Is Faraday Future a good EV stock to buy the dip?

By:
on Aug 28, 2023
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  • Faraday Future share price has been in a freefall in the past few weeks.
  • The shares crossed the important support level at $11.59.
  • The company faces substantial headwinds as EV demand softens.

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Faraday Future (NASDAQ: FFIE) stock price plunged to a record low amid rising concerns about the company’s future. The shares dropped by more than 20% on Monday, one of its worst days this year. 

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Faraday Future’s future in question 

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The electric vehicle industry is going through a major challenge as demand shows signs of easing. For example, companies like Tesla and Ford have been forced to slash prices in a bid to boost prices. These prices have fallen by 20% from a year ago.

At the same time, companies are taking longer than expected to sell their vehicles. According to Cox Automotive, companies EV inventories have jumped to 103 days of supply in the US, double that of ICE cars. 

Ford and General Motors are struggling to sell their EVs. For example, Ford has 116 days of unsold Mustang Mach-E while GM has 100 days of unsold Hummer. 

There are also macro issues in the EV industry. Interest rates have surged to the highest level in more than 20 years. As a result, the average interest of new and used vehicles has risen sharply in the past few weeks.

Therefore, shares of most EV companies have pulled back recently. This trend has been worse for smaller companies like Faraday Future, Mullen Automotive, and Rivian have fallen by double digits in August.

Faraday Future has made some important strides this year. As I wrote here, the company started manufacturing its FF 91 2.0 vehicle in California. It delivered the first vehicle earlier this month. It also incorporated its Chinese business as it seeks to target the biggest market in the world.

Is Faraday Future stock a good buy?

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Faraday Future Stock

The challenge for Faraday Future is that scaling the company will be expensive. It narrowed its operating loss to $56 million in Q2 from the previous $137.5 million. Its net loss came in at $124.5 million.

As we have seen with EV companies like Rivian and Lucid Motors, firms require millions of dollars to scale their operations. I don’t think that Faraday Future has these funds, meaning it will require to raise capital either this year or in 2024.

In its recent statement, the company said that it had $171.3 million in gross committed funding and equity line of credit of $350 million. All these funds have conditions attached, meaning it is not obvious that the firm will receive them.

Technically speaking, the stock has been in a freefall and crossed the important resistance level at $11.60 on Monday. This was a notable level since it was the lowest level on May 2nd. The shares have dropped below all moving averages. Therefore, I suspect that the freefall will continue in the coming weeks as sellers target the key support at $10.

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