Faraday Future's billion-dollar factory is a huge gamble for Nevada

Faraday FutureBizuayehu Tesfaye/AP Images for Faraday FutureFaraday Future FFZERO1 Concept vehicle at FF’s pre-CES reveal event in Las Vegas on Monday, Jan. 4, 2016.

The Chinese-backed electric-car company Faraday Future has plans to build a massive assembly plant in Nevada that could be a boon for the region — but also poses some risks.

The upstart car maker said in December it would invest $1 billion to build a 3-million-square-foot plant in the Nevada suburb of North Las Vegas.

In turn, the state has signed off on $215.9 million in tax incentives to lure the car maker to the area.

However, the state treasurer, Dan Schwartz, has asked Faraday Future for about $75 million as security amid concerns about the car maker’s Chinese investor, LeTV — known as the “Netflix of China.”

That request is likely justified, according to Thilo Hanemann, a China foreign investment expert at The Rhodium Group.

“Parties tend to ask for a higher risk premium because the political dynamics and regulations are so complicated on the Chinese side,” he told Business Insider.

Schwartz — who’s responsible for signing off on hundreds of millions of dollars in financial incentives for Faraday — became concerned after trading in shares of LeTV (also known as Leshi Internet Information and Technology or LeEco) were suspended in December.

The trading was purportedly suspended to allow the company to incorporate a film company into its listing, according to The Guardian, which noted that such a move isn’t uncommon in China.

Still, the suspension sparked Schwartz’s concerns about the investor.

“It’s ostensibly for good reasons,” Schwartz told Business Insider, referring to LeTV’s pending transaction, “but my concern is that it was supposed to be completed by January 31, and trading would resume then.”

LeTV stock is expected to resume trading on March 7.

Schwartz added that “it could just be taking longer than anticipated, or there could be other reasons.”

Nevada’s state treasurer isn’t the only person who’s been concerned about LeTV. The Guardian’s Mark Harris talked to former executives of Faraday Future who described early relations at Faraday Future and LeTV as something of a “culture clash”:

At one point, LeTV managers proposed calling the new company Fara Faro instead of Faraday Future. “The Americans were like, ‘That is the stupidest name ever,'” remembers an executive. “You had an international team that was experienced and open, juxtaposed with Chinese management that didn’t understand the US market and kept deferring to LeTV.”

Despite this tension, the company appears to be forging ahead. Just this week, Faraday Future announced that it received its first US patent. The patent is for a power inverter that Faraday says will manage its car’s electric power “20 to 30% better” than its competitors. It’s one of more than 100 US patents Faraday Future has submitted in the past year, the company said on its blog.

Faraday Future also unveiled its FFZero1 electric-car concept at the Consumer Electronics Show in January.

Hanemann, the China foreign investment expert, believes Faraday Future and LeTV see their proposed investment in Nevada as an opportunity to “reach a big consumer market in the US, and access a diverse and talented workforce.”

Faraday Future says its Nevada factory will create 4,500 jobs. If the plant materialises, that’s good news for North Las Vegas, which was nearly insolvent just a couple years ago.

Faraday Future and LeTV were not immediately available for comment.

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