'EV maker Faraday Future will crash'

Over the past few years electric vehicles (EVs) have developed from being niche products to becoming a well-established subsector of the vehicle market. They are only a few years away from eclipsing cars running on petrol and diesel. EVs comprise a fifth of new cars sold in the UK; if you add in hybrid cars, they also make up a majority of sales in the EU. However, many of the companies attempting to bring products to market will ultimately sink without a trace, as investors in firms such as Nikola and Fisker (both of which have filed for bankruptcy) found out the hard way.

Another company highly likely to follow in their footsteps is the US car firm Faraday Future Intelligent Electric (Nasdaq: FFAI). Founded just over a decade ago, Faraday has spent most of its history trying to break into the luxury end of the EV market, claiming that it was in the process of producing fully autonomous luxury EVs that would sell for more than six figures. More recently, it has shifted its focus to luxury SUVs and minivans containing an AI system to help users do everything from selecting the music played in the car to driving the car itself.

Faraday Future is following the herd

It’s an enticing story with two key flaws. Practically every car company in the world is focusing its efforts on both EVs and AI, so Faraday’s approach is hardly novel. More importantly, the firm has had a troubled history. Over the past 10 years, it has had to ditch plans to build a large factory from scratch in Nevada, while its founder and former CEO declared personal bankruptcy. In the meantime, it has delivered only a handful of cars to customers (many of whom were investors in the company or worked for it). Things are so bad that at the start of the year, it was reported that the company’s flagship SUV is essentially just a rebadged model of an SUV made by a Chinese firm.

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Faraday’s accounts make for painful reading, with the company losing $13.8 million on sales of $539,000 in 2024, which means that the shares cost around 330 times trailing sales. While sales are expected to pick up this year, it is still set to lose money. Meanwhile, Faraday has burned through the vast majority of the cash it received when it went public in 2021 (via a special purpose acquisition vehicle, naturally).

Faraday’s status as a company targeted by short-sellers meant that last year it briefly became a “meme stock”, resulting in its share price surging. However, the shares rapidly fell back and investors seem to have lost interest in them, as evidenced by the fact that they have fallen by more than 60% this year. Faraday is now trading well below both its 50-day and 200-day moving averages. I suggest shorting it as the current price of $1.39 at £8 per $0.01. In that case, I would put the stop-loss at $2.50, giving you a total downside of £888.

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