Binance is backing out of its plans to acquire FTX, the company said Wednesday, leaving Sam Bankman-Fried’s crypto empire on the verge of collapse.
The reversal comes one day after Binance CEO Changpeng Zhao announced that the world’s largest cryptocurrency firm had reached a non-binding deal to buy FTX’s non-U.S. businesses for an undisclosed amount, rescuing the company from a liquidity crisis. Earlier this year, FTX was valued at $32 billion by private investors.
“In the beginning, our hope was to be able to support FTX’s customers to provide liquidity,” Binance said in a tweet on Wednesday. “But the issues are beyond our control or ability to help.”
On Monday night, facing a liquidity crunch, Bankman-Fried was scrambling to raise money from venture capitalists and other investors before he went to Binance, according to sources with knowledge of the matter. Zhao initially agreed to step in, but his company quickly changed course, citing reports of “mishandled customer funds and alleged U.S. agency investigations.”
It’s unclear who is next in line to buy the beleaguered crypto exchange. Bankman-Fried told investors that the company is facing a shortfall of up to $8 billion from withdrawal requests and needs emergency funding, according to the Wall Street Journal.
The disintegration of the Binance-FTX deal is the latest chapter in a shocking collapse that’s rocked the crypto world this week. Bankman-Fried tried to reassure investors just on Monday that the company’s assets were fine. But after Binance’s Zhao said publicly that his company was selling its holdings in FTX’s native token FTT, the selloff was on, and FTX could do nothing to stop it.
One of Silicon Valley’s most prominent VC firms, Sequoia Capital, sank $210 million into the company, according to reporter Eric Newcomer. FTX was telling investors recently that its net income in 2022 was projected to drop to $144 million this year, down from $338 million in 2021, while revenue was projected to rise to $1.1 billion from $1 billion last year, Newcomer reports.
Bankman-Fried said on Tuesday that customers had demanded withdrawals to the tune of $6 billion. He also deleted tweets from the prior day indicating that FTX had enough assets to cover clients’ holdings.
Zhao told Binance employees in a memo earlier on Wednesday that he “did not master plan” the collapse of FTX. He said FTX going down is “not god for anyone in the industry” and employees should not “view it as a win for us.”
He also told them not to trade FTT tokens while this ordeal unfolds.
“If you have a bag, you have a bag,” he wrote. “DO NOT buy or sell.”
FTT had already lost 80% of its value between Monday and Tuesday, falling to $5 and wiping out more than $2 billion in a day. It fell by more than half on Wednesday to around $2.30, shrinking the total value of circulating tokens to roughly $308 million.
Cryptocurrencies have plummeted amid the deal turmoil, with bitcoin falling 15% on Wednesday after a 13% drop on Tuesday. It’s trading below $16,000 for the first time since November 2020. Ether, meanwhile, has plunged more than 30% over the past two days and is close to falling below $1,000.
Here’s the company’s full statement:
“As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of FTX.com.
In the beginning, our hope was to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to help.
Every time a major player in an industry fails, retail consumers will suffer. We have seen over the last several years that the crypto ecosystem is becoming more resilient and we believe in time that outliers that misuse user funds will be weeded out by the free market.
As regulatory frameworks are developed and as the industry continues to evolve toward greater decentralization, the ecosystem will grow stronger.”
View from the helicopter during a rescue operation after a vehicle carrying two adults and two children went over a cliff in Devil’s Slide, San Mateo county, California, U.S., January 2, 2023, plunging hundreds of feet, according to the Department of Forestry and Fire Protection, in this still image obtained from social media video.
CHP – Golden Gate Division | Reuters
Two adults and two children were rescued from a Tesla that plunged 250 feet off a cliff Monday morning in San Mateo County, California, officials said.
The car was traveling southbound on the Pacific Coast Highway when it went over the cliff at Devil’s Slide, south of the Tom Lantos tunnel, and landed near the water’s edge below, the Cal Fire San Mateo-Santa Cruz Unit said.
The car flipped and landed on its wheels in the fall, CAL FIRE/Coastside Fire Incident Commander Brian Pottenger said. Witnesses saw the accident and called 911.
As crews were lowered down, they were able to see movement in the front seat, through their binoculars, meaning someone was alive.
“We were actually very shocked when we found survivable victims in the vehicle. So, that actually was a really hopeful moment for us,” Pottenger said.
Fire officials called for helicopters to help hoist the survivors to safety. As they waited, firefighters rappelled to the scene and rescued the two children.
Rescue teams are seen at the scene as a Tesla with four occupants plunged over a cliff on Pacific Coast Highway 1 at Devils Slide on January 2, 2022 in San Mateo County, California, United States.
Tayfun Coskun | Anadolu Agency | Getty Images
The California Highway Patrol shared video on social media showing helicopters lower first responders to the scene to extricate and rescue two adults inside.
All four were hospitalized. The San Mateo Sheriff’s Office said the two adults suffered non-life-threatening injuries and the two children were unharmed.
It’s not clear what caused the car to go over the cliff. CHP is handling the investigation.
Deliveries are the closest approximation of sales disclosed by Tesla. The company reported 405,278 total deliveries for the quarter and 1.31 million total deliveries for the year. These numbers represented a record for the Elon Musk-led automaker and growth of 40%in deliveries year over year, but they fell shy of analysts’ expectations.
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According to a consensus of analysts’ estimates compiled by FactSet, as of Dec. 31, 2022, Wall Street was expecting Tesla to report around 427,000 deliveries for the final quarter of the year. Estimates updated in December, and included in the FactSet consensus, ranged from 409,000 to 433,000.
Those more recent estimates were in line with a company-compiled consensus distributed by Tesla investor relations Vice President Martin Viecha.
Baird analyst Ben Kallo, who recently named Tesla a top pick for 2023, maintained an outperform rating and said he would remain a buyer of the stock ahead of the company’s earnings report, which is scheduled for Jan. 25.
“Q4 deliveries missed consensus but beat our estimates,” he said in a Tuesday note. “Importantly, production increased ~20% q/q which we expect to continue into 2023 as gigafactories in Berlin and Austin continue to ramp.”
Analysts at Goldman Sachs said they consider the delivery report to be an “incremental negative,” and view Tesla as a company that is “well positioned for long-term growth.” Goldman reiterated its buy rating on the stock in a Monday note and said that making vehicles more affordable in a challenging macroeconomic environment will be a “key driver of growth.”
“We believe key debates from here will be on whether vehicle deliveries can reaccelerate, margins and Tesla’s brand,” the analysts said.
Shares of Tesla suffered an extreme yearlong sell-off in 2022, prompting CEO Musk to tell employees in late December not to be “too bothered by stock market craziness.”
Musk has blamed Tesla’s declining share price in part on rising interest rates. But critics point to his rocky $44 billion Twitter takeover as a bigger culprit for the slide.
Morgan Stanley analysts said they think the company’s share price weakness is a “window of opportunity to buy.”
“Between a worsening macro backdrop, record high unaffordability, and increasing competition, there are hurdles for all auto companies to overcome in the year ahead,” they said in a note Tuesday. “However, within this backdrop we believe TSLA has the potential to widen its lead in the EV race, as it leverages its cost and scale advantages to further itself from the competition.”
— CNBC’s Lora Kolodny and Michael Bloom contributed to this report.
Tom Zhu Xiaotong, Tesla’s current executive in charge of China, speaks as a new Tesla experience store opens on Aug. 18, 2015 in Hangzhou, China.
Visual China Group | Getty Images
Tesla’s China chief Tom Zhu has been promoted to take direct oversight of the electric carmaker’s U.S. assembly plants as well as sales operations in North America and Europe, according to an internal posting of reporting lines reviewed by Reuters.
The Tesla posting showed that Zhu’s title of vice president for Greater China had not changed and that he also retained his responsibilities as Tesla’s most senior executive for sales in the rest of Asia as of Tuesday.
The move makes Zhu the highest-profile executive at Tesla after Chief Executive Elon Musk, with direct oversight for deliveries in all of its major markets and operations of its key production hubs.
The reporting lines for Zhu would keep Tesla’s vehicle design and development — both areas where Musk has been heavily involved — separate while creating an apparent deputy to Musk on the more near-term challenges of managing global sales and output.
Tesla did not immediately respond to a Reuters request for comment.
Reuters reviewed the organizational chart that had been posted internally by Tesla and confirmed the change with two people who had seen it. They asked not to be named because they were not authorized to discuss the matter.
Zhu and a team of his reports were brought in by Tesla late last year to troubleshoot production issues in the United States, driving an expectation among his colleagues then that he was being groomed for a bigger role.
Zhu’s appointment to a global role comes at a time when Musk has been distracted by his acquisition of Twitter and Tesla analysts and investors have urged action that would deepen the senior executive bench and allow him to focus on Tesla.
Under Zhu, Tesla’s Shanghai plant rebounded strongly from Covid lockdowns in China.
Tesla said on Monday that it had delivered 405,278 vehicles in the fourth quarter, short of Wall Street estimates, according to data compiled by Refinitiv.
The company had delivered 308,600 vehicles in the same period a year earlier.
The Tesla managers reporting to Zhu include: Jason Shawhan, director of manufacturing at the Gigafactory in Texas; Hrushikesh Sagar, senior director of manufacturing at Tesla’s Fremont factory; Joe Ward, vice president in charge of Europe, the Middle East and Africa; and Troy Jones, vice president of North America sales and service, according to the Tesla notice on reporting lines reviewed by Reuters.
Tesla country managers in China, Japan, Australia and New Zealand continued to report to Zhu, the notice showed.
Zhu does not have a direct report at Tesla’s still-ramping Berlin plant, but a person with knowledge of the matter said responsibility for that operation would come with the reporting line for Amsterdam-based Ward. Ward could not be immediately reached for comment.
Zhu, who was born in China but now holds a New Zealand passport, joined Tesla in 2014. Before that he was a project manager at a company established by his MBA classmates at Duke University, advising Chinese contractors working on infrastructure projects in Africa.
During Shanghai’s two-month Covid lockdown, Zhu was among the first batch of employees sleeping in the factory as they sought to keep it running, people who work with him have said.
Zhu, a no-fuss manager who sports a buzz cut, favors Tesla-branded fleece jackets and has lived in a government-subsidized apartment that is a 10-minute drive from the Shanghai Gigafactory. It was not immediately clear whether he would move after his promotion.
He takes charge of Tesla’s main production hubs at a time when the company is readying the launch of Cybertruck and a revamped version of its Model 3 sedan. Tesla has also said it is developing a cheaper electric vehicle but has not provided details on that plan.
When Tesla posted a picture on Twitter last month to celebrate its Austin, Texas, plant hitting a production milestone for its Model Y, Zhu was among hundreds of workers smiling on the factory floor.
Allan Wang, who was promoted to vice president in charge of sales in China in July, was listed as the legal representative for the operation in registration papers filed with Chinese regulators in a change by the company last month.
Tesla board member James Murdoch said in November the company had recently identified a potential successor to Musk without naming the person. Murdoch did not respond to a request for comment.
Electrek previously reported that Zhu would take responsibility for U.S. sales, delivery and service.