Following on our earlier report that Faraday Future was behind on the payment of a $21 million deposit to the construction firm AECOM, the billionaire behind the electric vehicle firm, as well as LeEco and reportedly now Atieva to some degree, has released a letter to employees at LeEco admitting that the tech giant was running out of cash because of rapid expansion.
In the letter, LeEco Chairman and co-founder Jia Yueting apologizes to shareholders and states that he will be cutting his pay to a nominal fee of 1 yuan (~15 cents). He will also be pulling back the reins on the rapid expansion and transitioning to a more manageable pace.
For those unfamiliar with it, LeEco is an absolute tech giant — it’s the umbrella holding company for a very wide variety of businesses that includes smartphones, TVs, sports media, and cars. The firm is probably best known for its streaming service LeTV, which is very prominent in China. Notably, LeEco recently paid $2 billion to acquire California TV maker Vizio, Inc.
The letter to shareholders stated: “No company has had such an experience, a simultaneous time in ice and fire. We blindly sped ahead, and our cash demand ballooned. We got over-extended in our global strategy. At the same time, our capital and resources were in fact limited.”
I have to wonder about the claim that “no company has had such an experience.” The truth seems to be the exact opposite — that monetary overextension is a common problem amongst rapidly growing companies. A great many observers have expressed skepticism on Faraday Future and LeEco specifically because of the opaque nature of the firms’ financials and claims that they were doing things faster than even Tesla had. It seems that skepticism had something to it.
Bloomberg News provides more:
“Jia’s memo circulated widely on social media Monday and prompted a testy exchange with rival smartphone maker Xiaomi Corp. Xiaomi co-founder Lei Jun called attention to the opacity surrounding LeEco’s outstanding debt, according to a screengrab of his WeChat message account that LeEco posted. That prompted a sharp riposte from Jia’s company, which blasted Xiaomi and Lei for spreading rumors. An hour later, one of Xiaomi’s official Weibo accounts fired back, asking Jia to focus on LeEco’s debt rather than distract the public.
“Jia highlighted measures to lessen the company’s burden in his memo. LeEco will immediately begin cost-cutting programs, decrease subsidies for customers and focus on existing businesses instead of new ones, he added, apologizing to shareholders of Leshi in response to criticism that he hasn’t paid them enough attention.”
As an explanation of that last bit, the media streaming services provider Leshi is the lynchpin of Jia’s empire — being one of the first companies in China to provide streaming movies and TV shows through a subscription service, when it was founded back in 2004. According to LeEco’s head of corporate finance, Winston Cheng, Leshi is currently “publicly listed on the Shenzhen Stock Exchange and the only profitable entity.”
A couple of other points: regulatory filings apparently show that Jia “has borrowed against his shares in Leshi for cash that he invested into his other companies;” and the car division has “already spent 10 billion yuan in early development,” going by Jia’s comments in the memo.
“Our fundraising ability isn’t strong,” Jia noted. “The scale of our external fundraising had trouble satisfying the demands of our rapid expansion.”
Borrowing against his shares in Leshi for cash “has invited scrutiny in the U.S., where Jia is trying to get electric car-making venture Faraday Future off the ground. Nevada Treasurer Dan Schwartz has balked at issuing bonds needed to get the project up, citing doubts about Jia’s ability to raise funds,” Bloomberg News adds.
Jia has been compared to Elon Musk many times. He clearly likes to be on the cutting edge of things. However, the trouble with wanting to rush head first into the next thing is getting the timing right, and getting others on board quickly and strongly enough. It’s a hard task, even when you are on the right technological track.
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