California-based Faraday Future (FF) on Thursday said that it will merge with Property Solutions Acquisition Corp (PSAC) and that the combined entity will be listed on Nasdaq under the ticker symbol FFIE. It will provide Faraday about USD 1 billion in gross proceeds, including USD 230 million in cash, that was held by PSAC in a trust, and USD 775 million in the form of a private investment in public equity (PIPE). It will value the company at about USD 3.4 billion if the transaction closes in the second quarter as expected.
Anchor investors include leading institutional shareholders from the US and Europe, a Top 3 Chinese original equipment manufacturer, and a Tier-1 city in China, the firm said. China’s largest privately owned automotive company Zhejiang Geely Holding Group announced on Friday that it will become a minority investor in FF during the listing process, adding that both will “explore the possibility of using OEM production services provided by the joint venture between Foxconn and Geely.” 36Kr reported that Geely planned to invest about USD 30 million to USD 40 million in FF.
Sina.com reported this week that the Zhuhai city government planned to invest RMB 2 billion (USD 309 million) in Faraday. However, Zhuhai is not commonly referred to as a Tier-1 city in China, which are Beijing, Shanghai, Guangzhou, and Shenzhen.
The new capital can fully fund the production of Faraday’s FF 91 model within 12 months after close of the transaction, the company added. The FF 91, which premiered on January 4, 2017, has been stalling at the pre-mass production stage after the company’s founder, Chinese entrepreneur Jia Yueting, fled to the US due to loan defaults. Jia quit his position as CEO in September 2019 and was replaced by BMW executive Carsten Breitfeld.
A breakthrough moment
“It is quite possible that FF can ride the EV investment boom worldwide to rise”, Liu Jing, professor of accounting and finance at the Cheung Kong Graduate School of Business told KrASIA on Thursday before the listing was announced. The combined market capitalization of the EV sector has reached nearly USD 1 trillion as investors came to realize that electric cars will be the future of the automotive industry, Lui said at a roundtable in Beijing.
The change of attitude, which was not yet obvious in 2019, came as sales picked up even when government subsidies were slashed in China, boosted by the fact that battery density has increased by 50% in the past five years and cost is dropping at 18% per year.
The investment boom could last for some time but the bubble may burst when investors realize that EV is not an industry where it’s easy to form monopolies, unlike in the internet sector. Instead, it is going to be a fully competitive, low-margin business, crowded with various players, such as pure play EV firms, traditional carmakers, and internet companies, with all to take a slice of the market.