Why Faraday Future Shares Tumbled Tuesday
What happened
Shareholders in electric vehicle (EV) start-up Faraday Future Intelligent Electric (NASDAQ: FFIE) have seen their stock triple during the first few weeks in July then drop back down right about where it started. After the company reported earnings last night, the shares are giving investors another ride today. This ride is down, though, as shares lost 18.6% from yesterday's closing price as of 10:37 a.m. ET.
So what
Today's plunge came as the company reported a net loss of $142 million in the second quarter, including an operating loss of $137 million. That was a slight improvement from the first quarter's operating loss of $149 million. But that was small consolation to investors knowing that Faraday was down to just $121 million in cash as of June 30. That's a decrease from $276 million it reported at the end of the first quarter.
Now what
While Faraday still plans to launch its high-performance FF 91 electric car sometime in either the third or fourth quarter this year, it has stated it needs to raise additional money to do so.
The company added that the cash balance was down to just $52.2 million as of Aug. 9, with another $1.6 million in restricted cash. It noted there were both short- and long-term needs for additional cash. Faraday stated, "Although the Company has taken steps to preserve its current cash position, including reducing spending, extending payment cycles and other similar measures, it projects that it will require additional funds by early September 2022 in order to continue operations." It said additional capital would be needed beyond 2022 to support the ramp-up of FF 91 production in order to begin generating revenue.
The company said it has a line on some of that financing. Subsequent to the end of the second quarter, it signed an agreement with institutional investors that will provide $52 million in the near term, with the potential for as much as $600 million.
An investment in Faraday now is a bet that it will obtain all the cash it needs to get its FF 91 sales growing and then have a successful commercial launch of the vehicle. That's a lot of risk to take on, and the price is plunging accordingly.
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Howard Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
