Tesla Rival Fights to Survive
An electric vehicle startup whose design has drawn comparisons with the Batmobile is on the ropes, and it's not the first time.
Faraday Future Intelligent (FFIE) has already had several lives in its very young and short history.
Since its creation in 2014, the startup has always been on the brink of the financial abyss.
The problem is always the same: will the young manufacturer of electric vehicles, once presented as a potential rival of Tesla (TSLA) , survive? The question comes up every quarter. And the second quarter is no exception since the firm has just published quarterly earnings which depict a disastrous financial situation.
The net loss nearly tripled compared to the second quarter of 2021, according to a press release. This loss amounted to $142 million during the quarter ended June 30, compared to $53 million for the same period in 2021.
This degradation of the financial situation is due to a sharp increase in the operating expenses of the company, which is still struggling to produce and deliver its first cars to customers. Operating expenses amounted to $137.5 million, compared to only $28 million in the second quarter of 2021.
The cost increases, the firm explained, "are primarily attributable to certain product improvements and upgrades relating to the capabilities of the FF 91, professional fees, cost overruns, and recent macroeconomic challenges, including increased construction and labor costs, raw material price increases, semiconductor chip shortages, tariffs, Covid-19 related disruptions and added costs, and other supply chain constraints."
The company's repeated difficulties in producing a vehicle for eight years and the uncertainties about its future have also pushed suppliers to dictate their terms.
"More recently, some suppliers have requested accelerated payments and other terms and conditions as a result of our past payment history and concerns about the company’s financial condition, leading to less favorable payment terms than the company had anticipated, and delaying or putting at risk certain deliveries," Faraday Future (FF) said.
Faraday Future shares are down 60% since January. The shares have fallen more than 24% since the publication of the second quarter earnings on August 15.
Running Out of Cash
The company had delayed producing the flagship model, FF 91 Series, which has been in development since at least 2016, numerous times. The last time was last month: FF then announced that production would start either in the third quarter or in the fourth of 2022. Production was to start last July.
Since its inception, the company has accumulated a deficit of approximately $3.2 billion as of June 30, 2022. And the situation is not going to get better since the startup has just warned that it "expects to continue to generate significant operating losses for the foreseeable future, as we continue to incur expenses before we generate meaningful revenue."
FF hardly generates any income since the group still hasn't delivered a vehicle. The firm nevertheless received 399 pre-orders, meaning there have been two cancellations since March 31. These customers had to advance a deposit of at least $1,500 that are "fully refundable, non-binding."
Since the beginning of the year, the company has already warned on several occasions that it risks finding itself short of money to stay open. Faraday Future has just repeated this warning saying that it will need fresh cash in early September to fund its operations.
"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."
FF added that it will also "need to raise additional financing during the remainder of 2022 and beyond 2022 to support the ramp-up of production of the FF 91 to generate revenues to put the company on a path to cash flow break-even."
FF started the second quarter with $505 million in cash on hand and burned through most of that very quickly as the company was down to $121 million in cash as of June 30. The firm therefore plans to raise an additional $600 million and is currently in discussions with potential investors, but does not guarantee that these will lead to an agreement.
Departure of the Chairman?
"The Company remains in active discussions with both U.S. institutional investors and international funding sources. These discussions may or may not lead to additional funding commitments beyond what has already been executed," FF said in a separate press release.
One of the positives is that Faraday Future managed to avoid being delisted on the Nasdaq when this threat hung over the company because it was late in publishing its first-quarter earnings. This time around, the firm released its second-quarter results on time.
"Importantly, we also became current with our financial statements and regained compliance with Nasdaq listing requirements," said Dr. Carsten Breitfeld, Global CEO of Faraday Future. "Fundraising efforts are underway, and we currently expect to deliver the FF 91 to customers in the third or fourth quarter of 2022.”
Besides these financial problems, Faraday Future is also plagued by internal problems. FF Top Holding, an entity which brings together a large number of shareholders, is asking for the immediate departure of Brian Krolicki, chairman of the board of directors.
"The company’s operational results are consistently falling short of the goals the Company has set forth in its public filings, and this situation is not improving," FF Top Holding said in a proxy filing with the U.S Securities and Exchange Commission (SEC). "We believe that this poor performance is due in significant part to the failings of Mr. Krolicki."
Krolicki, a member of the board since 2020, was Lieutenant Governor of Nevada (from 2007 to 2015).