Published on July 8th, 2016 | by Steve Hanley3
Faraday Future’s Nevada Factory Hits Speed Bump
July 8th, 2016 by Steve Hanley
Originally published on Gas2.
Faraday Future has assembled an impressive team of top flight auto engineers and industry executives, including Marco Mattiacci, formerly of Ferrari. It says it will have a concept car to show to the public by the end of this year. Backed by a billionaire who has already invested $300 million of his own money, it has selected North Las Vegas as the site of its $1 billion factory. In short, Faraday Future seems to have everything it needs, except one thing — the confidence of Nevada state treasurer Dan Schwartz.
He is the man who has to sign off on building the infrastructure that will be needed to make the factory a reality. Schwartz is the former CEO of a private equity research firm in Hong Kong. He thinks Jia Yueting, the man with the deep pockets, can’t put his money where his mouth is. He says he wants more transparency on the funding for the factory before signing off on state bonds that will pay for $120 million of infrastructure improvements.
Schwartz has good reason to be concerned. Jia’s principal business is called Leshi Internet Information & Technology. Jia has developed a preference for equity backed loans, a financing strategy that could leave Nevada taxpayers vulnerable to the whims of China’s volatile stock market. Jia has pledged 87% of his holdings in Leshi for cash that was then plowed back into his various companies, according to regulatory filings.
Trading in Leshi stock was halted in Shenzhen for the first five months of 2016. Since trading resumed in June, the stock has dropped another 11%. That fuels Schwartz’ fear that a margin call could prevent Jia from funding the plant. “You can see where this leads,” Schwartz said. “His Internet company is successful, but that doesn’t generate the billions of dollars he’d need. Where’s he going to get the money?’’
At 105 times projected earnings for this year, the stock is more than twice as expensive as the median China-listed company. The firm has recorded negative cash flow for the past two quarters, according to data compiled by Bloomberg. “It’s a matter of time before problems emerge,” said Wang Zheng, the Shanghai-based chief investment officer at Jingxi Investment Management, which oversees a portfolio of about $300 million. It is avoiding Leshi shares, in part because of concerns over its financing strategy. “The company is capital strapped,” said Dai Ming, a money manager at Hengsheng Asset Management in Shanghai.
For Schwartz, Jia and Faraday Future need to explain clearly how they plan to provide stable financing for the Nevada project. Only then would he consider supporting a state debt sale to fund the plant’s infrastructure. His critics suggest he is grandstanding in advance of a possible run for governor. “I may/may not run for governor, but this project has nothing to do with my political future,” Schwartz says. “It’s strictly about whether Faraday has the money/expertise to build a $1 billion electric-car manufacturing facility in North Las Vegas. And, if they don’t, whether or not I want the Nevada taxpayer to pick up the tab.”
Until Faraday Future satisfies Schwartz’ concerns, its future factory is going absolutely nowhere.
Source: The Seattle Times