Faraday (FFIE) stock analysis: faces a tough future ahead

Faraday Future (FFIE) stock price continued its strong downtrend on Monday as it slumped by over 17%, making it one of the worst performers in Wall Street. The fledgling electric vehicle manufacturing company was trading at $0.25, down by over 63% this year and by 99% in the past 12 months. Its market cap has slumped to $134 million.

EV stocks have sold off

Most electric vehicle companies have sold off as most companies in Wall Street tumbled. Nio, the popular Indian EV company, dropped by over 3.4% while Tesla fell by 3.30%.

Other EV companies like Rivian, Lucid Group, and Mullen Automotive also slumped by over 5%. Most of these losses were because of the general stock sell-off as the Nasdaq 100, S&P 500, and Dow Jones fell by more than 3%.

Other global indices like the Nikkei 225, Topix, and Hang Seng also continued falling. The main concern among investors is that investors are unwinding their Japanese yen carry trade that has existed for decades. Just last week, the Bank of Japan (BoJ) decided to hike rates by 0.25%.

EV stocks have also slumped after Tesla published weak quarterly results. Its revenue rose slightly to $25.5 billion in the second quarter from $24.9 billion in the same quarter in 2023. However, its net loss dropped from over $2.7 billion to $1.47 billion.

Tesla is often seen as the main driver for the EV industry because it is the most advanced player in the sector with plants in the US, China, and Europe. 

The EV industry is facing numerous challenges. First, there are signs that demand is easing as consumers focus on hybrid vehicles from the likes of Toyota and Ford. 

Second, customers still have concerns about range despite the recent improvements in battery technology. Additionally, competition in the EV industry has continued rising, with companies like Faraday Future competing with Lucid and Tesla.

Faraday Future is in a tough place

Analysts believe that the EV industry is not dying. However, as we have seen with companies like Fisker and Lordstown Motors, not all of the current firms will continue thriving. In China, hundreds of EV companies have filed for bankruptcy in the past few years. 

EV companies that will continue doing well are those that have a large addressable market, manufacturing advantage, and have a strong balance sheet. 

Unfortunately for Faraday Future, the company lacks the three. For one, the firm aims to be a market leader in the luxury EV industry, with its first vehicle selling for over $300,000. I believe that there are not enough buyers for such a vehicle. 

Lucid Motors, which focuses on the luxury sedan market, sells its vehicles for less than $200,000. Similarly, other popular luxury companies like Mercedes Benz and Porsche sell most of their cars for less than $150,000. 

Faraday’s balance sheet woes

Additionally, Faraday Future’s balance sheet does not support its business for now. The most recent results showed that Faraday Future had just $91 million in current assets, Of these funds, $2.12 million was cash and $34 million is inventory. 

Even assuming that the company can transform its current assets into cash, there are little chances that it will be able to fund its balance sheet. Besides, the company had a net loss of over $431 million in the last financial year, an improvement from the previous year’s $602 million. 

EV companies make losses for a long time. Companies like Rivian, Lucid, and Nio have continued to lost millions of dollars quarterly even after starting their vehicle deliveries. 

Faraday Future has limited ways to raise money because of its low valuation since it has a market cap of just $134 million. For a company like Tesla, raising billions of dollars is not hard because it has a market cap of over $600 billion. 

An equity raise, therefore, would make the already-cheap stock worse. It is unclear whether the company has access to the debt market considering that interest rates are still at an elevated level.

Faraday Future stock price analysis

Faraday Future shares chart by TradingView

The Faraday Future share price has been in a deep sell-off after peaking at $3.90 in May as meme stocks jumped. This rally pushed the stock to a high of $3.90, its highest point in years.

Since then, like other meme stocks that soared, FFIE share price has dropped by over 935 and solidified its stay as a penny stock. It has constantly remained below the 50-day and 200-day Exponential Moving Averages (EMA), meaning that bears are in control.

Therefore, the path of the least resistance for the Faraday Future stock price is downwards, with the next point to watch being at $0.040, its lowest point earlier this year.