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$FFIE A Make It Or Break It Moment

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NASDAQ:FFIE   Faraday Future Intelligent Electric Inc.
As EV fever sweeps the nation, another player may soon enter the game. Faraday Future Intelligent Electric Inc. (Nasdaq: FFIE) is one step closer to the market. Its first production FF91 vehicle came off the line on April 15th, marking its start of production (SOP). Recently, FFIE stock experienced a 53% run over the course of 3 days after FFIE appointed Rich Schmidt as VP. The move came after a tumultuous series of issues that shook FFIE’s corporate structure, which is why the appointment was seen by investors as a positive sign for corporate stability moving forward. Corporate drama aside, FFIE still has a mountain of issues ahead of it that need to be addressed, despite its close distance from the market.

FFIE Fundamentals

FFIE is a California-based luxury EV company that was founded by Jia Yueting in 2014. Its FF91 is considered an extremely impressive vehicle boasting 3 electric motors, and 1.1k horsepower. The FF91 also has a self-parking, and summon feature. Currently, FFIE’s only market edge lies in its claims that its FF91 has double the energy density of Tesla, Inc. (Nasdaq: TSLA) batteries, and is quicker than the Tesla Model S P100D. That being said, those claims have been met with a lot of speculation due to its brand image. Its image was negatively affected by a litany of issues that left a sour taste in the mouths of investors. The issues ranged from multiple production delays to infighting between corporate management, and its primary investor. To combat these issues, shifts in management were implemented, which may minimize the damage.

Brand Image

Brand image is critical for any luxury brand’s survival, which is why FFIE’s past may affect its sales if the FF91 enters the market. FFIE has delayed FF91 production annually since 2017, and the reasons behind these delays were financial mismanagement and corporate infighting.

Those constant delays, as well as FFIE’s bold claims concerning the capabilities of the FF91, have negatively affected its credibility. In order for FFIE stock to recover, it needs to salvage its reputation.

The figure who is associated the most with the FFIE brand is Jia Yueting. He is FFIE’s founder and is a business mogul with a controversial past. Due to a series of events including but not limited to comparing Apple Inc. (NASDAQ: AAPL) to Hitler, committing financial fraud, and filing for personal bankruptcy due to unpaid loans, he was demoted and a new CEO – Carsten Breitfeld- took his place. While some of these actions may seem somewhat irrelevant, they tainted FFIE’s perceived professionalism and credibility, which played a role in the fall of FFIE stock.

After Jia Yueting’s demotion, Carsten Breitfeld held the position of CEO from 2019 to 2022. He was kicked out of his position as CEO of FFIE two weeks after the FF91 prototype caught fire on November 14, 2022. Its charred remains made the rounds on social media, causing people to sell their stock. FFIE stock fell 53% over the course of those two weeks as a result.

Xuefeng Chen was appointed as CEO shortly after Breitfelds left his post. He was recently joined by the newly appointed VP Rich Schmidt who has a wealth of knowledge in car manufacturing. Rich spent decades working with renowned car manufacturers such as Toyota, Nisan, Hyundai, and TSLA. Furthermore, the board has recently appointed new members such as Tin Mok, and Ke Sun to the board of directors. Tim Mok is an expert in marketing, which FFIE stock is in dire need of after the aforementioned issues. On the other hand, Ke Sun has a wealth of experience managing the finances of car manufacturers. Her abilities may assist FFIE in traversing and avoiding financial hardships in the future. The inclusion of new blood was necessary due to the position, and reputation of FFIE. Hopefully, these inclusions will assist FFIE in rebuilding its reputation.

EV Market

The EV industry is a rapidly expanding market, with an extremely high potential for growth. Its market size was $178.5 billion in 2021 and is expected to grow at a rate of 22.5% reaching $1.1 trillion in 2030. Additionally, the market is becoming more diversified, which does mean a higher rate of competition, but it also means the market is less monopolized.

As companies like Lucid Group, Inc. (NASDAQ: LCID), Polestar Automotive Holding UK PLC (NASDAQ: PSNY), and Rivian Automotive, Inc. (NASDAQ: RIVN) develop, the market veers further from monopolization TSLA is by all means a domineering figure in the EV industry, which currently controls about 58% of the market. There are signs that indicate that its hegemony is in decline, most notably of which is TSLA’s market share is starting to decrease in California. Between January and March of this year, TSLA controlled 59% of the EV market share in California, which is a substantial plunge when compared to its 2022 market share of 79%.

By no means will FFIE become a legitimate TSLA competitor in the foreseeable future. That being said, these figures indicate that there is a growing interest in TSLA alternatives in California which is the largest EV market in the US, and FFIE’s base of operation as well as production.

Entering the Market

Currently, it’s highly likely that the FF91 will enter the market. It started production on April 15th and has delivered cars to private clients. It’s unknown when the FF91 will be available to the general public, however, given these facts, it’s safe to assume that will be very soon.

It’s almost impossible to make an accurate assessment of potential sales due to FFIE’s reputation. The first few months after the car enters the open market are going to be critical. Based on how the car is received by the public, a more accurate assessment can be made. FFIE has to produce a sufficient quantity of revenue during those months in order to cover manufacturing expenses.

If not, it may rely on its $135 million worth of secured convertible notes, which it obtained in order to finance FF91’s SOP. If that scenario comes to pass, then FFIE stock will be diluted, resulting in a lower price.

The $135 million worth of convertible notes will eventually need to be paid off. If not, then bankruptcy may be looming. According to its 2022 earnings report, FFIE has approximately $16 million in cash. Which is not nearly enough to pay off the loans. Even if FFIE liquidates all of its current assets, it won’t have enough money to pay off its loans. In order to avoid bankruptcy, FFIE needs to make sufficient revenues from sales or liquidate its non-current assets.

Currently, FFIE Stock’s float is 817 million, while the outstanding shares are 1.1 billion. By process of illumination, there are roughly 300 million restricted shares that may dilute the stock. Furthermore, an 817 million float is quite large, further dilution due to convertible notes or restricted shares may lower the stock’s price even further.

When it first listed on the NASDAQ, FFIE projected to ship 38,000 FF91s, which would generate 4 billion dollars in 2023. So far, FFIE is far from reaching these projections as it has the capacity to produce 10 thousand vehicles annually. With this in mind, it could be unrealistic to expect FFIE to reach this milestone anytime soon for two main reasons. The first reason is that luxury brands rely on popularity, which it does not have since it is not in the market yet. The second reason is simply brand image; many of those that already know the brand associate it with scandals. That being said, FFIE may generate sufficient revenues to cover its expenses, however, 4 billion seems a tad excessive.

Short Data

Due to frustration, and an overall lack of faith FFIE stock is heavily shorted. Currently, its utilization is at 100%, and its short interest is at 27%. Many shareholders see FFIE’s run as temporary, and not indicative of actual growth due to the stock’s history. At its peak, FFIE was worth around $20 in February 2021 yet due to a constant stream of delays, and other issues the stock plummeted to its current price of $.24. Many investors lost faith in the stock for that reason. Others see FFIE as a potential short squeeze, yet due to its 817 million share float, a short squeeze is unlikely.

Compliance With NASDAQ Requirements

FFIE stock’s price is exceedingly low by Nasdaq standards. The Nasdaq requires that stocks have a minimum share price of $1. As of this writing, FFIE’s share price is $.24, due to all the issues mentioned above. That being said, the stock is starting to run due to the FFIE’s changes in corporate management, and its closing distance towards the market. That being said, it’s not certain that FFIE will have a sufficient stock price before its 180-day extension ends, due to bullish momentum alone. FFIE may potentially affect a reverse split in order to avoid being delisted from the Nasdaq, which would greatly affect shareholders.

FFIE Financials

According to FFIE’s 2022 earnings report, its operating expenses increased from $174 million in 2021 to $311 million in 2022. As a result, net loss has also increased from $516 million to $552 million. Additionally, as expenses mounted, its assets decreased drastically from $907. million to $510 million. Its liabilities have decreased from $339 million to $327 million, which is relatively inconsequential, and FFIE’s interest expense starkly decreased from $30 million to $7 million.

FFIE’s interest expense decrease may seem like a positive sign, however, this does not take into consideration the $135 million worth of secured convertible notes that were produced to fund FF91’s SOP. To pay off the interest FFIE will have to produce satisfactory sales figures, otherwise, dilution is inevitable since it only has $16 million in cash on hand.

FFIE announced that it will release its Q1 earnings report on the 11th of May. Due to the fact that FF91 is not yet on the market, it’s safe to assume that little to no product revenue will be present in the report and that expenses will be higher due to finances related to production.

Technical Analysis

FFIE stock is in a bearish trend with the stock trading in a downward channel. However, FFIE recently broke its downward channel and is trading above the 200, 50, and 21 MAs.The RSI is overbought at 70, and the MACD is bullish.

The stock’s current run may be a curse in disguise. Given the company’s financial situation and corporate history, FFIE stock could experience yet another plunge due to suboptimal sales, which would most likely result in FFIE diluting to keep its business running or filing for bankruptcy which is a strong possibility.

In light of FFIE’s struggles, a possible play here could be going short at the current PPS – since the stock is testing a major resistance – and take profits on retests of the 21 MA and 50 MA in anticipation of the stock testing the lower trendline in the future.

FFIE Forecast

The future of FFIE is extremely uncertain. The stock’s future relies on the success of its production line and sufficient sales once FF91 enters the market. Either its reputation will hinder sales, which may cause FFIE to rely on its convertible notes further diluting the stock or the FF91 will be received well by the public, which would increase the stock’s price substantially over time. It’s too early to tell which way the tides will turn. Which is why this stock is best left alone.

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