Faraday’s Merger with PSAC: A Potential Revolution Within the Automobile Industry?

The electrical vehicle company Faraday Future announced on January 28th 2021 that it had signed a definitive agreement via special purpose acquisition company (SPAC) to merge with blank-check company Property Solution’s Acquisition Corp (PSAC) in the second quarter of 2021. A SPAC refers to a company with no commercial operations that is formed solely to accrue funds via an IPO to acquire a firm. The merger is set to provide an estimated 1 billion USD to Faraday Future, consisting of 230 million USD in cash from PSAC and a further committed 775 million USD set to come from a privately invested in public equity deal (PIPE deal) from PSAC at 10 USD per share, assuming no redemptions. The result of this merger will be a new company – Faraday Future inc – with a combined equity value of 3.4 billion USD.

 

Faraday Future is a luxury electrical vehicle company that was formed in 2014, based in Silicon Valley and led by their CEO, Dr. Carsten Breitfeld. The firm currently has no commercially available vehicles, but the prospective transaction is set to fully fund the production of its flagship vehicle, the FF 91, which is set to be launched twelve months following the completion of the merger. Its features will include an industry-leading 1,050 horsepower, 0-60 mph in less than 2.4 seconds, zero-gravity seats and the ability to travel 300+ miles per charge: an unprecedented feat in the locomotive sector. Moreover, the company claims that its USP is its advanced internet, autonomous driving and intelligence (I.A.I.) system, which from inspection seems an advanced artificial intelligence system, similar to Tesla’s autopilot.

 

Property Solution’s Acquisition Corp was formed in July 2020 by its co-CEO’s Jordan Vogel and Aron Feldman. It is valued at 230 million USD and is currently traded on the NASDAQ.

 

Apart from supplying the new company, Faraday Future inc., with a much-needed boost in capital, the PIPE deal also provides the company with long-term strategic partnerships with companies that will support the FF 91’s production and the development and delivery of future vehicle models. It is speculated that these partners include Geely, one of China’s top three original equipment manufacturers (OEM’S), a leading automobile manufacturer based in the new tier 1 Chinese city of Hangzhou. The outcome is that in addition to manufacturing support, Faraday Future will have the rare advantage of having unhindered access to both the US and Chinese markets: the two largest automobile markets in the world.

 

However, as promising as this new merger may superficially appear, Faraday Future’s tumultuous past gives cause for concern to prospective investors. Since its inception in 2014, not one car has been sold despite over $2 billion worth of investment. Moreover, the company’s founder declared bankruptcy, the company has had 3 CEO changes and in October 2018 allegedly between 30 and 50% of their staff were made redundant.

 

Moreover, the electrical vehicle market is one which is quickly becoming saturated, not only by relatively new companies like Tesla, but also by pre-existing, traditional automobile companies like Volkswagen and Ford. The success of this merger relies on more than merely creating a functional vehicle – a seven-year feat. It also rests heavily on whether the FF91 has qualities that distinguish itself from other electric vehicles.

 

In order to infiltrate into the electric vehicle market, Faraday Future has a lot to prove to both consumers and investors, with the main question being whether this investment can be the turning point for Faraday Future’s success. As of now, there seems to be a generally positive consensus about this; PSAC’s share price has soared since news of the merger broke out and there are over 64,000 pre-orders for the FF-91. The jury remains out on whether this deal can yield positive long-term implications for both the firm and the wider industry.

 

By Paul Brown

Sector Head: Venkat Rajasingham

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