Insights

Why Faraday Future’s Tomorrow Looks Doubtful

The future of EV startup Faraday Future Intelligent Electric, Inc. (NASDAQ: FFIE) seems far from assured. 

“The Company needs additional cash to commercially launch the FF 91, and is currently seeking to raise additional capital to fund its operations through December 31, 2022,” Faraday Future said in its July filing with the U.S. Securities and Exchange Commission. 

Faraday has been struggling to launch its FF 91 supercar since it was unveiled at the Consumer Electronics Show in 2017. Five-and-a-half years later, production of the FF 91 is slated to launch in the third or fourth quarter of 2022. Whether that will happen remains to be seen.

“Any challenges in supplier engagements, delays in ramping capacity or labor at the Company’s Hanford, California manufacturing facility or for sales and service engagements, rising prices of materials, or ongoing global supply chain disruptions may further increase the need for additional capital to launch the FF 91 series,” the company admitted in its latest filing with the SEC.

The company said it’s holding discussions with possible suitors about a cash infusion as well. According to media reports, the company needs as much as $325 million to start production. 

A troubled road

Even among EV start-ups, Faraday Future’s road has been a bumpy one. 

Founded by Chinese businessman Jia Yueting in 2014, Faraday Future appeared to have a promising future when it debuted the FF 91 in 2017. Faraday Future said its supercar would have an autonomous driving system, a minimum of 1,000 horsepower, and a 2.4-second 0-60 mph time. Production was expected to commence in 2018 at a facility outside of Las Vegas. Seven months after the press briefing, the planned factory was abandoned as bills went unpaid. 

Faraday Future’s chances of success worsened with the personal bankruptcy of Yueting in October 2020, at which point he walked away from Faraday Future, later returning in a limited role. 

Ever since, the company has struggled to find further funding so that it could procure a new manufacturing facility and get the FF 91 off the assembly line. 

At the time, it had secured a $600 million from Chinese videogame company The9 Limited and later secured a $225 million bridge loan from Birch Lake Fund Management LP. In 2021, it engaged in a SPAC merger that led to its listing on the Nasdaq and gave it apparent access to an additional $1 billion in funds. Its stock peaked at $13.58 a share shortly thereafter, but has fallen since, currently trading just north of $2 per share.

Faraday continues to struggle, however. In April, after concluding a months-long internal investigation into fraud charges, Faraday Future curtailed the position of founder Jia. The move coincided with the resignation of a company vice-president and the firing of non-executive employees over governance and accounting issues. 

The resignations resulted from an internal investigation into claims that the company had misled investors about the actual amount of FF 91 preorders. The automaker stated that the FF 91 received 64,124 reservations, later revising that number to more than 14,000 preorders. But at the start of June 2022, the actual figure was revealed to be a mere 401.

Faraday’s chances look slim

The abandonment of the company by its founder, its paucity of pre-orders, and its lack of cash to fund operations make Faraday Future’s chance of success questionable despite the company’s insistence that production will start this year. It said the same thing more than five years ago.

And then there’s the matter of price, with reports of the car costing nearly $200,000. This part of the market is thin, and by the time the FF 91 reaches the market, there will be competition from more established, and more financially stable, automakers. That further minimizes Faraday’s chances of success. 

And given that the company has 401 orders, its opportunity to recoup its investment and turning a profit seems years away, if ever.

Always beware of promises of new paradigms in old-line industries. Faraday Future is proof that manufacturing EVs is just as capital-intensive as building cars and trucks with internal combustion engines, and every bit as appealing as an investment. Regardless of what type of car is manufactured, startups need to spend billions of dollars before the first vehicle is sold, with no guarantee of success. 

Fool contributor Larry Printz does not hold any positions in the stocks discussed. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.

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