Faraday Future Seeks to End $2B Evergrande Takeover

Jia Yueting LeEco

Jia Yueting’s Faraday Future has already burned through $800 million it received from Evergrande earlier this year

After enjoying a four month honeymoon following China Evergrande’s June decision to invest $2 billion in his Faraday Future electric car startup, mercurial mainland entrepreneur Jia Yueting is ready to call it quits with his latest white knight.

Evergrande Health, a tech-focused division of Xu Jiayin’s Evergrande Group that had invested in Jia’s car maker on Monday accused its partners at Faraday Future, with Jia Yueting named as the principal, of legal shenanigans designed to deprive Evergrande of shareholder rights after the developer had already spent more than $800 million bailing out the money-losing car maker

Faraday Future returned fire on Tuesday, accusing Evergrande of failing to make good on promises of $500 million in financial support for the California-based supercar company, and accusing the developer of holding back payments “to try to gain control and ownership over FF China and all of FF’s IP.”

Faraday Burns Through $800M in Four Months

In a statement on its corporate website, Faraday Future said “the only reason ‘FF is trying to get out of the deal with Evergrande,’ is because Evergrande has failed to live up to its end of the bargain and make the payments it agreed to make.” The car maker accuses its partner of failing to follow through on a promised $500 million payment after the division of Xu Jiayin’s Evergrande Group had agreed to take over a 45 percent stake in the high performance electric vehicle maker late last year in return for bailing out the money-losing enterprise.

In Evergrande’s version, as announced to the Hong Kong Exchange, the company says that Faraday is seeking to deprive Evergrande Health of its rights as a shareholder in the electric car company, saying that Jia Yueting, the CEO of the electric vehicle maker, has sought arbitration to terminate the agreement with the real estate developer.

Evergrande contends that the additional payments cited by Faraday were conditional on the car maker reaching agreed upon targets, while Jia’s California startup says “Evergrande had a full understanding of why the funds were needed, and when they were needed, in order to achieve production and delivery of FF 91 in 2019,” referring to the anticipated debut of Faraday’s FF 91 model next year.

Upon the news of the spat, the share price of Evergrande Health has dropped to HK$8.8 ($1.12) per share on the Hong Kong exchange, down 50 percent from its peak at the end of August.

Evergrande’s $2 Billion Commitment

In July, Evergrande Health made a major latest step in its takeover of the electric car maker by acquiring BVI-registered Season Smart, owner of 45 percent of Faraday Future, for $860.2 million. This amount was in addition to the $800 million Season Smart had already paid for the startup in May. At the same time, it agreed to pay Faraday Future $600 million in 2019 and 2020. Together with the $860 million it paid to acquire Season Smart, Evergrande committed to spending a total of over $2 billion for the electric vehicle marker.

Faraday Future is hoping to start making its FF 91 in 2019

Evergrande Health said it was informed in July by Faraday Future that the $800 million it received from Season Smart early this year had already been spent while it was asked to pay $700 million in advance for supporting research and development for the car maker. According to the developer, the parties involved in the deal had entered into a supplemental agreement for Evergrande to provide the additional funds if Faraday met agreed upon conditions.

However, the electric car startup’s version is Evergrande has already agreed to pay $500 million in advance but had failed to follow through on that commitment. Faraday also accuses the developer of preventing the car maker from finding alternative investors.

“Evergrande failed to make any of the promised additional payments beyond the original $800m investment, despite FF and its CEO complying with their obligations and meeting all required conditions for funding under the July 2018 agreement,” Faraday Future said in its statement.

Sunac Regrets LeShi Investments

Jia Yueting, whose LeEco and Leshi Internet Information suffered significant financial challenges since 2016, has also had a contentious relationship with Sunac China, after the developer invested RMB 15 billion in Jia’s online entertainment empire.

China’s fourth largest real estate developer took control of two of the three units of Jia Yueting’s financially troubled LeEco company this September, but founder Sun Hongbin has said he regrets working with Jia.

Sun, who resigned as chairman of Leshi Internet Information and Technology in March, said at the end of August that his real estate developer will no longer invest in non-property deals after losing the equivalent of $2.6 billion on its investment in Jia’s high tech trainwreck.