Jia Yuetings dream of building a car is becoming more and more gloomy. On November 29, it was confirmed by many domestic media reports that the land in Moganshan, Deqing County, Zhejiang Province, purchased by LETV eco car (Zhejiang) Co., Ltd. for about 420 million yuan due to long-term idle and undeveloped land has been recovered.
Recommended reading: the official shareholder of jiayueting Moganshan car building land withdrawn due to long-term undeveloped
It is worth noting that when Jia Yuetings Faraday future (hereinafter referred to as FF) and the ninth city of Internet technology and game company announced the establishment of a joint venture on March 24 this year, Faraday future promised to provide the joint venture with proprietary technology and land use rights. And this land is the production base in Mogan mountain that was recycled this time.
In addition, just a few days ago, on November 26, Jia Yueting appealed to all the creditors attending the meeting in Los Angeles, hoping that all the creditors would agree to their personal bankruptcy reorganization plan - FF is my life. The success of debt restructuring determines the life and death of FF and the interests of all creditors.
However, from the current situation of FFs debt, production period and financing difficulties, Jia Yuetings prospect of turning over on FF is not optimistic.
Cooperation or variables with the ninth city
The land of Mogan mountain was once highly expected by Jia Yueting.
At the launching ceremony of leeco & Lesee Zhejiang super automobile factory project in August 2016, Jia Yueting said that he and Zhejiang provincial government would launch two automobile projects in Moganshan national economic and Technological Development Zone, with a total investment of 20 billion yuan, covering an area of more than 4300 mu. After the completion of phase I and phase II, the total capacity of 400000 vehicles would be realized. At the same time, the automobile ecological town that LETV and Zhejiang provincial government intend to build will also fall at the foot of Mogan mountain.
In December 2016, the Moganshan LETV Automobile Industrial Park was officially opened. According to the network of Deqing County Public Resources Trading Center, LETV ecological automobile (Zhejiang) Co., Ltd. bought two pieces of land located in Deqing, Zhejiang Province, in December 2016 and April 2017 for 280 million yuan and 140 million yuan, respectively, in order to build an automobile ecological town.
LETV automobile purchased two pieces of land in Deqing, Zhejiang Province in 2016 and 2017 from Deqing County Public Resources Trading Center
In 2017, the problem of LETVs capital chain broke out, Jia Yueting and LETVs senior team traveled far away to the United States, and the land leveling work of LETVs ecological Automobile Industrial Park was completely stopped in June of that year.
In response to the media, the natural resources and Planning Bureau of Deqing County, Zhejiang Province, said that the reason for the recovery was due to long-term idle and undeveloped land.
In addition to the resumption of land, tianyancha data shows that on November 25, Deqing Qihang, who holds 20% of LETV ecological automobile (Zhejiang) Co., Ltd., also withdrew from the companys shareholders. Deqing Qihang is wholly owned by the Management Committee of Moganshan high tech Industrial Development Zone, Huzhou.
In response to the matter that Moganshan land was recovered, FF responded to the media that FF company had adjusted its short-term strategy and focused on the R & D and manufacturing of ff91 related products.
FF China decided to temporarily abandon the industrial land plot located in Deqing City, Zhejiang Province, through friendly consultation with relevant government departments, and actively applied to the Zhejiang government for land return.
In fact, Jia Yueting did not give up on the domestic car building plan after he left the United States. After the cooperation with Evergrande stopped, FF signed a cooperation agreement with the ninth city on March 24 this year, announcing the joint venture to put into production and sell luxury electric vehicles in China. According to the cooperation agreement, FF will invest several intellectual property rights licensing land use rights in Moganshan, Zhejiang Province. The ninth city will contribute US $600 million to the joint venture, and each party will own 50% of the equity of the joint venture and have the right to share 50% of the profits.
However, with the land of leeco Autos Moganshan factory being reclaimed, the cooperation between FF and the ninth city may be variable, and its vision of car manufacturing and sales in China may also be blocked.
FF has a lot of debts, some are in default, some are about to mature
At the same time, Jia Yuetings car building plan in the United States is in a deadlock.
The crisis came from suppliers. According to the memorandum of offer, a confidential document obtained by time finance and economics for Jia Yuetings creditors, FF had been involved in the litigation of contractors and suppliers due to cash difficulties.
According to the document, ff91 model contains more than 2000 purchased parts from more than 400 suppliers, many of which are the only suppliers of FF at present, and FF relies heavily on suppliers.
Therefore, in exchange for suppliers and contractors to continue to pay for the production of ff91, FF established a supplier trust on April 29 this year to guarantee the overdue accounts payable with its assets of US $150 million.
As of the beginning of October, suppliers with a total debt of about US $141 million have agreed to participate in the supplier trust and will resume supply as soon as FF obtains additional financing. FF plans to pay off all payments due to the supplier by April 2020.
However, even the current supplier trust is unable to pay off FFs overdue payments to all suppliers. Although several major suppliers who filed a lawsuit against FF have agreed to join the supplier trust, as of early October, the lawsuit filed by five suppliers who did not participate in the supplier trust has not been resolved.
If the supplier does not participate in or withdraw from the supplier trust, FF will continue to face uncertainties in its supply chain and persistent liquidity problems, the document said.
Most importantly, FF may not be able to produce ff91 in a timely manner or launch ff81 or other electric vehicles as planned if some key contractors and suppliers terminate their cooperation with FF and FF does not find or find alternatives on acceptable terms.
In addition to the debt owed to suppliers, FF has other huge debts, and there is considerable uncertainty in the ability to repay its existing debts.
According to this memorandum, FFs current liabilities as of July 31, 2019 were $734.3 million, notes payable outstanding by related party lenders and third party lenders were $402.1 million, some of which were in default, and others were due by the end of 2019.
In addition, as of December 31, 2018, the annual interest rate of FFs borrowings from third-party lenders is generally between 8.99% and 13%. In case of default, the interest rate may be increased.
In fact, FF has long pledged its U.S. assets from time to time to secure some of the companys outstanding borrowings as of early October. For example, under the note purchase agreement dated April 29, 2019 between FF and Bank of America, certain purchasers, and birchlake as agent and security agent, all of its tangible and intangible assets have basically been pledged as collateral.
If FF fails to pay off the loan and the creditor decides to take enforcement measures, FFs operation may be interrupted, and the companys business, operating performance, financial situation and future prospects will be significantly and adversely affected.
In addition, FFs ability to pay off outstanding and future debts and other debts through its own generated revenue largely depends on the commercialization and performance of its electric vehicles, including ff91 and ff81, but as mentioned above, one of the conditions for suppliers to resume material supply is that FF can obtain financing.
Whether to produce or not is uncertain
In addition to material cut-off and huge debt, electric vehicles, FFs main business, are still facing continuous losses, uncertain production and uncertain profits.
The memo revealed that both now and in the future, Faradays operation is facing the problems of working capital shortage, limited available capital and working capital. If FF fails to finish equity financing as planned, there will be doubt and uncertainty about its ability to continue operating.
In terms of performance, FF has been losing money and the amount is not small. According to the document, FF had net losses of $477.8 million and $103.1 million for the seven months ended July 31, 2019 and 2018, respectively. As of December 31, 2018, FF had a cumulative deficit of $2079.3 million, while as of July 31, 2019, FF had a cumulative deficit of $2.15 billion.
In fact, FF has incurred losses every quarter since its inception, and the document believes that it will continue to generate operating and net losses every quarter, at least until it delivers ff91 in large quantities (expected to be after 2021, or even later). At present, FF can not guarantee the commercial success of its products, even if the production is successful, it can not guarantee the profitability.
As for the production of electric vehicles, up to now FF has not started mass production of any models, nor generated any revenue. FF is also uncertain about the ability of profitable scale development, production, marketing, sales and delivery of electric vehicles that appeal to customers.
From the past production of Faraday electric vehicles, ff91, as the first mass-produced model, has repeatedly skipped tickets, and has not been mass-produced so far.
In addition, FF also said that the lithium-ion battery developed for its electric vehicle has the defects of flammability, smoke and spark, and the document also said that FFs vehicle or other battery pack may have on-site or test failure.
On the other hand, the automobile market competition between China and the United States is quite fierce. Many old and new car manufacturers, such as Audi, BMW, Daimler, GM, Toyota and Volvo, have entered or have plans to enter the alternative fuel vehicle market.
According to the plan, it will take at least two years for FF to mass produce ff91. Before that, these big manufacturers, which are much better than FF in finance, technology and production, are likely to occupy most of the market share.
In addition, as of September 27, 2019, FF includes 404 employees from R & D, general affairs and management functions, sales and marketing functions, and 105 employees are on vacation.
Extremely short of working capital, difficult to solve the financing dilemma
No matter from the perspective of performance, finance or current management and operation, FF has many risks and uncertainties.
Now FFs biggest problem is undoubtedly a serious shortage of liquidity. As of December 31, 2018, FF had approximately $7.4 million in cash and restricted cash and a working capital deficit of $579.1 million. According to the document, FF will need to raise an additional $153 million to meet its projected working capital and capital expenditure requirements for the next year to support its continued operation, R & D, design and delivery of ff91.
The main source of FFs working capital has always been the cash raised from the issuance of shares, as well as the borrowings from related parties and third parties. However, as mentioned above, many of FFs debts have been in default or are about to mature. Unless FF can successfully extend, refinance or waive these debts, it will not be able to obtain sufficient working capital for its sustainable operation.
Even if FF can obtain such extension, refinancing or waiver, FF must complete round B equity financing or similar financing at the beginning of 2020, otherwise the company will again face financial difficulties affecting its ability to continue operating.
According to the plan, in order to complete the construction, equipment and improvement of FFs factory in Hanford, California, and start the production of ff91 and the development of ff81, FF needs to raise US $850 million by issuing Series B preferred shares before January 2020. Due to FFs Limited Business History and financial difficulties, its financing plan is likely to be hindered.
According to the document, although FF has had consultation with potential investors of round B equity financing as of the beginning of October, it has yet to reach a commitment on additional financing, and cannot guarantee whether, how much and on what terms to provide financing.
In addition, considering FFs current situation, FF is likely to be forced to accept more stringent financing terms even if it obtains financing, which may have significant restrictions and adverse effects on the companys business activities.
If FF is unable to complete equity financing as planned, it may need to borrow at a higher interest rate. However, due to doubts and concerns about the companys solvency and ability to continue to operate, it may also cause concerns to FF creditors, suppliers, customers and other counterparties, hinder their normal operation and their ability to raise funds on reasonable terms, which may result in the companys inability to continue to operate.
However, if we cant pay off the debts in the supplier trust before April 2020, the supply materials of the automobile also face great risks.
It is not hard to see that a cycle of high debt, financing difficulties and production stagnation is in front of FF and Jia Yueting.
At the creditors communication meeting on November 25, Jia Yueting admitted that FF is my life. Indeed, in order to repay his personal debt, on October 13 this year, Jia Yueting took the initiative to apply for personal bankruptcy reorganization in the United States, set up a repayment trust with all the personal assets recognized by the United States Court, and put the FF shares held by him into it. The creditor, according to the amount of debt held by him, replaced them with the corresponding trust share assets.
In short, once Jia Yuetings creditors agree to his bankruptcy reorganization plan, the interests of creditors will be transferred to FF, which is linked to FFs future. However, considering the current financial and debt situation of FF and other circumstances, some creditors have publicly opposed its bankruptcy reorganization plan.
For example, Chris cogburn, a lawyer acting for one of its creditors, Shanghai langcai Asset Management Co., Ltd., said in an interview with the media, we do not support Jia Yuetings plan. This proposal actually requires the creditors to convert their income from Jia Yueting into the possible future benefits of FF in the next few years. Jia Yueting asked his creditors to bet on the success of a company that does not exist at present. If FF fails in the future, then the creditors will get nothing.