To be blunt, no shortage of arguments exist against acquiring shares of electric vehicle manufacturer Faraday Future Intelligent Electric (NASDAQ:FFIE). For starters, the 60-month beta on FFIE stands at 1.63, indicating severe volatility relative to the broader equities index. Second, Faraday Future stock was only priced at around 4 cents a share before skyrocketing. Even so, it’s still down 99% over the past 52 weeks.
Then there are the financial woes. In a Form 10-K disclosure, the company issued a going concern risk. Further, management may move to seek bankruptcy protection unless it’s able to secure new funding. Another major eyesore for the EV maker is that it failed to timely file its Form 10-Q for the first quarter of this year. That only adds to the delisting risks tied to Faraday Future stock.
We can pour through all the analytics tied to FFIE and its present troubles. However, I believe that the company was already troubled from the beginning due to its absurdly high pricing. With that, everything has fallen due to the domino effect. Therefore, I am bearish on Faraday Future stock.
Faraday Future Stock Had No Chance
According to Car and Driver, Faraday’s FF91 2.0 Futurist Alliance requires a $5,000 deposit against the asking price of a whopping $309,000. By the way, that does not include a destination charge. You have to pay extra for that. That’s really all I needed to know about Faraday Future stock.
Okay, that’s not entirely fair. As the automotive journal pointed out, you can acquire the “base” model Futurist for $249,000. That only requires a $1,500 deposit. And apparently, the FF 91 2.0 will be a bit cheaper, carrying a deposit requirement of only $1,000.
I understand the basic assumption. With EVs still priced significantly more than their combustion-powered equivalents, the sector may not be ready for prime time. Rather than wait for the middle-income crowd to boost their earnings, it may be better to target wealthier consumers.
I believed such a business approach made perfect sense for premium EV manufacturer Lucid (NASDAQ:LCID). Of course, the difference here is that the base model Lucid Air starts at $69,900. Or you can lease this luxurious platform for $649 per month. These are also elevated prices to be sure. But they’re within a range of reasonability based on the broader post-pandemic paradigm.
On the other hand, FFIE is occupying another dimension, an alternate universe where the median income is $566,064. How did I get that number?
Generally, you shouldn’t spend more than 10% of your net monthly income on a car payment. Using a loan calculator, a “cheap” Faraday with a $5,000 down payment requires a monthly bill of $4,717.20 based on a 60-month term at 6% interest.
You can play with the numbers but the bottom line is that someone needs to be making half-a-million per year to afford a Faraday.
What is the Addressable Market?
Critically, the sky-high pricing of the EVs raises the next logical concern: what is the addressable market undergirding Faraday Future stock? I’m not sure anyone has a great answer to this question.
Let’s go back to Lucid. Its addressable market centers on EV buyers focused on higher-end offerings by Tesla (NASDAQ:TSLA). Currently, the most expensive model from the House of Musk is the Model X Plaid, starting at just under $120,000. Lucid aims to steal market share away from Tesla and its pricing reflects this strategy.
The thing is, even with a clear roadmap, I was wrong about Lucid. LCID has unfortunately been a poor performer.
With that context in mind, I’m not sure what to make of Faraday Future stock. The underlying company features EVs that are priced twice that of Tesla’s most expensive ride. At the same time, it’s a significant discount to Rolls-Royce (OTCMKTS:RYCEY) but here’s the problem: what is this market? For people who want something more exclusive than a Tesla but can’t afford a Rolls-Royce?
If such a consumer demographic exists, I highly doubt that it’s large enough to sustain Faraday Future stock. Check that, we know that this market isn’t big enough to support FFIE. In Q4 2023, the company posted sales of only $800,000.
A Note About the Short Squeeze
Of course, we must give some respect to Faraday Future stock regarding its short-squeeze potential. Per Fintel, the short interest stands at 31.5% of its float. If shares start to rise again, exposed bearish traders could panic out of their positions, leading to dramatic upside pressure. I wouldn’t feel comfortable directly shorting FFIE.
However, I’m not entirely opposed to the idea of buying long-term puts against it. As stated earlier, the company got off on the wrong foot with its model pricing. Bluntly speaking, the market that Faraday is attempting to carve out doesn’t exist and may never exist.
On the date of publication, Josh Enomoto did not have (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.
