Faraday Future stock price in trouble as bankruptcy risks rise

The Faraday Future (NASDAQ: FFIE) stock price has tumbled as I predicted last week. It plunged by over 17% on Monday’s regular session followed by a 20% plunge during the pre-market session. 

Faraday Future reverse stock split

The stock crash happened after the troubled Tesla rival announced a new plan to regain compliance with the Nasdaq. In it, the company will implement a 40:1 reverse split in a move to push it above $1, per share.

This split came a week after Nikola shares plummeted following its decision to implement a 30:1 reverse split. 

According to listing requirements, a company’s stock must remain above $1 for 30 straight days. Faraday Future has constantly remained below this level as its stock plunged from over $4,000 a few years ago to below $1.

Notably, Faraday’s stock surged in May amid the meme stock surge that pushed it to almost $5. It has now pulled back to $0.32 and the trend will likely continue.

Faraday Future is facing numerous problems. First, the company has minimal cash in its balance sheet as it ended the quarter with less than $10 million in cash. This is a significantly low amount for a company that lost over $80 million in the same quarter. It means that it will need to raise cash to boost its balance sheet soon.

Faraday’s EVs will face headwinds

Second, Faraday Future is building highly expensive EVs and I believe that it will face weak demand in the future. Its Faraday FF91 costs over $309k, making it more expensive than luxury brands by companies like Tesla, Lucid Group, and Polestar.

Finally, the company is in an industry that is not growing as it did in the past. Most EV companies have recently published weak financial results as competition rose. For example, Tesla reported a sharp slowdown in sales in the first quarter even after the company slashed prices in the US and China.

I believe that this will not be the last time that Faraday Future implements a reverse split. In the past, many troubled EV companies have done that only for their stocks to move below $1 within months.

For example, Canoo’s stock rose after the company implemented a reverse split in March and has now moved below $2. Similarly, Mullen Automotive’s stock jumped to $18.40 after the reverse split and has now moved to $2.66.