Faraday Future stock is extremely vulnerable as cash dwindles

April 25, 2023

Faraday Future (NASDAQ: FFIE) stock price is trading close to its record low even as the company prepares for its vehicle deliveries. The shares are trading at $0.30, which is ~99% below its all-time high. Its total market cap has dropped to just $163 million.

Faraday Future stock

Faraday Future Intelligent bankruptcy risk

Faraday Future is a well-known electric vehicle company that has been researching its FF 91 vehicle. After spending billions of dollars, the company announced that it would start manufacturing its vehicles in April.

However, a few weeks later, the company said that it will deliver the first vehicle in May, citing challenges from suppliers. Most importantly, the company said that it will need more capital as it moves to the second and third phase of deliveries.

Faraday Future faces existential problems even as it starts deliveries. For one, the company has limited capital, with the last report showing that it had $17 million in cash, down from $505 million in 2020. Faraday. According to Crunchbase, the company has raised over $3.9 billion from investors.

Faraday Future needs more money

Faraday needs additional capital since EV companies make losses many years after they start their vehicle deliveries. For example, while Nio is a big EV company, its losses ballooned to over $2.11 billion in 2022. Similarly, as I wrote here, Xpeng’s total loss jumped to $1.3 billion. Rivian and Lucid have also continued burning cash.

In this case, Faraday Future has two main sources of funds. First, it can sell new shares, which will lead to more dilution. Second, it can raise debt, which is not easy at a time when interest rates are at an elevated level.

Therefore, there is a likelihood that Faraday Future will file for bankruptcy later this year. It can only avoid this situation if the company raises cash in a non-dilutive way. 

The other challenge for Faraday Future is the car it is selling. FF91 is a highly niche car whose starting price is about $200k, which is about two times that of Tesla’s Model S and X. It is also more expensive than other cars sold by Rivian and Lucid. As we have seen with Lucid, mass-producing premium cars is not a cheap or easy process.

As we have seen recently, Tesla has started a pricing war in a bid to drive demand for its premium vehicles. This is a sign that demand is moderating. 

The post Faraday Future stock is extremely vulnerable as cash dwindles appeared first on Invezz.