Faraday Future Intelligent Electric Inc (FFAI) 2022 Q4 法說會逐字稿

Greetings. Welcome to Faraday Future Intelligent Electric Inc's fourth-quarter 2022 earnings. (Operator Instructions) Please note this conference is being recorded. I will now turn the conference over to Charles Hsieh, Investor Relations. 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, and 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 answers to investors' questions in English. The 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'll 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 earning call as FF Global CEO, and I want to let you know that I plan to make it a priority to have consistent and open communications with investors moving forward.

I would like to begin today's call with what is FF. FF is the pioneer of ultimate TechLuxury ultra spire market in the intelligent EV era and the disruptor of the traditional ultra-luxury car civilization [optimized] by Ferrari and Maybach. FF not just a EV company, but also our software driving company of intelligent Internet AI product. Ultimately, FF aims to become a user company by offering a shared intelligent mobility ecosystem.

We envision the growth of FF in three phases. Our phase one goal is to deliver, to our global ultra spire customers users, the FF 91 one Futurist Alliance, FF 91 Futurist, FF 91 with high quality and high product power, thereby disrupting traditional auto luxury brands like Ferrari, Maybach, Rolls Royce, and Bentley, and ultimately become the top leaders in the global spire user market.

We are in the process of developing our five-year business plan. The company's goal is to create a profitable business with operating cash flow breakeven in 2025. As we introduced more upcoming vehicle models, the user ecosystem will begin to take shape, and we expect our hardware revenue will grow and the eco revenues, which include Internet apps, software and sharing, will also grow as well.

Our phase two goal is to establish ourself as a major player in a high-value user market. During phase three, FF intends to sustain the growth of its hardware revenue and eco revenue, which we believe will constitute an increasingly substantial portion of the overall profit. With this mid- to long-term strategic plan, we aimed to rapidly grow the company to become a $10 billion, then $50 billion, then $100 billion company in the future.

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, update to quarter one 2023, fundraising and other actions we are taking to ensure a strong Faraday Future.

2022 was a tough year with several challenges for the company. But despite the challenges, our unwavering commitment to our vision persisted. Putting the past behind us, FF stands stronger today than ever. We have also made significant improvements to our Board to align with the stakeholder interests, and brought in new key management hires such as Yun, our Chief Accounting Officer and Interim Chief Financial Officer; Mike Beck, our Interim General Counsel; as well as moving me from our China operations to now leading Faraday Future's global business.

The new FF today is fully aligned from shareholder level to employee level all for the betterment of the company and its shareholder interest. Over the past three months, I have seen the unparalleled dedication of the FF team and the hard work they put into the company. We are excited to introduce 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 talk about our manufacturing efforts being undertaken at our Hanford [plant] factory or ieFactory, California, as we refer to it, which is a foundation for the ultimate intelligent, TechLuxury FF 91 Futurist. This factory covers area expanding 1.1 million square feet, and will cover initial production capacity of 10,000 cars annually.

On the staff side, we are intensifying recruitment and training, which will support our start of production. We have also set up a launch team consisting of cross-functional colleagues who will be temporarily moved to Hanford to supply the manufacturing and provide immediately assistance for only a particular issue.

Back in September of 2021, we highlighted six milestone needed to reach the start of production of the FF 91 Futurist at our manufacturing plant in Hanford. Since then the FF team has work in diligence to complete all six of the necessary production milestones, including the initial installation of our pilot equipment, the completion of factory foundation construction to most recently, finalizing a major construction and installation in our SOP vehicle manufacturing area.

In addition to the aforementioned production milestones, we are confident to reach our first start of production milestone number seven by March 30, 2023, assuming timely receipt of funds from our investors, which we will talk about more later. We will host the FF 91 Futurist final launch events on April 26, and we look forward to your participation.

Building such a innovative car is no small task. We are in closing communication with our parts suppliers. We strive to maintain a high level of quality assurance throughout all production stage. Furthermore, we seek to actively engage with suppliers and other strategic partners to [capitalize] on their expertise is optimizing the supplier process and ensuring that our vehicle meet the highest standard.

Internally, we have initiate the supplier champions project where we have assigned one of our Vice President for each supplier relationship to ensure our alignment. I want to take the opportunity to thank all our suppliers for their continuous commitment and support as we prepare to commerce deliveries by end of April, assuming timely receipt of funds from our investors and [provided] it is meeting our supply chain requirements.

I also want to talk a little bit about our go-to-market strategy. FF focuses on core creation in our go-to-market strategy, redefining how users and partners interact with company to generate higher efficiency, higher value and bridging user to our mobility ecosystem.

We have started inviting earlier adopters to experience the vehicle performance through the Futurist Product Officer program. FPOs are invited to experience the FF 91 Futurist and the [poor rates] directly fed back to FF team and improve future vehicle through the core creation progress. FPOs were enjoying value sharing based on the quality of their feedback and ideas on the product.

We are reaching out to candidates to join FF's Spire Club, which is our group of units who share the same mission and vision with FF and who would like to co-create value in the FF mobility ecosystem through exclusive TechLuxury branding and show events, social media sharing and even taking on their referral programs. Spire Club members will share the benefits of creating a new mobility ecosystem by leveraging their circle of influence.

We will launch FF 91 Futurist through our direct sales model where users can place order online and are also able to experience our cars at the FF's self-owned and partner-owned showrooms and experience this. FF's O2O sales and service platform allow partners to integrate seamlessly in our sales and service solution. With our direct sales model, FF has fulfilled the necessary directory sales licensing requirements to operate as a leading ultra-luxury OEM.

We have started our Flagship Brand Experience Center project in Beverly Hills, and I look forward to showcasing our car there soon. Through the operation of our own distribution network, FF can efficiently handle the customer relationship and provide a fully seamless and transparent sales journey for our user.

Our retail strategy will be focused on establishing our presence in the top 20 cities across primary regions worldwide. Our initial 2023 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 market as it aligns with our product positioning and caters to the growing demand for ultra-luxury vehicles in their regions. To help ensure exceptional service for our customers, we will be launching our fleet of mobile service vans to provide [concierge] level service. Additionally, service hubs located in key geographic areas 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'm eagerly anticipating the journey ahead as we continue to pursue our growth path and strive towards [increase] stockholder value.

Now, I would like to turn the call over to Matthias.

Thanks, XF. I wouldn't have to take a few moments to elaborate on our innovative product, the FF 91 Futurist. The FF 91 Futurist provides unsurpassed user experience and offers industry-leading performance metrics. The FF 91 Futurist has bespoke electric drive units with a fully integrated designed active oil cooling and offering independent rear axle drive and the 1050 horsepower propulsion system is driven by FF's in-house developed software and control algorithms, optimizing the performance, stability and safety.

The cars also boasts an EPA certified range of 381 miles of range, which is almost 50 miles to 70 miles more than our direct competitors in a comparable price category. The FF 91 can go from 0 miles per hour to 60 miles per hour in a blistering 2.27 seconds. In addition to performance the FF 91 Futurist has true mobile connectivity, which is unrivaled in the industry. You can think of FF 91 Futurist as a smart device on wheels, a game changer in the field of change in the automotive industry that sets a new benchmark for both the driver and passenger experience.

The FF 91 Futurist offers a unique 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 leg room area in the industry and can recline up to 60 degrees for maximum comfort.

It also offers a revolutionary and immersive driving experience, coupled with an unsurpassed passenger experience, a total of 100-plus inches across 11 displays, including a 27-inch, ultra-wide rear display to deliver a portal to passengers in every seat.

Rear-seat passengers in the FF 91 would be able to lower and raise industry-leading rear passenger display with a simple voice command. Once the [RST] is done, passengers will now also be able to conduct in-vehicle video conferencing to allow them to continue their work while on the road, commuting. The FF91 will have additional advanced features, including touchless entry, voice control for navigation input and self-parking capabilities in most normal environmental condition.

Our dedicated R&D team has undertaken extensive product testing and validation to ensure product 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 and the 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 US-China dual home market strategy, which calls for production and sales in both the US and China, 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 enhancement, which we have identified as product and technology generation 2.0. This consists of significant upgrades of systems and car components for both the vehicle and I.A.I areas. I.A.I is our advanced core, which stands for Internet autonomous driving and intelligent.

We updated 26 major systems and components with 13 key upgrades through our powertrain, battery, charging chassis, and interior areas as well as 13 key upgrades from computing, sensing, communication, user interaction to the newest technology from I.A.I. 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 getting the following upgrades to name a few: a new dual code Qualcomm chip that powers the infotainment center, eight megapixel interior and exterior cameras, ultra-wideband sensors for faster data transmission speeds compared to conventional Bluetooth and a cutting-edge LiDAR system with the capability to detect up to 500 meters in any weather conditions. We look forward to sharing more at our upcoming phone launch event on April 26.

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

Thank you, Matthias. I'm 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 the SEC filings are up to date as well as our plans in place 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 as compared to 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 are mainly due to timing as the 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 as compared to $517 million for the full year in 2021. The increase is mainly due to the increase in research and development expenses and the 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 payable in connection with the closing of the business combination in 2021.

Net loss for Q4 2022 was $154 million compared to $84 million for Q4 2021. The increase is mainly due to the increase in non-cash changes in fair value measurement of certain notes payable and the warrant liabilities in 2022 and again, of settlement on certain notes payables compared to a one-time gain on forgiveness of 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 the inception, the company has incurred cumulative losses from operations and negative cash flows from operating activities and the company's accumulative 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 mainly due to our significant research and development spend and the 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 expected to provide us a sufficient funding to produce our FF 91 Futurist product and get into the hands of 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 sellable FF 91 Futurist at the end of March 2023, subject to timely availability of $150 million to $170 million of additional funding and timely stockholder approval of our authorized share increase. Since then, we have been diligently working toward that goal.

On February 5, we announced that we secured $135 million in new financing commitments, pending FF stockholder vote to increase the authorized shares outstanding and approval of the financing and certain other closing conditions. As of February 28 special meeting of stockholders, we received sufficient votes that were in favor of the increase in authorized shares.

Additionally, we schedule another special meeting of stockholders on March 30, 2023, to vote on approval of this transaction as it exceeds 19.99% 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 with regards to voting, please refer to our voting guide at ff.com/vote. Please see the definitive proxy statement that accompany filed with SEC for more information.

Since December 15, 2022, we have received $112 million funding and a secured $10 million scheduled to be received in Q1 2023. $55 million is scheduled to be funded within five business days of effective registration statement for shares underlining the secured convertible notes and the stockholders' approval of the issuance of shares at upcoming special meeting of stockholders, which we just spoke about as well as certain other conditions. We also expect that we will receive additional $9 million from our existing investors by the end of March, which will be funded at investors' options.

Additionally, we have entered into a standby equity purchase agreement with Yorkville Advisors, which allows the company to draw funds in exchange for share issuances for up to $350 million at the company's discretion. We'll be very strategic and careful in using this facility in a manner both beneficial to 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 of our existing investors have the right to commit up to $160 million of additional funds. It is always our plan and expectation that we should raise additional funds to move beyond the initial launch of FF 91 Futurist. We have just began a $50 million raise to have better liquidity to support our production ramp and have already received indications of interest from investors for nearly the full amount.

We would like to offer this investment opportunity to all existing stockholders that are credited investors to consider. We'll send out an investor letter shortly after this earnings call. For those current accredited investor stockholders with interest, please e-mail us at ir@ff.com. We'll continue to explore various debt and equity financing possibilities. And we believe that after FF 91 Futurist's delivery and as the company starts to generate revenue, we'll 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 that are essential to delivering the FF Futurist and to maintain strong relationships with key suppliers. Also, I'm happy to say that our team has kept our SEC filings up to date since Q1 2022, and we expect it will continue to stay current.

Additionally, I have worked with the team to evolve business and system processes, and we're implementing internal controls to strengthen our corporate governance as well as financial reporting. We have recently hired several key accounting positions as well as compliance officer, who will also serve as our deputy legal counsel. We're 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 showed by investors, and I 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 would 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 here.

Thank you. (Operator Instructions)

Michael Ward, Benchmark.

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 a big picture side, has your definition of your market changed? How are you defining your key customers. Are you still assuming you're going to go down and produce the 81, 71? Or has something shifted?

Okay. [Hi, assume]. This is XF. I guess I'll probably talk about the facility, but -- I'm sorry, could you repeat your question because I've got a little bit trouble (multiple speakers)

No problem. Just a big picture type thing. As you define your market and your key customers and what are the key things you're looking at? Has it changed? are you still looking out at it coming out with the 81 and also the 71? How would you define your market the way you're seeing it over the next two, three, five years?

Well, okay. It's a very good question. FF, we design our product as a very high-end premium product. First of all, will be the FF 91 Futurist. We designed [ultra] TechLuxury vehicles, and we are aimed at the top segment of the market. That's our first product we want to bring to the market this year.

But for the development for the three year, five year -- this kind of [cycle] plan or this kind of mid-term and long-term plan as a company have also to consider how we apply the platform tech knowledge and our advanced I.A.I tech knowledge into the FF 81, FF 71 because we do is we do think FF has a very unique design. And we will build our very strong brand and with our very strong performance of the car as much as just introduced.

So, we will get the FF 91 as a first a strong brand position for the very high segment in the market. And then, we will get price, this position down to meet the level of premium brand segment and also the intro premium segment to provide that kind of a similar experience to our different level of customer. So, this our mid- and long-term strategy. We're still working on that.

Is that answer your question?

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

Well, first of all, we got a plan to launch a car by end of this month. And in parallel, with that the kind of funding raising arrived. We got a plan and opportunity to deliver that car by end of, sorry -- we have a plan to launch a car by end of March, actually this month, end of this month. And with that kind of a condition, once we go the funding raised and also we've go to the supplier who deliver our [provided] requirement, we will deliver the FF 91 Futurist by end of April next month. (multiple speakers)

So, you've got all approvals in the US? It's met all the regulatory approvals?

Not 100% because some of the test is still ongoing and the results will be available by end of this month, and some of them will be early next month. But before end of -- before we do the start of delivery in America by end of next month, all the FMVSS and US national requirements have to be finished. So, that's our current plan and we do have very robust plan and a high confidence for that one.

Okay.

In parallel, for your question about the China market, as I stated in my last speech, I think, right after the US delivery to the customers, we will accelerate to the delivery for China market. That's the biggest EV market in the world. [To quite a similar sales], we also have a plan to take over the China communication and regulation related application. I know we had we had a very good relationship with one of the China agency. And we go through all of this kind of technical detail and have a very robust plan.

In the coming months, we plan to ship the car to China to do this kind of testing for the China market. Early February, we are already sent one car to China to do some of the charging system performance testing. So, you can say that right after the US market delivery, we will, no doubt, accelerate our China strategy.

What kind of cadence do you expect for deliveries in the US and China as we go through 2023?

Well, this one -- because internally, we do not possess a disclosure information yet. I really like your question, but I probably cannot answer it.

No problem. On the cash side, I just wanted to see if I -- because there were a lot of different commitments and dollars thrown about. So, I want to see if I got this right. You mentioned -- I think you ended the year with about $18 million in cash, and now you have $38 million. Was some of the -- it sounds like in the first quarter you've received $10 million in the first quarter, but the $112 million in gross proceeds, did some of that come into the first quarter -- into January, February? You're ending March at like $38 million, I'm sorry -- beginning of March at $38 million, right?

(multiple speakers) This is Yun. I can take this one. In the beginning of March, we have about $38 million on hand. And we are through March and April, we're expecting to get additional committed funding. With the committed funding, we have another $10 million coming in March and then also $55 upon the effectiveness of the registration statement. And then among other things, we're still -- we're scheduled the second special stockholders' meeting to approve the cap of 19.99% and that to be scheduled by the end of the March.

Okay.

So, after that -- go ahead.

Is the $135 million a new commitment? Is that in addition to the $150 million to $170 million you announced back in December?

We announced $150 million to $170 million, and with the $135, that will get us enough through SOP and as well as SOD. And we're currently finalizing the spend over the remaining of the year. So. we can't tell you the remaining, but at least with the $135 million, that will get us through SOD. And then as you know, we also have access to ELOC. That is up to $350 million, but we got to be very careful on how we use it and it will have to be the best for the stakeholders. And then, we also have $150 million, that's at option of the investors. That is also likely to come. So, we have a few things going on and we're currently talking to the investors.

I just want to make sure I got this straight. So, there are four different parts to it. In December, you announced $150 million to $170 million of funding, right?

Yes

And on February 5, you announced an additional $135 million. Then you have additional funding, it sounds like different raises and from investors -- it looks like another $50 million or so from investors. And then you have the equity purchase agreement, the $350 million. So, it looks like -- just on paper -- it looks like if you get the start of delivery, you get those vehicles delivery, then the cash flow -- then you have the capital flexibility to get through this year to push you into 2024 and 2025. Am I reading that correctly?

I just want to clarify the $150 million to $170 million is the fund we need to get into SOPs. That's (multiple speakers)

Okay. I got you. That's what you said you needed. I thought that was a commitment you received. That's what you were looking.

Right. That's what we were looking for and subsequently --

You got that?

-- we got $135 million. And so, now, obviously, we also get some other fundings and that will get us through SOD.

Got it. Now I understand it. Thank you. That's where I was confusing. And okay, so that's getting you through SOD and then the next steps as needed. And hopefully, you'll start -- the cash will start coming in the door as well?

Yes, we're strengthen our capital market group, hire more people. We also have hired more experienced consultants, financial advisors. So, we're working hard on getting more funding in the future.

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

Yes. And after that, our funding will be -- hopefully, we'll have access with a lower cost of capital.

All right. I really appreciate it. Thank you for your time. Thank you very much.

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.