China Tesla Rival Plans Layoffs After Evergrande Funding Fight
(Bloomberg) -- Faraday Future, a Chinese electric vehicle maker with ambitions to leapfrog Tesla Inc., said it will lay off some employees and cut staff salaries by 20 percent due to "financial difficulty" following a row with its property-tycoon backer.
The measures are temporary and compensation will be restored once the company secures new funding, the electric-vehicle startup said in a statement on Tuesday. As for its founder Jia Yueting, the erstwhile billionaire will now take an annual salary of $1 starting Oct. 16.
The announcement occurred days after the fallout of Faraday and its new backer, China’s third-richest man Hui Ka Yan, came to light. Evergrande Health Industry Group Ltd., a unit of Hui’s real estate empire, said earlier this month it has engaged lawyers to defend the company’s interests after Jia began arbitration in Hong Kong.
Back in June, Evergrande Health surprised the market with a plan to buy Faraday’s assets. Later on, Jia’s company alleged that following Evergrande Health’s initial investment, it failed to inject additional funds into the business after Jia fulfilled the required conditions. Faraday has also said it wanted to scrap the deal because Evergrande is preventing it from accepting immediate financing from other sources.
Evergrande Health has denied the claim, and it declined to comment on Faraday’s announcement on Tuesday.
The Evergrande unit has raised most of its debt from shadow markets. Its first-half report shows that 4 billion yuan ($576 million) in "other borrowings" from trust arrangements account for 83 percent of its total debt. While its parent China Evergrande Group cut its overall debt in the first half, the portion of debt raised in shadow markets rose to 45 percent, the highest percentage on record since 2011.
The Faraday deal was a "very risky gamble" for China’s most indebted developer, given Jia’s struggling business empire coupled with the foray into a business segment outside of Evergrande’s core business, according to Bloomberg Intelligence property analyst Kristy Hung.
Jia has largely withdrawn from his other businesses to focus on Faraday. His empire once included a Netflix-like streaming service, sports media, smartphones and TVs. The electric-vehicle maker plans to deliver the first road versions of its FF91 model in the first half of 2019 from its California plant.
His promise to cut his salary isn’t the first time Jia has made such a pledge. In 2016, he pledged to slash his annual pay to 1 yuan (15 cents) as his LeEco empire teetered amid a cash crunch.
The brash entrepreneur has publicly criticized rivals, including Apple Inc. and Tesla, as he talks up his own projects and products. As his business struggled, Jia has had assets frozen by courts and lenders pursed him for outstanding debts.
©2018 Bloomberg L.P.