What’s a SPAC?

Electric vehicle startup Faraday future is a publicly traded company.

It’s okay, I’ll give you a moment. I’ve been reporting on Faraday Future for four years and it has even stunned me a few times in recent weeks. But it’s true: today, the startup’s shares began trading on the Nasdaq stock exchange, and a fresh $1 billion was dumped into its battered war chest.

Electric vehicle companies are going public left and right thanks to the rise in popularity of special purpose acquisition companies (which you can read a great explanation of here). So are companies that supply some of the new technologies that make EVs possible, like lithium-ion battery manufacturers, as well as others in related industries, like autonomous vehicle startups and makers of lidar sensors.

But none of those companies flirted with oblivion as much Faraday Future. Guided by the whims of exuberant billionaire founder Jia Yueting, a man who self-exiled from China to escape a colossal amount of debt, Faraday Future walked right up to the brink over the last few years and somehow lived to tell the tale.

What’s a SPAC?

A SPAC is a special purpose acquisition company — basically, a pile of cash reserved for a merger that went through the initial public offering (IPO) process. The entire point of the SPAC is to find a private company to merge with. When that happens, the target company essentially goes public without some of the hassles of the traditional IPO process.

There has been a lot more SPAC action than usual lately; The Wall Street Journal even declared 2020 a record year for SPACs. Companies such as Virgin Atlantic, Opendoor, Lordstown Motors, and Fisker have all gone through the process. For a more detailed explanation of how SPACS differ from IPOs, see our SPAC explainer.

A lot happened along the way. After it was founded in 2014, Faraday Future was mistaken as a secret front operation for Apple’s self-driving car project. It debuted a static concept car at the 2016 Consumer Electronics Show while announcing its intentions to be as disruptive as the iPhone (after Jia compared Apple to Hitler — no, really). It returned to the trade show the following year and debuted a real electric vehicle only to have all sorts of things go wrong, and then stiffed the company that helped put on the event. It announced a $1 billion factory in the Nevada desert that never got built (after passing up existing options, including the factory in Illinois that Rivian now occupies).

Then the real trouble started. Jia’s profligate spending — he poured $900 million of his own money, much of it drawn from loans he never repaid in China, into Faraday Future by 2017 — had helped the startup amass a nearly 1,500-person workforce and design a ludicrously expensive technological marvel of an electric SUV. But he had trouble bringing on other investors. He balked at the idea of giving up any control over the company, and that scared off anyone with deep enough pockets to pony up the kind of capital required to build a factory and make a car at scale.


Inside Faraday Future\’s financial house of cards

So in late 2017, Faraday Future was running ragged. It had just a few million dollars in its bank accounts. Fed up with Jia, executives that were hired away from Tesla and Apple and other big companies started to flee. The chief financial officer who was brought in to save the company left late that year after Jia refused his proposal to restructure Faraday Future in bankruptcy. (That executive, along with a few others who left Faraday Future, went on to found the company that is now Canoo.)

The financial house of cards that Jia had built Faraday Future out of looked ready to collapse. Then, at the end of 2017, the company got a mysterious lifeline. As The Verge reported in April 2018, the money came from Chinese real estate conglomerate Evergrande through a series of offshore shell companies. Evergrande pledged $2 billion in total — with $800 million up front and the rest to come in installments. Faraday Future was saved.

Until it wasn’t. Jia spent through that money faster than Evergrande expected. Evergrande agreed to give Faraday Future an advance on the remaining investment but only if Jia gave up some control. Jia technically did this, but he merely transferred his controlling shares to the daughter of his right-hand woman, Faraday Future VP Chaoying Deng (who I covered in this 2017 investigation).

Evergrande was displeased with this. The two sides spent months fighting in a Hong Kong court over the disagreement. Meanwhile, Faraday Future was basically out of money again. It furloughed hundreds of employees, then laid many of them off. Most of the top executives who had held on finally left, including Jia’s last remaining co-founder. Faraday Future eventually settled with Evergrande at the end of 2018 and spent much of 2019 in a sort of hibernation, though it took a few more drastic measures to generate cash to keep the lights on, like selling its own headquarters.

In early 2019, Faraday Future made a few decisions that are arguably the reason it survived long enough to take advantage of the SPAC boom and become a public company. First, it started working with a restructuring firm run by a bankruptcy guru. Working with this firm, Faraday Future convinced the many suppliers that were owed money to exchange their claims for pieces of a trust that would pay out if and when the startup raised money. It also helped refinance some of the startup’s debt.


Faraday Future’s still haunted by the past of its billionaire founder

Then, it hired another former BMW executive, Carsten Breitfeld, who used to run the BMW i8 program. Breitfeld became CEO (as well as a sort of adult in the room) and has been the face of the startup’s fundraising efforts ever since.

Lastly, Jia filed for personal bankruptcy to settle $3.6 billion of his personal debt in China. The way this was done was crucial to Faraday Future’s current fortunes. Jia placed nearly all of his controlling stake in the startup in a trust that his own creditors now own pieces of — much like the way Faraday Future settled its debts with suppliers. That means he no longer has the same kind of dictatorial control over the company that he once enjoyed.

Faraday Future survived 2020 thanks in part to a $9 million loan from the Paycheck Protection Program and finished the year with just $1 million in the bank. But by that time it had already been in talks with Property Solutions Acquisition Corp., a SPAC that had originally set out to merge with a company in the real estate sector. They announced the merger in January 2021.

Now that Faraday Future is listed on the Nasdaq, the startup says it will take a year to get its electric SUV into production. The company has grand plans beyond that — it’s still trying to be that major disruptor that it claimed to be at CES 2016 — but it won’t be able to take a crack at them until it gets its first car out the door.

Or, perhaps, it will. Faraday Future has survived so many brushes with death to date, and the financial markets are currently so receptive to young electric vehicle startups with no revenue, that it’s actually kind of hard to imagine how things could go really wrong in the near-term. But if there’s one lesson to be learned from Faraday Future’s first seven years, it’s that you should always expect the unexpected.

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