Summary

• Faraday Future Intelligent Electric Inc.'s stock has jumped recently, but the share price has been nearly completely wiped out over the past few years.

• The FF 91 luxury EV has been a disaster, with only 14 vehicles delivered and minimal revenue generated.

• The company aims to shift to a mass market with its FX brand, but financial instability and high dilution remain significant risks for FFIE stock.

Richard Drury

Over the last couple of years, you won't find many stocks that have done worse than Faraday Future Intelligent Electric Inc. (NASDAQ:FFIE). The electric vehicle (“EV”) company has had a great deal of trouble generating business and keeping operations going. This has resulted in several capital raises and multiple reverse stock splits just to satisfy exchange listing requirements. Recently, shares have popped as we approach the unveiling of its newest vehicles, but the rally is likely just another chance for investors to sell.

Previous coverage of the name:

It was back in June 2023 when I last covered the name, at which point I highly recommended investors sell this troubled stock. After unveiling its flagship FF 91 vehicle in 2017 and hoping to get it to market a year later, the latest delay put the launch timeline into late summer of 2023. This vehicle was targeted at the ultra-luxury part of the EV space, and it was unclear at that time how much demand there would be for a basically unknown brand.

I encouraged investors to sell because the numerous delays had put a massive strain on the company's finances. Large ongoing losses were leading to significant cash burn, so Faraday Future kept needing to find more capital. As a result, dilution was piling up at a rate that was more than alarming, and a reverse stock split was on the horizon. While shares on Monday closed above $3, more than tripling from their 52-week low, the split-adjusted price when I last looked at the name was roughly $2,350. Anyone holding this stock since then has basically lost all of their money.

Launching the FX mass market brand:

The FF 91 program has been a disaster to this point. As the company's Q3 earnings release details, 14 vehicles have been delivered in total. Revenues in the first nine months of this year have barely topped $300 thousand dollars, and that number is down almost 45% from the prior year's first three quarters. As a result, the company is trying to transition to a mass market brand, trying to become the leader in intelligent electric vehicles. This will also result in a ticker change to FFAI at some point in 2025, as the company wants to be associated with the ongoing Artificial Intelligence (“AI”) revolution.

At the annual flashy Consumer Electronics Show (“CES”) in Las Vegas next week, the company is set to unveil its FX prototype vehicle. As the graphic below details, the new FX brand will be targeted at much more affordable price points than the FF 91 was. The current goal is for a full launch of the first vehicle in late 2025, but that timeline could easily slip depending on capital requirements, supplier issues, unforeseen challenges, etc.

FX Model Lineup (Company Q3 2024 Earnings Presentation)

Astronomical dilution over time:

The automotive space has always been a competitive one, and any investor in electric vehicle companies knows that recent start-ups have not fared too well. When a company like this has very little revenue, initial operating expenses can put you deep into the red. Although Faraday Future has gotten its losses down a bit from levels seen in 2023, operations still lost nearly $120 million in the first nine months of 2024 and net losses were nearly double that.

The company's operations have burned over $700 million since the start of 2022, and that doesn't even include capital expenditures to help build out the factory and the rest of the business. As a result, the company has raised capital numerous times, and the plunging share price has led to three reverse stock splits. In the graphic below, you can see how the outstanding share count has soared several times over in just the past two and a half years.

FFIE Shares Outstanding (Company Filings)

The balance sheet is still quite a mess, however, with less than $8 million in cash at the end of September 2024, with notes payable of around $75 million. Working capital remains heavily in the red, with current liabilities approaching a quarter of a billion dollars and current assets being only around $80 million. Recently, the company secured $30 million in additional capital commitments, but they will likely only add even more dilution to the picture and won't help fully bridge the ongoing funding gap.

A look at valuation and upside risks:

Since the company is obviously not profitable, there's no price to earnings ratio to calculate here. The market cap as of Monday's close was around $142 million, and normally, I would use price to sales as my preferred valuation metric for a name like this. The problem here is that there are almost no reported revenues, and basically no analysts are covering the stock currently because it is so small and there have been so many product delays.

Even if everything went right, and that's a big if, you probably would see limited deliveries towards the end of 2025. That would likely mean revenues in the single digit millions, at best, giving the name a potential price to sales valuation in the low to mid double digits. As a point of reference, startup EV names like Lucid (LCID) and Rivian (RIVN), which actually are generating some levels of business, go for low single digit times their expected sales. Chinese EV players like Nio (NIO) and Xpeng (XPEV) go for less than 1 times their projected revenue, while traditional US internal combustion engine (“ICE”) automakers go for just about 0.3 times or so.

At this point, the biggest risks to the upside are either an acquisition or the company finally hitting its marks. Maybe there is some well capitalized private entity that thinks they can improve the financials here and use the company's assets to drive some level of vehicle demand in the future. Perhaps even a large automotive player thinks there is some technology here worth investing in for its future EV business.

If this company can start to generate some meaningful revenues in upcoming years, it is possible that the stock could be worth something, but investors will face a ton of dilution while they wait for that to happen. Almost a quarter of shares outstanding were short at the mid-December update, so this stock can pop quickly if there is news that is considered positive, like we saw on Monday.

Final thoughts and recommendation:

Shares of Faraday Future surged on Monday as it was reported that the company will show off its FX prototype vehicle at CES in Las Vegas next week. The struggling EV company is hoping a shift to the mass market can finally result in some meaningful revenues, as it has sold just a handful of its luxury FF 91 vehicles to date. As a result, tremendous losses and cash burn have piled up, with investors facing incredible dilution over time.

It will be nice to see Faraday Future show off some vehicles that have a chance of selling more units than I can count on my hands and feet. However, until the company shows that this business has any chance at being viable for an extended period of time, I have to keep a sell rating on the stock. We've seen shares pop like this many times before, only to crash back down and require another reverse split. It would not surprise me to see that happen again here, even if we do see a little more upside first at next week's event.