China's $2bn electric car rescue is an odd turn

HONG KONG: China's $2 billion rescue of billionaire Jia Yueting's Tesla wannabe marks an odd turn. The lifeline for flashy Los Angeles-based Faraday Future comes from a unit of indebted Chinese real estate developer Evergrande Group , which will take a 45 percent stake. That's great news for Jia, still on Beijing's deadbeat blacklist. It's less clear why the buyers' investors are cheering.

Jia's outsized ambitions have seen him take on everyone from China's internet giants to Elon Musk. But his main LeEco group has struggled under the weight of rapid expansion, and Faraday, which has yet to produce its flagship FF 91 luxury electric SUV, has been through months of financial turbulence.

The relief deal defies logic. Beijing has apparently greenlighted a move to plough money into a troubled overseas company run by a man who is on the lam from mainland creditors. Washington approved it too. Most baffling of all, investors then reacted with a 66 percent rally in Evergrande Health's Hong Kong shares, adding $3.4 billion to its market value.

Indeed, the transaction seems to violate the basic rules for cross-border investments as laid down by both governments. The United States is preparing to heavily restrict Chinese investment into US technology assets, which would seem to apply to the intellectual property behind Faraday's FF 91, which the company claims will accelerate from zero to 60 miles (97 km) per hour in 2.4 seconds and get 300 miles out of a single charge.

As for China, the government wants to reduce the debt incurred by sprawling corporations like Evergrande, which won a ratings outlook upgrade last month after raising $20 billion, including by selling $9 billion of equity in a subsidiary. And Beijing has also been moving to kill or reverse high-risk offshore deals. Yet it would be brash indeed for the property giant's chairman, Xu Jiayin, to not clear this first.

The electric vehicle industry is a major strategic priority for China. But even so, why not bring an experienced Chinese auto maker like Geely onboard? Evergrande appears to have signed a blank check. At best, the market's enthusiasm is premature.

CONTEXT NEWS

- Evergrande Health Industry Group, a subsidiary of property developer China Evergrande Group, said on June 25 that it had agreed to buy 45 percent of US-based new-energy vehicle startup Faraday Future.

- According to the company announcements, Evergrande will purchase all of Season Smart, which owns the stake in Faraday, for $860 million. Faraday said the transaction had been cleared by the Committee on Foreign Investment in the United States.

- Season Smart agreed last November to invest $2 billion into Faraday by the end of 2020. So far, it has invested a total of $800 million.

- Faraday was set up by entrepreneur Jia Yueting, founder of troubled technology conglomerate LeEco. The company has yet to deliver a car model to the market.