Faraday Future Intelligent Electric Q2 2023 Earnings Call Transcript

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August 21, 2023

There are 9 speakers on the call.

Operator

And welcome to the Faraday Future Intelligent Electric Incorporated Second Quarter 2023 Earnings Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jonathan Marocco, CFO.

Operator

Thank you. You may begin.

Speaker 1

Thank you, and welcome, everyone, to Faraday Future's Q2 2023 earnings call. We issued a shareholder letter reporting our results and filed our quarterly report on Form 10 Q for the Q2 2023 this afternoon, August 21, 2023. Joining the call today from Faraday Future is our Global Chief Executive Officer, Exaf Chen, Global SVP of Product Execution, Matthias Eit and myself, Jonathan Moroco, Interim Chief Financial Officer. You can find a copy of the Q2 2023 shareholder letter now and A replay of this call later today on the Investor Relations section of our website at investors.ffdot 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 August 21, 2023, and should not be relied upon as representative of our views as of any subsequent date.

Speaker 1

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 our amended Form 10 ks and our quarterly earnings report for the Q2 2023 on Form 10 Q. A translator will provide simultaneous Chinese translation, which can be accessed through ff.com. All translations are provided for convenience only.

Speaker 1

In the case of any discrepancy, management's statements in English will prevail. With that, I will turn the call over to Exaf Chen, Global CEO of Faraday Future.

Speaker 2

Thank you, Jonathan, and good day, everyone, and thank you for joining our conference call. To start the call, Let me give you a brief update about our progress with our production and engineering. Following this, Mattia will provide an overview of our data knowledge and Zhang Lan will provide a that I couldn't be prouder of the FF team. As our combined effort, I will propel to accomplish significant milestones over the Q2 and beyond. On April 14, 2023, our first FF91210 fuel chest appliance vehicle

Speaker 3

This moment reflected the combination of years of unrivaled research A few months later, on August 12, we celebrated the delivery of the first IHOP 912.0 Futuristic Alliance to our 1st Industry Expert Developer Corporate. Along with the start of fiscal January of our vehicle, we kicked off our developer corporation festival at Popo Beach this past week and launched our Developer Corporation Officer recruitment platform.

Speaker 2

Here, I want to highlight 2 of our Corporation Officer's progress. FPO, Futures Products Officer is an open platform where

Speaker 3

FFT interconnects with user product expertise. Through being invited to engage deeply in the entire process,

Speaker 2

what features, product Design, Development and Testing. FPLs

Speaker 3

help identify user and contributes to the product power upgrade. This in-depth Product type transition process is aimed to jointly create products that best import automated FTO has also worked with FF Engineers through their open source community to provide valuable R and D support to FX and jointly drive technology transformations in the automotive industry. For more details on our developer cooperation project, please visit our fxdot .com website. Since launching our cooperation campaign, collaborations with industry elites have delivered valuable insights in areas like brand marketing and user Acquisition. By intertwining innovation with our partnership, we are preparing the company and our industry forward.

Speaker 3

As we forge ahead and move from a project based company to an operationally focused company, We are intensifying our efforts to strengthen our operational capabilities, in line with this vision. We are enriching our team by welcoming seasoned professionals from the industry. Rich Smith, I've spent into the Vice President of Manufacturing Road as well Dominic have taken their time has been appointed as our Bittering CFO. Their combined expertise and extensive experience Underscore our dedication to achieving operational excellence and financial prudence. Under marketing, on August 17, we completed the business registration for FX Auto We believe that our successful collaboration will ship the next generation of Intelligent Electric will call brand both nationally and globally.

Speaker 3

We further expect The structural collaboration will support the development of a leading high end Internet based intelligent Electric Vehicle Industry, Inc. Globally, becoming a representative base for our new Energy and Intelligent Vehicle Intelligence. With that, I would like to turn the call over to Markus.

Speaker 4

Thank you, Itzef. With Phase 2 of delivery commencing, the manufacturing team at Hanford Diligently focusing on delivering the highest quality FF91 vehicles to our users. We have developed and Implemented our custom craftsmanship audit procedure and standards, a strategic move that enhances our ability to evaluate the performance and quality of our vehicles effectively. I am pleased to report that the car is now in the hands of users and on the road. As we look to the future, our manufacturing team continues to optimize the facility, preparing for increased volumes throughout the rest of 2023.

Speaker 4

We are planning to triple our manufacturing team in the coming months with the addition of a second shift, a step that will our anticipated increase in production volume. The commitment to excellence that has characterized our progress so far will remain a guiding principle As we move forward, I'd also like to take some time to highlight this revolutionary vehicle, the FS912.0 Our innovative flagship model and further elaborate on our state of the art automotive AI capabilities. More than just a vehicle, we believe the FS91 Futurist represents a new era in performance and user experience, Charting the path for the automotive industry. The 2.0 phase of development at FF, We are heralding the future of the Spire Mobility Industry, the future marked by 4 distinct trends: all AI, all hyper, All ability and most important, co creation. We believe these trends are not abstract concepts.

Speaker 4

There are tangible related realities in our offerings. The all ability AI HyperCar SF912.0 Future Lift Alliance stands out with superior configurations and performance. Equipped with the 3 motors generating 1050 horsepower and 1977 Newton Meters of torque, it leads the class with a 142 kilowatt hour battery pack and an EPA certified range of 3 81 miles. The vehicle showcases a pioneering mode body structure and Mode pack structure together forming the largest in class site impact crumble zone around the battery design. This design enhances occupant and battery protection without compromising the spaciousness of the vehicle.

Speaker 4

Under Joining the FF912.0 is our FFAI Hyper 6x4 Architecture 2.0. Powered by FFAI, this architecture is designed to permit the car to understand user habits, continually learn and evolved to provide a user centric experience. The 3rd AI space augments the interior space, ensuring unparalleled comfort and pleasure. The integration of FF6 technology platforms with our 4 technology systems, Symbolized by 6x4, lays the groundwork for our commitment to pioneering innovation and excellence in the automotive sphere. Since unveiling our generative AI product stack in early May, we have been diligent in enhancing its functionality, The development of a watch and chat product prototype exemplifies this, catering to specific multimedia scenarios.

Speaker 4

It leverages a large language model supplying real time information on an ultra wide passenger screen for an engaging experience. The integration of different AI models ensure flexibility, intelligence and adaptability to user diverse needs. Moreover, we introduced FFAI Driving at our launch event. The system offers ultimate safety and a suite of features like automatic emergency braking, adaptive cruise control and smart parking. We took the vehicle on the road recently driving down from Silicon Valley to Downtown LA on a single charge.

Speaker 4

FF stands at the forefront Automotive AI integration, utilizing advanced models like GPT and GPT-four. Since launching the FF9-1 in 2017, we have continually refined our IAI capabilities, Ensuring that our offerings remain at the pinnacle of the industry, the FS912.0 Futurist Alliance is a significant evolution, symbolizing a fresh perspective from the vehicle we introduced 6 years ago. We believe we are not merely following the industry's path. We are charting its course. Our vision continues to drive innovation, redefine the automotive experience and set new standards that others aspire to meet.

Speaker 4

Now, I will turn the call back to Jonathan, who will go over the financials.

Speaker 1

Thank you, Matthias. I would like to begin by providing a financial overview followed by a discussion of our funding effort and cost Cutting strategy. First, I would like to summarize our financial results for the Q2 of 2023. Faraday Future reported an operating loss of $56,000,000 for the 3 months ended June 30, 2023 as compared to an operating loss of $137,500,000 for the 3 months ended June 30, 2022. The reduction in the operating loss was primarily due to a decrease in engineering, design and testing services As the company substantially completed R and D activities related to the FF9-1 vehicle in 2022 and was focused on capitalizable activities attributable to the start of production, which was achieved on March 29, 2023.

Speaker 1

This was coupled with decreases in personnel, compensation and professional services as part of the company's cost cutting efforts. Net loss was $124,900,000 for the 3 months ended June 30, 2023, as compared to a net loss of $141,700,000 for the 3 months ended June 30, 2022. The change in net loss was primarily due to lowered operating expenses, partially offset by higher non cash mark to market measurements and settlements secured Convertible notes recorded in the Q2 of this year. Turning to our balance sheet. Total assets on June 30, 2023 were $567,500,000 compared to $529,300,000 on December 31, 2022.

Speaker 1

Total liabilities were $289,800,000 versus $328,300,000 on December 31, 2022. Since inception, the company has incurred cumulative losses from operations and negative cash flows from operating activities. And the company's accumulated deficit was approximately 3,800,000,000 as of June 30, 2023. Net cash used in operating activities for the 6 months ended June 30, 2023 was $160,700,000 compared to $235,100,000 for the 6 months ended June 30, expenditures were $25,900,000 for the 6 months ended June 30, 2023 compared to $90,200,000 for the 6 months ended June 30, 2022. Net cash provided from financing activities for the 6 months ended June 30, 2023 was $181,800,000 compared to net cash used in financing activities of $85,800,000 for the 6 months ended June 30, 2022.

Speaker 1

Cash balance at June 30, 2023 was $19,400,000 including restricted cash of Notably, FF Global Partners, a consortium of approximately 20 present and past senior executives, pledged $80,000,000 out of this committed amount through an independent investment fund. Our management team's dedication was further exemplified when they funded $22,000,000 of gross commitments ahead of schedule forgoing certain closing prerequisites to bolster Faraday Futures growth. Moreover, on June 26, we fast tracked a sum of $15,000,000 from secured notes and secured $90,000,000 of funding commitment from our existing investors subject to certain closing conditions. As of today, We have $171,300,000 of gross committed funding not yet funded, equity line of credit or ELOC of $350,000,000 Both the gross committed funding and access to the Eloc are subject to certain conditions. Concurrently, the company is also in financing discussions with potential long term strategic investors and exploring asset based debt financing.

Speaker 1

I'd like to take a step back and talk big picture about Faraday Future and our prospects. It's been a remarkable 9 year journey to reach where we are today with no shortage of obstacles, and we finally delivered a vehicle. I have immense gratitude for the hard work of both current and former members of the FF team. The delivery of our We appreciate our investors' understanding and support during this journey. Our focus this year is the rollout of our first vehicle and the continued improvement in the efficiency of our operations.

Speaker 1

In terms of profitability and operational efficiency, We believe there is substantial room to reduce our costs, both on a per vehicle cost and at a company wide level. As I noted, our accumulated deficit is $3,800,000,000 I think it's important to understand the perspective That this figure is also representative of the amount of capital that has gone into progressing the business to where it is today. It's capital that has gone into our product and our technology, and it has enabled us to deliver our flagship FF91 vehicle. It is a notable data point when thinking about the cost to recreate a leading edge business like ours. I'm sure there is and will be a lot of attention paid to our vehicle production and vehicle delivery numbers.

Speaker 1

We believe our Hanford facility has an expected production capacity of approximately 10,000 vehicles per year. As such, The number of vehicles we produce and deliver this year, while obviously important, does not meaningfully determine the long term value of our business. What drives our long term value is our ability to achieve product market fit. To make sure we have and can create the demand to meet our ability to supply the market. We believe our sales and marketing team is now able to realize their strengths and can focus on reaching potential customers.

Speaker 1

At the same time, we will continue to work on improving our per vehicle production costs and slowly ramp up production this year in conjunction with those cost cuts. In this stage of our business, We are being very strategic and selective in deciding who we deliver vehicles to. We continue to believe that we operate in a unique market segment, A hybrid of technology, luxury and performance, in which we believe we outperform any other automaker. Given our dual home market Our ability to access the China market, the largest global automotive market, is unique among ultra high end vehicle manufacturers such as Rolls Royce, Ferrari, Bentley and Maybach. I'd encourage analysts and investors to look at the annual vehicle delivery figures for publicly traded ultrahighendvehicle manufacturers.

Speaker 1

You'll see that huge production and delivery figures are not requirements to establishing meaningful market capitalizations. But what is required for us is improved margin, increased awareness of our vehicles and the creation of brand strength. We are focused on that. Lastly, I want to quickly touch on our status of implementing internal controls over financial reporting. Over the past year, the company has been working diligently to improve its business and and processes in place than we did a year ago.

Speaker 1

Today, concurrent with this earnings release, we've issued restated financial statements for The restatement was primarily due to non cash and non operating classified items relating to its accounting for the conversion of the notes payable and in those affected periods. The company remains committed to improving its internal controls and upholding the highest with operating cash flow breakeven in 2025. With this goal in mind, I will now turn the floor back over to Exaf.

Speaker 2

Thank you, Jiangnan Sheng. Once more, I'm immensely proud

Speaker 3

As we move forward, we eagerly anticipate reaching Phase I explained my gratitude for your time and interest, and I am excited to keep you informed about our latest developments in the future.

Speaker 1

Operator, we are ready to take questions.

Operator

Thank you. We will now conduct a question and answer session. Our first question comes from Stephen Gengaro with Stifel. Please proceed.

Speaker 5

Thanks and good evening everybody. Thanks for taking my questions. The first for me is You talked about Hanford a little bit, but can you talk about what types of volumes You expect maybe in the back half of this year and kind of what a reasonable expectation might be for 2024?

Speaker 6

Sure, Stephen. This is Jonathan. I think it's a great question. I certainly understand the desire for guidance around production And delivery volumes, we've just launched a new vehicle. We're a new brand and we want to

Speaker 1

be very thoughtful about how

Speaker 6

we enter this new market. We want to make sure the FF91 is Well received. So we're being prudent with our production ramp and the delivery of vehicles to market. We're an ultra high end vehicle manufacturer. So the key for us is not massive volume at this stage, but rather strong brand recognition driven by an exceptional product.

Speaker 6

We also want to partner with the right users, give these users an unparalleled luxury experience and we'll do this while working with them to ensure the vehicle meets and exceeds the discerning standards. As we ramp up production, we'll continue to host curated events that introduce our vehicle and the experience of driving and riding in our vehicle to our target users. So the focus for the remainder of 2023 is less so on huge volume and more so on brand building and creating a community of enthusiastic ambassadors to amplify our brand. We believe that this will set the stage for a ramp in volume in 2024.

Speaker 5

Thanks for the color. 2 more for me, just one as a follow-up to that. Is there any guidance or any targets you have given what you're doing on the cost side As far as what volumes you think you need to get to cash flow breakeven or EBITDA breakeven?

Speaker 6

Sure. So we're working through that internally. We have a sense of it internally, but we're not yet ready to disclose that publicly. But I understand the question. I think it's a valid question.

Speaker 5

Thanks. And then just one more from me. As You did mention getting the financials restated numbers filed for the last three quarters. Can you give us a little more color on kind of the internal controls and improvements that have been implemented?

Speaker 6

Sure. Yes, I'll Reiterate a bit what I mentioned earlier. The team has been working very hard over the past year improve and implement internal controls, the system we have in place now and processes we have in place now are certainly better than they were a year ago. We've improved internal controls in both the preventative and detective categories. As you saw today, we issued restated financials for 3Q 2022 fiscal year 2022 and 1Q 2023.

Speaker 6

And in doing so, we corrected all material and immaterial In those periods that we identified and bigger picture medium term, our goal is to remediate A portion or all of the material weaknesses when we release our annual report in early 2024.

Speaker 5

Great. Thanks for the color.

Speaker 6

Sure. Yes. Thanks for the question, Steven.

Operator

Our next question comes from Mike Ward of Benchmark Company. Please proceed.

Speaker 7

Thanks very much. Good evening, everyone. Jonathan, maybe just a follow-up on that. When we're looking at production unit deliveries for 2023, when you say some, are we talking 50? Are we talking 100?

Speaker 7

Do you have any guidance at all you can provide us? You mentioned in the release that you expect to be generating some cash from vehicle sales.

Speaker 6

Sure. We're still hesitant to put a specific number on that at this point. I think Maybe next quarter or certainly in 4Q, we'll probably give more detailed guidance around deliveries and production.

Speaker 7

So then it's safe to assume in 3Q, we're talking just a few, maybe 10. And then maybe we can step it up a little bit as you get to 4Q and then 24 is another story. Is that the right way to think about it?

Speaker 6

I think that's the right way to think about it. 2024 is really going to be when we see the ramp in production is what we believe in Right. And again, like I mentioned a lot still is on the brand building side and making sure that the users who have Purchase the vehicle, enjoy the vehicle. And yes, in this, there is going to be cash received from selling these vehicles.

Speaker 7

Right. And along with that, I don't know if anyone there can talk about what you're doing on the side of customer sports Service, how those programs are working? How do you intend to push that forward to enhance your user experience?

Speaker 8

Yes. Now before I answer your this aftermarket questions, I think for the volume, Yes, I appreciate everybody has kept a very close eyes on how much what our wrap up plan and how much We plan to deliver this year 2023 2024 and when we come breakeven. So I think all of these Questions on the reviews by the company. As John Nelson just mentioned, in this short stage for 2023, Our major objective is to think about how to build our brand as a actual luxury brand. That's a very important position for a new brand.

Speaker 8

So, I mean, in parallel, we Fully passed the SOP and we successfully delivered the vehicle, which means we are in compliance with the regulation requirement. And in parallel, on the operation side, we released the order to our supplier base continually. The more volume numbers already been placed order already been placed for the long lived parts. And in parallel, we are under discussion what's the approach and what kind of Derivative of vehicle will be produced. So later on, we will I think we will have some more We see numbers with a very strong philosophy behind.

Speaker 8

I appreciate for that question. Then back to the service, normally after OEM delivery vehicle or the customer industry, we're thinking about what are What kind of service we can provide to the customer to make sure their experience being protected and be better. So we have built a suite of after service for the vehicle. For example, with the FF concierge service, Users will never have to bring their FF91 to a service location with a complimentary vehicle pickup for FF Mobile service, Conventnet and the worry free support is a moment away. Utilizing the FM91 Intelligent Vehicle Remote, Diagnostic and Over the Air software updates, We ensure our users' peace of mind through their FFmpeg journey.

Speaker 8

They can schedule their service through the FFAPP, which will include other functions such as Some of the key assumptions or key service Like one is the roadside assistance. For 5 years, after purchasing FF91, Users will have peace of mind that they are covered by FF Roadside Assistance 20 fourseven-three 65 days a year. A user can contact roadside assistance directly through the APP or calling the FFB roadside assistance number. The second one is the FS portable charger with dual voltage capability with Both Level 1 and Level 2 AC charging capability, the FF portable charger achieves up to 9.6 Kilobatt of the output. And also we talk about the FF4 home charger.

Speaker 8

For fully utilized FF91's charging capability, we will offer a branded FF Home charger supported up to 19.2 Okay, Robert. An FF Home charger is a smart Wi Fi connected charger, comfortable with most UAVs can be installed in indoor or outdoor. And also we simplify the installation process by partnering with Kumurate for charging installation service. The last one is for the public charging. User can During the commitment of charging on the go, FFB is offering $1,000 FF charging credit With the precision of the FF919 edition, with up to 180 KW of peak DCA power capability, our FF91 is capable with WAC network of public charging stations throughout the U.

Speaker 8

S. And the Carissa.

Speaker 2

Yes, I wish

Speaker 8

you can have the question.

Speaker 7

Thank you. Just one last one for me. You have a couple of charts on the slide deck talking about co creation. Could you talk a little bit about that because that seems to be unique out in the marketplace, the structure and maybe the strategy you guys are implying with that and what you hope to get out of it?

Speaker 8

Yes. This developer corporation is FF Innovative Brand Marketing and User Operating methods, which is different from the traditional OEM marketing and the product improvement methods. The corporation engaged high quality users earlier in the process and at the same time obtain these users in FUZ is an and their expertise for the product, technologies, brands, service through their user feedback. This helps the company build a very positive image and improve products and technologies among others. The first group of the car orders have been invited to join FF Developer Corporation Mission and 3rd as FF Developer Corporation Officer.

Speaker 8

With their industry expertise, these users will create value We're benefiting from FF Innovation Innovative offerings this alignment For the interest, this kind of alignment for interest, no doubt, embodies FF Core Philosophy and the business model of value, cooperation and the benefits for the co sharing. So although So we'll take some more time to kick off these partnerships, but we strongly believe it will Do you work for the rig and the value propels regions?

Speaker 7

So these people will be customerpartners is the way it's set up structurally?

Speaker 8

Yes. Myself, I work for the a lot of sorry, Myself, I worked for other traditional OEMs in the past 3 years. Normally, once we launch a car, we hold a very big Our launch events spend a lot of money and just to PR purpose and introduce MSRP, the pricing, the service, The technologies of the product and then just push to the market, right? So and then It goes into the routine production and the sales service that kind of loop, right? However, once we move to the eBay, You see some of the outstanding strong products in that FF91 Alliance, We offered more than 10.50 horsepower and with a very strong IAI integration systems.

Speaker 8

So there will be a lot of uniqueness of this kind of outdoor luxury product. So we do need to have this kind of cooperation process with our customer and our partners. I cannot say Tringyuan. I just want to show to them what how we drive this car, how we use this car, how we operate this car and how we Failed this call, right? There's a lot of preparation and a lot of feeling quite different to the Normal traditional brand or traditional product and a lot of to be honest, a lot of expertise.

Speaker 8

They also have a very strong infusion, want to be a jump into this kind of process. I mean To drive the car, find the issues, provide their suggestions and to see the OEM can take their Valuable suggesting and do an upgrade. So this kind of integration between OEM with our partner users through the user vehicle, design vehicle, development vehicle, upgrade vehicle.

Speaker 7

Thank you. Thank you very much.

Operator

Thank you. There are no further questions at this This concludes today's teleconference. You may disconnect your lines at such time. And thank you for your participation and have a great day.

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