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Why Shares of Property Solutions SPAC (Faraday Future) Are Higher Today

By John Rosevear - Updated Jan 29, 2021 at 11:33AM

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Electric vehicles may be the future, but not all EV start-ups are created equal.

What happened

Shares of special-purpose acquisition company Property Solutions Acquisition (PSAC) were sharply higher on Friday morning. After weeks of speculation, the SPAC confirmed that it has struck a deal to merge with California electric-car start-up Faraday Future earlier this week.

As of 10:45 a.m. EST, Property Solutions' stock was up about 29.1% from Thursday's closing price.

So what

Property Solutions confirmed on Thursday what had been rumored for a few weeks: It's merging with Faraday Future in a deal that will take the long-struggling electric-car start-up public by the end of June.

It's a good moment for a deal like this: Shares of electric-car start-ups have been white-hot in recent months, fueled by the meteoric rise of Tesla stock and the success of others, including Chinese Tesla rival NIO.

A silver prototype Faraday FF 91, an electric luxury sedan.

Faraday expects that it'll be able to get its electric luxury sedan, the FF 91, into production about a year after the merger deal closes. Image source: Faraday Future.

Here are the key points of the deal:

  • Property Solutions will bring about $230 million in cash.
  • A PIPE (for "private investment in public equity") funded by outside investors including Chinese automaker Geely Automobile Holdings (OTC: GELYF) will add another $775 million.
  • The post-merger company, which will retain the Faraday name, will have a valuation around $3.4 billion.

Post-merger, Faraday is expected to net about $750 million in cash from the deal. That's enough, CEO Carsten Breitfeld said, to get its FF 91 electric luxury car into production in about a year.

Now what

Any investment in a start-up is speculative, of course, But I think auto investors should be extra careful with this one. 

While electric vehicle sales are almost certain to soar over the next few years, Faraday is a company with a (relatively) long and troubled history. After making a big splash at the Consumer Electronics Show in 2016, it burned through $2 billion and nearly went bust (a co-founder did actually go bankrupt) and lost most of its early employees, including much of its engineering team. 

Brietfeld, a former BMW executive, has worked to get the company back on its feet since his arrival in 2019. Faraday now says it has 14,000 pre-orders for the FF 91, and it thinks it can sell more than 400,000 vehicles over the next five years. 

That latter figure is a key component of the post-merger valuation, but it's a lot of cars for a company that has yet to show that it can deliver a single one. Proceed with caution here. 

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Stocks Mentioned

Property Solutions Acquisition Corp. Stock Quote
Property Solutions Acquisition Corp.
PSAC
Geely Automobile Holdings Limited Stock Quote
Geely Automobile Holdings Limited
GELYF
$1.71 (-1.16%) $0.02
Nio Inc. Stock Quote
Nio Inc.
NIO
$16.44 (-1.32%) $0.22

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