Faraday Future – No Future

FF’s future lies in Chapter 7 or 11.

• Faraday Future gave a glimpse of its inevitable future with yet another delay of its vehicle that was first expected to hit the market in 2018 and a warning that it needs more money.
• Faraday Future has announced a delay to the start of production of its F91 EV but most concerning is the fact that it needs to raise even more money to complete the launch of its first EV.
• Faraday Future says that it needs to raise $200m to commercially launch the F91 and to fund its operations through to the end of the year.
• This company now has more red flags than the CCP annual conference and there are no circumstances whatsoever under which a prudent, reasonable or rational investor should invest in this company.
• I first became aware of this company in 2016 when it was part of LeEco (see here) an ill-fated attempt by founder Jia Yueting to dominate the US digital ecosystem landscape with cheap consumer electronics.
• I was sceptical about it even then as it was obvious that the company was a cash bonfire that would need to be closed down if LeEco was to survive (see here).
• However, it was LeEco that did not survive, and Mr Yueting has been in trouble with the Chinese authorities ever since over unpaid debts.
• There are claims that these issues have been fixed but I have seen no evidence of that to date and as far as I am aware, Mr Yueting has not visited China since the collapse of LeEco.
• The controversy has not stopped there as shortly after listing, the company became delinquent in its financial filings, launched an internal fraud investigation, been investigated by the SEC, had substantial executive turnover and got into a fight with one of its biggest shareholders.
• If that was not enough, execution since the listing has also been execrable.
• Investors were promised in January 2021 that the company needed $377m to fully launch the F91 (see here (slide 41)) which should have been no problem as the company was going to have $748m on its balance sheet when the SPAC transaction closed (slide 6).
• When the company finally managed to file its Q3 2021 results, it disclosed that it had $666m on its balance sheet which should have been more than enough to complete the launch.
• However, here we are in July 2022 (when vehicles are supposed to be in the hands of users) with the company stating that it needs another $200m to stave off collapse.
• This means that instead of $377m to launch the vehicle, the company actually needed something around $1bn ($748m + $200m in new money) meaning that somewhere $571m has gone up in smoke.
• This is not the first time this has happened as in 2018, the company rapidly burned through $800m and had to go back to its financial backer and ask for more money (see here).
• I have no reason to believe that it won’t happen again if it manages to secure the $200m that it needs to stay afloat.
• I have serious doubts whether it will ever ship a vehicle in volume, and I think that it will really struggle to compete in an increasingly crowded market full of companies who actually know how to make cars.
• The one area where Faraday Future has greatly surpassed my expectations is in its ability to survive as I forecast that it would go bankrupt in 2019.
• Even if I am wrong and a phoenix miraculously arises from the ashes of the cash bonfire, there are far better places to invest one’s money in this market.
• I would own almost any other stock in the space over this and I expect that it will soon file for Chapter 11 or 7 leaving shareholders with nothing.