Faraday Future, the electric vehicle startup that wowed crowds at CES 2016 with their ambitious plans, had some noteworthy news this past week. The firm announced that it had settled a four-year investigation by the Securities and Exchange Commission (SEC). Jia Yueting, founder of the company, came under intense fire after a series of chaotic happenings—including the federal government’s personal bankruptcy filings, mass layoffs, and management shakeups. Such a conclusion gives the firm license to move on. Now, it can finally implement its ambitious 2040 strategic plan that has been held up by the 5+ year investigation.
Jia Yueting, formerly the head of a major Chinese tech powerhouse, watched his empire disintegrate. Now he is in California—after stubbornly upsetting the Chinese government enough they tried to put him on a domestic debtor blacklist. This July, the SEC escalated its campaign by issuing “Wells Notices” to Faraday Future. This civil enforcement notice specifically targeted several top executives, including Yueting, marking an escalation of the agency’s enforcement interests against the company. The SEC just last week notified us of the end of the investigation. This announcement has given our firm a sense of direction and focus.
A Rocky Path to Recovery
The road to this moment for Faraday Future has been far from easy. The hardware maker stole plenty of headlines during the 2016 Consumer Electronics Show. They rolled out a pretty darn impressive concept car and essentially self-identified as “as disruptive as the iPhone” in their launch. Then by the end of 2017, the company reached a critical cash crisis. To combat this financial crisis, it laid off or furloughed dozens of staff across all administrative departments. That was thrown into chaos when the Chinese conglomerate Evergrande pulled out in late 2018.
By 2019, Jia Yueting had resigned in name as CEO. He declared personal bankruptcy, seeking to cover billions in obligations tied to his now defunct business, LeEco. While this chaotic time went on, retaining employees and a clear mission became difficult for Faraday Future. At its peak, it had 1,400 people on staff, many of whom were hired from well-known tech giants Tesla and Apple.
Faraday Future has already surmounted a ton of drama to roll out its first production vehicle in 2020. They launched the luxury electric SUV, the FF91. An apparent failure to resolve long-standing problems with compliance and governance still hounded the company. When the company’s recent regulatory filings showed that it had skipped some of these requirements, it sent alarms ringing among investors and stakeholders alike.
Corporate Restructuring Amid Threats
Leadership turbulence at Faraday Future proved disastrous. When one board member began receiving death threats including a threat of physical violence, she resigned from her position. This paved the way for people handpicked by Jia Yueting to retake control of the company. An internal SJPD investigation from January to April 2022 explained the direct impact of Yueting’s absolute power over day-to-day operations, paving the way for an official change in governance.
The incoming board members expressed alarm over the inaccuracies related to Yueting’s oversight. In doing so, they completely sidelined him throughout the investigation. Faraday Future first publicly disclosed the SEC’s investigation on March 31, 2022. This announcement led to a closer examination of the Agency’s practices.
As Faraday Future braced for potential legal battles, with reports indicating that “around 85% of targets who receive a Wells Notice wind up in court with the SEC,” company executives made plans to engage with the SEC. In other words, they wanted to explain why they thought enforcement action was not appropriate.
“The Company and executives plan to engage with the SEC to explain why enforcement action is not warranted,” – Faraday Future
Future Directions and Strategic Focus
With the closure of the SEC investigation, Faraday Future now intends to shift its focus towards strategic execution without the burden of ongoing legal scrutiny. In a statement, Jia Yueting said he was excited about this new chapter for the company.
“We can now put all our energy into strategy execution. Over the past five years, we had to spend a great deal of time, effort, and money on cooperating with the investigation,” – Jia Yueting
This new phase is doubly important considering that Faraday Future’s existence is under siege on many fronts. Only last Friday, Nasdaq delisted the company for its failure to maintain a stock price above $1. This steep drop places it dangerously close to being de-listed from the exchange.
Looking ahead, Faraday Future must continue stabilizing its operations while bringing investors confidence to proceed through this treacherous environment. The company’s future is unclear. It’s in a great position to reinvent itself in the very competitive electric vehicle world.
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