As if to reinforce its tenuous finances, a reverse stock split is being planned by electric vehicle company Faraday Future Intelligent Electric, as it attempts to resume meeting Nasdaq’s minimum bid price regulations.
Nasdaq mandates that share prices trade above $1, and notifies a company when their prices fall below that level for 30 consecutive business days. Companies then have 180 days in which the stock must trade above $1 for at least 10 consecutive days. However, if additional criteria are met, a second 180-day window may be granted.
After receiving a notification in January that it did not meet the continuing listing requirements, Faraday Future was given an extra 180-day extension by Nasdaq in May to meet the minimum bid price criteria. The stock currently trades at 45 cents; it hasn’t traded above $1 since Feb. 3. The stock reached its all-time high in January 2021 when it hit $18.45 a share.
Does Faraday have a future?
The EV startup is still having financial problems. In the middle of 2021, Faraday Future raised more than $1 billion through a merger through a SPAC, or special purpose acquisition company, with the intention of starting manufacturing. When the time came, however, the business acknowledged that only 401 of its much-hyped 14,000 pre-orders were real.
After a year, the company disclosed that it would need up to $170 million to begin manufacturing by the end of 2022. It only had $20 million in cash on hand at the moment. In order to jumpstart the start of FF 91 Futurist production, the company obtained a $135 million funding infusion in February from ATW Partners, Acuitas Funding, and several unknown investors.
In addition to the $33.4 million that Faraday has already obtained since the middle of December to cover production costs for the FF 91, more funding was secured in February. Wall Street anticipates revenue of $140 million in 2023, or about 700 units sold. But it remains to be seen.
FF is not alone in the share price cellar
But when comes to boosting its share price with a reverse stock split, Faraday Future is not alone. Lordstown Motors announced a 1-for-15 reverse stock split as of May 24, when its stock price hovered around 26 cents a share, down from its peak of $31.80 a share. The split reduces the number of outstanding Lordstown shares to 16 million from 243 million. Its price closed down 0.48% Friday at $4.19 a share.
Stock splits typically increase the number of outstanding shares and lower the price of the stock. But this hardly amounts to generosity; rather, it’s a typically an indication of management optimism of continued share price growth.
As you might expect, a reverse stock split is the opposite, typically happening after a challenging period. That is undoubtedly true of both manufacturers. They lack cash, and their sliding share price reflects concerns that they’ll run out of financing before being able to break even or turn a profit. Spending it on a reverse stock split does little to help their increasingly precarious financial prospects, however, which is why their stocks have sunk below $1 a share.