As Faraday Future Intelligent Electric Inc. has finally begun vehicle sales and revenue generation, it’s going to have to hope that’s enough to stave off other bumps in the road.

The Gardena-based electric vehicle manufacturer reported its first sales in the third quarter. This year, it aims to ramp up from its low-volume sales and production to churning out and selling 1,000 units, which is projected to reduce its material expenses and improve the company’s bottom line.

As Faraday seeks to close on an investment deal to extend its runway long enough to achieve that, it has also agreed to a seven-figure settlement against a class-action lawsuit filed by shareholders. And the company is also in the midst of an investigation to determine whether illegal trading activity has negatively affected its stock price, which has fallen low enough to provoke a delisting notice from Nasdaq.

In short, Faraday Future looks to continue putting cars on the road, boost its stock value, come closer to profitability and vanquish the delisting threat by its June deadline.

Settling lawsuit

Faraday Future, which began operations in 2014, finally delivered the first of its much-ballyhooed launch model, the FF 91 Futurist, in the third quarter of last year. The company has sold 10 cars thus far – some to company executives – but during the latest earnings call with investors in November interim Chief Financial Officer Jonathan Maroko nevertheless characterized it as an “important milestone” for Faraday Future.

Less positive was a settlement in a class-action suit filed by several investors, who claimed in their 2021 complaint (which was amended in 2022) that Faraday Future executives had “wildly misrepresented” the number of reservations for vehicles. The suit also alleged that company executives misled investors to believe it was within 12 months of production after completing its 2021 reverse merger with a special-purpose acquisition company, a transaction engineered to take the company public.

According to the suit, the company acknowledged some of these allegations later in 2021. It ultimately revealed that while “several hundred” reservations for vehicles were paid, the majority of the previously purported 14,000 reservations were at best verbal in nature. 

And according to the suit, confidential witnesses allegedly had told the plaintiffs that the company was, at the time of the production claim, “at no point … even close to being in a position” to bringing its launch model to market. The suit claimed these and other actions caused shareholders to lose significant value in their investments in the company.

“While the federal securities laws permit a company to be optimistic about its future,” the lawsuit read, “they do not permit a company to mislead investors about goals known to be impossible to achieve.”

The parties reached a $7.5 million settlement in October.

Stock issues

A reverse stock split in August did not do much to stave off plummeting stock prices for Faraday Future.

The company slipped into penny stock territory on Nov. 9, when it closed at 94 cents per share, and has spent most of this year in the teens. 

It received a delisting notice in December and has until June 25 to regain compliance – that is, holding a share price of at least $1 for 10 consecutive days.

However, the company also announced in December that analysis from an outside firm suggests illegal trading activity – specifically illegal short selling – might be responsible for Faraday Future’s public float and average daily trading volume. 

The company enlisted the services of Shareholder Intelligence Services in October after first announcing speculation about trading activity.

“Based on the findings of ShareIntel’s analysis to date, we are deeply concerned that (Faraday Future) may have been the target of a market manipulation scheme involving illegal short selling,” Matthias Aydt, global chief executive for Faraday Future, said in a statement. “We will continue to work with ShareIntel to combat potentially manipulative and egregious illegal short selling and trading activities to help ensure fair market conditions.”

Ramping up production

Faraday Future is in the middle of its second of three phases of production, according to Maroko, the CFO.

During a third-quarter earnings call, Maroko noted it cost more than $16 million to produce the then-handful of cars sold, of which about $10 million was noncash depreciation of tools and machinery and the remainder mostly manufacturing overhead, labor and materials. He said scale was a large driver here.

“The higher cost of goods sold was driven by the natural inefficiencies of early-stage vehicle production, namely initial manufacturing inefficiencies, and a higher cost of parts resulting from low volume,” Maroko told shareholders in the Nov. 13 call, “The company is focused on continuing to reduce manufacturing and material costs. We believe with increased vehicle production and supply chain optimization activities there is good opportunity for continuous meaningful reduction.”

The company, Maroko added, was also actively shaving expenses where it can, including voluntary salary reductions among management members and cutting other administrative expenses. 

Senior leaders have also pledged to commit some of their salary to a management stock purchase plan, and through a sale leaseback of its production facility in Hanford unlocked $12 million in new capital.

Part of the current phase, Aydt explained, is partnering with so-called co-creators, celebrities and experts who are buying the FF 91 Futurist; these individuals are giving reports and recommendations about the design or performance of the vehicle to the company and using social media and advertising to build the company’s brand. 

Aydt, who was named Farady chief executive in September, also noted that cash flow was the primary obstacle to beginning phase three – large-scale production.

“The factory is not a bottleneck and is ready to produce more, but we are limited by our liquidity, which is causing some supply delays,” he told shareholders in November. “Jonathan and the team are working actively to secure additional financing, and we have a good line of sight on some potential investments opportunities from investors who are also interested in partnering with us for the longer term.”

Prospective investors may be encouraged by another recent development. 

After unveiling a limited model for the Middle East Market in Abu Dhabi in November, Faraday Future announced receiving more than 300 nonbinding reservations, for which it is now seeking deposits.

Big picture

Broadly, it has been a tough market for dedicated electric vehicle manufacturers as they seek to dislodge market share from leader Tesla Inc. – one of the vaunted “Magnificent Seven” tech companies.

Elsewhere in Los Angeles County, Torrance-based startup Canoo Inc. saw its share price fall 79% last year and has been contending with its own delisting notice from Nasdaq.

 Meanwhile, Manhattan Beach-based Fisker Inc. saw its stock fall 76% last year and failed to file its third-quarter report on time; in addition, its new chief accounting officer lasted just eight days on the job after being hired in November.

Competitors in California are similarly struggling; Newark-based Lucid Group Inc. inched downward in stock valuation last year, and Irvine-based Rivian Automotive Inc. had a sclerotic 2023.