The battle between the bulls and bears of Faraday Future may last for several weeks, or even months.
By RockFlow
Key Points
① Estimated at an average participation cost of 0.2-0.3 USD, early investors in Faraday Future made profits of 10-15 times at the peak. Retail investors who bought in at the lowest point of 0.04 USD made even more substantial profits (over 80 times).
② The essence of the 2021 GameStop event was a "short squeeze," similar to what is happening with Faraday Future. As of April 30, the short position of Faraday Future reached as high as 95.37%. This indicates extreme pessimism towards Faraday Future, but if the bulls concentrate their efforts to squeeze the shorts, the chances of success are quite high.
③ Faraday Future is just another version of the previous GME and AMC events. Similar phenomena have appeared in multiple niche markets: Meme stocks, NFTs, SPACs, cryptocurrencies, and sometimes even large-cap stocks like Tesla. Reality often turns out to be crazier than expected.
A week ago, the U.S. stock market seemed to be back in 2021.
It all started with a tweet by Keith Gill on Sunday night. He is better known as "Roaring Kitty," the leader of retail investors during the previous meme stock surge.
This was his first post on social media in three years.
Subsequently, in just two days on Monday and Tuesday last week, the stock prices of GameStop and AMC surged by over 100%, leading to 38 trading halts on Tuesday alone due to significant price fluctuations. According to data from S3 Partners, the short positions in GME incurred losses of approximately 2.2 billion USD within two days.
Unlike in 2021, this time the market frenzy for GME and AMC dissipated quickly.
However, the story did not end there. Faraday Future, a Chinese electric vehicle company, then took the spotlight. It surged by 5700% in the latest round of meme stock frenzy last week, becoming the new favorite of retail investors after GME and AMC.
According to statistics from the Nasdaq official website, from May 14 to 16, the daily trading volume of Faraday Future surged by more than 10 times the previous average, with a peak daily trading volume exceeding 1.5 billion shares. Estimated at an average participation cost of 0.2-0.3 USD, early investors made profits of 10-15 times at the peak. Retail investors who bought in at the lowest point of 0.04 USD made even more substantial profits (over 80 times).
As the headquarters of the previous meme stocks, in the sub-forums formed by Roaring Kitty's fans and old forums like Shortsqueeze, retail investors with holdings ranging from hundreds to tens of thousands, and even up to 500,000 shares, have been showing off their positions, further fueling the enthusiasm of retail investors to spread the word and buy the dip.
According to data from Thinknum, on the peak day of this surge on May 17, Faraday Future became the second most mentioned stock on WallStreetBets, the Reddit hub for retail investors in the United States, second only to Nvidia.
So, how did FFIE steal the limelight from GME, AMC, and other big players and become China's own meme stock in this round of market frenzy? Who will be the next? The RockFlow research team has provided a brief analysis.
In addition, the RockFlow research team has recently released in-depth research articles on companies such as Palantir, Coinbase, Duolingo, and Adobe. Coincidentally, some of these companies are entering a new round of earnings season. If you wish to quickly understand their recent business developments and investment value, please click:
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Coinbase: Exchange, broker, crypto bank, or a form of faith?
1. Faraday Future's fundamentals and necessary conditions for selection
Over the past six months, Faraday Future's stock price dropped from 1.50 USD to 4 cents. However, in just five days, its stock price has been steadily climbing, breaking through the milestones of 1 USD, 2 USD, and 3 USD for the first time since January this year.
Before understanding why Faraday Future has been chosen by retail investors (or should we say institutional investors?), let's first have a brief understanding of the company.
Faraday Future went public on the Nasdaq in 2021, with its headquarters in New York, and at that time, its market value exceeded 4 billion USD. The stock price reached its peak of 4980 USD on February 1, 2021. It then steadily declined, dropping to a low of 0.038 USD earlier this year—a decrease of 99.99%, with a market value of less than 2 million USD at its lowest point.
In 2023, Faraday Future delivered only 10 new cars, including some owned by its founder, Jia Yueting. Obviously, such a small number of deliveries is far from being profitable.
From a fundamental perspective, Faraday Future has clearly reached a dead end. It even failed to disclose its financial reports for the last two quarters on time. Its revenue for the last reported quarter (2023Q3) was 551,000 USD, with a net loss of 78,046,000 USD. As of that quarter, its cash position was 8,567,000 USD, almost sealing its fate for delisting.
The delisting notice from Nasdaq was the final blow. In April this year, Faraday Future received a delisting notice from Nasdaq due to its low stock price. In the last communication, FFIE planned to request an extension and possibly conduct a reverse stock split.
In this dire situation, one particular data point about Faraday Future is worth noting—according to the Nasdaq official website, as of April 30, its open short position reached as high as 36 million shares. Calculated based on the 38.1063 million shares outstanding, the short position ratio was as high as 95.37%.
So many stocks being shorted indicates extreme pessimism towards Faraday Future. However, it also means that if the bulls concentrate their efforts to squeeze the shorts, the chances of success are quite high.
"Short squeeze" is a common financial phenomenon. When heavily shorted stocks rapidly rise in price, it forces short sellers to cover their positions by buying stocks. At this point, if the short interest rate is high and buying pressure increases, it will further drive up the stock price. The more short sellers rush to cover their positions, the more stocks they have to buy back, which will further push up the stock price, creating a self-perpetuating cycle.
The essence of the 2021 GameStop event was a "short squeeze." The result at that time was that although GameStop's momentum was strong, Robinhood, influenced by important financial supporters, prohibited retail investors from continuing to buy GameStop stocks (only allowing selling), causing the stock price to plummet. In the end, Wall Street won, and many retail investors who chased the high suffered heavy losses.
This time, retail investors discovered Faraday Future and began to regroup. The two sides may continue to battle around several important price levels. The battle between the bulls and bears of Faraday Future may last for several weeks, or even months.
2. News continues to stimulate Faraday Future's story
The possibility of a short squeeze is just one of the reasons why Faraday Future was chosen.
The characteristics of meme stocks are strong retail interest, high levels of social media discussion, dramatic price fluctuations, and a disconnect between stock price and the company's fundamental financial health. Faraday Future meets all of these conditions, so the return of Roaring Kitty, whose legendary experience with GameStop stimulated many retail investors, has naturally led to the need to find an outlet for emotions.
In fact, the reason why Faraday Future was able to become the vanguard of this round of meme stocks is also due to the resonance triggered by several external news events:
1) Geopolitical dynamics
One factor driving the rise in Faraday Future's stock price is the U.S. government's announcement on May 14 that it would impose additional tariffs on Chinese electric cars and other products. This sudden news made agile investors think of the uniqueness of Faraday Future.
As the only Chinese-backed electric car company headquartered and developed in the United States (i.e., the only Chinese concept stock not affected by tariffs), Faraday Future's position is unique and may have some M&A value. This was one of the catalysts for speculative trading.
2) Fundamental "value"
As mentioned earlier, Faraday Future has indeed suffered significant losses, with a loss of over 600 million USD in the past year. However, some analysts expect that its fundamentals may improve this year and next. If one were to forcefully look for a bright spot, the company is expected to earn 12 cents per share by 2025, which may also be a driving force for the stock price to rise.
3) Jia Yueting's need to protect Faraday Future's listing status
Another key factor influencing the recent surge in Faraday Future's stock price is the proactive measures taken by the company's founder, Jia Yueting. After receiving the delisting notice in April, Jia Yueting couldn't sit still. He hopes to use his personal IP to benefit the company.
Over the past few weeks, Jia Yueting, who also serves as the Chief Product and User Ecosystem Officer (CPUO) of Faraday Future, has posted several videos on major social media platforms. In the videos, he announced his intention to commercialize his personal IP to generate additional income, inject funds into Faraday Future to support car production and overall operations, and take a more active leadership role with the co-CEO to share the challenges facing the company.
If even a tiny bit of his words are credible, it may also convince a small number of retail investors.
3. Where will the next meme stock be born?
Clearly, Faraday Future is just another version of the previous GME and AMC events.
Looking back at the GME event, in addition to Keith Gill mentioned earlier, the key figure was actually Ryan Cohen. He exited his pet e-commerce company Chewy in 2017 and chose to get involved with GameStop in 2020. In September 2020, Cohen disclosed that he held a 9% stake in the company.
Cohen's involvement, with his carefully managed Twitter presence and achievements in e-commerce, caught the attention of investors (possibly more than just retail investors). After the news came out, the stock price rose by 24%.
Two months later, he sent an open letter to the GameStop board outlining plans to develop the e-commerce business. In January 2021, Cohen increased his stake to 12.9% and joined the board, shocking the world once again.
At this point, just like with Faraday Future this time, GameStop had gathered a large number of short positions due to fundamental factors, and then the "short squeeze" began, causing its stock price to rise by over 1000%.
Retail investors may have missed out on GameStop in 2021, but with the second wave of GME, AMC, and now Faraday Future, some of them will not want to miss out again.
In recent years, similar phenomena have appeared in multiple niche markets: meme stocks, NFTs, SPACs, cryptocurrencies, and sometimes even large-cap stocks like Tesla.
In each case, the asset actually gained a certain emotional value, detached from its initial fundamental value, closely related to the company's attention and liquidity. Even if the fundamentals have not changed at all, as long as it is seen by the market, it can be given new value (although it is often short-lived and easily fades away).
4. Conclusion
The recent significant fluctuations in Faraday Future's stock price reflect both the risks and the allure of the stock market. Reality often turns out to be crazier than expected, especially in the U.S. stock market, which is filled with the emotions of retail investors, geopolitical factors, and internal company developments. The RockFlow research team has carefully compiled a list of meme stocks. Scan the code to follow their latest developments and performance:
As for when the game of Faraday Future will come to an end, and who will be next, we will have to wait and see.
Finally, if you are interested in investing in U.S. stocks, feel free to scan the QR code to add the exclusive investment official WeChat account. You can also join the discussion group to receive daily AI trading inspiration and news updates, and participate in more discussions.
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