The financial tension of the Chinese tech company LeEco has escalated and sprawled overseas. Faraday Future, a California electric vehicle (EV) builder mainly funded by LeEco, is under a cloud of suspicion about the company’s cash flow and the production capability.

Faraday Future’s Teaser Video

On Nov. 17, Nevada State Treasurer Dan Schwartz questioned the financial condition of Faraday Future, which was expected to invest in a $1-billion electric vehicle factory in Nevada but missed three months of payments. But Faraday’s China team responded in a statement that the Nevada factory has never been halted and will start the second phase of construction next spring.

The Nevada state treasurer doubted the business model of LeEco. “This is a Ponzi scheme,” Schwartz told Sina Tech Media. “You have a new company that has never built a car, building a new plant in the middle of the desert, financed by a mysterious Chinese billionaire. At some point, as with Bernie Madoff, the game ends.”

Faraday Future signed a contract with the Nevada government to invest in the factory, with the state providing more than $200 million in incentives. But Faraday didn’t pay $21 million due in September according to Aecom, the prime contractor for Faraday’s car factory. “The state has not suffer fiscal loss yet, but it is time consuming and reputation influence,” said Schwartz in another interview with Caixin Media on Wednesday.

Faraday Future Factory Overview

Faraday claimed the company had enough capital for the Nevada factory. According to the Chinese media Sina, Yueting Jia, the CEO of LeEco, attracted 10 investors from his classmates in Cheung Kong Graduate School of Business and raised $600 million from those entrepreneurs. The purpose of the funds is not clear.

In October, Jia allegedly sent an alarming letter to all his employees and admitted the cash crunch caused by overstretched business. After Jia’s letter went public, LeEco’s stock market flopped. “We have frozen all the original employment,” said Kevin Zheng from the supply chain department of Faraday Future.

There have long been worries about LeEco’s expansion into almost everything, consisting of interconnected LeEco hard- and software. The ecosystem includes streaming-content services, smart bicycles, smart TVs, cloud-computing, smartphones, smart-apartments, and automobiles.

The letter came three weeks after a massive press event in San Francisco’s Palace of Fine Arts. LeEco claimed to tackle the U.S. market by a variety of products such as smartphones and TVs. Faraday Future’s EVs are also in the portfolio of products LeEco wants to introduce to the global market.

The original plan was for Jia to drive Faraday Future’s concept car across the red carpet onto the stage. But it turned out he ran out himself. “The car was broken during the sloppy transportation from our office to San Francisco,” Zheng recounted. Another car from the filming scene in London was transported instead and only displayed after the event.

LeEco EV Strategic Map

Faraday Future, with its headquarters located in an automobile industrial area in Gardena, CA, served as a significant part of LeEco’s EV strategy. Faraday Future now has up to 1,000 employees. Its design and engineering team will also help LeEco’s Chinese EV brand LeSee, which is based in Beijing with its plant in Zhejiang province.

The two companies will target consumers from different levels. Faraday Future aims at the high-end market and the EVs produced by LeSee in China will be more affordable. Zheng said that Faraday Future wants to target “high-tech fans and wealthy people’s second cars.” The first production car will be priced around $80,000 to $100,000, equivalent to Tesla’s Model S. Faraday Future also signed a cooperation deal to build electric vehicles with Aston Martin in the future.

Beyond sharing market risks by different level products, the U.S. market “will help us establish a global brand,” Zheng said. The connection between Faraday Future and LeEco has remained ambiguous till now because the “made (and designed) in America” marketing package made Jia’s EV plan convincing. Zheng said Chinese investors tend to trust the technology and management team from the mature automobile market in the U.S.

The “Our Team” section of Faraday Future’s webpage only shows a few VPs, who worked previously in other automakers including Tesla, BMW, Audi, and Ferrari. “Faraday Future has been hiding in plain sight,” the Clean Technica reported. But the incorporation papers filed with the California secretary of state’s office revealed its CEO was Chaoying Deng, a corporate director at LeEco’s subsidiary LeVision Pictures. Ding Lei, CEO of LeSee, participated as the main role of Faraday Future.

As the main funder, LeEco faces challenges if it wants to continue supporting Faraday Future. The current EV market faces a “chicken and egg” problem. The profit returns are expected to be slow and even Tesla has not made money yet except for a few quarters. The market requires pre-investment in charging facilities and the incentives to the consumers. This is why governments in many countries provide rebate policies to the EV makers. But as the Chinese government plans to phase out of the subsidies before 2020, both LeSee and Faraday Future will benefit less than what they could obtain from the confident investors. Jia expects to raise money by loans, which will be released by three phrases – Series A, Series B, and Pre-IPO placement. LeEco is estimated to raise a total investment of $7.9 billion before 2022. Except Jia’s classmates in Cheung Kong Graduate School of Business, Faraday Future needs more investors to buy the company’s story and trust its production capability.

After all, Faraday Future faces fierce competition. In California’s EV market, there are mature auto companies with massive dealership networks and existing customers such as Tesla and Audi. Other start-up makers are leaping into this competition, such as NextEV, launched by Tencent, another Chinese internet behemoth.

Faraday Future believes in its unique strategy to win this game. Selling services will be a big part of the company’s business model. “We envision this like a smartphone. The revenue starts once you get the device in the owners’ hands. We’re looking at subscriptions and apps and other opportunities,” said Nick Sampson, Faraday’s vice president of research and development.

Rather than hearing about Faraday’s future business strategy, the Nevada state treasurer is more eager to see the first production car manufactured by the plant.

However, Faraday Future has comforted the plant’s prime contractor Aecom. “We remain fully committed to our client and our employees working on this project, and we look forward to the facility’s successful delivery,” said Brendan Ranson-Walsh, the vice president in the global external communications department of Aecom. According to an official statement, Faraday Future is temporarily adjusting its construction schedule with plans to resume in early 2017.