NEW ENERGY: LeEco Gets Pre-CES Shock with Faraday Defections

Bottom line: The departure of 2 recently hired executives from Faraday Future hints at chaos and uncertainty that has spread from struggling backer LeEco, a situation that only looks set to worsen.

Cash-challenged online video company LeEco (Shenzhen: 300104) is getting an early shock in the run-up to the world’s largest consumer electronics show, with word that two top executives have defected from its Faraday Future electric car unit. Anyone reading about these company for the first time is probably scratching his or her head, trying to figure out what exactly online video and electric cars have in common and why a relatively young Internet company like LeEco would be in this business. But that’s exactly the problem.

LeEco has been in the midst of a nonstop, slow-motion crisis since early November, when reports first emerged that it was having difficulty paying some of its suppliers due to an overzealous expansion including billions of dollars in new projects in a wide range of areas. One of those areas was electric cars, a place that LeEco had no real business being, even though founder Jia Yueting considered the move part of his vision for building an ecosystem of interconnected devices delivering online entertainment.

One of the areas most affected by the cash crunch was reportedly LeEco’s electric vehicle (EV) project, centered on Faraday Future, which was struggling before receiving backing from the Chinese company. But Faraday’s own future was suddenly called into question with LeEco’s recent cash crunch, and steady reports have emerged that all work has been halted on a $1 billion EV plant being built by the pair in the US state of Nevada.

Now the latest reports say that two of Faraday’s top marketing executives have left the company, hinting at rats jumping from a sinking ship. There’s not much detail on reasons for the departures of Marco Mattiacci, chief brand and commercial officer, and Joerg Sommer, vice president for product marketing and growth. (English article; Chinese article)

One report says Faraday Future confirmed Mattiacci’s departure, and another notes that both executives’ names have been removed from the company’s website. Neither executive was at the company too long. Mattiacci joined just 7 months ago from luxury car maker Ferrari, while Sommer arrived just 3 months ago from Volkswagen.

Jumping Ship or Jettisoned?

One of the reports is saying the pair could have been jettisoned as a cost-saving move in the run-up to the Consumer Electronics Show (CES), the world’s biggest show of its kind that will take place on January 5-8 in Las Vegas. One report in the Chinese media also quotes a Faraday spokesman shooting down rumors that LeEco chief Jia has taken control of the company.

The bottom line seems to be that 2 recently arrived top marketing executives who came to Faraday in the LeEco era have suddenly departed at a very inopportune time, since LeEco was planning to showcase one of the venture’s cars next week at CES. The explanation that the pair were sacked as a cost-saving move seems unlikely, since they just joined recently and the spokesman could only confirm one departure. And it also seems unlikely the pair would get the ax so close to such an important event like CES, which is featured prominently on Faraday’s website right now.

Instead, my interpretation would be the pair probably quickly realized what a mess Faraday Future was soon after arriving, and shortly thereafter realized that LeEco was an even bigger mess. Anyone who has worked in a similar private Chinese company would already know that, as such firms are famous for their chaotic internal culture and rapid hiring that often leaves thousands of new employees not sure what they’re doing.

In this case, LeEco’s situation is even worse due to the recent crisis, which has led to persistent rumors of mass layoffs and has undoubtedly totally undermined morale. With the future of their main financial backer in such a state of confusion, it certainly wouldn’t come as a huge surprise if top executives like Mattiacci and Sommers decided they had signed on with a sinking ship and decided to jump before it was too late.

So what does all this mean for LeEco and its EV dreams? The answer is that the departure of 2 executives probably won’t have any huge immediate impact, and I expect whatever LeEco and Faraday had planned for CES will go on as scheduled. Instead, the pair of departures are more important for what they symbolize, namely a pair of companies in a state of chaos and uncertainty that’s unlikely to subside anytime soon and will probably get worse.