What happened

Shares of electric vehicle start-up Faraday Future Intelligent Electric (FFIE -9.65%) had been on quite a tear recently. The stock tripled over a three-week period earlier this month.

But that surge came to a screeching halt this week, with shares plunging another 40% early Friday morning. After recovering some of that drop, as of 11:10 a.m. ET today, Faraday Future stock was still down 20.1%. The drop has nearly wiped out all of the recent 200% gain in Faraday shares.

So what

That parabolic rise wasn't the result of company-specific news. Instead, it seems retail traders were anticipating a short squeeze in the stock as short interest jumped to represent 28.5% of the public float as of June 30, according to MarketWatch.

But those retail investors appear to have abandoned hope and are now fleeing the stock. That's partly due to a brewing fight between a large investor and the company's board of directors. 

Now what

A Securities and Exchange Commission 13D filing from earlier this week showed major shareholder FF Top wants to see a shake-up in the boardroom, including a new board chairman. FF Top proposed a financing agreement that it claims will be beneficial to Faraday Future and its shareholders.

In the filing, however, FF Top claimed the board is "not treating FF Top's proposal with the gravity, urgency and fairness it deserves in light of the Issuer's [Faraday Future's] financial condition and the current adverse financing market conditions." The activist investor is proposing its own designee to replace Faraday Future's chairman, Brian Krolicki. 

But traders who had been treating Faraday Future like a meme stock recently seem to have decided to move on from speculating on the company's shares. With Faraday only holding $276 million in cash as of March 31 after recording a net loss of $153 million, the massive drop from its recent peak is a good lesson on the risks of speculative investing in companies without a strong underlying business.