Caixin
Oct 11, 2021 09:33 PM
BUSINESS

Faraday Future Responds to Short-Seller Attack It Calls ‘Misleading’

A Faraday Future logo outside its headquarters in Gardena, California in 2017. Photo: VCG
A Faraday Future logo outside its headquarters in Gardena, California in 2017. Photo: VCG

Embattled electric vehicle company Faraday Future Intelligent Electric Inc. responded on Monday to a short-seller attack that had cast doubt on whether the Nasdaq-listed firm ”will ever sell a car,” saying the report was “full of misleading information” and that it was considering its legal options.

The U.S. short-seller J Capital Research said in a report issued last Thursday that Faraday would indefinitely delay the 2022 mass production target for its first model, the FF91, in part because of unsolved engineering problems. Faraday has abandoned five factory projects and is counting on a Hanford, California factory facility that shows very little activity or hiring, J Capital said.

Faraday responded to the report on Monday by saying that its development plans remain on track. It didn’t comment on specific claims.

Shares of Faraday, which went public on Nasdaq in July through a merger with a blank-check company, saw its shares drop to their lowest level of $7.65 last week, before stabilizing and closing out the week at $8.05. Since July, its shares are down more than 40% from its debut price around $14.

Jia Yueting, the debt-plagued founder of Faraday, last month announced in a press release that the company’s priority was to deliver the FF91 by mid-2022. Production of its first vehicle, whose prototype debuted in January 2017, has been delayed repeatedly.

According to Faraday's prospectus, the company plans to commercially launch the FF91 in mid-2022, the FF81 in 2023, and the FF71 in 2024, which was expected to compete against the Tesla Model 3, Tesla Model Y, and the BMW 3-series. No prototypes are thought to exist of the latter two models, which are “the commercial equivalent of pictures drawn on napkins,” the short seller commented in the report.

Jia launched the electric vehicle development startup in 2014, two years before his once-high flying diversified tech company LeEco Inc. crashed to earth. The entrepreneur was officially listed as a debt defaulter by the Chinese government in late 2017 and filed for bankruptcy in 2019. Since 2017, Jia has concentrated his efforts on building the Faraday business in the United States.

As of June, the Faraday had reported an accumulated deficit of $2.52 billion. It is counting on mass production and eventual car sales to turn the company's fortunes around, resulting in positive cash flow by 2024, according to the company's prospectus.

The J Capital report alleges that Faraday’s suppliers, creditors, and shareholders such as the indebted China Evergrande Group, which holds a 20.5% stake, all strongly intend to cash out, instead of financially supporting Faraday into the future.

The report quoted two unnamed former Faraday executives as saying that the FF91 technology was not ready for production, singling out issues such as leaky batteries that could pose fire hazards, parts supply issues, and a lack of qualified staff.

“My assumption is that the battery pack will be recalled in 18 to 20 months, because the battery pack will leak,” one anonymous executive said in the report.

J Capital Research asserted that patents on FF91 technology were dated in comparison to other electric vehicle competitors. In its IPO prospectus filed in August, Faraday claimed that the firm has been granted over 550 patents globally, of which some key patents will expire in 2034 and 2036.

Contact reporter Manyun Zou (manyunzou@caixin.com) and editor Flynn Murphy (flynnmurphy@caixin.com)

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