Faraday Future Intelligent Electric Inc.made several announcements recently, and shareholders of the electric vehicle maker weren’t pleased about them.
For one, the Gardena-based carmaker said it was planning a reverse stock split. The split is designed to push up the price of the stock, thereby helping Faraday get in compliance with Nasdaq’s requirement that shares trade for more than $1 – a benchmark Faraday’s stock is well below.
The stock-split proposal includes a range between 1-for-2 and 1-for-90 shares of outstanding common stock. The final ratio will be determined at a later date.
Also, the startup said that it would delay the delivery date of its FF91 electric SUV from late last month to next month.
And third, the company announced it had received a commitment of $105 million in financing.
The stock split and delay in deliveries, both announced on June 16, caused a 38% drop in value of Faraday stock, which closed at 28 cents on June 20 from its closing price of 45 cents on June 16.
The subsequent announcement on June 27 of the commitment in funding caused the stock price to go down by just more than 8%, from 24 cents on June 27 to 22 cents on June 28.
The share price closed at 21 cents on June 29.
Xuefeng Chen, chief executive of Faraday, said the company approached the stock split with diligence.
“As we transition to this next stage in our corporate lifecycle, we believe that this action will enhance our stock’s marketability, thereby making it more appealing to a wider range of institutional investors, as these investors generally have a minimum share price consideration when evaluating investments,” Chen said.
“We believe the resulting rounds of investment opportunities will help the long-term strategic goal of the company, including additional production scaling, further improve the sales and service system, the global business development, as well as improving general day-to-day operating cash flow,” Chen added.
Delays
The delay in deliveries was attributed by the company to a supplier’s timing constraints and the completion of an additional system test related to the safety of a feature of the FF91 2.0 Futurist Alliance vehicle.
However, Faraday founder Yueting Jia wrote in a June 21 letter to shareholders that the delay was also caused by two additional factors: the Faraday team’s insufficient industrialization capabilities and financing capabilities.
“First, we need to improve our industrialization capabilities,” Jia wrote. “As we focus on enhancing the capabilities of our team, we are also expediting the recruitment of skilled professionals with expertise from traditional OEMs in the (luxury) market segment.”
The company needs to improve on its finances, Jia continued in the letter, even as the team has achieved five significant milestones using limited capital resources across a span of just six months.
“These accomplishments include iterations and upgrades before the start of production of the FF91 2.0, the SOP (start of production), the first vehicle roll-off-line, the Final Launch, and the initiation of the first phase of our three-phase delivery plan,” Jia wrote.
Achieving these milestones demonstrates the company’s strong capital management capabilities and capital utilization efficiency, he added.
“However, the strategy involving the Ultimate AI TechLuxury entails timely availability of funding,” Jia continued.
It’s a sentiment echoed by Michael Ward, an analyst with Benchmark Co. LLC in New York, in a research report on Faraday from May 24.
“In our view, getting the financing to accelerate production in the next six months is the key variable for (Faraday),” Ward wrote in the report.
He also noted that the global car market was capital intensive and to remain competitive in electric powertrains the amount of investment will have to remain historically high to keep up with the competition.
“Delays in the adoption of company products could push out the expected time period for profitable performance and increase capital needs,” Ward wrote in the note. “(Faraday) and the global auto industry have been affected by component shortages over the last 18 months, preventing (the company) from executing the timing of initial production and financing problems could delay the company’s ability to accelerate production to expected levels.”
Benchmark estimated that Faraday would produce 250 of its FF91 vehicles this year. At an average price of $175,000, that would result in revenue of just under $44 million.
For next year, Faraday, meanwhile, has announced its first three buyers for its vehicle.
The first purchaser of an FF91 2.0 Futurist Alliance is Rem Koolhaas, the founder of footwear brand United Nude, in Monterey Park. The second buyer is Jason Oppenheim, owner of the luxury real estate firm The Oppenheim Group in West Hollywood and star of the Netflix series, “Selling Sunset.” The third client is an unnamed individual associated with Private Collection Motors Inc., a Costa Mesa rare and luxury car dealership.
Investors
The $105 million commitment in financing that Faraday announced last week will be in secured and unsecured facilities.
The lead investor in the commitment is ATW Partners, an existing investor based in New York City, with participation from Senyun International, based in Hong Kong.
Chen, Faraday’s chief executive, said that the investment demonstrates the investors’ confidence in Faraday’s vision and its market potential.
“This funding is another critical step for FFIE to complete immediate and medium-term strategic objectives,” Chen said. “We are poised to continue moving forward to deliver the FF91 Futurist Alliance to our users focused on our three-phase delivery plan.”
Additionally, Metaverse Horizon Ltd., an independent investment fund, has made a pre-funding contribution of $25.2 million toward its previously announced commitment of $100 million to support Faraday’s development, the company said.
“Furthermore, (Faraday) continues to pursue additional funding sources, including strategic investors, to foster additional business growth and to reduce future financing costs,” the company added.
