Short selling data can help active investors manage risk. Short sellers tend to be sophisticated, high-conviction traders. If they’re shorting a stock, there’s usually a good reason they are doing so.
In this report, we are going to discuss the short selling data on Faraday Future Intelligent Electric Inc (FFIE:US). Faraday Future is a mobility company that is based in California. Established in 2014, the company is focused on developing and creating a mobility ecosystem that integrates clean energy, artificial intelligence (AI), and the Internet. Its flagship product is the FF 91, an all-electric, autonomous-ready vehicle. The company is listed on the NASDAQ Global Market and currently has a market capitalization of $2.85 billion.
Faraday Future Intelligent Electric: Short Selling Data
Looking at the short selling data on FFIE, we see several red flags.
The first is that short interest is high. Our records show that at present, 25.9 million FFIE shares are on loan. That represents about 15% of the free float. This indicates that plenty of institutions are bearish here.
The second is that short interest has been rising steadily in recent months. As of August 1, 2021, 9.9 million shares were on loan. Since then, the number of shares on loan has risen 162%. Research shows that a large increase in short interest is often followed by a period of underperformance. Our data is in line with data from Nasdaq, which also shows a significant increase in the number of shares on loan in recent months.
The third red flag is that utilization is very high at 100%. Utilization is the number of loaned shares divided by the available shares in the securities lending market, expressed as a percentage. A reading of 100% tells us that demand for the stock from short sellers is sky-high.
Finally, the cost to borrow stock is a very high 282%. This confirms that interest from short sellers is elevated right now.
Targeted by J Capital Research
The increase in short interest here coincides with a scathing report on the company by short seller J Capital Research.
In its report, J Capital states that:
- It believes Faraday Future will never sell a car.
- Faraday Future is unlikely to restart its abandoned factory in California in seven months as it has promised to. The short seller says that three recent visits to the factory showed little activity.
- Faraday Future is being sued by dozens of unpaid suppliers and has failed to disclose that assets in China have been frozen by courts.
- FFIE is the ‘malformed lovechild’ of Chinese real estate developer Evergrande and China's best-known securities fraudster, Jia Yueting. J Capital says that it expects Evergrande, which owns 20.5% of the company, to sell off its shares as soon as the lockup period ends in January 2022 if not, quietly, before that.
- Faraday Future invented most of its bookings. J Capital points out that previously, FFIE said that it had 14,000 reservations. However, after Hindenburg published its findings that Lordstown Motors’ orders were faked, FFIE no longer made reference to the bookings.
In light of this report from J Capital Research, we think caution is warranted towards Faraday Future stock right now. The high level of short interest suggests that plenty of sophisticated investors expect the stock to fall from here.