Faraday Future, a maker of ultraluxury electric vehicles, aims to see sales of roughly $21 billion in 2025.
Courtesy Faraday
Another electric-vehicle company is coming with aspirations to sell flashy cars in an all-electric world—Faraday Future. Much like Nikola and Tesla, it takes its name from another famous scientist, and like many EV firms that have gone public over the past year, it will list shares through a merger with a special purpose acquisition company, or SPAC.
Based in California with partners in China and South Korea, Faraday plans to sell ultraluxury, futuristic EVs around the globe. The company’s namesake, British scientist Michael Faraday, is credited with the discovery of electromagnetic fields, and laid the foundation for modern electric motors—both significant developments for the EV industry, of course.
Last week, Faraday announced plans to merger with Property Solutions Acquisition (ticker: PSAC)—a special purpose acquisition company, or SPAC. The deal will provide the EV start-up with just over $1 billion of capital to build the “class-defining, ultimate-performance luxury electric FF 91.” Faraday plans to compete with the likes of Rolls-Royce, Bentley, Ferrari (RACE), and Lamborghini, and aims to gain a foothold in China, the world’s largest car market. The companies expect the deal to close in the second quarter, when Property Solutions’ stock ticker will convert to “FFIE.”
Faraday’s cars will certainly be showy—with a price tag to match—but not everything about the deal glistens, given the company’s valuation, growth forecasts, and history of executive departures.
The SPAC merger values Faraday stock at about $3.4 billion, but Faraday’s market capitalization is up to about $6 billion based on Property Solutions’ recent stock price of roughly $17.80 and the 337 million Faraday shares outstanding after the deal closes.
Faraday plans to do more than $21 billion in annual sales by 2025, up from about $11 billion forecast for 2024. Tesla (TSLA), the world’s largest EV maker, managed jump to $21 billion in sales in 2018 from $12 billion a year earlier. But it took the EV behemoth roughly six years to go from less than $1 billion in sales to more than $11 billion. Of course, the EV industry has rapidly evolved since Tesla went public more than 10 years ago. Investors will have to decide if Faraday’s assumptions are reachable.
A look at the merger’s financials suggests that the deal isn’t just about investing in Faraday’s growth, but also relieving some of its debt burden.
The roughly $1 billion in capital includes $230 million from Property Solutions’ trust and a $775 million private investment in public equity, or PIPE, at $10 a share. (Included among PIPE investors is an unnamed Chinese city, which Faraday believes will help it break into the country’s market.) Another $671 million in debt is expected to be converted into equity, increasing the number of shares outstanding after the deal.
After the company uses roughly a quarter of the $1 billion to pay down some existing debt and deal fees—about $850 million of cash and equity is going to Faraday’s debtholders as part of the planned transaction. The remaining $750 million from the deal will end up on the new company’s balance sheet to fund its FF 91 production push.
That $750 million adds to the roughly $2 billion already spent developing the FF 91—under prior management. “Most of that was spent on technology,” said CEO Carsten Breitfeld, who took the helm of Faraday in September 2019 after executive roles at BMW and the EV start-up BYTON.
Most of Faraday’s founding executive team has departed the company, some under contentious circumstances. Former CFO Stefan Krause went onto help run another EV start-up, Canoo (GOEV). Former CEO Jia Yueting declared bankruptcy in 2017, and his creditors now own equity in Faraday. Faraday said it can’t discuss former employees, adding that Yueting “remains a leader on product development.”
That history may still present a challenge to Faraday’s future plans in China, where it also has long-term plans to develop manufacturing capacity via a joint venture with Chinese auto maker and Faraday investor Geely. The deal’s seven pages of risk factors include the warning: “Our founder Yueting Jia is closely associated with the image and brand of Faraday Future …he remains on China’s ‘debtor blacklist’ and there is no assurance that such negative publicity, although not directly related to [Faraday Future,] would not adversely affect out business, prospects, brand, financial condition, and result of operations.”
But Breitfeld believes management issues are in the past, telling Barron’s the company has come a long way over his tenure. “We’ve changed a lot in the past 17 months,” he says. “We developed a business plan which is very realistic and low-risk in execution, we brought in a team of great people who can execute, …[and] rebuilt the governance to Western company standards, and this is all in the past now.”
A lot could end up riding on the success of the FF 91, the company’s first model. The base FF 91 will start around $100,000, while the “Futurist” version will range from roughly $200,000 to $300,000. The company says it already has 14,000 reservations, although most are without any deposit. Futurist production is slated to begin in the first quarter of next year from Faraday’s California factory. More models are planned down the road, and the company will use South Korean firm Myoung Shin International (009900.Korea) as a contract manufacturer.
The FF 91 has impressive specs: It will have the equivalent of 1,050 horsepower with three electric motors propelling the car from 0 to 60 miles an hour in 2.4 seconds. The seats practically come from outer space—they were designed for NASA and recline up to 60 degrees. In addition to other high-luxury features, the FF 91 will launch with a level 3 autonomous driving system, which is the current state of the art in the auto industry. Regulators consider level 3 as “conditional autonomy,” which means the car can do all the driving in certain circumstances, but the driver needs to be ready to take over at any time.
By 2025, Faraday expects to be selling about 267,000 vehicles annually—other mass-market luxury models are planned. It expects to have sales above $4 billion in 2023 and report a profit in 2024.
Property Solutions also took a roundabout path to its deal with Faraday. The SPAC went public in July 2020, targeting “real-estate service companies to property technology, or ‘PropTech,’ companies.” But last fall, Riverside Management—sponsor of another SPAC, RMG Acquisition —approached Property Solutions with the Faraday pitch, as RMG was completing its merger with Romeo Power (RMO), a maker of EV battery packs and battery-management systems. Riverside gets a share of Property Solutions’ stake in Faraday for its trouble.
Aside from retail investors’ recent market takeover, electric vehicles and SPACs have been two of the buzziest areas of the market in the past several months. Combinations of the two have produced a number of highflying stocks, including QuantumScape (QS), Hyliion (HYLN), and Nikola (NKLA). Many EV SPAC deals have earned early investors multiples on their original investments. Every SPAC sponsor—and investor—wants a piece of the next hot deal, tumultuous past aside.
Write to Al Root at [email protected] and Nicholas Jasinski at [email protected]. Follow Al on Twitter @DowJonesAl
