California EV startup Faraday Future is arguing there’s hope of moving forward without its main financial backer, Chinese real estate conglomerate Evergrande, according to a new court filing in California.
The clock is ticking, though, because Faraday Future is in fact on the brink of insolvency, just as co-founder Nick Sampson recently said in his resignation letter. The company laid off hundreds of employees, and furloughed hundreds more; multiple executives have resigned. The Verge has learned that the startup has enough funds to pay the remaining 600 or so employees a reduced salary through November 30th, which one of the company’s remaining executives told employees at recent all-hands meeting.
If new funding doesn’t come in, the company will be completely out of cash by the middle of December. While the ultimate goal at Faraday Future remains getting its luxury EV into production, the immediate aim is survival.
That starts with resolving an escalating fight with Evergrande. Late Thursday, Faraday Future’s Cayman Islands parent company filed a “petition to confirm arbitration award” against Season Smart Limited, a proxy for Evergrande, in California’s Central District Court. The filing is, in essence, Faraday Future’s way of pushing back against Evergrande’s claims to stockholders (and the public) that the real estate giant won a recent arbitration case between the two sides in Hong Kong.
In fact, the case is still ongoing. Faraday Future was simply allowed by the court there to seek up to $500 million in new, outside money as a means of relief while the case proceeded. What’s more, the arbitrator decided that Faraday Future “has a reasonable possibility of succeeding” in the case, according to Thursday’s filing, which includes the entire emergency relief decision.
More than that, though, Faraday Future claims Evergrande “is deliberately starving [Faraday Future] of the cash it needs to stay solvent,” and that the move is “purely tactical.”
Evergrande is trying to push Faraday Future into bankruptcy, which would in turn allow the real estate giant to seize control of the EV startup’s assets and intellectual property, the car company’s lawyers argue in the petition. A Faraday Future bankruptcy would also give Evergrande an escape hatch on the $1.2 billion that remains on the original $2 billion investment, which was supposed to be disbursed in $600 million installments in 2019 and 2020.
“Whatever [Evergrande’s] motivations might be, the reality is that it has engineered a situation where, unless [Faraday Future] obtains an injection of substantial sums in the immediate future, it will become insolvent,” lawyers for Faraday Future write in the petition.
Faraday Future and Evergrande originally agreed to a $2 billion investment in late 2017, when the EV startup was on the brink of collapse for the first time. Evergrande initially released $800 million, and the remaining $1.2 billion was to be meted out in separate $600 million installments in 2019 and 2020.
The problems between the two sides arose after Faraday Future spent through that $800 million by July. In need of new cash, Faraday Future and Evergrande agreed on a $700 million advance, according to the new court filing, which would be spread out in smaller installments through the end of 2018.
But Evergrande reneged on the deal, lawyers for Faraday Future claim, which is why — exhausted of cash and facing layoffs — the startup eventually brought the emergency arbitration case in Hong Kong. Hong Kong is where Evergrande Health, the arm of the conglomerate that technically invested in Faraday Future, is listed.