Faraday Future – Uncertain future.

Easy money has a price.

• Faraday Future is an EV company with a very chequered history, but even this is capable of commanding a multibillion-dollar valuation with no intention to ship a single vehicle for 12 months.
• There is no way Faraday Future is ready to be a public company but is riding on the back of rationality-free hysteria to raise a lot of money while minimising equity dilution.
• I have followed Faraday Future almost since its inception in 2014 when it was part of Jia Yueting’s LeEco (see here) which was an attempt to create a full digital ecosystem in developed markets of devices, services and content.
• LeEco wasted far more money than it could ever earn and as a result of poor services and rushed devices teetered on the edge of bankruptcy and was bailed out before being eventually closed down.
• Jia Yueting has also had significant financial difficulties of his own in China but according to Faraday Future’s CEO, these have now all been sorted out.
• Then in September 2019, Mr Breitfeld who abruptly left another EV startup called Byton (see here) joined the company with new money to fix the company and take Faraday Future to IPO in 2021.
• Given what has happened to Byton since Mr Breitfeld left combined with my view that he left after a disagreement regarding the direction that the company was taking, leads me to speculate that something might have changed at Faraday Future since he joined.
• Hence, I am prepared to entertain the notion that there might be a viable EV emerging from the quagmire of its history thanks to Mr Breitfeld’s leadership.
• However, I still think that it is a long shot that Faraday Future will be successful.
• One reason for this is that the all-important digital piece of the vehicle is being managed by Jia Yueting and one of his lieutenants from the bad days of LeEco which does not inspire me with confidence.
• Faraday Future has made some very punchy claims with regards to the energy density of its batteries and at $175,000 it will be going up against the best luxury vehicle makers in the industry.
• The one thing that one does not do when asking customers to pay $175,000 for an unknown brand is cut corners and some may have to be given that its investment plans are a tiny fraction of Lucid’s (see here).
• Lucid is making a similarly priced vehicle but its plan is to burn $9.8bn between now and the day that it turns cash flow positive.
• Faraday Future is planning to invest $2.1bn which given that it will only have $748m in when the SPAC merge closes means that it will be coming back to the market for more money.
• With 337m shares in issue and the SPAC price at $12.66, the market thinks that this company is $4.78bn which in my opinion has no bearing on reality.
• Instead, it is a reflection of the fear of missing out (FOMO) that is currently gripping the EV industry-driven almost entirely by the unrealistic valuation being attributed to Tesla.
• This FOMO and an oversupply of money thanks to the Federal Reserve’s rampant money printing means that a lot of projects that should not be financed will find it easy to raise money.
• This is setting the scene for a 2000’s like collapse in EV valuations that was seen in internet stocks but no one knows when this will happen.
• The problem that Faraday and Lucid both have is that they are going to need to come back to the market for more capital even if they execute their current plans flawlessly.
• Should the air come out of the SPAV / EV bubble by then, they will be looking at hugely dilutive down rounds which will wipe out much of the value of the exiting shareholders.
• SPAC’s look great at the moment but when reality inevitably reasserts itself, there will be a world of pain to endure followed by consolidation and exits.
• Anyone who wants to invest in EVs should wait for the bloodbath to ensue or simply invest in nuclear power (see here).