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Why Faraday Future Stock Jumped 27% Today

What happened

The up and down moves in electric-vehicle (EV) start-up Faraday Future Intelligent Electric (NASDAQ: FFIE) continued today. In the past month, Faraday shares more than doubled before losing all of those gains and more.

The stock is now down nearly 30% over the last 30 days, despite a massive move higher today. Faraday shares soared 45% early today, and remained 26.6% higher as of 11:15 a.m. ET on Tuesday.

So what

The stock is soaring after it executed a nonbinding deal with a major shareholder for the potential to raise up to $600 million in capital. The deal for potential senior secured convertible notes is being facilitated by investor FF Top, which doesn't plan to directly add to its holdings in Faraday Future.

Now what

Faraday has recently said it is delaying the launch of its initial EV. The company was originally going to begin production of its high-performance FF 91 in the third quarter. But last month the company said it could be delayed to the fourth quarter of 2022 due to ongoing supply chain issues. It also said at the time that it needed additional cash to commercially launch the FF 91.

Today's announcement through a Securities and Exchange Commission filing confirmed how the company plans to raise that capital. It said it expects to raise the money from "several financial investors" that are not directly affiliated with FF Top. But the activist investor will facilitate the investments by providing "reasonable downside protection" for the lead investor by pledging a portion of its common-stock holdings.

For investors, the bottom line is that if Faraday does receive cash from the notes, it can continue to operate through the initial production and sales of its FF 91. That lifeline has some investors buying the stock today hoping for a positive outcome. They should realize that this is still a speculative investment if they choose to own shares.

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Howard Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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