Faraday Future Intelligent Electric Q1 2023 Earnings Call Transcript

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May 11, 2023

There are 8 speakers on the call.

Operator

Greetings. Welcome to the Faraday Future Intelligent Electric Incorporated First Quarter 2023 Earnings Call. 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.

Operator

I will now turn the conference over to Charles Shea, Investor Relations. Thank you. You may begin.

Speaker 1

Thank you, and welcome everyone to Faraday Future's Q1 2023 earnings call. We issued a shareholder letter reporting our Q1 2023 results this afternoon, May 11, 2023. Joining the call today from Faraday Future is our Global Chief Executive Officer, XF Chen Global SVP of Product Execution, Matthias Eitz and our Chief Accounting Officer and Interim Chief Financial Officer, Yoon Han. You can find a copy of the Q1 2023 shareholder letter now and a replay of this call later today on the Investor Relations section of our website at investors. Ff.com.

Speaker 1

Please note that on this call, we will be making forward looking statements based on current expectations and management assumptions. These statements reflect our views only as of May 11, 2023, and should not be relied upon as representative of views of any subsequent date. Except as required by law, we undertake no obligation to revise, update 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 those expressed or implied. 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, including the section titled Risk Factors in our latest Annual Report on Form 10 ks.

Speaker 1

In addition, during today's call, our management team will give their prepared remarks and answers to investors' questions in English. A translator will provide simultaneous Chinese translation, which can be accessed through 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 Exaf Chen, Global CEO of Verity Future.

Speaker 2

Thank you, Charles, and good day, everyone. Thank you for joining our conference call. To start the call, let me give you a brief update about where we are today. Along with our production plans, Can you reply on our go to market strategy for those that are less familiar with their story. Following this, Matthias will present an overview of FF91 vehicle and provide some updated regarding our technologies.

Speaker 2

Ren will provide a review with our financials covering topics such as fundraising and measures We've implemented to strengthen for the future. To start off, I'm proud to say that we have hit the ground running in 2023. On March 29, we successfully started The production of our flagship FF91 vehicle. Though we faced some challenges during the early wrap up, Our team is overcoming these obstacles. We continue to target kicking off our 1st phase January of FF91 at At the end of May, as Provost announced, to reach this important milestone, we have made considerable progress and accomplished numerous key operational and strategy objectives in recent months.

Speaker 2

On April 14, 2023, our first product in FF91 vehicle rolled off the line at our FFIE factory, California In our video streamed events that was watched by millions of FF fans globally, it has been a long path for Faraday Future, but we believe this is a year we made history. Congregation for FF91 is progressing as planned. Most of the FMVSS testing have been successfully completed. We have performed the high risk severity Crash Test has passed all of these tests successfully, including the front, side and the drill crash tests. We are very happy with how the tests are progressing and believe this result really validates the quality of our engineering.

Speaker 2

On the systems and software side, we've also made some significant progress. 2 weeks ago, We showcased the FF91 vehicle's ability to integrate generative AI to enable an Intuitive and interactive express for users within the vehicle. We believe this truly epitomized That Faraday Fisher has communicated to its users and investors all along. That FF91 is a pioneer of emerging Technology. In terms of our manufacturing efforts, we achieved the start of production of FF91 at the end of March as planned.

Speaker 2

Our Hanford team is hard at work wrapping up production with a goal of delivering the highest quality FF91 vehicles to our users. As of today, we will build all the vehicles required for FMBSS testing. Further, the first production vehicles coming off the line provided the necessary learning for fine tuned process, which has allowed the coming vehicles in production to run through the assembly more smoothly than the previous vehicles. Additionally, in the continuous spirit of FF co creation and the co sharing vision, We recently outlined a 3 phase delivery plan aimed at delivering the best experience to all our users. In the first phase, FF will give our industry expert Futurist Product Officers or FPO their first look and allow these users the 1st chance to pay in full to reserve and experience the innovative FF91.

Speaker 2

The industry expert FPOs will take processing of the reserved FF91 vehicles at the beginning of the 2nd phase. This initial phase is slated for launch at end of May, marking the start of our delivery plan for the vehicle. In Phase 2, targeted to start at the end of the second quarter, assuming receiving parts on our required time frame and the completing of the required tests. All FPOs are invited to start purchasing the vehicle to express the FF91. Users will take full processing of the car and receive comprehensive trainings to make the most of the vehicle's many features.

Speaker 2

This also marks the turning point where Faraday Future will become a revenue generating company going forward. The 3rd and the final phase, our full co creation delivery is geared towards all users. In this phase, the company will deliver FF91 vehicles to all SPIRE users that pay in full. Our three phase itinerary is designed to offer flexibility for our manufacturing operation and the market demands will ensure that all FF91 users receive the best possible experience. We believe that this approach will also enable the company to avoid production shortfalls that may arise from high demand.

Speaker 2

Please note that successful completion of the 3rd phase delivery plan is contingent on securing the necessary Financing and receiving the parts on our required time frame. Shifting to our go to market Strategy and Sales Approach. Our FPO program is designed to reward early adopters through co creation for providing Directed feedback about their user experience. By leveraging cut edge technology and user feedback, We believe we can provide the best possible experience for customers throughout their entire ownership journey. Additionally, we are undertaking several initiatives designed to provide a premium service solution to our customers.

Speaker 2

We are working with National Automobile Club to offer 20 fourseven National Wide Roadside Assistance to all FF91 owners. We have also introduced the all new FF Home charger that support up to 19.2 kilowatts and is smart and Wi Fi connected. Furthermore, we are introducing our FF Mobile service, allowing user to enjoy constant urge style service experience, which leverages our FF Mobile service fleet and centrally located service hubs. We expect to route our service network in the Los Angeles Metro, San Francisco Bay Area, San Diego and New York Metro Markets for 2023. These initiatives demonstrate our commitment to providing our customer with the best possible service and supports throughout their ownership experience.

Speaker 2

We remain excited for the future and looking forward to update you with our latest developments. Now, I would like to turn the call over to Matthias.

Speaker 3

Thanks, Niksev. I would like to take a few moments and provide a brief overview of our innovative FS9-1 vehicle to those that might be new to Faraday Future. Our flagship FS9-1 Futurist sets a new standard for user experience and performance in the automotive industry. It features a custom electric drive unit with a fully integrated design, active oil cooling and independent rear axle drive. This 10.50 horsepower propulsion system is powered by proprietary software and control algorithms, Optimizing performance, stability and safety.

Speaker 3

With an EPA certified range of 3.81 miles, The FS9-1 Futures offers 50 to 70 miles more range than it could direct competitors and accelerates from 0 to 60 miles per hour in a remarkable 2.27 seconds. In addition to the robust performance of the vehicle, The in cabin experience sets a new standard for the automotive industry, particularly as mobile connectivity is becoming an increasingly important feature for passengers. With a unique rear intelligent Internet and user experience that establishes a mobile connected Intelligent and luxurious third Internet living space and user mobility ecosystem platform, the FS91 is raising the bar. Looking ahead, we recognize the importance of integrating AI capabilities into our everyday lives as AI is rapidly We have been investing in software, AI and human machine interaction for a long time, and we believe that places us in a unique position to utilize these advances in AI. Specifically to use Generative AI in a car requires a powerful computing platform, a robust operating system, Internet connectivity and suitable displays.

Speaker 3

The SS91 was designed with advanced Capabilities across these areas. On May 2, we announced our generative AI product stack that combines these capabilities along with advanced large language models with the goal of empowering users to gradually utilize Advanced generative models for a range of personalized applications in the vehicle, including complex text and voice queries, Image and video generation, stock analysis, live translations, search, entertainment, education, e commerce and more. We believe this is a major step towards transformation of the transportation industry with intelligent electric vehicles. The 3rd intelligent Internet space applies natural language communication abilities to various usage scenarios in the vehicle, which we believe will create an unprecedented immersive experience of artificial intelligence interaction and communication for users. With our FFAI technology, users can enjoy an extraordinary level of personalization and convenience while on the go.

Speaker 3

With the rise of intelligent electric vehicles, driving experiences and digital cockpits are becoming increasingly intelligent. In the future, we believe AI will be the core competitiveness of mobility, transforming the way we think about mobility solutions. AI will redefine the user scenarios of future mobility solutions and create new mobility ecosystem that leverages Cutting edge technology to provide unparalleled user experiences. With these advancements, we believe we are poised to revolutionize Always been at the forefront of innovation and intelligent electric vehicles. And as one of the world's first vehicle manufacturers to adopt generative AI technology, We remain committed to ongoing research and development of AI technology platforms.

Speaker 3

Our focus is on applying these technologies to autonomous driving platforms and the 3rd intelligent Internet space. Now I will turn the call over to Joon, who will go over the financials.

Speaker 4

Thank you, Matthias. I would like to begin by providing a financial overview followed by discussion on our funding effort and Cost Cutting Strategy. First, I would like to summarize our financial results for the Q1 of 2023. Further Future reported operating expenses of $83,000,000 for the 3 months ended March 31, 2023, as compared to operating expenses of $149,000,000 for the 3 months ended March 31, 2022. The change in operating expenses was primarily due to a decrease in engineering, design and testing services as the company substantially completed research and development activities related to the IFRS91 vehicle in 2022 and was focused on capital eligible activities attributable to startup production, which was achieved on March 29, 2023, combined with decreases in professional services, mainly due to the conclusion of the special committee investigation and other cost cutting measures.

Speaker 4

Net income was $6,000,000 for the 3 months ended March 31, 2023, as compared to a net loss of $153,000,000 for the 3 months ended March 31, 2022. The change was primarily due to the change in operating expense and income of $95,000,000 associated with mark to market measurements of the secured convertible notes and the warrants recorded in the Q1 this year, driven by the decline in the company's stock price. Turning to our balance sheet. Total assets on March 31, 2020 3 were $575,000,000 compared to $510,000,000 of total assets as of December 31, 2022. Total liabilities were $319,000,000 versus $328,000,000 on December 31, 2022.

Speaker 4

Since inception, the company has incurred accumulative losses from operations and negative cash flows from operating activities and the company's accumulated deficit was approximately $3,500,000,000 as of March 31, 2023. Net cash used in operating activities for the 3 months ended March 31, 2023 was $103,000,000 compared to $122,000,000 for the 3 months ended March 31, 2022. Capital expenditures were $17,000,000 for the 3 months ended March 31, 2023 compared to $44,000,000 for the 3 months ended March 31, 2022. Net cash provided by financing activities for the 3 months ended March 31, 2023 was $134,000,000 compared to net Cash used in financing activities of $86,000,000 for the 3 months ended March 31, 2022. Cash as of March 31, 2023 was $33,000,000 including restricted cash of 1,500,000 The decrease in cash from March 31, 2022 to March 31, 2023 was mainly due to Negative cash used in operations as part of development of FF91 vehicle and capital expenditures on the California plant readiness, partially offset by the proceeds raised to finance such initiatives.

Speaker 4

Research and Development accounted for 56 percent of total operating expenses in the 3 months ended March 31, 2023. Now I would like to provide a funding update. In Q1, we successfully secured $135,000,000 of gross funding in support of our SOP and production plants, which we have received $120,000,000 growth to date. Since then, our capital team have continued to work towards additional funding for our production, delivery and ramp. On May 9, we announced additional $100,000,000 of committed financing via unsecured convertible notes, subject to certain conditions.

Speaker 4

IFF Global Partners consisting of 20 current and foremost senior executives of the company has committed $80,000,000 in this RADA financing. This investment shows FF Global Partners' continued commitment to the company as well as show of confidence by our core management team in the company's ability to achieve its mid and long term goals. As a show of support, the unsecured investor and FF Global Partners have already early funded a portion of this commitment. Additionally, we have remaining committed financing of $35,000,000 subject to certain conditions and milestones. We expect to have revenue from vehicle sales and we may receive $242,000,000 financing, which is at option of our existing investors.

Speaker 4

Since the beginning of this year, the company has received $38,000,000 growth financing, which was at option of investors. This represents a significant portion of the option notes that the company allocated to previous secured financing. We also have an equity line of credit of up to $350,000,000 subject to certain conditions, which we have not yet used as we want to be very strategic about accessing equity line of credit to minimize dilution. Furthermore, The company is also exploring asset based financing opportunities. In addition to the fundraising, we have been implementing several cost cutting initiatives that have enabled us to focus on core items that are essential to delivering the FF91 vehicle.

Speaker 4

We continue to improve efficiency and reduce material costs and have developed a detailed roadmap of both engineering and commercial cost downs. Lastly, we reiterate our goal to create a profitable business with operating cash flow breakeven in 2025. With that, I'll hand it back to Akshat.

Speaker 2

Thank you, Yuvin. Again, I'm very proud of hard work and determination shown by the F-fifteen to successfully reach all our production milestones. We are looking forward to ramping up production at our Hanford plant in the coming quarters. Thank you for your time and interest, And I look forward to providing you with future updates on our latest developments.

Speaker 1

Operator, we are ready to take questions.

Operator

Thank Our first question is from Stephen Gengaro with Stifel. Please proceed.

Speaker 5

Thanks and good afternoon everybody. Two questions from me, if you don't mind. The first, when we think about what the legacy OEMs are doing and there's obviously a lot of new vehicles coming into the market. How do you differentiate yourself in the market? And maybe talk a little bit about The differentiation and sort of the target consumer for the FF91.

Speaker 1

Hey, Stephen, it's Charles. Thanks for the question. I think I'll hand that over to my colleague here, Prashant Gulati is our Head of Strategy. Prashant?

Speaker 6

Stephen, thank you for that question. Generally, if you think about the company's mission, vision, our ambition The world is that people should be able to live, breathe more freely. That's why we started the business in 2014. So we generally think it's a net positive as EVs become more mainstream. It's better than having gas cars on the road, right?

Speaker 6

Now that said, we differentiate ourselves in at least 4 ways, right? And I'll go over, let's say, a little bit of detail, Neet, but let me just lay out structurally how we think of those 4 ways. 1 is we are setting up a strong brand with a very differentiated product positioning and products, right? 2, it's a very attractive and large target market segment in our dual home markets of U. S.

Speaker 6

And China. 3rd is a clean sheet approach that we've taken to creating vertically integrated technology and The mode and the patterns we've created around this. And then finally, the critical inflection point where we are at, like As Af mentioned, we have started production in our 1st week of line off done and very near deliveries. So Those are kind of the 4 key ways we think of it. And just to get a little bit more specific about your question in terms of user Target users and vehicle in the segment competing with Rolls Royce, Maybach, Bentley and Ferrari, right.

Speaker 6

And the way we think of the car, the flagship FF91 is it's an all in one car, Has the comfort of an SUV, the performance of and handling of a sport differentiated product where we've Spent a lot of time, money working with users to create a frictionless user experience. And we are going to take the car to the market with a direct sales model with both online presence and in person experience centers with for constant user engagement. The technology, I think we've spoken enough about in the past, so maybe I'll not talk too much, but just at a high level, We've created our own variable platform architecture that you can think of it like a Lego. You can create More vehicle models on it, you can stretch the wheelbase, you can reduce the battery size, etcetera. We've created our own Propulsion System and most importantly and which is where this one the third way is where we are different from our competition is Our Internet and AI capability, not only in software, but we've invested a ton of time, money, resources and create a differentiated capability in software and AI.

Speaker 6

And all of that brought together with a new management, new board shareholder alignment that we've had over the last few months, All 600 employees are working towards this common goal of bringing starting deliveries of the FF9-1 fairly shortly.

Speaker 5

That's great color. And you mentioned AI and one of the things that Was apparent when I got a chance to sit in the car was the user interface feels a lot more intuitive than a lot of other vehicles I've been in. Can you talk a little bit about?

Speaker 6

Yes. So our target users are obviously are busy people, people who value Productivity, efficiency, they appreciate technology, right? So with that in mind, we have we've been building Our capability not only in software, but in Internet and artificial intelligence. So the FF91 has 3 5 gs modems, right? It has excuse me, the car has 3 5 gs modems.

Speaker 6

You can we have a compute platform, which is industry leading that we spend a lot of time developing. We have an advanced operating system. We've like I said, we built ultra high speed Internet connectivity into the car. There is natural language processing capability. There has always been you could do complex queries with the car in the past, It's far more advanced than other cars on the market where you can talk to like a Siri or Alexa We've done our own natural language processing.

Speaker 6

The car has over 100 inches of displays. And now we've kind of brought it all together, Stephen, through a generative AI product stack, right. So These foundational capabilities of an advanced operating system, Internet connectivity, compute platform and displays, you don't see that in I don't think it exists in any other car in the world today. So I think we are kind of the first or one of the first that we'll be able to launch with generative AI. People can sit in the back of the car or while driving, they can interact with the car and do more get a more personalized experience It was not possible before.

Speaker 6

And so to be able to do that, we have integrated advanced Generative AI models like GPT and we have the ability to do a whole lot more. So we're quite excited about that part And bringing that capability to our users soon.

Speaker 5

Great. Thank you for all the detail. That's helpful.

Speaker 1

Thanks for the question, Stephen.

Operator

Our next question is from Edison Liu with Deutsche Bank. Please proceed.

Speaker 7

Hey, thank you everyone for the very comprehensive update. I wanted to sort of go over the operational side. And I'm wondering, can you explain what exactly can you describe what exactly needs to be done still done before the customer deliveries can begin?

Speaker 1

Edison, thanks for the question. I think that's for ExF to talk about.

Speaker 2

Yes. Thanks very much for this question. We are fighting for the end of quarter 2 final delivery today to the market. And also with by the end of May, we hold our Phase 1 delivery. So these are 2 major milestone.

Speaker 2

Before we hand over the vehicle to the customers, we have to complete all the FMVSS We call level regulation tests. And right now, as we described in the material, We have done most of the FMVSS test and been successfully completed. The remain crash the remain test is a major for the crash. So up to now, we already Produce and shift all the test related vehicle to the test proving ground and also the test label. As of today, we already complete the most sensitive crash test, which including the like France crash test, the site 4 crash test and the real crash test.

Speaker 2

So the results is quite positive to us. We will continue to finish the remaining several crash Then we will have a very good definition and understanding of how How good our engineering is and when we can deliver the car before this end of May end of June this kind of first delivery. Out of that, we will continue to improve some of the UES Related handover, because as we published the last time, we already got the sales license for the California Air Rails and our weaker plan to deliver all the sales related certification and all the That kind of compliance items by the relevant milestone. So under the company As previously identified, we have a 3 phased handover plan up to the successful completion of the final remaining test And all the contingencies of this kind of U. S.

Speaker 2

Compliance item. And then we are working with our Supplies to get there our parts on time, so that we can I think we can deliver our vehicles to our customers?

Speaker 7

Understood. How are you guys feeling about the manufacturing plant readiness and We obviously see a lot of headline and other EV up starts having issues with that. Do you feel that that aspect is ready to go?

Speaker 2

Yes. Regarding to our California FFIE factory, we do have Very good. Facility already being installed, commissioned and approved and being used for the SOP, which we published during the SOP events. By end of March, we Achieve the start of production and we got the 1st car run through the whole manufacturing system as we defined, which and then we got our 1st car offline within 2 weeks, which is mid of April. So this car this To run this 1st car, we call the 1st batch of the vehicles out of the line, which provide us a very Strong lesson or know how for our people training, the quality improvement, the Process validation and some of the efficiency improvement.

Speaker 2

So talking about the quality, no doubt that As a business normal, for the first time, we were facing some of the challenges of the quality, no matter the Power quality and the process quality, I think that's quite normal in the industry. So my plan is to run the slow build process to get all the issue being resolved and updated batch by batch. Take example for the first station We for the 1st car, in the first station, previously, we took around 5.5 days to get the car Through this station, but for the second car, we just use 1.5 days and we pass through these stations. So with this kind of slow build and a batch build, we can gathering All the relevant issue and the improve, so that we can I think with this kind of current learning and the fine tune the process, We will get more smoother production later on? In parallel, we are Working with our supplier and our supply chain about the whole year, the volume plan and the for the second half of the year.

Speaker 2

We do have a business plan in place and we do have a lot of smart idea to improve our capacity for this year. I think the detailed information will be shared with the team separated in the coming future.

Speaker 7

Understood. Last question on the funding side. I think you indicated I think the team indicated that We received additional $240,000,000 at the auction of investors. Can you give a little bit more color on that? Yun?

Speaker 4

Okay. I can take that question. This is a good question, Anson, Because we don't often talk about these optional notes, so in connection with our previous round of financing, The investor have the opportunities to match or invest a portion of their committed funding. So for example, if they committed funding of $50,000,000 they can match another 100% and then your certain contract you have matched up to 50%. So the total of those Optional investment is $280,000,000 And since February to April This year, we require investor to fund $38,000,000 out of the $28,000,000 $280,000,000 So basically, if They don't put it in at a specific date and a specific amount, they will lose it.

Speaker 4

And we got 100 percent of participation from the investors. So the investor funded all the $38,000,000 that is allocated to the investor. So this shows that investors' continuous confidence and supportive of the company.

Speaker 7

Nice. That's encouraging. Appreciate the responses and thank you for the time.

Speaker 1

Thanks, Edison.

Operator

We have reached the end of our question and answer session. So we will conclude today's conference. You may disconnect your lines at this time and thank you for your participation. Have a wonderful day.

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