Faraday Future stock surged; a hard crash may be coming

Faraday Future (FFIE) stock went parabolic on Thursday in a high-volume environment, making it one of the best-performing companies in Wall Street. It jumped by over 125%, pushing its market cap to over $100 million, according to Yahoo Finance.

Why FFIE stock soared

Faraday Future shares jumped to a high of $8.10, its highest level in over three weeks. This rebound happened as its total volume jumped to over 123 million, higher than the average 3.1 million. It also happened on the same day that Tesla shares dropped by over 4%. In most cases, EV companies tend to track Tesla’s performance.

The rebound was also notable because it happened in a day when the company made no news. Its most recent news came on Monday when the company unveiled an important event scheduled on September 19.

In this event, the company will unveil the China-US Automotive Bridge Strategy. The goal is to leverage its strong Artificial Intelligence (AI) technologies and sell them to other original equipment manufacturers (OEMs) and part suppliers. It will be targeting companies building vehicles selling for between $20,000 and $80,000.

Faraday Future hopes to make money in two ways: selling its vehicles and providing its technology to Chinese companies. As a result, these vehicles will have the same technology as Faraday Future’s $300,000 vehicles.

Latest Faraday Future earnings

The Faraday Future stock soared a few weeks after the company published its quarterly financial results. Its revenue came in at $293,000 because it is not yet selling vehicles.

It made a net loss of $108 million, an improvement from the $124 million it made in the same quarter in 2023. For the first six months of the year, it had a net loss of over $156 million, also lower than the $269 million it lost in 2023.

While the company has reduced its losses, its business remains at risk for several reasons. First, and the most important one, is that Faraday Future is running out of cash and it has a little way out.

The company ended the last quarter with just $793,000 in cash and $584,000 in restricted cash. It also has customer deposits worth $27 million and over $28.7 million in inventories. Altogether, it has over $70 million in current assets against $77 million in current liabilities, giving it a working capital of minus $7 million.

Therefore, the company will need to raise additional capital through either debt or equity. In the recent financial results, the company said that it increased the number of common shares to 4.2 billion, a substantial amount because it has over 12.3 million outstanding today.

Faraday will take a long period before becoming a profitable company. Recently, we have seen companies like Lucid and Rivian continue making substantial losses, many years after they started delivering their vehicles.

Luxury car segment and range anxiety

Faraday Future has other risks ahead. First, the company’s flagship product has 1,050 horsepower and a range of 381 miles, lower than the Tesla Model S Long Range, which has an estimated range of 405 miles.

Lucid Air, one of the most popular electric sedans, has an estimated range of 516. For a car that costs $300,000, a range of 381 miles is inadequate. In this case, a traveler moving from Los Angeles to San Francisco (385 miles), will need to stop and recharge. While the fast-charging infrastructure has grown, it also means that you might spend over 30 minutes charging the vehicle.

It is also unclear whether there is enough demand for a luxury EV costing that much. Instead of buying an EV like Faraday, one could spend a similar amount to buy Mercedes-AMG GT R, Bentley Continental, and even Aston Martin DB11.

Faraday’s California plant has the capacity of building over 10,000 vehicles a year, more than the 8,428 that Lucid made in 2023 and sold 6,001, signaling that demand for luxury sedans is softening.

A key issue that EV customers are contending with is depreciation. A closer look at some of the top luxury EVs like Lucid and Porsche Taycan show that they depreciate fast.

Faraday Future stock price analysis

I have warned about Faraday Future stock several time in the past, as you can read here and here.

In all those reports, I have also warned about the risks of shorting a company like Faraday that behaves like a typical meme stock. For example, in May, it went parabolic as other companies like AMC and GameStop surged. It then crashed back to near zero, leading to a recent stock split.

I believe that the ongoing FFIE stock rebound will be short-lived. My base case is where it falls below $5 in the next few weeks and moves below $2 by the end of the year.

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