What happened

Don't look now, but the electric car industry is getting more crowded, and it's having disparate effects on the players today.

In a bold announcement, start-up Faraday Future (FFIE -7.59%) -- which bills itself as not just an electric vehicle (EV) maker but a "global shared intelligent electric mobility ecosystem company" -- announced today that it has secured enough cash to begin production of its long-awaited FF 91 electric SUV. Shares of Faraday are up 3.7% as of 10:30 a.m. ET. In contrast, rival EV makers Lordstown Motors (RIDE -0.58%) and Nio (NIO 3.49%) are down 2.7% and 4%, respectively.  

So what

With no sales to its name, and consequently no revenue or profits, Faraday isn't in a position to fund its own growth just yet. Instead, it's doing the next worse thing: It's borrowing the cash.

Faraday announced today that it has signed "definitive agreements" for "financing commitments" -- secured notes convertible into shares -- totaling $135 million, of which the first $80 million will be funded within 10 business days. The remaining $55 million will be subject to "satisfaction or waiver of certain conditions." But Faraday expects those to be satisfied pretty quickly, to get its hands on the rest of the cash five days after the first tranche is received, and at that point to be ready to start rolling FF 91s off the production line starting by early April, delivering them that same month -- and generating revenue in consequence.

Farther down the line, Faraday is already laying the groundwork to get its shareholders to approve a sale of additional company shares to "clear the path for additional future financing" that will enable it to ramp production higher.

Now what

So ... good news for Faraday? Investors seem to think so, although it's worth pointing out that Faraday is going another $135 million into hock by raising this cash, and there's no guarantee its new FF 91 will sell well enough to justify the expense. After all, Faraday will be going head to head with Lucid Air electric sedans, which cost about 15% less with 36% better range, and Tesla Model X SUVs, which cost 39% less with only 8% less range.    

And then there's the risk of another share issuance down the road, which will dilute Faraday shareholders -- and the prospect of the convertible shares converting into stock, which will dilute them even more. Seems to me this is a deal in which, heads, Faraday might win, but tails, Faraday shareholders will definitely lose something. Therefore, it's not necessarily a great reason for Faraday stock to go up a lot today.

As for Lordstown and Nio, I suppose from one perspective, Faraday getting hold of a financial lifeline that will help it begin producing is an incremental negative for any EV maker that might have to compete with a new entrant into the market. But honestly, I don't see this as a huge negative for either of them. Lordstown, although in some ways similar to Faraday (no revenue, no profits), at least has more cash on its balance sheet than Faraday -- and a formidable ally in Foxconn, which is contract manufacturing its electric trucks.

Nio, meanwhile, with nearly 290,000 electric cars on the road already, and churning more out at the rate of more than 120,000 a year, is in a different class altogether. Although it's not yet profitable, its sales have already passed the $6 billion-a-year mark, its cash flow is already positive, and analysts polled by S&P Global Market Intelligence believe the company could be as little as one year away from profitability according to generally accepted accounting principles (GAAP).  

If you ask me, Nio has very little to worry about from Faraday. From a Tesla-initiated price war in EVs? Maybe. But not from Faraday.