菲斯克汽車 (FSR) 2021 Q3 法說會逐字稿

Good evening.

Thank you for attending today's Fisker Inc.

Third Quarter 2021 Earnings Call.

My name is Aaron, and I will be the moderator for today's call.

(Operator Instructions)

I would now like to pass the conference over to your host, Dan Galves with Fisker.

Thank you, Mr. Galves.

You may proceed.

Thanks a lot, Aaron, and welcome, everyone, to Fisker's earnings call.

Joining me on the call today as usual, are Henrik Fisker, Chief Executive Officer; Dr. Burkhard Huhnke, Chief Technology Officer; and Dr. Geeta Gupta-Fisker, Chief Financial Officer and Chief Operating Officer.

Before turning it over to Henrik, be advised we will make forward-looking statements within the meaning of the federal securities laws.

Forward-looking statements generally relate to future events or future financial or operating performance.

Our expectations and beliefs regarding these matters may not materialize.

Actual results and financial periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected.

These risks include those set forth in the press release we issued earlier today as well as those more fully described in our filings with the Securities and Exchange Commission.

The forward-looking statements in this presentation are based on information available to us as of today.

We disclaim any obligation to update any forward-looking statements, except as required by law.

We'll reference our financial measures that do not conform to Generally Accepted Accounting Principles or GAAP, during today's call, including non-GAAP operating expenses.

This information may be calculated differently than the non-GAAP data presented by other companies.

Quantitative reconciliation of our non-GAAP financial information to the directly comparable GAAP financial information appears in today's earnings release.

With that, I'm happy to turn the call over to Henrik.

Thank you, Dan, and welcome, everybody.

I've got some real interesting news I want to share in the end of my presentation, but I'll just start with some high-level bullets around the business.

We are still on target with the Ocean to launch it in November next year.

In fact, we're going to start ramping up the prototype built with Magna already in Q1 next year.

We have, of course, already made some prototypes but from about the end of Q1 next year, we expect to start building 2 vehicles a day.

I think that's pretty outstanding well over 8 months before we launch the vehicle, and that will make sure when we launch, we can ramp up quickly into the high-quality vehicles, and that's on target.

We also now hired a lot more people.

We continue to hire, probably somewhere between 20 to sometime 30 people in months and we have well over 300 people in the company now.

Our balance sheet remains solid with about $1.4 billion in cash.

And also, we continue to accelerate our reservations.

Now I'll talk a little bit about our marketing push as well.

But just gearing up to the unveil the Ocean here at the LA Auto Show, where the PR base starts at 17, but we'll actually have a special event the day before, which we will stream worldwide.

So we are really excited about that.

I'm going to talk a little bit more about that closer to that event date.

We also got into validation phase that Burkhard will discuss and get a little bit more into detail about.

And then, of course, at the show, where we are -- in LA Auto Show, we are going to really talk about the specifications of the vehicle, show our brand-new design interior with some pretty amazing features, definitely some that currently don't exist in any vehicle to-date.

So I'm super excited about that.

Also, we have made progress on the PEAR program.

And actually, our internal team has come up with an expanded strategy around our FF-PAD development method.

And what we are looking at is much more Fisker IP sharing between the Ocean and the PEAR, meaning a lot more components that we have developed and created IP on through our Ocean program.

And what that means to the Ocean is that when we launch the PEAR in '24 we are going to start being able to use some of these components in both vehicles and much higher volume that ultimately will actually lower the Oceans, still the materials, the cost of Ocean even more.

So I'm also really excited about that.

Let me get to marketing and sales.

We have expanded this team dramatically.

We have hired an agency which we are working with creating market materials.

We are really waiting to, of course, kick off our big marketing push to around the 17th of November when we show the car.

We obviously needed the vehicles to feature in advertising, online, digital media, et cetera.

And all this is in the works right now.

We are going to launch both in U.S. and Europe, major campaigns.

I think they have some real Etsy cool stuff, and I'm really excited about it and that's going to go full blast from 17th November, and I expect that we will start seeing major acceleration in our reservations at that point in time as we obviously got to get more known across both the U.S. and Europe.

We've also made progress on our ESG initiatives, and we are really looking at wanting to be able to explain more details and use real primary data about the full cradle to cradle life cycle analytics.

And we'll be -- as we get closer to us, our startup production will get more into details on that.

Now let me return to sort of the real big news here, which is our new signed deal with CATL for batteries.

And I want to elaborate a little bit about why this is such a big deal.

We are going to launch very uniquely the Fisker Ocean with 2 different battery chemistries, of course, 2 different packs.

And we already are running tests in these packs.

Of course, they're going into all the prototypes as well next year.

But what's unique about these 2 different pack is that the base pack actually is amazing when it comes to cost because it's using LFP, and that's a much lower (technical difficulty) and that's how we are currently able to achieve the low-cost of the Fisker Ocean, specifically in that base price of $37,499, which I think is unrivaled by any competitor.

Also, the type of range you're going to have there is going to be more than adequate probably for most people and quite good, actually.

And then, of course, we have the second battery with NMC and the advances of that battery is not only in the cell but really in the pack and also what we have done with the structure of the vehicle in terms of the design of the pack itself.

So our pack is not the space for our pack is not the typical square space you're seeing every single EV out there.

It has a slightly different configuration, which we're not planning to show off to our competitors too soon.

But what it allows us to do is get the world's longest-range in our segment for an SUV and a power price class.

Of course, you can make $150,000, $200,000 carbon incredible range but to make a vehicle, between $50,000 and $60,000 with such a long rate that we have achieved, I think, it's really magnificent, and it really shows what a phenomenal engineering team we have (technical difficulty) great partnership we're having with CATL, and I'm really excited to show those numbers at the LA Auto Show.

In fact, we will have (technical difficulty) models that people can choose between.

We got the sport model, which will have the LFP battery, extremely well priced.

And then we have the 2 other models, which we'll reveal the names of at the LA Auto Show, but both of those 2 will have the longest range in this segment.

And as you know, right now, the longest range for sale in the U.S. is about $50,000 to $60,000 for either SUV on Crossovers around 326 miles and we'll be well over that with both these 2 other vehicles and I'm really excited about that.

What's also unique about our powertrain is the efficiency because at the end of the day, we have an SUV.

I didn't want to sort of skip out here and just do another hatchback crossover with great aerodynamics that doesn't really look that great.

We wanted to create a vehicle that can sell globally in the fastest-growing market in the world, which is SUVS.

That's what people love.

They love the utility, they love the looks, and that's what we're going for.

We want to be different than our competitors.

And despite having that larger SUV vehicles with all the utility that comes with it, we still have a vehicle that's class-leading range.

And of course, as I mentioned, it's partly to do with CATL.

It's partly to do with our energy-dense battery pack.

It's partly to do with how our vehicle actually is designed and engineered in terms of space for the battery.

And then our incredible powertrain, which we're going to talk more about at the LA Auto Show as well.

But one thing I will say that we haven't announced yet is that every version of the Ocean will have silicon carbide inverters, also the base vehicle, and that is part of a contribute to our really, really high performance, powertrain, long-range, really efficient.

And I think what's interesting here is, why we be ahead of the competition?

Well, we chose all this technology this year.

So when you get a Fisker Ocean 12 months from now, your technology is the newest of the newest.

If you buy any other car next year, most likely that technology was chosen 3 years ago.

So that's why we're different, and that's why we're going to be trusted.

I now want to hand it over to Burkhard to talk a little bit more about the details of what we're doing on the Ocean program.

Burkhard?

Yes.

Thanks, Henrik.

Again, welcome everyone.

As Henrik said, the sourcing process for Ocean is down to just a small few parts of the shelf items.

So we have moved into this industrialization phase of the program.

This involves, of course, a series of both virtual and physical body type builds that's already began earlier this year and will be ongoing through most of next year.

We need to do the hard work to ensure all the components are seamlessly integrated, that we are on track with all the attributes.

We plan for the car and it will meet all the safety, performance, durability standards in all-weather conditions and that it can be manufactured with the quality.

So testing of our first build so-called Mule 1 was completed some time ago.

This was primarily to test the correlation of virtual safety testing with physical results.

The Mule 2 build is complete and testing is ongoing.

This continues to Mule 1 testing, but also adds powertrain, the battery electrical system function and platform durability.

We also test complete vehicle function in hot and cold weather in this phase.

Finally, as you can see from the photos on the earnings release, we are very happy to have started up the next prototype build at our manufacturing facility in Graz using production-intent components.

And I can say it's super helpful, very helpful to build prototypes in the actual production facility, which is unusual for a startup.

The body shop is operational.

And once general assembly is up and running, the shop has capacity produced up to 2 cars per day.

I'm very proud of our technical teams, both at Fisker and Magna for accomplishing a lot in a short period of time.

We have the right plan to achieve on time style of production, so that's been through all the required test and validation work to prove quality, visibility, and durability from the start.

Thanks.

And now I'll turn over to Geeta.

Thank you, Burkhard, and welcome, everyone.

Really excited to be here today.

Overall, I can say I'm really pleased with what we've accomplished as a team in preparation for the production SOP, which is now just a year away.

Over 90% of the Ocean business materials is now sourced and the remaining components, mostly just off-the-shelf parts.

The sourcing process was definitely not easy but ultimately, we were successful at procuring a significant amount of advanced technology, which will result in an amazing product packed with class-leading features.

Beyond sourcing, the development process of this corrosion has taught us a lot.

In various components and various technologies as both a system and a subsystem level has resulted in exciting fiscal owned intellectual property that we intend to put to use on all our future vehicle programs, as Henrik just alluded to now.

Our recent announced battery reservation agreement with CATL marks our final long lead and one of the most critical items in the vehicle.

Of course, the 2 companies have been working together on development, validation and testing since last year.

And now we're really pleased that we can share with the public a committed long-term capacity agreement.

And I want to make a statement that we actually visited CATL in 2019 and have spent 3 to 4 years developing trust and a phenomenal relationship with leadership at CATL, and it's evident from the quote that the President of CATL made in our joint press announcement.

We have a committed supply of over 5-gigawatt hour per year capacity initially.

This includes 2 different chemistries, as Henrik mentioned, a long-range NMC chemistry-based pack, which is a high-capacity pack in the cathode, that's a port segment-leading range and a high-value pack, which uses LSP from the cathode that supports the compelling price of Fisker Ocean Sport while providing range and acceleration consistent with the much more expensive EVs.

We see this a very deep and strategic relationship with CATL and as part of our contract, we have the ability to jointly plan 12 months ahead of time to increase our capacity as we see demand in the market, including opportunities to localize production in various countries globally over time.

We are now needy, working with our suppliers and partners on the test and validation space, as Burkhard mentioned, supported by a robust set of timelines, milestones and shared deliverables.

As we move from the sourcing phase to the industrialization phase, I have been able to turn my personal focus to the balance sheet as well as preparing the business to scale by focusing on our operations, hiring and building processes.

We took action to bolster our balance sheet in August this year, raising $667.5 million in a convertible note offering at 2.5% interest rate and a 30% conversion premium through a cap call.

We use part of the proceeds to find a cap call, reemphasize, we had a 30% conversion premium, and we used part of the proceeds to fund a cap call that takes the effective conversion price to $32.57 or 115% of the cost price at the time of the convert.

This was an efficient way to bolster the balance sheet and be funding for additional vehicle programs.

The timing was by choice, it was not out of a need, and the gas call signals our confidence in the future value of the company based on our internal view of both progress to date and the stellar product lines we intend to launch.

On the operational side, as Henrik mentioned, we've also had a phenomenal year in hiring.

We were 100 people last year, we now have over 300 employees that includes 20 extremely seasoned (technical difficulty) Vice President (technical difficulty) have done a great job in building their own departments and the entire organization.

And we have empowered our entire company with a very attractive performance-based restricted stock unit bonus, which is not (technical difficulty) to the existing employees to be part of the success of Fisker, but is also helping us immensely in retaining and hiring talent in this hard (technical difficulty) market.

We are now working with our advisers on setting up global entities worldwide and ID systems that take us from a development company into a revenue-generating product company with customers worldwide.

And Henrik covered the work we need to build out the customer experience functions that are critical to launching a successful product.

Our products are the #1 focus, but if we don't have right IT systems in place to support those products, the business simply cannot scale.

Now turning to our results and outlook.

Our operating expenses in Q3 aligned very closely with internal expectations.

Capital expenditures were way below our expectations.

As many of you know, CapEx is lumpy and very reliant on the timing of billings and suppliers, which can sometimes be hard to predict.

Our forecast is due to (technical difficulty) timely billing and has been slower than we expected despite ongoing work.

That billing activity has picked up significantly so far in Q4, so we have good visibility that CapEx will increase meaningfully in Q4 as implied by our guidance.

Operationally, the increase in R&D in Q3 versus Q2 was primarily the result of increased headcount, increased prototype spending, and modest engineering design and integration refinement as we enter into our industrialization phase.

We expect a more modest sequential increase in Q4 on headcount and as the prototype book continues to ramp.

The increase in SG&A expense in Q3 versus Q2 was a result of a higher headcount -- higher professional services as we engaged the global advisory form for tax structuring and IT spending on global ERP systems and CRM installations.

We expect SG&A to more than double in Q4 due to kick-off of marketing campaigns to build our brand, including significant spending on the LA Auto show unveil of Fisker Ocean and activity surrounding that event.

Plus, we will bring in to accrue lease expenses on our flagship LA Experience Center property we recently signed.

Now turning to outlook.

As noted in the press release, our overall OpEx plus CapEx guidance stays unchanged at $490 million to $530 million, but there has been adjustments in the categories.

Our R&D increased $15 million at the midpoint.

This is related to a refinement of the test and validation plan for the remainder of 2021.

Our SG&A increased by $10 million due to a more robust marketing plan for Q4 and the flagship store lease I mentioned earlier.

Higher OpEx was offset by about $25 million lower CapEx spending, which is related to receiving late invoices from suppliers.

Work is progressing on track, but we'll spend time refining when they are likely to be built for the work.

Overall, I'm extremely proud of our entire Fisker team for all the accomplishments we've made so far in 2021.

We have a lot of work ahead of us for sure as we enter the critical industrialization phase, but we have a lot of confidence in the plans we have established to execute a fantastic, profitable product on time and budget, and I can't wait to unveil the Fisker Ocean at the LA Auto Show.

We're now happy to take your questions.

Thanks, Geeta.

Aaron, can you please compile in queue.

(Operator Instructions) The first question comes from Jeoffrey Lambujon with Tudor, Pickering, Holt & Company.

My first one is on batteries.

I appreciate the detail in yesterday's release and some of the teasers from today's call on the characteristics and also how you spoke to the LA Auto Show (technical difficulty) 2 weeks for much more detail, which you're very much looking forward to.

But is there anything more you can give us just today as we think about pack costs between the 2 chemistries?

And any more detail on the range as you think about those would be helpful as well.

So we want to give our customers all the information they need and desire, but we don't want to give all the information what our competitors want.

So I don't think it makes any sense for us to give the exact price of our batteries.

But I think what we can say is we know that they're on par with some of the biggest car companies in the world in terms of cost.

But the real advances here in terms of cost of the pack is the fact that we are using LFP in the base vehicle.

I don't think there's any vehicle in our class right now in the U.S. is using that and there might be one other that's using it -- going to use it.

But I think that's one of the bigger advantages.

And the advantage is that we design our battery volume and our tech, so we can get quite a lot of power on the LFP because LFP, the reason is -- part of the reason is lower cost but it is also -- it's not as energy-dense as NMC.

So you won't get the same power.

But if you have more volume, you can get a pretty good amount of power into the vehicle and that, I think is what stands the Ocean apart.

And also maybe -- go ahead.

No, I was just going to say range, you asked about the range.

I mean, we kind of want to wait and surprise people at the LA Auto Show.

But I think the real key again here is some people may not really need to carry a giant battery around and therefore, we have that LFP solution, which makes us extremely price competitive.

But if you do want range, then we do have a really cool long range.

And like I said, it will be the world's longest range in our segment and our pricing.

So of course, please don't compare us to vehicles that cost $80,000, $100,000, $150,000.

But if you compare us to vehicles now a price class and the type of vehicle our vehicle is, we will have the longest range in the world in the Ocean and the 2 versions that sits above the base sports version.

Understood.

Appreciate it.

And I understand that we'll have to wait a couple of more weeks to really get the detail.

Second one is just on marketing.

There's clearly a lot going on, as you all highlighted, just preparing for the LA Auto Show and the marketing push to kind of a company to unveil the experience in there, (inaudible) secured and the growth in the customer experience teams.

I was wondering if you could just talk a bit more about the game plan for the marketing part of the strategy as you think about growth in reservations over time?

Yes.

So we are creating content right now, and we'll continue creating content over the next couple of months.

And what I mean by content is you've got to make real exciting videos that can be used as online digital ads and engagement with different potential customers.

We have hired some unique agencies that are specialized, specifically in digital and with AI, et cetera, how we reach the right customers.

But at the end of the day, you need content (technical difficulty) and I know a lot of people saying, why don't you start blasting open stuff up now.

I think it would be a waste of our money.

We are still 12 months away from delivering.

We're sold out well into 2023.

But my expectation of our marketing teams are that we will have at least 50,000 reservations by -- before we start production next year.

And I think we have a really, really strong marketing plan that is comprised of online content, other means of marketing and PR, we're creating unique PR moments.

We obviously are in Hollywood, and therefore, already planning and have already secured us being in a couple of different films and TV series.

And then of course, we have also planned a host of events throughout U.S. and Europe, and then we are going to open experience centers.

We have a whole new strategy that nobody used before when it comes to displaying our vehicles and how we deliver our vehicles.

It's all about creating the ultimate experience, I believe.

I think the automotive industry is still far behind in experience.

If you look at how clicking and ordering a pair of shoes on Amazon and then how -- what happens when you order a car and how long it takes to get and how many papers you have to sign and considering it's maybe $40,000 or $50,000, how is that experience.

We want to create and be the #1 experience in the world.

And that goes from everything to how you interact with the brand to how we purchase the vehicle, a flexibly lease the vehicle, how your ownership goes throughout the time of your vehicle, what we're going to do over-the-air updates, et cetera.

So all that, of course, we're going to elaborate on over the next 12 months to show how we think we're seeing the lead in many of these areas.

And Jeff, I just have one more point to add.

I mean as we had put in the press release, we've got over 70,000 registered app users and we think it's pretty unusual for people to reserve a product more than a year in advance when they don't know what the content and features is.

So we're really happy with our reservations today.

But we think just talking about the details of the content, the pricing of the entire Ocean lineup, the range, all of these details about the car triggers quite a few of those registered app users to reserve.

And it also helps with fleet sales because most fleets are certainly not going to get into detailed discussions about a product that they don't know exactly what the content is, and that's all going to come out in 2 weeks.

Can we go to the next question, please, Aaron?

The next question comes from Joseph Spak with RBC.

Going back to the battery announcement, which seems important here.

2 questions.

One, the decision to go to LFP to offer a more compelling electric vehicle, does that at all change your potential demand outlook for that variant?

And then secondarily, if you could just sort of talk about your scope to grow your allocation of gigawatts to CATL overtime if needed.

Yes.

So it was always our plan for -- well, always since quite a while, it was our strategy to use our vehicle or put our vehicle in a much higher potential buyer group than you normally see.

So if you look at all the electric vehicles out there today that are SUV, so let's forget the hatchbacks, they are all very expensive, and they're all sort of staying pretty much within a narrow spectrum of pricing.

And I think the unique thing about the Ocean is that we start at $37,499 for (technical difficulty) and that is an amazing price.

The average price of a car today, I think, has gone over $40,000 now.

So we are really among what you would really consider affordable and reachable for everyone.

Secondly, with our flexible lease when we start that again, we're going to attract a whole new buyer group that very few other car companies have the ability to reach because of the way we structure our flexibilities when you give the car back anytime.

So absolutely.

I think that we have a real possibility once we get production going to potentially scale up on the side of the LFP.

Then finally, your question about CATL and what happens if we, for example, see that we can sell a lot more cars than we expect.

As Geeta mentioned and maybe that slip through the cracks, but we actually have in our agreement, the possibility to increase our volume significantly with CATL.

Really, we don't have any limit on it, quite frankly.

And we just have a 12-month planning heads up.

And if I see middle of next year that we have terrific sales on the reservation numbers, we can call CATL and saying, look, we need X amount more, whether it's double or triple or whatever it is from 12 months later.

So now it's just a matter of how many vehicles can we sell.

I'm really, really excited about this specific battery deal because it allows us that and I think very few other start-ups probably have that ability.

Also remember, most of the start-ups are buying cells and making their own packs.

In this case, CATL is making the pack so we get a full finished solution to us, and that gives, from my point of view, also some other advantages down the line.

Great.

And maybe just a second question on the upcoming LA Auto Show and you're going to show these vehicles.

I mean how soon after that do you open the configurator, so you start to get a sense of that mix, so you can properly let your suppliers know.

I guess, how long does that process sort of need to be?

And when should we expect that configurator to open?

So we're already working on that.

That's going to be open the day of the 17th, so people can go and configure the vehicles.

And then we're going to expand on the configurator later and introduce more features on it, but you will be able to go in and configure your car.

We're going to have all the different option packages shown, different features and that's quite a lot of them.

A lot of them are segment-leading, in my opinion, and that's all going to be available already on the 17th of November.

The next question comes from the line of Evan Silverberg with Morgan Stanley.

Evan Silverberg here for Adam Jonas.

A question on the batteries.

For the 5 gigawatts, the initial 5 gigawatts, where will they be sourced from, country?

And you guys have made the emphasis of ESG with a (technical difficulty) view of making the most sustainable EVs in the world.

Obviously, battery is pretty dirty business as we sit here today.

So what steps have you made with CATL partnership that helps you secure a sustainably sourced battery supply?

Yes.

Great question, Evan.

So cost of all, obviously, CATL is in China, so the batteries are coming clearly from China.

They have a pretty elaborate sourcing mechanism when it comes to different raw materials.

So we do have a responsible supplier policy that we announced earlier this year that we put in place that we share with all our suppliers.

With respect to CATL (technical difficulty) they have a copy of our policy and now as we get into industrialization, we look at the source of some of the raw materials (technical difficulty) But also, very importantly, CATL themselves have put together (technical difficulty) very extensive recycling program, and we will be working very closely with them on looking at end-of-life use and looking at recycling, what can we do to make, of course, the carbon print lower.

Now in addition to that, I don't want to sit here and talk about CATL's plan but of course, today, they have 65, 66 odd gigawatt-hour capacity.

And as everybody knows, it is now the biggest battery company in the world, and they have plans to go global, which means that they will be in countries outside China seeking cells, and we are immediately in discussions with them on their global plans as well.

Since we are a global company and we'll produce not only the Ocean, but of course, the PEAR program and other variants on the Ocean platform.

I also just want to add one thing on sustainability.

On our flexible lease program, we are working on actually keeping the vehicle all the way to end-of-life and recycling the entire vehicle.

So if we lease it out for 12 years, which I would consider pretty much end of life, we are recycling the vehicle after that.

So you are looking at a complete closed circuit really.

Not to mention, of course, the fact that we will get a lot more profitability out of each battery being able to lease this vehicle over 12 years, you're talking about more than 250% margin on these vehicles long term.

That's some helpful color.

And one more, if I could squeeze it in.

Obviously, you guys are a outside party to this transaction, but it was announced, was it a month or 2 ago about the Foxconn's plants to try to buy the Lordstown, Ohio plant from Lordstown Motors.

Has there been any discussions between you and Foxconn about the potential for making payers at that facility?

Should that deal go through?

Or any color on potential production facilities for the PEAR?

Yes, I think we already mentioned that that's our intent to produce the PEAR in that facility.

It's a giant facility, which can probably get up to close to 0.5 million vehicles a year.

So again, that gives huge potential for us and the growth of the PEAR.

And initially, we were looking at a greenfield that would have started with 150,000 vehicles a year.

Obviously, in that facility, if it turns out, we're a lot more successful than we thought we could be, then we could cater more up to the 250,000 vehicles that ultimately is our own goal short term.

Long term, I think we can sell much more than that.

But it does allow us to move a lot faster and we are constantly in contact with Foxconn as we jointly work on the PEAR program.

And of course, we are discussing not only the place on manufacturing because that, I think, is sort of determined, although, as you mentioned, Foxconn have to do their own final deal.

But if that deal comes through, that would be the place.

But we are also looking at intelligent manufacturing in terms of being able to take cost out of the vehicle.

And as I mentioned earlier, we have an extensive program within Fisker of sharing parts with the Ocean, which means we don't have to go and procure these parts and sort of design them from scratch.

What we can go out to is our current suppliers and saying, actually, we need on that part instead of whatever (technical difficulty) 400,000 a year.

And that means that you're able to lower the pricing for both the PEAR and the Ocean.

So all these discussions are constantly going on.

Thanks a lot, Evan.

Appreciate it.

Aaron, can we go to the next (technical difficulty).

The next question comes from John Murphy with Bank of America.

Very simple question.

What is the 5-gigawatt hour capacity imply as far as pack or vehicle (technical difficulty) chemistries here.

Just curious what you think that implies or what does it imply based on your mix?

We know exactly what it implies, but we're not going to elaborate on that.

Again, we have a lot of -- I think for the customer, it's super important to know the range.

I don't think they need to know the configuration, exactly our battery pack or exactly how we were able to pack it.

That's something all our competitors would love to know, but that's not something that we're here to talk about at this point.

It will probably come out close to the launch because that would take a lot longer than to copy it.

Okay.

And then just a second question.

The life cycle analysis, I'm just (technical difficulty) why you think it's necessary to do that?

And what you think the conclusions will lead to?

I mean, could this put you in a position to do more green bonds or more do ESG cap raises?

I'm just curious what the motivation is there, what you think the conclusions will be, and if that opens a door to more funding?

Well, first, the motivation is we want to be the world's most sustainable car company, we have clearly said that, and we are trying to do everything we can to make that a reality and that takes a lot of work in a lot of different areas.

As I mentioned before, we are going in with the Ocean in a CO2-neutral factory next year.

That's part of it.

And then there's all the materials we use and then there's recyclability.

So it's who we are as a company as a brand.

And Dan, maybe you can elaborate a bit on it.

Yes.

I think the point of the life cycle analysis is it's not enough to just say you have a climate-neutral car or a kind of a low-emission car, you really need to prove it.

You need to measure it, and you need to measure all points of the life cycle from upstream sourcing all the way to end of life, like Henrik said.

And there's actually an ISO standard for doing a life cycle analysis.

It really takes a lot of hard work, but we're -- we have the plan in place.

We're ongoing on that plan and really, the intent is to be able to measure and prove how sustainable our vehicles are going to be.

Maybe one thing I can just add is that the reason I think we have the possibility to be #1 in the world on this point is because we are building everything from scratch.

We don't have a legacy that we have to tear down and get rid of (technical difficulty) We are going all out, and we have gone all of out of this from when we started the company.

It's been a focus always.

It's not a fab we just kind of came up with a couple of months ago.

This is something that has always been one of our main brand pillars and will continue to become the one of the many cars.

Thanks, John.

Aaron, I'm just going to break in for a second.

As we have done every earnings call so far, we've collected retail investor questions from the say technology platform.

I'm just going to go through a few of those.

And then if we have time, we'll get back to the analyst queue.

So the first one, there were several questions about kind of competition and differentiation.

So the first question is what differentiates Fisker from the other EV makers?

What is unique about Fisker's proprietary systems?

So I think we have a unique design that's obvious, and you will see that when we get in the vehicle as well.

The user experience will be phenomenal.

It's a whole new take on what a user experience should feel and look like once you get in the vehicle.

It's headed up by our Head of User Experience here from Microsoft and his team, they're really -- I think none of them comes from the automotive industry, almost.

Most people come from gaming, other areas of the digital industry.

So we have taken a whole new take on that.

I think that's going to be really, really different.

The sustainability aspect, we already talked about it.

I think it's a huge differentiator.

I think a lot of young people today want to identify themselves with a brand that stands for something meaningful and we have already seen that in the over 18,600 orders or the reservations we have.

The powertrain performance in our class is fantastic on all levels.

That includes, as I said before, class-leading and range, but not only that, we have a very unique system in our price range that makes it pretty much feel like a Formula 1 driver or makes you drive extremely safe and I see with conditions, and it's something we will elaborate on when we launch the vehicle in 2 weeks.

It's phenomenal.

I've driven it, gone out on a test track and being able to drive our vehicle, about 10 miles faster through a corner than any other vehicle without this device.

So that's something that we're going to be talking about.

And then I think the value for money.

Everybody is going out, making luxury EVs, and quite frankly, I think we're going to have a flooded market with luxury EVs.

And even the traditional car companies are made luxury of EVs.

We are tackling the market, not just in the little tin can hatchback on the 40,000, we are attacking the market with the most (technical difficulty) type of vehicle in the world, which is an SUV.

And I think you're going to be impressed, and everybody's going to be impressed when they see the value for money we're able to give in this vehicle.

And part of it is that we have been able to work with our suppliers very closely on getting the right pricing because they've believe in our volume because they believe in the design and the desirability of the vehicle.

Don't forget, the suppliers have access to all the secret details behind the curtain of how our vehicle is going to perform, you have access to how it truly works, how it truly is going to be experienced, and they believe in us.

And that's why we have a lot of amazing long-term partners like CATL stepping in to be part of this adventure.

Thanks, Henrik.

Next (technical difficulty) about the solar sunroof, how much power will it generate or how useful is it?

Burkhard?

Yes, thanks for the question.

So at this point, we believe that under good, not perfect, but good conditions.

The technology can generate around 1,000 miles per year of completely climate-neutral free driving.

There's a lot of IP in this technology.

We developed our unique converter to enable direct charging of the high-voltage battery, the solar roof.

So to understand the question directly, we believe the optional solar roof will be very useful.

And more importantly, expected solar cell technology gets more efficient and lower in costs over time, which is why we are very excited to believe we are on the cutting-edge here.

Maybe one thing I just want to add to what Burkhard just said and it kind of showed in a different way.

We also internally calculate out what it would mean for the average driver for every time you would completely charge the vehicle.

So if you think about some sort of - what is the total range of the vehicle, I would say the way to look at this as well is that they could increase the total range of the vehicle about 25 miles, if you calculate out how many time to charge the vehicle over a year.

So there's many ways to look at this and obviously, yes, you do have to live in an [area] where there's a fair amount of sun, but most of our vehicles right now are actually reserved in those areas.

Got it.

Thanks, Henrik.

We also had a bunch of questions about sales and marketing.

As you would imagine, a couple of weeks before the auto show, the simplest one was what can we (technical difficulty) the Fisker Ocean launches in '22.

We've covered a lot of that, anything to add?

Yes.

I think a couple of things I didn't add was we're going to, of course, have media drives next year.

And then, of course, later, really, in the end of '22 or probably more in '23, we're going to start with customer test drives.

But also leading up to all that, I think it's about creating brand awareness globally.

And as I mentioned before, we do have 2 amazing creative agencies that we have hired, together with our creative teams we are creating campaigns that we're going to launch all over Europe and all over the U.S. and they're going to be starting that launch already in the 17th of November.

So I'm really confident in our marketing plan, I think, is phenomenal.

And when we show the first experience center sometime I think in the second quarter next year in L.A., we have also taken a very different approach there.

It's going to be really, really different, super cool.

I think that will attract a lot of attention as well.

Great.

Thanks, Henrik.

Can we go back, Aaron, to the analyst queue?

We have a little bit more time.

The next question is from Jeff Osborne with Cowen.

I had 2 quick ones.

One on the commonality between Ocean and the other platforms.

Can you talk about what the longer-term OpEx and CapEx implications are of that?

And the second question I had was just if you could further elaborate on the decision to use silicon carbide, what the incremental cost is relative to the incremental range that we're be getting?

So I think on the second one, just to add that first.

I don't think we want to give anything away to our competitors on that one.

But I wanted to highlight that we have that high-tech in all vehicles, even in the vehicle at $37,499.

And I think that's what's really unique, and that comes back to the value that we offer to our customers.

In terms of the shared parts between all our platforms, actually, we have spent a lot of time internally looking at how we can drive down costs long term by using common parts in many areas of our vehicles.

It's still a program that we're in the middle of executing.

So we'll probably maybe talk more about that later, but maybe Geeta has a few things do you want to talk about in terms of the CapEx?

Yes.

Jeff, great question.

It's Geeta here.

So Jeff, if you look at the Ocean in terms of OpEx, I'll focus a little bit on R&D and where we spent money.

We obviously have hired, as we said, over 300 people, and we'll keep hiring.

So we are developing a culture of engineering.

We're developing deep-learning and vehicle integration.

Second area, we obviously have third party suppliers, Magna Steyr is a development partner.

And again, we've learned a lot together.

Third area is we have supplier ED&D, so that's clearly the synergies that Henrik talked about, where there are certain carryover parts, where once you've engineered them, you simply carry over the data and that creates the commonality of parts in the fourth critical area, which Burkhard talked about, I think last earnings, and today as well, is everything you do in prototype and testing.

So to create a globally-mogulgated vehicle, all your crash models, your CAE, how you truly look at optimizing, testing?

How do you look at data?

How do you put together a very high-quality vehicle?

So those are clearly the key areas.

The other area when it comes to OpEx, it's obviously software.

So all the different control units, different parts, you've got to program software.

We're learning as a team and clearly, you can carry over some of that stack, some of that coding on to your next-generation of parts.

Now all of that OpEx you can use across all your various different models.

Now let's come to CapEx.

In some cases, we might be able to use existing tooling, increase capacity, lower the cost of parts across Ocean and other models.

But in some cases, for example, when it comes to body in white or it comes to Class A parts or it comes to heavy parts, we may have to do local stamping.

So I think that there'll be huge synergies, a lot of (technical difficulty) thing and more importantly, we'll also be able with the commonality of parts, achieve our aggressive time lines.

The next question comes from Pavel Molchanov with Raymond James.

I remember earlier this year, you were lobbying for an adjustment to the EV tax credits, partly to make sure there is a cap on the vehicle price of eligibility and it looks like something similar will be included in the build back better plan.

Given what you've seen from that -- from the legislation, are you happy with how we turned out?

Well, first of all, when you say lobbying, I just want to make it clear to everybody on the call, we don't spend any money on lobbying.

All lobbying is our internal communication team, putting things on the Internet or in LinkedIn or wherever you can do it.

And of course, (technical difficulty) will call somebody.

But coming back to the plan, are you happy with how it turned out.

I don't think it's turned out yet.

I don't think it's been voted in yet.

And I personally -- I don't want to talk politics, but I personally doubt it's going to be voted in exactly this way because if you have noticed, there is pretty much every major product company in the world, except for the 3 big ones in Detroit have pretty much spoken out against this plan here.

It also violates agreements that the U.S. have with Canada, Mexico and Europe.

So I think it remains to be seen whether it comes out this way as it is now.

However, I could imagine, and I think it still makes a lot of sense to have a cap on the price of the EV that gets a tax credit.

And I think whether it's going to be whatever is proposed now, maybe not, but I think that will kind of come a cap and I think that's, of course, a big advantage for us because we have a very affordable vehicle, and it's a vehicle that pretty much fits in everybody's dry way.

It's something everybody wants.

And with a reasonable good EV credit, everybody might be able to afford, and I think we're standing really, really well against the competition.

In the end of the day, the automotive industry is all about product.

It's not just about size.

We have seen big car companies fail the models because they weren't desirable.

Even if they're the biggest in the world.

You have seen some of the biggest car companies lose huge amount of market share.

I think the market in 5 years will look nothing like it looks today.

I think by 2030, 50% of all vehicles sold will be sold by none of the traditional car companies we have today.

So it's an exciting time, and we're really excited to take part of it.

Okay.

And let me follow-up on the mix of reservations.

You've broken out, thank you for that, between fleet and consumer.

Can you also give a geographic breakdown, for example, North America versus Europe versus China?

Yes.

We don't -- we are not taking any reservations in China at this point.

We're in the middle of setting up a Chinese entity that should be set up later this year or, I think, within a month or so, fairly quickly.

And we need to have a Chinese entity to be able to actually take reservations because of data protection, taking deposits, and all that stuff.

So that's going to probably not happen before beginning of next year and I'm really excited about that.

I think we have a huge potential in China.

In terms of geographically, between U.S. and Europe, we have done, I mean, zero brand awareness in Europe.

We are going to go to a European event next year, end of February and that's really when we start the big push over there.

So right now, just of my top, I would say, it's probably about, I would say, 80%, 85% of our reservations come from the U.S. or North America.

But I expect that to rapidly to change to close to 50-50.

It could even go higher in Europe.

When we think about -- in (technical difficulty) about half of all vehicles in Europe are sold business-to-business, meaning large banks or other companies are buying vehicles or leasing vehicles for their cars -- for their employees as an incentive because of certain tax rules, et cetera.

And we have already, as you know, secured several of these orders way ahead of even getting any specifications for our vehicle.

So we see a huge potential for our type of vehicles to be sold into these B2B.

And also, we are targeting the top 100 companies in Europe that is focusing on ESG and sustainability.

And we think we are the most attractive vehicle on the planet right now to them.

And alone between these companies, you're talking about hundreds of thousands of vehicles, and I think we have a very good chance to take a huge chunk out of that in Europe.

So we'll see where it goes, but I have high expectations for sales in Europe or reservation in Europe on B2B.

Aaron, we have time for one more question, please.

The next question comes from Itay Michaeli with Citi.

Just 2 quick ones from me.

One, just about back to the Ocean, with most of the sourcing now largely complete maybe just talk about how you're feeling about the prior gross margin target for the company at sort of the mid-range ASPs?

And secondly, maybe for Henrik, you mentioned flex lease a couple of times on the call.

I'm just curious, just how prominent will flex lease be as part of the initial strategy for the Ocean?

Meaning how comfortable are you taking the mix of flex lease to something that's still very material, very high in terms of the overall percentage of volume?

The flexible lease, I think, is a huge competitive advantage.

However, it also is, of course, a product that really starts to make you a lot of money about 3 to 4 years later.

And after 4 years, you're kind of printing money because your car has been paid off, you're just -- I mean, you're just having ownership of a product that somebody is just paying you money for every month with little or no service and on top of that, we can sell various products over-the-air to these customers again and again and again every time somebody new comes in.

And like I mentioned, over a 12- year period, you're talking about more than 250% profit margin.

That's without selling any additional products.

So it's a phenomenal, I think, product that we have come up with, and it's something that traditional carmakers probably can't do because of dealers, and we can do it.

So I'm super excited about that.

And we have some internal discussions about how fast we roll it out.

I think we're going to -- we're definitely going to go up and test the waters immediately when (technical difficulty) with a fairly lower number of vehicles because we're still a start-up, and we'd like to get some cash in first.

But as we sense the orders, if we see that this is a huge success, we can obviously decide together with the right financial partners if we want to take a much bigger market share than we have planned right now.

And I think there's a good potential that we most likely will be rather in a situation in the beginning where we probably can't build enough vehicles in the very beginning to fulfill the market.

But (technical difficulty) full ramp up, it could be a way for us to increase our market share faster than we have planned today, in my opinion.

Yes, Itay, I'll take the question you asked about gross margins.

So I think we feel really good about the content we put in the car and the margins with respect to the content we've put in the car.

Obviously, the world is still in trauma when it comes to logistics, and there are still some unknown.

So I think, hopefully, as we get closer to our ramp-up and volume deliveries, we have more visibility on there.

Now what -- let me touch on a couple of super exciting things.

So the first thing is obviously, with the battery announcement, which being the biggest share of the bomb, we are very excited about what we've achieved for the volumes.

And I think with our relationship with CATL, it's only going to get better.

The second thing I want to say is that when we originally were sourcing, commodity prices were quite high and we feel good where we are with the bomb, and we need to monitor where commodity prices go up.

Now one thing that I'm going to highlight, which is really exciting, that there is obviously the difference between aluminum and steel.

And the research we've done shows that steel futures, they look far more favorable than aluminum and there is always some upside and downside risk.

But I think based on what we source the car and where we see the commodity pricing, I think we are in a really, really good place.

We're in a very balanced place Itay.

I just want to add one more thing about the flexible lease and the potential.

If you saw the announcement about Hertz, which wants to lease a vehicle, Tesla to Uber driver for $300, I think it was about $330 a week.

I mean, it's about $1,300 a month.

We are leasing our base vehicle out in the flexible lease with $379 a month.

So I can double that price, make 100% profit margin, and I think both the Uber guy and us will be really happy.

So there you see the advantages we have.

Thanks a lot, and thanks, everyone, for joining the call.

Aaron, that's all we have time for.

So if you could close out the call, and we'll talk to everybody next quarter.

Thanks, everybody.

That concludes the Fisker Inc.'s third quarter 2021 earnings call.

Thank you for your participation, and enjoy the rest of your day.