Faraday Future Intelligent Electric Inc. Q4 FY2022 Earnings Call

Greetings. Welcome to Faraday Future Intelligent Electric Inc. Fourth Quarter 2022 Earnings. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to Charles Hsieh, Investor Relations. Thank you. You may begin.

Thank you and welcome to Faraday Future’s fourth quarter 2022 earnings call. We issued a press release reporting our fourth quarter and annual 2022 results this afternoon, March 8, 2023. Joining the call today from Faraday Future is our Global Chief Executive Officer, XF Chen; Matthias Aydt, Global SVP of Product Execution; and our Chief Accounting Officer and Interim Chief Financial Officer, Yun Han. You can find a copy of the Q4 2022 press release now and a replay of this call later today in the Investor Relations section of our website, investors.ff.com. Please note that on this call, we will be making forward-looking statements based on current expectations and assumptions, which are subject to risks and uncertainties. These statements reflect our views only as of today and should not be relied upon as representative of views as of any subsequent dates. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For further discussion of the material risks and other important factors that could affect our financial results, please refer to our filings with the SEC. In addition, during today’s call, our management team will give their prepared remarks and answer investors’ questions in English. A translator will provide simultaneous Chinese translation, which can be accessed through investors.ff.com. All translations are provided for convenience only. In the case of any discrepancy, management’s statement in English will prevail. With that, I will turn the call over to XF Chen, Global CEO of Faraday Future.

Thank you, Charles, and thanks to everyone for joining us today. This is my first earnings call as FF Global CEO, and I want to let you know that I plan to prioritize consistent and open communication with investors moving forward. I would like to begin today’s call by defining what FF is. FF is a pioneer in the ultimate tech-luxury ultra-spire market in the intelligent EV area and a disruptor of the traditional ultra-luxury car civilization, optimized by Ferrari and Maybach. FF is not just an EV company, but also a software-driven company of intelligent internet AI products. Ultimately, FF aims to become a user company by offering a holistic intelligent mobility ecosystem. We envision the growth of FF in three phases. Our Phase 1 goal is to deliver the FF 91 Futurist Alliance, FF 91 Futurist, and FF 91 with high quality and power to our global ultra-spire users, thereby competing with traditional auto luxury brands like Ferrari, Maybach, Rolls-Royce, and Bentley and ultimately become the top leader in the global spire user market. We are currently developing our five-year business plan. The company’s goal is to achieve profitable business with operating cash flow breakeven in 2025. As we introduce more upcoming vehicle models, the user ecosystem will begin to take shape, and we expect our hardware revenue will grow alongside equal revenues that include internet applications, software, and sharing. Our Phase 2 goal is to establish ourselves as a major player in the high-value user market. During Phase 3, FF intends to pivot the growth of its hardware revenue and equal revenue, which we believe will increasingly contribute to the overall profit. With this mid to long-term strategic plan, we aim to rapidly grow the company to become a $10 billion, then $50 billion, and finally a $100 billion company in the future. Now, let's look at a brief company overview of where we stand today, our upcoming start of production milestone, and our go-to-market plans. Matthias will then provide an overview of the FF 91 Futurist and Yun will present a review of our financials, updates for the first quarter of 2023, fundraising, and other actions we are taking to ensure a strong Faraday Future. 2022 was a challenging year with several obstacles for the company. But despite the challenges, our unwavering commitment to our mission persisted, allowing us to move forward. FF stands stronger today than ever. We have also made significant improvements to our board to align with stakeholder interests and have brought in new key management hires, such as Yun, our Chief Accounting Officer and Interim Chief Financial Officer; and our Interim General Counsel. Additionally, I moved from our China operations to now lead Faraday Future’s global business. The new FF today is fully aligned from the shareholder level to the employee level, all for the betterment of the company and shareholder interests. Over the past three months, I have witnessed the unparalleled dedication of the FF team and the hard work they put into the company. We are excited to introduce the FF 91 Futurist in the coming months, which marks a significant milestone in Faraday Future’s goal to become a revenue-generating company this year. Now, I would like to take a few moments to discuss our manufacturing efforts at our Hanford factory, or the ieFactory, California, as we refer to it. This factory spans an area of 1.1 million square feet, and we will have an initial production capacity of 10,000 cars annually. On the staffing side, we are intensifying recruitment and training to support our style of production. We have also set up a launch team consisting of cross-functional colleagues who will be temporarily moved to Hanford to support manufacturing and provide immediate assistance with specific issues. Back in September 2021, we highlighted six milestones needed to reach the start of production of the FF 91 Futurist at our Hanford manufacturing plant. Since then, the FF team has worked diligently to complete all six of these necessary production milestones, including the initial installation of our pilot equipment, completion of factory foundation construction, and most recently, finalizing major construction and installation in our SOP vehicle manufacturing area. Additionally, we are confident in reaching our first start of production milestone number seven by March 30, 2023, assuming the company receives funds from our investors, which we will discuss further later. We will host the FF 91 Futurist final launch event on April 26, and we look forward to your participation. Building such an innovative car is no small task. We are in close communication with our parts suppliers and strive to maintain a high level of quality assurance throughout our production stage. Furthermore, we actively engage with suppliers and strategic partners to capitalize on their expertise in optimizing the supplier process and ensuring that our vehicle meets high standards. Internally, we have initiated the supplier champions project, where we have assigned one of our Vice Presidents for each supplier relationship to ensure alignment. I want to take a moment to thank all our suppliers for their continuous commitment and support as we prepare to commence deliveries by the end of April, assuming the company receives funding from our investors and meets our supply chain requirements. Additionally, I want to discuss our go-to-market strategy. FF focuses on co-creation in our go-to-market strategy, redefining how users and partners interact with companies to generate higher efficiency and value, bridging users to our mobility ecosystem. We have started inviting early adopters to experience the wake-up performance through the Futurist Product Officer Program. FPOs are invited to experience the FF 91 Futurist and provide feedback directly back to the FF team to improve future products through the co-creation process. FPOs are rewarded based on the quality of their feedback and ideas regarding the product. We are reaching out to candidates to join the FF Spire Club, a group of individuals who share the same mission and vision with FF and would like to co-create value in our mobility ecosystem through exclusive tech-luxury branding, events, and social media sharing, and we are implementing referral programs. Spire Club members will benefit from creating a new mobility ecosystem by leveraging their influence. We will launch the FF 91 Futurist through our direct sales model, where users can place orders online and are also able to experience our cars through both owned and partner-owned fuel rules and experiences. Our auto sales and service platform allows partners to integrate seamlessly into our sales and service solution. With our direct sales model, FF cars have met the necessary direct sales licensing requirements to operate as a leading outdoor luxury OEM. We have started our flagship brand experience center project in Beverly Hills and look forward to showcasing our car there soon. Through operating our own distribution network, FF can efficiently manage customer relationships and ensure a seamless and transparent sales journey for our users. Our retail strategy is focused on establishing our presence in the top 20 cities across primary regions worldwide. Our initial Canadian sales efforts will begin in the LA Metro region, followed by the San Francisco Bay Area and subsequently the New York Metro region. In China, our initial sales efforts will begin with Shanghai and Beijing. Additionally, we are exploring potential opportunities to launch our product in Europe and the Middle East as it aligns with our product positioning and the growing demand for ultra-luxury vehicles in these regions. To ensure exceptional service for our customers, we will launch our fleet of mobile services to provide concierge-level service. Additionally, services located in the current geographic area will provide a comprehensive network of warranty service and repair capabilities. I take great pride in acknowledging the commendable efforts put forth by the FF team. Their perseverance has enabled us to advance our strategic initiatives. Despite facing numerous challenges, I eagerly anticipate the journey ahead as we continue to pursue our growth path and strive for increased shareholder value. Now, I would like to turn the call over to Matthias.

Thanks, XF. I would like to take a few moments to elaborate on our innovative product, the FF 91 Futurist. The FF 91 Futurist provides an unsurpassed user experience and offers industry-leading performance metrics. The FF 91 Futurist features bespoke electric drive units, with a fully integrated design, active oil cooling, and offers independent rear-axle drive with a 2050 horsepower propulsion system driven by FF's in-house developed software and control algorithms, optimizing performance, stability, and safety. The car boasts an EPA-certified range of 381 miles, which is almost 50 to 70 miles more than our direct competitors in a comparable price category. The FF 91 can accelerate from 0 to 60 miles per hour in a blistering 2.27 seconds. In addition to performance, the FF 91 Futurist offers true mobile connectivity, which is unrivaled in the industry. You can think of the FF 91 Futurist as a smart device on wheels, a game changer in the automotive industry that sets a new benchmark for both the driver and passenger experience. The FF 91 Futurist features a rear intelligent internet system and a revolutionary user experience designed to create a mobile, connected, intelligent, and luxurious third internet living space and user mobility ecosystem platform. Its interior cabin features unique rear zero-gravity seats inspired by NASA, offering the largest rear legroom area in the industry and allowing for maximum comfort with a recline of up to 60 degrees. It also offers a revolutionary and immersive driving experience coupled with an unsurpassed passenger experience, boasting a total of over 100 inches across 11 displays, including a 27-inch ultra-light rear display to deliver a portal to every seat. Rear-seat passengers can lower and raise the industry-leading rear presenter display with a simple voice command. Once the RST is completed, passengers will also be able to conduct in-vehicle videoconferencing to continue work while on the road. The FF 91 will feature advanced capabilities, including touchless entry, voice control for navigation input, and self-parking capabilities in most normal environmental conditions. Our dedicated R&D team has undertaken extensive product testing and validation to ensure the readiness of the FF 91 Futurist. These tests include safety and regulation tests, extreme weather and durability testing, and final customer use case testing on public roads. We have tested the FF 91 Futurist in cold weather conditions under sub-zero temperatures and extreme desert heat environments and we are pleased with the results. Additionally, we recently sent our first vehicle to China for market testing and validation, including charging and infrastructure compatibility along with other hardware and software applications. This shipment is a further step in our planned promotion of our U.S.-China dual home market strategy, which calls for production and sales in both the U.S. and China, the two leading global markets for electric vehicles. We are pleased to report that our safety testing is proceeding as planned and that the results are exceeding our virtual validation targets by a significant margin. In addition to our product testing, we are proud to announce the completion of generational enhancements, known as Product and Technology Generation 2.0. This consists of significant upgrades of systems and components for both the vehicle and AI areas. AI is our advanced core, standing for internet, autonomous driving, and intelligence. We updated 26 major systems and components with 13 key upgrades across our powertrain, battery, charging, chassis, interior areas, as well as 13 key upgrades in computing, sensing, communication, and user interaction to the newest technology from AI. These updates have resulted in a significant performance improvement to the FF 91 Futurist. We look forward to sharing more detailed highlights of the car at our final launch event ahead of deliveries. So, what does this all mean for our users? Specifically, it means they are getting several upgrades, including the new dual Qualcomm chip that powers the infotainment center, 8-megapixel interior and exterior cameras, ultra-wideband sensors for faster data transmission speeds compared to conventional Bluetooth, and a cutting-edge LiDAR system capable of detecting up to 500 meters in any weather conditions. We look forward to sharing more at our upcoming final launch event on April 26. Now, I will turn the call over to Yun who will go over the financials.

Thank you, Matthias. I am excited to be working with the entire Faraday Future team. I would like to begin by providing a financial overview, followed by a discussion on our funding effort, cost-cutting strategy, and our focus on ensuring that all SEC filings are up-to-date as well as our plans to address weaknesses in internal controls over financial reporting. First, I would like to summarize our financial results for 2022. Faraday Future reported an operating loss of $451 million for the full year 2022, compared to an operating loss of $354 million for the full year 2021. Operating expenses for Q4 2022 were $84 million compared to $121 million for Q4 2021. The overall increase in operating expenses for the year was mainly due to the increase in research and development expenses. The decrease in operating expenses for Q4 2022 in comparison to Q4 2021 is primarily due to timing, as significant research and development expenses were incurred in the first nine months of the year. Net loss increased to $552 million for the full year in 2022, compared to $517 million for the full year in 2021. The increase is mainly due to rising research and development expenses and non-cash mark-to-market changes of certain notes payable and warrant liabilities in 2022 compared to a one-time loss on conversion of certain notes payables during the business combination in 2021. Net loss for Q4 2022 was $154 million compared to $84 million for Q4 2021. The increase is primarily due to non-cash changes in the fair value measurement of certain notes payable and warrant liabilities in 2022, and again, the settlement on certain notes payables compared to a one-time gain on forgiveness of the company's payroll protection loan during Q4 2021. Turning to our balance sheet, total assets on December 31, 2022, were $510 million compared to $907 million of total assets as of December 31, 2021. Total liabilities were $328 million versus $340 million on December 31, 2021. Since inception, the company has incurred cumulative losses from operations and negative cash flows from operating activities, and the company’s cumulative deficit was approximately $3.5 billion as of December 31, 2022. Net cash used in operating activities for 2022 was $383 million compared to $340 million in 2021. Capital expenditures were $123 million for the full year 2022 compared to $96 million for the full year 2021. Net cash used by financing activities for the full year 2022 was $7 million compared to net cash provided by financing activities of $967 million for the full year in 2021. Cash as of December 31, 2022, was $19 million, including restricted cash of $2 million. The decrease in cash from December 31, 2021, to December 31, 2022, was primarily due to our significant research and development expenditures and equipment purchases. Research and development accounted for 69% of total operating expenses in 2022. As of March 3, 2023, our cash position was $38 million, including restricted cash of $2 million. Our remaining cash on hand, together with expected funding to be received in March and April, is anticipated to provide us with sufficient funds to produce our FF 91 Futurist product and deliver it to customers. Now, I would like to provide a funding update. On December 15 of last year, we announced that we expect to start production of the FF 91 Futurist at the end of March 2023, subject to the timely availability of $150 million to $170 million of additional funding and timely stockholder approval for an authorized share increase. Since then, we have been diligently working towards that goal. On February 5, we announced that we secured $135 million in new financing commitments, pending FF’s stockholder vote to increase the authorized shares outstanding and approval of the financing along with certain other closing conditions. At the February 28 Special Meeting of Stockholders, we received sufficient votes in favor of the increase in authorized shares. Additionally, we scheduled another Special Meeting of Stockholders on March 30, 2023, to vote on approval of this transaction, which exceeds 99% of shares outstanding. You should have received voting instructions by now. Please vote now to approve the $135 million in new financing commitments. If you have any questions about voting, please refer to our voting guide at ff.com/vote. Please see the definitive proxy statement that the company filed with the SEC for more information. Since December 15, 2022, we have received $112 million in gross funding and secured an additional $10 million scheduled to be received in Q1 2023. $55 million is scheduled to be funded within five business days of the effective registration statement for shares underlying the secured convertible notes and the stockholder approval of the issuance of shares at the upcoming Special Meeting of Stockholders, which we have just discussed, along with certain other conditions. We also expect to receive an additional $9 million from our existing investors by the end of March, which will be funded at the investors’ options. Additionally, we have entered into a standby equity purchase agreement with Yorkville Advisors, allowing the company to draw funds in exchange for share issuances for up to $350 million at the company’s discretion. We will be very strategic and careful in using this facility in the most beneficial manner for stockholder value. Access to the full amount of this equity credit line is subject to certain conditions and share price thresholds being met. Subject to certain conditions, $20 million of additional capital has been committed by one of our current investors, and some existing investors have the right to commit up to $160 million of additional funds. It is always our plan and expectation to raise additional funds to move beyond the initial launch of the FF 91 Futurist. We have just begun a $50 million raise to improve liquidity to support our production ramp and have received indications of interest from investors for nearly the full amount. We would like to offer this investment opportunity to existing accredited investors stockholders to consider. We will send out an investor letter shortly after this earnings call. For those accredited investor stockholders with interest, please email us at [email protected]. We will continue to explore various debt and equity financing possibilities and we believe that after the FF 91 Futurist delivery, as the company begins to generate revenue, we will have better access to a lower cost of capital. Finally, since I joined the company, we have implemented several cost-cutting initiatives that have enabled us to focus our budget on core items essential for delivering the FF Futurist and maintaining strong relationships with key suppliers. I am pleased to say that our team has kept our SEC filings up to date since Q1 2022 and we expect to continue doing so. Additionally, I have worked with the team to evolve business and system processes, and we are implementing internal controls to strengthen our corporate governance and financial reporting. We have recently hired several key accounting positions, including a Compliance Officer who will also serve as our Deputy Legal Counsel. We are also engaging a third-party consulting firm to help us build our internal audit function. With that, I’ll hand it back to XF.

Thank you, Yun. FF appreciates the trust shown by investors and would like to thank them for their loyal and ongoing support of the recent governance structure, Board of Directors, and management. We are looking forward to the upcoming SOP milestone at our Hanford facility, and we will be delighted to have you visit us in the coming months. Thank you for your time and interest in Faraday Future, and I look forward to providing you with further updates as we move closer to launch.

Operator, we are ready to take questions.

Thank you. Our first question is from Michael Ward with Benchmark. Please proceed.

Thank you. Good evening, everyone, and thank you for doing the call. Maybe just starting with a big picture question and then getting a little more specific on the cash side. First of all, on the big picture side, has your definition of your market changed? How are you defining your key customers? Are you still assuming you are going to go down and produce the FF 81 and 71, or has something shifted?

Okay. This is XF. I guess I am probably at the top of the facility. So, sorry, could you repeat your question? I got a little bit of trouble.

No problem. Just a big picture type thing as you define your market and your key customers, has – what are the key things you are looking at? Has it changed? Are you still looking at coming out with the FF 81 and also the FF 71? How would you define your market over the next 2, 3, 5 years?

Well, that’s a very good question. FF is designing our product as a very high-end premium product. First of all, that will be our FF 91 Futurist. We are designing tech-luxury vehicles aimed at the top segment of the market. That’s our first product we want to bring into the market this year, but in terms of the development for the 3-year, 5-year cycle plan, we need to consider how we apply our platform technology and advanced AI to the FF 81 and FF 71, because we believe that FF has a very unique design and strong brand potential with our vehicle's performance as previously mentioned. So, we will position the FF 91 as our primary strong brand for the higher segment, and the pricing will adjust to meet the needs of a premium brand segment, also providing a premium experience to a diverse customer base. So, this is our strategy, and we are still working on it. Did that answer your question? Sorry.

Yes, it does very much. Thank you. And then now it sounds like you have full approval to sell the vehicle in the United States and are still waiting on final approval in China. Is that right?

Well, first of all, we have a plan to launch a car by the end of this month. In parallel, we have that kind of funding and we got the plan and the opportunity to deliver the car by the end of – that’s right, we have a plan to launch the car by the end of March of this month. There is a condition, however, once we have the funding raised and we have our suppliers meeting our requirements, we will deliver the FF 91 Futurist by the end of April, next month.

So, you have all Federal approvals in the U.S., it has met all the regulatory approvals?

Not 100%, because some testing is still ongoing, and results will be available by the end of this month, with some being ready early next month. Our team anticipates the start of delivery in America by the end of next month, whereby all FMVSS and U.S. national requirements will need to be met. That’s our current plan, and we have a robust plan with high confidence in this timeline. In parallel, regarding your question about the China market, as stated in my previous remarks, right after the U.S. delivery, we aim to accelerate our delivery for the China market, which is the largest EV market globally. We have a well-established relationship with a Chinese agency and will navigate the necessary technical details to secure all regulatory approvals. We plan to ship cars to China for testing on various criteria.

Okay. And what delivery cadence do you expect for the U.S. and China as we progress throughout 2023?

Well, internally, we do not disclose that information yet. I appreciate your question, but I probably cannot answer.

That’s fine. No problem. On the cash side, I just wanted to see if I understood correctly, because there were a lot of different monetary commitments mentioned. So, I want to confirm that. You mentioned ending the year with about $18 million in cash, and now you have $38 million. In the first quarter, you have received $10 million and the $112 million in gross proceeds. Did some of that come into the first quarter, into January, February? I guess you are ending March with about $38 million, I am sorry, beginning of March is $38 million, right?

Yes. So this is Yun. I can take this one. Yes. So, in the beginning of March, we had about $38 million on hand. Through March and April, we expect to secure additional committed funding. So, with the committed funding, we have another $10 million scheduled for March and an additional $55 million contingent on the effectiveness of the registration statement.

Okay. So, is the $135 million in new commitments in addition to the $150 million to $170 million that you announced back in December?

We announced $150 million to $170 million as the funding needed for SOP. That’s the announcement. The $135 million is what we secured subsequently, and will help us get through SOP.

Got it. Now I understand that. Thank you. That’s where I was confused. Okay. So, that funding will get you through SOP, and then the next steps as needed. And hopefully, you will start to see cash flow come in as well.

Yes. We have strengthened our capital markets group and hired more experienced consultants. We are diligently working on obtaining further funding in the future.

Getting the product out the door is the first step, right?

Yes. Getting the product out the door will be critical to securing additional funding with better terms.

Alright. I really appreciate it. Thank you for your time.

Thank you, Mike.

Thank you. This will conclude today’s question-and-answer session. And this will conclude today’s conference. You may disconnect your lines at this time, and thank you for your participation.