The seemingly never-ending drama surrounding EV startup Faraday Future hit a new high as the company’s executive chairman was essentially forced out amid insinuations of mismanagement.
The company reached agreement with FF Top Holdings and the company’s Executive Chairperson in an ongoing governance battle. FF Top Holdings is the company’s largest investor, with a greater than 20% stake in the corporation. Under the terms of the agreement, Chairperson Sue Swenson and board member Brian Krolicki will step down as soon as the new funding is realized.
The embattled luxury EV manufacturer has struggled to stay afloat amid production delays and lackluster customer interest. Earlier this year, the company stated it might file bankruptcy and shut down altogether.
In response, 140 Faraday employees signed a letter accusing Swenson of trying to “push the company into bankruptcy and restructuring.” The accusations singled out Swenson, Krolicki and two other directors.
Faraday has been trying to bring its first product, the FF 91, to market for several years. The FF 91 is an electric luxury SUV designed to compete with the Tesla Model X. Production is currently planned for the final quarter of 2022. The company has announced 401 pre-orders for the vehicle.
“The resolution of governance and related issues with our largest shareholder is a major accomplishment and an important step forward for Faraday Future and all our stakeholders,” said Carsten Breitfeld, global CEO of Faraday Future. “We can now focus our effort on building the FF 91.”
FF Top Holdings filed suit against the company’s board as part of the dispute, stating the “current board has driven the company into the ground.” Under the terms of the new agreement, the lawsuit will be dropped.
“FF Top is glad that a resolution has been reached,” the holding company said in a statement. “We look forward to this opportunity for a new start and brighter future for FFIE, and to all parties performing their obligations under the governance agreement, to achieve the best interests of Faraday Future and all shareholders.”
Changes predicated on new financing
The company announced Sept. 26 it secured commitments for $100 million in new funding, aimed at getting it over the finish line and begin production of its long-awaited FF 91. It also noted it remained in negotiations with U.S. and international resources for additional investment.
However, in order to get the first tranche of $13.5 million, Swenson must step down from her role as Executive Chairperson of the company and Chairperson of the Board. She and Krolicki, the former Nevada lieutenant governor, will step down from the Board entirely once the company realizes $85 million in new financing, and $35 million in net proceeds from the investment.
Adam He, a senior executive with extensive publicly traded company experience, was named a new independent board member and a member of the Nominating and Corporate Governance Committee and Audit Committee. He is also the Chief Financial Officer of Wanda America Investment Group, and previously served as an auditor with Ernst & Young. Li Han will also join the board.
Under the first of the two financing agreements, Faraday will receive up to $40 million in near-term funding in the form of convertible secured notes and warrant exercise payments, subject to certain conditions.
Under a separate second financing agreement, Faraday will receive up to an additional $60 million in near-term funding from Senyun International Ltd., a Daguan International Ltd. wholly owned investment entity. The new money comes in the form of convertible secured notes, also subject to certain conditions.
As of mid-day on Tuesday, Faraday Future stock was up 5.83%, to $0.89 a share, on the news. The stock has traded as high as $18.45 a share, on Jan. 29, 2021, but has been on a bumpy path downward since then.
Company focused on cost reductions
Faraday is continuing to seek capital to fund the production and delivery of the FF 91. It’s unclear how far the new money will take the company or how consumers will ultimately respond to the company’s EV, especially when the company’s survival is so tenuous.
As part of ongoing efforts to conserve cash and reduce expenses, Faraday recently implemented headcount reductions and other expense reduction and payment delay measures. Further efforts to reduce the company’s burn rate, including additional staff reduction, may be undertaken in response to the company’s financial condition and market conditions.