Shares of special-purpose acquisition company Property Solutions Acquisition (NASDAQ:PSAC) were sharply higher on Friday morning. After weeks of speculation, the SPAC confirmed that it has struck a deal to merge with California electric-car start-up Faraday Future earlier this week.
As of 10:45 a.m. EST, Property Solutions’ stock was up about 29.1% from Thursday’s closing price.
Property Solutions confirmed on Thursday what had been rumored for a few weeks: It’s merging with Faraday Future in a deal that will take the long-struggling electric-car start-up public by the end of June.
It’s a good moment for a deal like this: Shares of electric-car start-ups have been white-hot in recent months, fueled by the meteoric rise of Tesla stock and the success of others, including Chinese Tesla rival NIO.
Here are the key points of the deal:
- Property Solutions will bring about $230 million in cash.
- A PIPE (for “private investment in public equity”) funded by outside investors including Chinese automaker Geely Automobile Holdings (OTC: GELYF) will add another $775 million.
- The post-merger company, which will retain the Faraday name, will have a valuation around $3.4 billion.
Post-merger, Faraday is expected to net about $750 million in cash from the deal. That’s enough, CEO Carsten Breitfeld said, to get its FF 91 electric luxury car into production in about a year.
Any investment in a start-up is speculative, of course, But I think auto investors should be extra careful with this one.
While electric vehicle sales are almost certain to soar over the next few years, Faraday is a company with a (relatively) long and troubled history. After making a big splash at the Consumer Electronics Show in 2016, it burned through $2 billion and nearly went bust (a co-founder did actually go bankrupt) and lost most of its early employees, including much of its engineering team.
Brietfeld, a former BMW executive, has worked to get the company back on its feet since his arrival in 2019. Faraday now says it has 14,000 pre-orders for the FF 91, and it thinks it can sell more than 400,000 vehicles over the next five years.
That latter figure is a key component of the post-merger valuation, but it’s a lot of cars for a company that has yet to show that it can deliver a single one. Proceed with caution here.
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