California EV start-up Faraday Future (FF) has announced an at-the-market (ATM) financing programme in the latest move to improve its imperilled financial situation. The offering will be worth $90mn to the company, according to interim CFO Jonathan Maroko.
The ATM offering “allows the company to put a halt to its equity line of credit programme and move away from additional convertible notes financing on which it had to relied over the past year”, the company says. With the new ATM program in place, FF anticipates a return to more traditional corporate financing structures to financially support future growth.
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Maroko hails the flexibility of the strategy because the company will be able to adjust the minimum prices it is willing to accept on the market for its stock on a day-to-day or even intra-day basis.
ATM programs also usually involve lower fees than traditional equity offerings, and the selling volume is typically a lower percentage of overall volume of the company’s shares, which the company cites as factors behind going down the ATM route.
However, with a dwindling share price, FF is facing roadblocks in its bid to increase its market capitalisation. The company’s share price has fallen by over 65pc in the last five days, sitting at $1.33 before market opening on Monday. Such a low price creates obstacles for institutional investors wanting to invest in the company. Under SEC rules, “brokers cannot process trades in stocks worth less than $5 without following a laundry list of rules and processes”, according to exchange Nasdaq.
Market cap
FF is in the middle of a market capitalisation and liquidity crisis. The company is valued at just $68mn currently, compared to perhaps its closest competitor in the luxury performance EV pure play segment, Lucid, which is valued at $11.8bn.
However, the company told investors at its Q2 results that “huge production and delivery figures are not requirements for establishing meaningful market capitalisation”.
The company was candid with investors on its Q2 call, with CFO Maroko admitting the need to cut costs “on both on a per vehicle cost and on a company-wide level”, as well as saying that there was “substantial room to reduce costs”, amid net losses of $124.9mn in the quarter. These results brought the company's accumulated deficit since beginning operations to $3.8bn.
The firm also reported that cash balance at the end of the quarter was $19.4mn, including restricted cash of $1.5mn.
Despite cost-cutting measures in both areas, Maroko says that the company now has greater financial flexibility to continue to invest in research and development, as well as sales and marketing.
Investment in marketing will be crucial for FF, as the company has repeatedly characterised its business model as sacrificing lower unit sales volumes in favour of “increasing awareness of its vehicles and creating brand strength”.
Salary sacrifice
According to Maroko, the company is targeting administrative costs as a primary area in which to save cash, having recently halved its executives’ salaries in exchange for stock buying options. The move came amid a reshuffle at the top of the business, with Matthias Aydt appointed as CEO and previous CEO Xuefeng Chen returning to his former position of CEO of FF China, as well as adopting the new role of executive vice-president of global industrialisation.
As part of the move, an unspecified number of C-level management, including new CEO Aydt, outgoing CEO Chen, interim CFO Maroko, and chief accounting officer Yun Han, will surrender half of their salaries for the next three months, and instead given instead common stock from the company in amounts equivalent to the deductions. The deductions, which company calls voluntary, will be applied after tax, according to SEC filings from the company.
While serving a potentially useful function in cutting cash out of the door, the shares-for-salary scheme will have inevitable further dilutive effects on the FF share capital.
The company has now delivered four of its FF 91 2.0 vehicles in October, the most recent of which was handed over this weekend.
Ciaran has written about finance, politics and culture. He is passionate about e-mobility and what it means for our way of life.
Ciaran has a Masters in Ancient Philosophy from Oxford University.
