Chinese tycoon spent 8 years, $3 billion on EV that hasn’t been built

YT ascended in China during the early 2010s, when a tsunami of cash flowed to founders with big visions. He started the “Netflix of China” and parlayed its success into a conglomerate called LeEco, which made everything from smartphones to Android-powered e-bikes. Its expansion was fueled by billions of dollars in debt, and YT personally guaranteed many of the loans. At one point he pledged 97 percent of his shares in LeEco’s listed arm in exchange for nearly $2 billion, according to The New York Times.

Meanwhile, Elon Musk was turning the auto industry on its head. Investors started placing big bets on finding the next Tesla, and dozens of EV startups took root in China and the US. It was in this competitive environment that YT founded Faraday in California in 2014, betting he could beat Musk at his own game.

Eventually, LeEco crumbled under the weight of YT’s ambition. In 2017 it laid off hundreds of employees, abandoned a $2 billion acquisition of TV-maker Vizio, Inc., and halted a U.S. expansion. Chinese creditors started pursuing LeEco, and YT. The tycoon landed on a government debtor blacklist and had some assets frozen. So he moved to the U.S. and hunkered down with Faraday.

YT’s connection to Faraday was initially hard to discern. The company had no publicly named CEO, and early executives declined to say where the money came from. According to court filings, it was coming through YT — some $900 million or so over its first few years. He spent much of it hoovering up talent from the likes of Tesla and General Motors Co. — including a large swath of the team that created the EV1, the Detroit automaker’s first attempt at a mass-market EV.

Faraday struggled to meet YT’s ambitions. He wanted an ultra-luxe EV packed with fancy technology. But by late 2017, months after revealing its first prototype, the company was running out of cash.

YT brought in a pair of former BMW executives, but when they proposed filing for Chapter 11 protection, the tycoon balked. A restructuring would have jeopardized his control of the company, according to a person familiar with the matter, so he resisted. The executives resigned, and Faraday accused them of “dereliction of duty.”

At the end of 2017 YT found an unlikely savior in China Evergrande Group, which pledged to inject up to $2 billion into Faraday in exchange for a 45 percent stake. YT also officially took over as CEO. Faraday spent the first $800 million ahead of schedule. Evergrande agreed to advance another $700 million in mid-2018, according to filings from a Hong Kong arbitration case between the two companies, but on the condition that YT step aside and sacrifice his ownership.

YT obliged — at least on paper. He transferred his stake to the daughter of a Faraday vice president, which the Chinese property giant argued was not far enough. The new money never came, and in late 2018 YT and Faraday sued Evergrande in U.S. court, claiming the property giant was “deliberately starving” the EV startup. Evergrande accused YT of “acting as a shadow director controlling or directing the decisions of directors closely associated with him.” The property giant did not respond to a request for comment.

Faraday had to furlough and lay off hundreds of employees, and suppliers hounded the startup with lawsuits. Nick Sampson, a former Tesla executive and Faraday co-founder, walked away. “The company is effectively insolvent,” he said in his resignation letter.

On the final day of 2018, Faraday and Evergrande struck a truce. Evergrande agreed to reduce its stake to roughly 33 percent, and allowed Faraday to seek other investors. The property giant gave Faraday a $10 million bridge loan, and YT’s startup survived with him at the helm.

Share this news on your Fb,Twitter and Whatsapp

File source

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button