Faraday Future scrapes bottom of liquidity barrel

California EV start-up Faraday Future (FF) says its production is “bottlenecked” by liquidity constraints. The firm reports cash levels as of end of September at $8.6mn, down from $19.4mn at the end of Q2.

Despite the alarming numbers, CFO Jonathan Maroko suggests that the company’s liquidity situation may not be as bleak as it appears, because the firm has not recently sought to raise levels of capital which would secure a long-term liquidity runway.

“On the funding side, thus far, we have been able to raise capital as needed. Given what we believe to be an undervalued stock price, we have been hesitant to raise much more than we need to operate in the immediate term,” he explains.

“As such, we have continued to slowly extend our runway, which we believe will allow us to get to the point where we can potentially close on a significant investment from a strategic partner,” he adds. He also notes that “the bulk” of proceeds from a September stock issuance flowed into FF’s coffers after the quarter’s end, and those cash benefits will be recorded in Q4.

But, for all Maroko insists that the company has raised capital as fits its needs, CEO Matthias Aydt admits that dwindling cash levels are materially impacting production and supply chain operations.

“We are looking to ramp up production. The factory is not a bottleneck and is ready to produce more, but we are limited by our liquidity, which is causing some supply delays,” the CEO says.

Given the company’s available factory capacity, FF’s production target of 1,000 vehicles in 2024 is already modest. “We have a plant which has installed capacity of 10,000 units/yr, and if you compare that with 1,000 vehicles for the first year of full production, then this is only 10pc,” Aydt says.

But any increase in production is constrained by “getting the necessary liquidity into the company, and on the other hand, to achieve the right level of maturity with the product as well”, he cautions.

Another headache is that production costs of FF’s vehicles are also rising, “driven by the natural inefficiencies of early-stage vehicle production, namely initial manufacturing inefficiencies, and a higher cost of parts resulting from low volume”, Maroko adds.

Priorities

Despite pressing liquidity worries, FF executives have long maintained that the company’s priority is to grow its visibility and brand awareness, as typified by its courting of celebrity customers for its EVs. Aydt once again emphasises that “we are now focused on building our brand identity” and “brand positioning and recognition in the ultra-luxury market segment”.

The firm may also be planning to soon target high net worth buyers in the Middle East. It will unveil a Middle East strategy launch on 23 November, to coincide with the Abu Dhabi Grand Prix motor racing event.

But Aydt also says that the firm “was busy at work this quarter building out our sales and service capabilities”. This includes the launch of a leasing program with unspecified “luxury lease partners” and beginning construction on a flagship Los Angeles showroom.

Financing must now, though, come to the fore. The company has tried many methods of raising funds, including management’s exchanging three months’ salary for stock holdings, convertible note offerings, and the sale and leaseback of its Hanford, CA factory.

But with the issuance of convertible notes and the recent stock sale, the company has been punished by the market — driving down its valuation, as investors feared the dilutive effect of such strategies.

“We are continuing to look to finance the company in the least dilutive way possible. So one, as we mentioned, was the indirect sale leaseback of Hanford. And that was helpful for freeing up capital to fund tenant improvement,” Maroko says.

The firm is looking to restructure its convertible notes and “doing whatever we can to move away from these existing converts”.