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Whenever there is a boom in investment in any sector, there will always be pretenders and scammers trying to take advantage of the trend. |
| A perfect example is the Long Island Iced Tea company, which produced iced tea and lemonade products on Long Island, New York. |
| In 2017, the beverage company rebranded as the Long Blockchain Corp, with the stated goals of "exploration of and investment in opportunities that leverage the benefits of blockchain technology." |
| But… what happened to the tea? |
| Long Blockchain Corp's shares rocketed higher by about 380% after the announcement, despite it being a beverage company and not having a single executive with a blockchain technology background. |
| And yet, unsuspecting investors, and some with inside information, bought the stock without understanding the basic truths about this company. |
| Regardless of being in a raging bull market for crypto at the time, it didn't take long for this pretender of a company to suffer its deserved fate. |
| By July 2018, the U.S. Securities and Exchange Commission (SEC) subpoenaed documents from Long Blockchain Corp related to this fake "pivot" made by the company. |
| And even the Federal Bureau of Investigation (FBI) was searching for evidence of insider trading and securities fraud. |
| By 2021, the stock of Long Blockchain Corp was delisted, and the SEC charged three people with insider trading. |
| Whether it was the dot-com bubble, the early crypto/blockchain bubble of 2017, or the recent AI boom… |
| There are always posers, scammers, and pretenders trying to take advantage of unsuspecting investors. |
| The same can be said of today. |
| Faraday Fake Out |
| I have already accurately predicted the collapse of 10 supposed AI companies over the last couple of years, all of which have fallen off a cliff. |
| BigBear.AI is down 55% from its peak… SoundHound AI is down 67% from its high set in October last year… even IBM is down about 20% just in the past five months or so… to name a few. |
| Evidently, an "AI" tacked onto the company name does not an AI company make, but more on that later. If you know what to look for, it's actually pretty easy to find the fakers. |
| I was reminded of this in the last month when I saw a ridiculous announcement from Faraday Future AI Electric Vehicle (FFAI). |
| Faraday Future has been positioning itself as a revolutionary luxury electric vehicle (EV) maker for the last decade, and its history documents one of the most ridiculous strings of events I've ever seen in the corporate world. |
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| Source: Faraday Future |
| The announcement, from a month ago, was that the electric car maker had suddenly jumped into the humanoid robot business, with the stated goal of becoming the "first U.S. company to deliver both humanoid and bionic robots." |
| But there was one major issue with the announcement… |
| Faraday Future didn't design or build the robots. |
| The robots came entirely from a China-based robotics company called AGIBOT, yet Faraday Future was positioning the robots as its own product. |
| It went even further, presenting that it would increase the value of the robots by using its own Faraday Future Embodied Intelligence. |
| As a reminder, Faraday Future is supposed to be an EV design and manufacturing company. It is not an artificial intelligence company. |
| The event really cracked me up. |
| Faraday's "human doing the robot dance on stage" stunt was so reminiscent of Tesla's original humanoid robot event in August 2021, when Tesla had a human dressed up as an Optimus robot on stage… |
| Except that the Tesla stunt was meant to be a joke, since it was still in the early stages of development. |
| Faraday, on the other hand, is taking themselves very seriously. |
| The difference is that, as we have seen now, Tesla's in-house development was real, and it now has what is arguably the most advanced humanoid robot ever made working in Tesla's factories and offices. |
| And unlike Faraday, Tesla is an artificial intelligence company, specifically one that specializes in AI applied to fully autonomous robots capable of navigating the real world (i.e., cars and humanoid robots). |
| What's incredible is that people actually fell for Faraday's stunt. |
| The person below even suggested that Faraday Future was beating Tesla at their own game. |
| Clearly, he didn't do his homework. |
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| But I'm getting ahead of myself. |
| The background of this story is actually so much worse… |
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| Faraday's Sketchy Past |
| Founded in California in 2014 by Chinese businessman Jia Yueting, Faraday Future ramped up to 1,500 employees and burned through $900 million in cash by 2017. It put the company in a difficult financial position, on the verge of bankruptcy. |
| Prior to Faraday, Jia made his money by selling $2.2 billion worth of his equity in LeEco – a China-based internet streaming company that he founded. |
| Jia used some of that capital originally fund Faraday Future and then raised hundreds of millions in loans in China, much of which was never repaid. |
| Somehow, teetering on the brink of bankruptcy, Jia was able to raise $2 billion from the notorious Evergrande in 2018. |
| The deal was for $800 million up front, with the rest coming on future milestones. |
| Evergrande is, of course, the massive China-based property developer that defaulted spectacularly on $300 billion worth of debt in 2021. Such a fitting partner for Faraday… |
| By 2020, Jia filed his own personal bankruptcy to manage his jaw-dropping $3.6 billion worth of debt. |
| I'll pause here to ask, how can one individual possibly get away with raising $3.6 billion of debt? |
| Amidst this debacle, his original company, LeEco, also collapsed due to – take a guess – having too much leverage (i.e., too much debt). |
| The court determined settlement was to give Jia's debtors pieces of his equity in Faraday Future, which was probably the only "asset" that Jia could be forced to offer to his debtors. |
| Incredibly, Faraday Future was able to bridge its profligate spending from the $800 million raised from Evergrande to a $3.4 billion reverse merger via a SPAC in July 2021. |
| Here's what happened since then: |
| Chart of Faraday Future Since Its 2021 IPO |
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| And it keeps getting worse… |
| AI Hype Traps |
| Here's what happened following Faraday Future's IPO: |
- In a scathing report, a short-selling company called Faraday, "a new EV scam in town," which resulted in Faraday Future admitting to making inaccurate statements about its company at the time of the IPO.
- There were SEC and Department of Justice (DOJ) investigations in 2022 regarding the accuracy, or lack thereof, in Faraday's statements at the time of the IPO.
- Jia was fined in China $37 million by regulators over a previous IPO that he was involved in prior to Faraday Future.
- The company struggled with major production issues and delays, losing complete confidence with investors – as we can see in the chart above.
- The SEC issued Wells Notices to Faraday Future executives over false and misleading statements.
- I've lost count of how many shareholder lawsuits there have been.
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| About a year ago, Faraday Future changed its stock ticker from FFIE to FFAI, representing a change from the old name of Faraday Future Intelligent Electric to Faraday Future AI Electric Vehicle. |
| Ahhhhh… there it is. |
| The key buzzword: AI. |
| Only clearly, this was yet another red flag analogous to Long Island Iced Tea's name change to Long Blockchain Corp. It's literally that bad. |
| Just slip in the "AI" and voila! You're an AI company. It must be that easy. |
| And check out this hilarious slide from a recent Faraday Future investor presentation this January. |
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| Source: Faraday Future |
| No numbers. No financials. |
| I have never seen a business plan chart like the above showing "ginormous improvements" up and to the right – without any numbers on the chart at all. Incredible. |
| And I get it – the current environment can be confusing. In an age where the mainstream media is telling us that any single person can build the next trillion-dollar company, thanks to powerful AI tools today… I get it. Maybe Jia could be onto something… |
| But this is nothing but smoke and mirrors… a mirage hoping to somehow look like it will be the next Tesla. |
| And sadly, investors just might fall for it and enable them to raise a whole lot more money. |
| I sincerely hope no one does, though. |
| Faraday Future is such a horribly run business. |
| At best, it is just a pretender trying to trick unsuspecting investors into buying its "cheap" stock. |
| Faraday Future is going down. It will fail just as I accurately predicted Nikola and Lucid would. This is a horrible company with red flags everywhere – has been for years. |
| I rarely write about companies like this, because they just aren't worth spending time on. And I always prefer to focus on positive developments. But I don't want my readers to get burned in the AI hype, and this is a good illustration of what to watch out for. |
| Being a successful investor isn't just about knowing which stocks to invest in. It's also about knowing which companies to avoid. |
| And the latest egregious promotion and fake positioning by Faraday Future into intelligent, general-purpose robotics is nothing more than a last gasp before the implosion. |
| I don't want any of my readers to get caught in this trap. |
| Jeff |
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