What happened

Many stocks in the electric vehicle (EV) sector jumped in the first full trading week since President Biden signed the Inflation Reduction Act (IRA). The new law calls for more than $350 billion to be invested to bolster the use in clean energy. Hydrogen-powered vehicle maker Hyzon Motors (HYZN -2.35%) and EV chassis designer Ree Automotive (REE 7.98%) have both soared this week -- about 14% and 11%, respectively, as of early Friday morning, according to data provided by S&P Global Market Intelligence.

But shares of EV start-up Faraday Future Intelligent Electric (FFIE -5.01%) went in the other direction this week, down about 13%. There's a good reason for that.

So what

While the IRA should do a lot to help spur demand for EVs and the use of alternative energy, companies still need to have a sound business to reap any benefits. At the moment, investors aren't even sure that Faraday will still be around to gain anything from those investments. 

Now what

In its recently reported second-quarter results, Faraday spelled out its financial position for investors, stating, "Although the Company has taken steps to preserve its current cash position, including reducing spending, extending payment cycles and other similar measures, it projects that it will require additional funds by early September 2022 in order to continue operations." 

To support the launch of its first EV -- the high-performance FF 91 -- Faraday expects to use approximately $368 million in cash for the second half of this year. Yet as of Aug. 9, the company has a cash balance of only $52.2 million. Investors realize the IRA isn't what the company needs in the short term, explaining this week's drop in the stock. 

Hydrogen fuel gets much support from the clean energy legislation, and Hyzon Motors could benefit from that. But investors that pushed its share price higher this week need to also monitor the underlying business. Even with this week's bounce, Hyzon shares have dropped nearly 40% in the last month.

That came after the company said it would delay its quarterly report filing after it discovered "operational inefficiencies" at its European joint venture facility. It also subsequently appointed a new CEO. It now has until Oct. 14 to file that report and remain in compliance with the Nasdaq stock exchange. 

Ree shares have had a better month than those of Hyzon, but the stock is still down 75% year to date. But the IRA has been a catalyst for its recent move higher. The climate bill should help the market grow for Ree's EV platforms. And the company said in its quarterly update earlier this month that it does have sufficient liquidity to continue its commercial efforts and launch a new chassis for electric delivery vehicles. 

The lesson for investors is to look at more than just the macro picture. Digging down into individual businesses has to also be a big part of one's investing research.