and we hope to receive support and understanding from our global partners as FF overcomes our difficulties.”