Controversial Chinese Billionaire Will Try To Save EV Company That Spent $3 Billion And Hasn’t Delivered A Car

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It’s Friday and we’ve got the drama behind Faraday Future, some upside for Warren Buffet’s Chinese EV adventure, a possible sale of an American icon, and more good news on used cars.

Welcome to The Morning Dump, bite-sized stories corralled into a single article for your morning perusal. If your morning coffee’s working a little too well, pull up a throne and have a gander at the best of the rest of yesterday.

Faraday Future Can’t Escape Faraday’s Past

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We’re starting today with a story that picks up where one of my favorite Morning Dump headlines, “Faraday Future Continues To Produce More Drama Than Actual Cars,” leaves off. The Chinese-backed electric vehicle company has not delivered any cars as far as I can tell, but it has been the subject of increasingly awful stories, like “Chinese Tycoon Spent 8 Years, $3 Billion on EV That Went Unbuilt” from Bloomberg, which takes a deep-dive into death threats and all the cash-burn that’s been happening behind the scenes.

Here’s the lede from that story:

The image arrived in Susan Swenson’s inbox on a Wednesday evening. Her corporate headshot had been crudely crossed out in digital red ink, and the word “Kill” was written in the bottom left corner. In the hours that followed, some of her colleagues received similar threats, including messages that referenced the recent assassination of former Japanese prime minister Shinzo Abe.

It’s worth noting that Faraday Future released this statement back in February about threats, per Inside EVs:

Unfortunately, efforts to raise capital have been impacted by a misinformation campaign of completely baseless allegations that certain directors are conspiring to pursue an unnecessary bankruptcy for their own personal gain.

These unfounded allegations have nevertheless continued against certain of the company’s officers and directors. Threats that began with lawsuits have escalated to threats of physical violence and even death threats.

The Bloomberg story doesn’t get better from there; the article goes on to make the case that the company’s founder, Jia Yueting, has been working behind the scenes to regain power at the company. Who is this guy? He sort of modeled himself as a Chinese Jeff Bezos-Elon Musk hybrid who built a vast empire that imploded on itself (he fled China in 2017 after a series of alleged frauds).

Well, he’s apparently making a comeback. From Bloomberg:

Seven months ago, Faraday’s board sidelined Jia, who goes by YT, following an internal probe that examined his influence over day-to-day operations, as well as a series of loans employees made to the startup over the years. Now, he stands to benefit greatly from the impending board shakeup, which will be completed when Faraday holds its delayed annual meeting. He has been named an adviser to the board, and FF Global will have input on all six new members. As Faraday put it in a recent SEC filing, “YT Jia and FF Global have strengthened their already significant influence over the Company.”

But as YT reclaims power, it is over a company that’s under investigation by the US Securities and Exchange Commission in relation to the findings of the internal probe — information the Department of Justice has inquired about, too, according to Faraday. The startup also needs money, fast. After burning through more than $3 billion since it launched eight years ago, Faraday reported just $27 million in cash on Oct. 25th, and says it needs millions more if it hopes to finally ship its elusive SUV.

It’s also worth mentioning here that the car doesn’t seem to be close to production, at least based on this review of a car we saw at Pebble Beach by Abby Bassett. From the review:

None of the controls worked, and a friend who came along with me on the ride was forced to sit with her knees nearly touching her chest in the forward-folded seat without the seatbelt buckled because the latch was buried somewhere between the armrest and the seat. The rear passenger seat on the driver’s side was also unresponsive when I tried to make it more upright, so the specialist who tagged along with us lounged in a more horizontal position. It was comical and bizarre.

I’m glad I’m not a billionaire because it seems like there’s a larger than usual risk of you buying something you shouldn’t buy, fixating on that dream, and slowly watching it unravel. Though, I suppose, the same could be said of us and our project cars.

Berkshire Sells More BYD Shares

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BYD recently announced a 350% increase in profit as their electric car sales continue to soar in China. So why is their major backer, Berkshire Hathway (i.e. Warren Buffett) selling some shares? Is he worried about the future of BYD? Is this all a house of cards on the verse of crumbling?

I don’t think it’s that serious.

According to this Reuters blip, the amount that Berkshire sold was worth about HK$560.05 million or $71.35 million, bringing the company’s total stake down to 17.92% from 18.22%

When Buffett bought into the company he spent about $230 million and, prior to this sale, had already made $600 million. Unlike some other billionaires, Buffett isn’t prone to making rash decisions and the slow sale likely reflects his philosophy.

His firm can reap huge profits, cover his initial investment, and still own a substantial share of a company worth many many times what he paid for it.

Penske Pausing Its Used-Only Store Brands

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The used car market isn’t going to suddenly get better, but there are some signs of improvement. In particular, a report from Automotive News today demonstrates that the big players in the space don’t think this used car boom will last forever:

Two of the public giants that operate stand alone used-vehicle stores — Penske and Sonic — said they’re taking a pause on opening new locations for their used-only brands in the near term.

“We’ve really been moved out of our sweet spot because the cost of sale has moved up anywhere from $4,000 to $5,000,” Penske CEO Roger Penske said about Penske’s CarShop used-only unit Oct. 26.

Roger Penske is one of the smartest people in the industry and his view is one worth listening to. While used car sales are still good and potentially profitable, the fundamentals are starting to shift.

The best measure of the used car market is the Manheim Used Vehicle Value Index and right now it’s showing a mixed bag with wholesale prices declining from their pandemic highs but retail supply up nine days year-over-year.

American Axle Up For Sale?

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There’s been a lot of buzz over American Axle, the Detroit-based Tier 1 supplier responsible for making the driveshaft and other drivetrain components in your car [Editor’s note: American Axle makes the entire drivetrain for the Jeep Cherokee Trailhawk; it’s impressive -DT]. In particular, Melrose industries might be into it. Why?

London-listed Melrose is weighing a combination of its GKN Automotive unit with American Axle, according to the people, who asked not to be identified because the information is private. A deal could help GKN Automotive build scale in the car-parts industry and gain a public listing in New York.

I’m curious to see what the price is for this given that the acquisition market is a little soft and American Axle has annual revenue of over $5 billion ayear.

The Flush

There were some great Live Mas responses yesterday so here’s another question: If you were a billionaire, what company would you foolishly buy and allow to destroy you? I would probably buy a baseball team.

Photos: BYD, Faraday Future, Penske, American Axle

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47 Responses

  1. Jia Yueting is not someone to be trusted and I doubt he has the ability to get the FF91 into production… let alone make the business a success. If he takes control, I predict it will sink the company.

    From the start, the corporate structure he set up seemed more like a shell game.

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