The electric vehicle (EV) industry has struggled amid a tough consumer economy, offering no reprieve for Faraday Future Intelligent Electric (NASDAQ:FFIE) and FFIE stock. Most recently, Faraday announced a reverse stock split — its second reverse split in only five months. While management has also revealed a “master plan” to revitalize the company, Faraday is suffering from some severe credibility challenges.
On Sunday evening, Faraday announced its intention to implement a reverse stock split at a 1-for-3 ratio. Management anticipates that the move will become effective on Feb. 29 following the closing bell. After that, FFIE stock will begin trading on a split-adjusted basis on March 1.
As Reuters reports, Faraday’s second reverse split in less than half a year comes after a cash crunch and supply-chain woes. That has wiped out nearly 99% of FFIE’s market value over the past 12 months. Last Friday, FFIE stock closed at under 9 cents. As of this writing, the underlying company has a market capitalization of approximately $10 million.
Despite the turmoil, Faraday CEO Matthias Aydt has revealed a “master plan” aimed at strategically positioning Faraday Future for growth this year. Part of the directive involves breaking even on cash flow while simultaneously expanding the EV maker’s market presence beyond the United States.
FFIE Stock Encounters Hefty Credibility Obstacles
To Faraday’s credit, the company isn’t giving up despite the ugly print of FFIE stock. A year ago, shares were trading hands at over $40 a pop. Right now, they’re barely holding onto the 7-cent level. Such value destruction is absolutely gut wrenching.
At the same time, it’s not entirely clear what the leadership team can do to inspire confidence in FFIE stock. Fundamentally, the consumer economy has demonstrated an unwillingness to buy big-ticket items. With even sector giant Tesla (NASDAQ:TSLA) down almost 20% year-to-date (YTD), circumstances don’t bode well for alternative EV players.
Regarding the reverse split, the Financial Industry Regulatory Authority (FINRA) provides investors with some clear guidance:
“If a reverse split is announced and actually occurs, proceed with caution. Reverse splits tend to go hand in hand with low-priced, high-risk stocks.”
As for the master plan, Faraday faces an uphill battle in convincing shareholders and prospective FFIE stock investors that this time things are different. While the company is in a revenue-generation phase, it only posted around $550,000 on the top line during the third quarter. This figure needs to exponentially rise to reverse the current narrative. Additionally, Faraday’s goal of expanding its market presence appears to clash with efforts to actively manage costs and expenses.
Why It Matters
On TipRanks, no analyst currently covers FFIE stock. Moving forward, investors should also note that Faraday suffers from bearish trading activity. Specifically, Fintel’s options flow screener shows high volume of long-expiry sold calls that materialized earlier this month. At face value, these sold calls represent bets that FFIE will not rise above the listed strike price of 50 cents.
On the date of publication, Josh Enomoto did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
