Shares of California-based electric vehicle (EV) company Faraday Future Intelligent Electric (FFIE) soared as much as 80% today before the gains faded to 52% as of 3:52 p.m. ET. The stock has experienced a parabolic rise over the past week. It has soared 150% in just the last five trading days.
The problem is that there hasn't been any news out of the company. It remains on pace to begin production of its FF91 electric car in the third quarter of 2022. But its finances are on shaky ground. Faraday Future lost $149 million in the first quarter and only held $276 million in cash as of March 31, 2022. It seems the stock has become the latest meme stock, with retail investors trying to force a short squeeze. As of mid-June, more than 25% of its public float was held short, according to MarketWatch.
Prior to the past week's move, Faraday stock had lost 82% in 2022. A bankruptcy filing by fellow EV start-up Electric Last Mile Solutions in early June also has investors questioning whether some EV hopefuls will even survive. That likely helps explain the high short interest in Faraday.
But that's prime hunting ground for the online retail crowd that drove stocks like GameStop and AMC Entertainment to unreasonable levels early last year. Meme stock investors hope to cash in on a massive short squeeze with stocks that have a high percentage of shares sold short.
But investors should beware when the underlying business fundamentals don't justify the valuation. GameStop and AMC shares are down 40% and 75%, respectively, over the past year. If Faraday doesn't have a successful and timely launch of its first EV, similar results can likely be expected.