In Surprising Move, Game Maker The9 Appears with Up To $600 Million for Struggling Faraday JV

The announcement tanked shares in The9, sending them lower more than 20 percent Monday, after first soaring 53 percent in the morning.
Mar. 26, 2019 14:55
In Surprising Move, Game Maker The9 Appears with Up To $600 Million for Struggling Faraday JV

The9 Ltd. (Nasdaq: NCTY) announced today that it partnered with Faraday Future Inc. to sell electric cars in China, sending its stock on a rollercoaster ride that ended down Monday.

Shanghai-based The9, an online game developer that has been shifting to internet technology and blockchain over the past year, said it would invest up to $600 million to take a 50 percent stake and control the business operations in a joint venture company that it would build together with Faraday.

Faraday's the Los Angeles electric car startup that recently sold its headquarters in an attempt to pay off debt and stay afloat. Earlier this month, Faraday said it also planned to sell its land in Nevada, where it intended to build a factory before losing funding and seeking new investors.

Today's announcement sent the shares of The9 up 53 percent in the first hours of trading, but the stock quickly reversed course, ending the day at $2.01 per American depositary share, down 51 cents. The company, which tripled the number of ordinary shares represented by its ADSs less than a year ago, struggled last year to retain its listing as its market value fell below Nasdaq requirements.

It was unclear from the announcement the source of The9's funding, however. The company, in its latest financial report, said it had total assets of $37.6 million and current liabilities of $127.9 million as of June 30, 2018.

The companies said the venture would produce a spin-off of Faraday's FF 91 model, dubbed V9, in China beginning next year, aiming to reach an annual capacity of 300,000 cars.

"Leveraging the technology capabilities of FF, we believe our alliance with FF provides us with a great opportunity to pursue the fast-growing market of electric vehicles in China," The9's chief executive, Jun Zhu, said.

Faraday's founder and CEO, Yueting Jia, added, "As a California-based ultra-luxury intelligent mobility brand, FF has hundreds of proprietary patents, along with more than 2,000 industry patents in process to be approved, in both China and the United States. Through the establishment of the joint venture, we are able to implement our dual-home-market and dual-brand strategy and achieve our strategic goal of introducing our luxury EV brand in China."

He continued, "We are very grateful for this opportunity as it shows the recognition of FF's product technology from The9. I believe that FF's strategic vision and product concept will be perfectly integrated with the Internet and user operation genes of The9 to realize the smooth operation of FF new brand and flagship products in China."

The investment from The9 will be paid in three installments to the joint venture, while Faraday will provide land in China for manufacturing and will grant an exclusive license to make, market, and sell the V9 and other potential car models, according to the report.