In order to introduce a successful product to market, there must first be demand for it. That’s the main challenge facing premium electric-vehicle manufacturer Faraday Future (NASDAQ:FFIE). Amid a crowded field that’s becoming even more saturated, credit must be given where it’s due: the company is going the ultimate contrarian route, raising prices when it should be lowering them. Still, contrarianism alone may not save Faraday Future stock.
I’m not going to leave you in suspense. Without a fundamental change to the business, I believe the ultimate trajectory of FFIE is zero. To be clear, I’m not stating that to be contrarian myself or to deliver a shocking statement for its own sake. Rather, the underlying business model has to make sense. I don’t see evidence that it does. Therefore, I am bearish on Faraday Future stock.
Price Elasticity and Faraday Future Stock’s Dilemma
Let’s get to the main point. If demand for an EV that costs as much as a house in an affordable region in the U.S. existed, it is almost a certainty one of the major European automakers would have delivered it by now. Heck, market leader Tesla (NASDAQ:TSLA) or even premium luxury competitor Lucid Group (NASDAQ:LCID) would have thrown their hats in the ring.
These enterprises collectively spend billions on consumer behavioral analytics and market data. It’s very doubtful that an upstart EV manufacturer — especially one that has lost 99% of equity value in the past 52 weeks — would suddenly poke its head above the clouds and advantage a behavioral arbitrage. No, there is no demand for an EV that starts anywhere close to $309,000.
Technically speaking, EV demand is elastic. That is, a change in price yields a change in demand. We have two critical pieces of evidence for this concept.
Volkswagen Makes a Huge Investment in Rivian
Last week, the automotive news cycle was abuzz with German automotive giant Volkswagen (OTCMKTS:VWAGY) inking a deal with EV maker Rivian (NASDAQ:RIVN). To start, Volkswagen will put $1 billion into Rivian. Terms of the agreement call for a total investment of up to $5 billion.
A major portion of the deal centers on a technology joint venture. However, the influx of funds will likely accelerate Rivian’s ambitions to offer more accessible EVs. In 2026, Rivian intends to launch its R2 SUV, which will start around $45,000. A year later, the company aims to debut the R3, which may feature a starting price of $37,000.
Notice that Rivian isn’t going upstream with its pricing. According to its website, the price of its cheapest EV comes in at $71,900. Here’s the takeaway for Faraday Future stock: if demand for even loftier EVs existed, surely, Rivian and others would raise their prices.
No, the message is loud and clear. Lower the price, raise the volume. Doing anything else is wildly risky.
Faraday’s Own Experience Confirms the Broader Data
The real kicker with Faraday Future stock of course is that the underlying company knows full well that EV demand is elastic. In the first time that FFIE reported revenue, it posted only $800,000 on the top line. Not surprisingly, it also lost money to the tune of nearly $432 million. In fairness, that was an improvement over 2022’s loss of $602 million.
However, when the key silver lining is that the company didn’t lose as much money as the year prior, that’s a problem. It’s going to be increasingly difficult for Faraday to stay competitive because the automotive industry is capital intensive. What could really hurt FFIE stock is that the underlying contrarianism lacks distinction.
Sure, it’s a large-bodied SUV that commands massive storage room and can zip to 60 miles per hour in a little over two seconds. Whoopty doo. If you want outright performance, the Tesla Model S Plaid can do the same in under two seconds. And as Tesla and other automakers have demonstrated, with the electric platform, it’s possible to develop spacious vehicles with blistering acceleration.
There is demand for such a thing. Just not at $300,000-plus.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
