Faraday's Turbulent Future: Is There a Future for Jia Yueting's Outgoing Executive Officer Company?

Jia Yueting. Infographic

Jia Yueting is no longer the executive officer of FF (Faraday Future), can FF get rid of the financial fraud crisis and regain the "future"?

According to the U.S. Securities and Exchange Commission (SEC) disclosure documents on April 14, FF founder Jia Yueting is no longer the company's executive officer, will continue to serve as the company's chief product and user ecology officer, and will continue to report to the executive chairman.

The reporter noted that as of the first half of 2021, the whole year of 2020 and the whole year of 2019, FF had net losses of $128.3 million, $147.1 million and $142.2 million, respectively; the cumulative losses were $2.5194 billion, $2.3911 billion and $2.2441 billion, respectively. On October 7, 2021, a short report made FF worse. The short-selling agency questioned FF's vehicle orders, factory construction commitments, financial data, and management team.

However, Automotive analyst, Zhang Xiang, dean of the New Energy Vehicle Technology Research Institute of Jiangxi New Energy Technology Vocational College, told Shell Financial Reporter that Jia Yueting's resignation will not have an overly serious impact on FF, after all, Jia Yueting's main role is to bring exposure to FF and increase influence and popularity, and has not brought a great positive effect on FF in business, and the new car of FF itself has not been listed, and the company has also appeared financial fraud, which has shaken consumer confidence in the company.

Jia Yueting is no longer an executive officer, can FF get back on track?

The U.S. Securities and Exchange Commission (SEC) disclosure filing on April 14 shows that on February 1, 2022, Faraday Future filed a report disclosing that the Company's Independent Directors Special Committee had completed a previously announced independent investigation into allegations of inaccurate disclosures of the Company.

The Special Committee recommends that the Company, under the guidance of the Executive Chairman, continue with certain additional investigative and remedial work and report to the Audit Committee of the Board of Directors of the Company. Additional investigations and remediations related to the independent investigation have now been completed and the Board approved certain additional remedial measures on 12 April 2022 with immediate effect.

These remedies include that the company's founder, Jia Yueting, will continue to serve as the company's chief product and user ecology officer and will continue to report to the executive chairman. Mr. Jia's responsibilities will be limited to the product and mobile ecosystems as well as the Internet, artificial intelligence and advanced research and development technologies, and he will no longer serve as an executive officer.

Matthias Aydt, senior vice president of business development and product definition and member of the Board of Directors, has become a probationary executive for a six-month period with immediate effect. During this period, he will continue to serve as a non-independent member of the Board.

According to reports, Matthias Aydt was previously responsible for FF's product definition and business development team. Prior to joining FF, he spent many years with automotive companies (such as Porsche) and OEM suppliers in China and Germany, leading project management and vehicle engineering teams. Matthias has more than 15 registered patents.

These remedies were taken for a variety of reasons, including failure to fully disclose similar relevant information to individuals involved in the preparation of the company's regular SEC filings; lack of cooperation in the special committee's investigations and withholding of information that may be relevant.

In addition, on April 10, Wang Jiawei, vice president of the company's global capital markets who has been suspended from work and pay since January 31 this year, informed the board of directors of his decision to resign from the company.

For the above announcement, Zhang Xiang told shell financial reporters that Jia Yueting's dismissal as executive director is also within the expected range, from the company level, Jia Yueting did not save the operating conditions of FF, but if Jia Yueting no longer leads FF, what kind of impact will it have on the company? In fact, it will not have too serious an impact. After all, Jia Yueting's main role is to bring exposure and increase influence and popularity to FF, and has not brought a great positive effect on FF in the business, and the new car of FF itself has not been listed for a long time, and the company has also had a financial fraud situation, which has shaken consumer confidence in the company.

So can another executive director bring FF back on track? Zhang Xiang thinks it won't either. Now if FF intends to take the financing money to build a car with a relatively civilian route, it may have been built, but on the one hand, the difficulty of building a super luxury car itself is higher than the difficulty of building a cheap car, on the other hand, it is difficult to say how much FF with financial fraud has to build a car sincerely. In Zhang Xiang's view, FF can actually build an affordable car, priced between 200,000 and 300,000 yuan, and can open the market by relying on this model.

But Zhang Xiang also said that now that the business model of FF has been determined, after the replacement of the executive director, even if the new executive director wants to change the product positioning, but the company has generated some of the upfront investment, but also bear the expectations of consumers, all of which will be adrift. For example, he said that Ideal previously thought that the technical route of his first model was not suitable, so he changed the route, and Rivian also changed the development path, but FF has been developed for a long time, and now it is difficult to replace the path.

On the other hand, the competition of new car-making forces listed in the US stock market has not been so fierce, but with the listing of companies such as Rivian, FF is no longer a fragrant feast for US stocks.

FF's cumulative loss exceeds 10 billion, and it is expected to continue to make huge losses in the future

The operation of FF is indeed in trouble.

In a report released by FF on August 20, 2021, the company said that FF was founded in 2014 and has built several prototypes and prototypes. However, to date, FF has not started commercial production of its first electric vehicle. While FF expects to commence commercial sales of the FF 91 Series within 12 months of closing the transaction, there is no guarantee that FF will be able to develop manufacturing capabilities and processes, or obtain reliable sources of parts supply to meet quality, engineering, design or production standards, or to successfully grow into the production required for a viable business.

In addition, even if FF implements the production of electric vehicles, its growth in the electric vehicle industry faces significant obstacles, including continuity in the development and production of safe and quality vehicles, brand recognition, customer base, marketing channels, pricing policies, talent management, value-added service packages and continuous technological advancements. If FF fails to address the issues behind any of the risks, its business and operating results may be materially adversely affected.

Given FF's limited business history, the likelihood of its success must be assessed, especially given the risks, costs, complications, delays and the competitive environment in which it operates. Therefore, there is no guarantee that FF's business plan will be successful. FF will continue to encounter the risks and difficulties that companies often encounter in the early stages of business, including expanding their infrastructure and headcount, and may experience unforeseen expenses, difficulties or delays associated with their growth.

In addition, due to the capital-intensive nature of the FF business, it is expected that it will continue to generate significant operating expenses without generating enough revenue to cover these expenses. There is no guarantee that FF will always be able to generate revenue, raise additional funds or make a profit when needed. Therefore, any investment in FF is highly speculative.

FF said that the company has incurred losses in business operations and expects to continue to lose money in the future. It may never be able to achieve or maintain profitability.

The reporter learned that FF has suffered losses in operating activities since its inception, and operating activities have generated negative cash flow.

As of the first half of 2021, full year 2020 and full 2019, FF had net losses of $128.3 million, $147.1 million and $142.2 million, respectively; accumulated losses of $2,519.4 million, $2,391.1 million and $2,244.1 million, respectively; net cash used from operating activities of $52.3 million, $41.2 million and $189.8 million, respectively; FF's working capital deficit was $775.9 million, respectively. $835.3 million and $688.2 million.

FF expects to continue to generate significant operating losses for the foreseeable future.

Since its inception, FF has made significant investments in technology as well as vehicle design, development and tools, manufacturing facility construction, employee compensation and benefits, and marketing and brand building. FF expects to continue or increase such investments, but there can be no assurance that these investments will result in the successful and timely delivery of the FF 91 Series or subsequent vehicle programs, or that there is no guarantee at all.

On October 7, 2021, a short report made FF worse. The short-selling agency questioned FF's vehicle orders, factory construction commitments, financial data, and management team.

Short-selling agencies assert that FF cannot sell a single car and expect the company to face a significant sell-off. This conclusion comes from its extensive field visits, combined with analysis of financial data and executive management capabilities.

Its visit found that 6 of FF's factories were planned to be abandoned, and the factories in Zhejiang were also overgrown and did not know when they had been closed. Compared with Tesla, the factory was silent before FF went into production.

The agency also said FF's $495.7 million liabilities have been converted into fully attributable shares, of which $109.6 million comes from trust payables from sellers, but between a 30-90-day lock-up period. "We expect these holders to sell quickly. The entire lock-up period for suppliers will end on October 20, 2021. The prospectus mentions that FF expects all of its existing debt to be converted into equity.

In addition, the agency also questioned the professional ability of the senior management team, and the questioned executive in the prospectus has received tens of millions of annual salaries.

At the beginning of the listing, FF came with the question, "Storyteller or savior?" Today, this problem is once again in front of FF.

Beijing News shell financial reporter Lin Zi Editor Xu Chao Proofreader Lu Qian