菲斯克汽車 (FSR) 2021 Q2 法說會逐字稿

Hello, everyone, and welcome to the Fisker Inc. Second Quarter 2021 Earnings Call. My name is Brika, and I'll be the moderator for today's event. (Operator Instructions)

And I will now hand over to your host, Dan Galves, to begin. Sir, Dan. Please go ahead, and you're ready.

Thanks a lot, Brika. Welcome to Fisker's earnings call, everyone. Joining me on the call are Henrik Fisker, Chief Executive Officer; Dr. Burkhard Huhnke, Chief Technology Officer; and Dr. Geeta Gupta-Fisker, Chief Financial Officer and Chief Operating Officer. This quarter we also have with us Christian Marti, our VP of European Marketing, Sales and Service, to talk about our recent investment and partnership with Allego.

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 in financial periods are subject to risks, 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.

And with that, I'm happy to turn it over to Henrik.

Thank you, Dan, and welcome, everyone, and thank you for joining. I'm really pleased with the progress we have made on the 2 vehicle programs we have made great progress in growing our team and also built some serious relationships with some really big suppliers, some big business partners. And of course, we are really far, far along with our supply chain. We have announced some I think great supply deals lately that we'll talk a little bit about. I also have a lot of confidence in the fact that we are on time and on budget.

On the Ocean program -- I know I sound like a broken record and it's boring, but I think in this case, the broken record is quite good to be -- keep on saying that we are on time on the Ocean program and we're on budget. Really, really important. And that really comes down to the execution that our team, internal team here in engineering, purchasing, design, finance have done in this program, of course, together with our partner in this program, Magna, and all our suppliers and our supply a purchasing organization. We've done a great job to bring in suppliers that is helping us stay on time on this program.

We have also made tons of progress on the PEAR program. The ability to actually execute 2 vehicle platforms -- 2 different vehicle platforms in this stage as a start-up company is quite unique. I think it really validates our strategy. I don't think there's any start-up ever, even any U.S. start-up, that actually have developed or started to develop 2 platforms simultaneously despite probably having some of them having raised more billions of dollars than we have. And I think it really shows the strength of our business model, the strengths of our team, and of course the strength of our partnerships because we do have 2 amazing and 2 different partners. And I think that really sets us apart.

In terms of our balance sheet, it's really strong. And of course that is because we have a really strong internal control system with our finance team, our purchasing team and our engineering team. But I think what's really important to notice here and something maybe a lot of people would miss. The fact that we have over $950 million on the balance sheet and we raised over $1 billion last year, you could think why haven't we spend more money. Well, the reason is that we actually have some amazing suppliers that sees us as a very, very viable business.

And you mustn't forget that suppliers actually get behind the curtain. They actually see our business model. They see our vehicle. They see the technical specifications. They see our detailed production planning and only then a supplier decides whether they want to work with this company. And then they decide what are the payment terms for this company? Are they going to be normal? Or are they going to be different where you have to pay a whole bunch of money upfront.

And I think we have shown that we have credibility with our suppliers and therefore, we're able to conserve the cash in this manner. And therefore, we're able to get extraordinary support from all our suppliers, which I think is really the reason why up to this point, we are doing so well and we haven't announced any delays or any overspending when it comes to our Ocean program.

Also we have, of course, added some spending this quarter here when it comes to our internal spending on engineering and testing. Specifically testing, as you know, we have developed something we call FF-PAD, which is the Fisker flexible platform agnostic design. And that's really a development -- an accelerated development method, which allows us to bring in new technology very late in the program. So today, if you buy a brand-new vehicle, most likely that technology was selected 3, 4 years ago. But in our case, we have product as close as 18 months before we launch the vehicle. That's probably similar to some electronic industries like the smartphone industry. So you will get really the latest technology from Fisker. And because we've been able to select some of that new technology, and we'll show you that in November this year, we also have to do some more testing and we have decided to do some of that testing in-house because we want to make sure that we get the right customer attributes. So that's a really important thing for us.

And finally, Geeta and Christian will touch on our recent corporation agreement with a large European charging network, Allego. This will benefit our customers. And I think really create a competitive advantage for Fisker in Europe. They have thousands of charging stations. And Christian, our VP of Marketing over in Europe, will go into that in a moment. We, of course, also will take care of our U.S. customers.

As you might remember, we signed a deal with Electrify America, the largest group of independent charging stations in the U.S. And if you think about this, it took another pretty famous company probably about 5 to 7 years to build out a charging infrastructure in U.S. and Europe. When we start with the Fisker Ocean end of next year, we will offer our customers between Electrify America and Allego, a larger charging infrastructure, straight out of the gate. We don't have to build this up. We don't have to spend billions of dollars doing that. We will integrate our app seamlessly with these 2 charging groups and I think this will really be a unique experience and a competitive advantage for us.

Finally, let me talk a little bit about in detail on the Ocean program progress update. As I mentioned, we are on the track for SOP on November 17, 2022, so November 17 next year. All the agreements with Magna for platform sharing development and manufacturing and our final, we have gone into a lot of detail on prototyping, testing as well as the ramp-up phase in those agreements. And of course, this also means we have a clear visibility on cost as well. So that's something that's extremely important. And I want to also give you some detail on why we know we are on track. So we have a handpicked experience team that has grown significantly.

In fact, a little faster than we originally anticipated and is consistently delivering to the engineering supply chain time lines. We also have the robust engineering process and gateways that ensures anything falling behind is highlighted early. And let's face it. I mean this is the kind industry. Nothing is going to run absolutely perfect all the time. But the key here is to create a culture where any issue is highlighted right away and where you work collectively to find a solution and remain on track. And it's also important that you have an internal tracking system where you immediately can see contingency plans and you catch up and make sure that you actually bring anything back on track that might have fallen behind, which it always does, but the key is can you bring it back on track? And so far, we have been able to do that because we really have created an amazing internal tracking system.

We have, of course, as I said, already reached not only full design freeze, but also, we have frozen all specification of the vehicle. We have already finalized our 3 variants. We're going to have the first variant called the sport. We've just got rid of sort of the base model, calling it a base model. So instead, we call the sport because we actually required a lot of equipment in that phased vehicle. So we call that the sports.

We get the sport package with the original price of $37,500. Then we have 2 more models where we upped the power. We add a lot of options, a lot of technology to these 2 other options, and we're going to announce details of that and pricing of that in November this year. I would expect that our middle vehicle sort of middle price will be the biggest seller of all the vehicles, and we have a great profit margin on that vehicle as well. We have a robust process for testing, a validation, homologation and certification that are, of course, signed off, both by Fisker and Magna and our supply chain. And why is that important? Because, of course, if you are a start-up company and you just make your own car somewhere, you can obviously decide to skip some of the important testing. And therefore, risk quality, maybe even risk some safety.

In our case, we are following very tight guidelines together with Magna and our supply chain to make sure that our vehicles are fully tested, to get the best safety ratings and right out of the gate, we want to deliver the highest quality vehicles.

Now as I mentioned earlier, this decision of the in-house capabilities is something that we are building up because this will be important for the other vehicles that we are going to be launching in the future and as we have accelerated the PEAR program, we are already using this cross-functional ability, both on the Ocean program and on the PEAR program. And as you know, we are actually working on 2 more vehicles, not as intensively as the Ocean and the PEAR. But these vehicles, the 2 next ones, will also benefit from this in-house homologation testing and validation and ultimately, that will actually save us money.

We also are already seeing benefits between these 4 programs of carrying over parts that Fisker have uniquely designed. And that's something that's going to benefit us later down in -- when we start looking lowering the builder materials, higher volume for parts, et cetera. So bottom line, a lot of work ahead, but pieces in place. We have a high level of confidence for the execution phase. Until production of the Ocean starts next year, November 17.

Let me give a little bit of a marketing update. I know a lot of people ask about marketing. And of course, we have actually a really, really exciting marketing plan, but I don't really want to go out and use up the gunpowder too early. So we decided to really kick off this marketing plan simultaneously with the launch of the Fisker Ocean production vehicle in November at the LA Auto Show. And by the way, if for whatever reason LA Auto Show shouldn't go forward, we already have a plan B. So we will be launching our vehicle in November. Maybe it's an open air event or something else. We have a couple of ideas for that. But when we get to November, that's when we are actually going to reveal some of these new technical details that we have.

In terms of the marketing, we will start really spending on marketing from November and of course into 2022 where we are opening experience centers. We are sending several other automotive shows event. We are creating some really unique, I would say, unique partnerships, some unique events, something that nobody else have done before. We're going to go heavily into digital marketing. We have a lot of great collaborative partners and ambassadors that we're going to unleash next year. We already have signed up our vehicles for a couple of different television series that we're going to get into. So believe me, we are going to go all out from November this year.

Now one of the things that a lot of people are asking as well is what are the main reasons for buying a Fisker Ocean? And what is the advantage over the competition? Well, let me just sort of maybe go through a few of them here. Design, we are a design-led company. And as we move into electrification, let's not underestimate the value of design. Because in the end of the day, when you used to buy gasoline car, it was about how the engine sound, how smooth with the gearshift. Well, those things are falling away. So I personally believe design is going to be more and more important. And who wants to drive a boring dorky car if you can get a good-looking car for the same price and even faster, even better, have more technology. So I think design is going to be one of the leading things specifically in the marketing segments that we're going in. I mean, we're not making minivans, and we're not making delivery trucks. We are making vehicles that people save to own or making vehicles that people are proud of the people want. So I think design, we are the leader in that.

Sustainability, number two. Sustainability I think coming out of COVID is going to be one of the key differentiators for us. I think today's consumers want to align with the brands they buy. You're spending a lot of money on a vehicle and if you can get a vehicle that is not just another electric vehicle, but actually one of the world's most, and I believe we can make the world's most sustainable vehicle, I think that's a really, really strong brand pillar. So sustainability and ESG is actually one of our highest, highest brand pillars.

Then of course there's the value. And when you think about, you hear an electric vehicle is expensive compared to what. So you compare electric vehicle in a certain price class to what else can I get from my money if I look at the amount of vehicle either it's electric or it's gasoline. And I will say the Fisker Ocean without 3 price points that we have and the amount of technology performance we have in these vehicles, we are, I would say, amazingly competitive. Now you're going to judge for yourself when we release the final data in November, but I think you'll be very surprised. And I think that's going to be another differentiator for the Fisker Ocean.

Then overall vehicle performance. Vehicle performance is also dramatically, in my view, going to change. Yes, we know you can make a fast electric car and the talk about rains and all that. But in the end of the day, how is this vehicle performance relating to how you drive and what you do with this vehicle in the daily life. We will have amazing performance options for these vehicles. So don't worry about that. I'm a car guy and I love 0 to 60. And by the way, I also think we're going to achieve potentially the longest range in the size and class of price as a vehicle we're in. That's something that I'm fairly confident then.

And then of course there is the battery pack management system. The drive unit itself, how it performs, what can it do? And because I think a pretty big surprise in terms of how this vehicle is able to handle. And in my view, I mean, I went out and I tested our powertrain on the test track and I was just blown away. It actually makes you feel like a Formula One driver what this vehicle can do. And it's not just about the acceleration, but actually how the vehicle handles. I currently have never driven an SUV that handles the best -- better as good as the Ocean and have the type of responses that a Fisker Ocean have. So I'm super excited about it.

Finally, I mentioned SUV, and that's exactly the keyword here. It's probably pretty easy to go out and make another hatchback crossover, get a little bit good CD figure and all this stuff of stuff, but how do you truly make an exciting vehicle that people really want. And again, there is 0 doubt and the data shows us that the highest growing segment in the world is SUVs. And I think we have a pretty hot one and I think this is a big differentiator.

Five is user interface. We have a great person leading the team in user interface, interacting with our engineering team and they're working seamlessness together to create what I think is going to be the world's best user interface. My mandate to them was, I want to feel when I get in this car, how I felt the first time I got an apple iPhone in my hand. It was a moment of is this really going to work? And then there was, wow, I don't need to read anything, it just works seamlessly. That's the type of feeling I want into Fisker Ocean.

I'm sitting in the reviews and I think we're on the way to this. It's not an easy path. We do it in-house, we're coding in-house. We're developing in-house. It's going to be fully connected. It's going to have a totally different way of using it, but I think it's going to be very intuitive. And of course, it's going to have a lot of opportunities to over their updates. So we are going to excite people with new features as we move along into 23, 24 and 25 and so on.

So I think the exciting part is we're going to be able to keep this vehicle fresh and keep updating it with new exciting features. And then just the last thing. That's one of my favorites is one unique feature, which we have talked about previously as the California mode, which creates this convertible field by the touch of a button. It doesn't matter how much money you spend on a car. Even if you would buy a $3 million supercar, no other car has that feature. You know what, once you try it, it's pretty amazing. And to be able to get it in this price class is quite unique. I'm excited about that too.

Let me finish with ESG. It's, as I mentioned, an important pillar in the company. We continue to make significant progress on implementing ESG goals across our business. In fact, there are doses of ESG deliverables assigned to various apartments within Fisker. And most importantly, we aim to produce the world's most sustainable vehicles. And that goes all the way into our supply chain.

You might have noticed we just announced a supply deal with Bridgestone. And I know it might not be too excited about reading details about tires, but we spend a lot of time to figure out who makes the world's most sustainable tires? And what do they do, not just the tire itself, but in in the way they get to this tire, how they actually develop and certify it virtually and all that. And that's what we do with every single supplier, again, also, of course, Magna being the fact that our vehicle is going to be produced in a CO2 Neutral factory already next year I think it's pretty amazing.

Finally, in terms of the Fisker Ocean, we obviously have other ideas about ESG and some long-term goals that we are working on within the company. We set the goal of making a CO2 neutral car by 2027, that's 3 years earlier than anybody else has announced they're able to do it. The team is aligned, they're aligned behind our brands. And I think that I can really feel within Fisker that we are really -- we are going to be the best in ESG. I'm convinced about it.

So thank you very much. We'll take some questions later on details, but I now want to hand it over to Burkhard our Chief Technology Officer to provide us some detail on how he is directing efforts to develop 2 platforms at the same time, not an easy feat, and something that is only possible through a unique business strategy and partnerships. Burkhard?

Yes. Thanks, Henrik. As you mentioned, developing 2 vehicles at the same time on separate platforms is unique for a small, early stage company like ours. It's no doubt very challenging, but there are a few things I'd highlight that make it possible for us, but likely not for others.

#1, 2 programs at once would not be possible without our FFPE platform sharing and vehicle development strategy, which was specifically developed to leverage already developed noncustomer-facing components and to engage with expert partners for engineering and supply chain support. So each program is strategically directed by us. But with the support of hundreds of engineers to purchasing experts from Magna for Ocean and FM 29 and Foxconn for PEAR and FP 28.

So then #2, geography is on our side. The partner for Ocean is in Central Europe and PEAR in Asia. So we can essentially work around the clock using time zones as an advantage for us. And let me say, #3, Fisker Ocean development because of its -- of that vehicle affordability lays the foundation for the development of other affordable vehicles like PEAR. In other words, there's less work on the second program when a meaningful number of components and subsystems have already been developed for the first and can be shared. So this would be impossible if we attempted a mass market vehicle after starting with something in the high-end luxury market.

Finally, we have hand selected a brilliant experienced technical team, as you pointed out, Henrik, that has executed many programs before, but not under our FF-PAD development process. And now that they have experience with the Ocean under the new process executing the second program a year later, efficiency improves due to lessons learned, but that's still fresh. Thanks.

And now I turn the call to Geeta.

Thanks, Burkhard, and welcome, everyone. I'm really excited to be talking to you again this time, about 1.5 weeks earlier relative to the end of the quarter as we continue to build our finance processes and look to report on a schedule consistent with more maturing public companies. Our growing product development and purchasing teams are adapting daily to rapid decision-making, executing to an aggressive timeline and that sense of urgency within Fisker, our partners and supply chain. And this is the message we are driving every single day to achieve our target SOP on time, on budget.

In addition to business development and on-track negotiations, I've continued to devote substantial amount of my time on purchasing side and with our supply chain. Supply chain has been a very big focus at Fisker. Since we are a start-up, we have no products on the market and we have no pre-existing relationships with suppliers. We continue to excite suppliers with our asset-light strategy, our rapid decision-making process, the ability to scale by sharing parts across multiple programs and a sequential cadence of product launches. And most importantly, our growing potential customer base, the fact that customers want our vehicles, they have a growing deposit base is critical to excite our supply base.

As a start-up, it is certainly not a given that suppliers will pick up the phone when we call. We have been able to source many components consistent with traditional OEM pricing. Some lead source below industry benchmarks. Now this is particularly the case with more tech forward components where cost and efficiency is improving year-on-year. Our faster development time line allows us to source closer to launch and take advantage of those steady cost improvements in the supply chain.

However, there are some suppliers who continue to build in risk premiums for start-ups as they have experienced several setbacks with other entrants in this space. Now in these situations, we are managing to navigate by agreeing to revisit pricing once we achieve certain volumes.

The comments that Henrik made by Bridgestone and Bridgestone made in our recent joint press release and they called out Fisker's mission to make EVs accessible and our commitment to sustainability, highlight that we are seen as an enticing customer for global Tier 1 auto suppliers. We've also made significant progress with suppliers, and I believe the perception of Fisker's as a compelling partner will only improve as we continue to execute build demand and brand awareness over in the near term.

Beyond the bond, assembly and logistics costs have also gained visibility as we spent second quarter nominating several key suppliers and now have more visibility on part production locations, material, labor and local costs. COVID-related disruptions continue to create a volatility in logistic costs, but we anticipate these costs to normalize when we reach fully ramped up production in excess of 5,000 Fisker Ocean units per month during 2023, which will contribute of course to our revenue and our cash flow targets.

We also entered into a long-term definitive manufacturing agreement with Magna Steyr to produce the Fisker Ocean in Europe. This very critical agreement is broad-based and very comprehensive. It covers planning and launch phases, annual volumes, complete assembly costs and quality metrics over the program's entire life cycle. It covers all facility investments, a clear path to start-up production in November 17, 2022, and a rapid ramp-up to full run rate production for quality vehicles in 2023.

Also in support of an on-time launch cadence, we have begun to provide supplier quality assurance or SQA, support and embed resident engineers at key suppliers to ensure the need of program timing and quality standards. We have also made progress on groundwork to set up business subsidiaries in India and China for future sales and in India, specifically for our software development center in these markets, and there's more to come as we move forward in these countries. Before getting to the results and outlook, I wanted to quickly highlight an exciting activity we recently announced on the charging side. We subscribed $10 million to the pipe associated with the reverse merger of Allego with is PAC sponsored by Apollo expected to close in Q4 of this year. This was a strategic opportunity for us to invest in a leading European charging network, but more importantly, to get access to a unique opportunity that will benefit our European customers substantially.

Now let me quickly turn you over to Christian Marti, our VP of European Sales and Marketing, could provide a bit more detail. Christian?

Thank you, Geeta. Yes, we are very pleased about this opportunity. Allego is already a large pan-European charging network with over 12,000 locations across 12 European countries, and is in the process of expanding its number of innovative fast charging stations. One of Fisker's key priorities is to provide a frictionless experience to our customers. Public charging is one of the priority areas. Why? Because finding, accessing and simple payment across the different networks is currently a team point for many EV adopters.

Prior to making this investment commitment and entering into a partnership agreement, Fisker performed its own due diligence on the Allego network. We developed the cooperation agreement with the aim to directly benefit our European customers. In various ways, this is a unique competitive advantage for Fisker over our competitors. Under all of our operation agreement, we plan to work together to develop seamless integration of our legals network onto the Fisker app under the guidelines of the new ISO plug-in charge standards. We expect this to allow our customers auto identification and payment when charging the vehicles. This new alliance will allow us to offer 12 months of free charging on the Allego network, the Fisker Ocean customers that registered the vehicle before March 31, 2024.

Thank you. And now I'll turn the call back to Geeta.

Thanks, Christian. Now turning to our results and outlook. Q2 results on a cash spending basis were better than our internal expectations and the commentary we provided on the last earnings call. We ended the quarter with $962 million of cash versus our expectations in the $900 million range. This variance was almost exclusively related to capital expenditures, which were minimal in the quarter. Our Q2 expectations were based primarily on projections, which, over the last several months, turned into nomination letters and purchase orders, which -- with milestones attached and deliverable based payment terms. This creates a former cash flow forecast for the program.

Operationally, the increase in R&D versus Q1 21 was primarily the result of increased headcount and continued kickoff of more and more suppliers, which drives engineering design and development spending. The increase in SG&A expense versus Q1 2021 was a result of higher headcount costs, including stock-based compensation as we ramp up support functions like marketing and after sales in front of Fisker Ocean start-up production in 2022.

Turning to our outlook. As noted in the press release, we are fine-tuning our operating and capital expense spending plan to a range of $490 million to $530 million, up about $30 million at the midpoint, with somewhat a tighter range than we previously reported in the last quarter. The increase is largely related to incremental prototype and testing spending in 2021. I just want to point out that whilst we are incremental, we are also narrowing our guidance. There are really 3 drivers: #1, more advanced technologies such as ADAS and powertrain versus our original plan are driving incremental test and validation work. #2, recently, there's have been changes to Euro NCAP and IHS safety regulations. And our platform and technology can support this, but the testing process is more intense.

#3, we have made a strategic decision to develop internal capabilities for full vehicle test and validation instead of relying solely on third parties. What this will do is allow us to better control for vehicle features and customer expectations, it will also save us money on future programs, but driving incremental spending for virtual validations of tools and head count this year. As for quarterly cadence, given the substantial sourcing activity in Q2, we expect that the balance of 2021 spending will be focused somewhat more in Q3 than Q4.

Now one final comment. The company intends to implement an enhanced goal-oriented performance incentive program for all our employees in connection with our anticipated start-up production of the ocean on November 17, 2022. This is an extremely important driver and incentive to align everyone at Fisker to jointly execute to the Ocean SOP date and subsequential ramp-up in 2023. This is a once in a lifetime opportunity for all Fisker stakeholders for all our employees to be part of a high-volume EV launch on time along with a very attractive compensation incentive.

Overall, I'm extremely proud of the entire Fisker team for all the accomplishments so far in 2021. We have a lot of work ahead of us, many sleepless nights. And for sure, to the critical execution phase, but we have a lot of confidence in the plans we've established to execute a fantastic, profitable product on time on budget. We're now happy to take your questions.

Thanks, Brika, can you collect the queue, please?

(Operator Instructions) First question we have comes from Adam Jonas of Morgan Stanley.

It's Evan Silverberg on behalf of Adam Jonas. Quick question. What is the latest on your battery supplier? When is the latest this can be locked down without risking the November start of production for the Ocean?

Well, let me just start by saying, we already are in prototype development with our battery supplier. We just haven't announced publicly who it is. So it's not really like we're sitting here and having chosen a battery supplier. I believe already in the last earnings call, I said we have. I know a lot of our competitors would like to know who it is because I think we'll have one of the most energy dense battery packs. All I would say right now is it is one of the 5 largest cell manufactures in the world, but we really don't want to elaborate any more on that.

Yes. I just want to add to Henrik's comments there. We actually sourced or nominated our battery supplier late last year, and we've been working tirelessly with them on both the design and validation of the entire battery pack. We start to build our meals in the coming weeks. And in fact, we have a very elaborate plan with them on the entire prototyping and testing phase. I think I'd alluded on the last earnings call that we actually have a very attractive price per kilowatt hour, where we are in the processes. We are looking at localization of our packs, both in Europe and North America, and we would be revealing more information about our battery supplier once we lock down those localized plans.

The next question comes from Shreyas Patil of Wolfe Research.

In the press release, you mentioned that you had 17,500 reservations as of August 2. And I believe, on June 29, you had mentioned you had 17,000. So that would imply a 500% increase in reservations over a 33 day period, which is about 15 reservations per day. And it seems like that number has come down versus the reservations per day that you were seeing…

Yes. So hey…

So what's going on? Yes.

Yes. I don't think anything is going on because…

Yes, go ahead.

Yes. I can take that question. So basically, as you know or may not know, we are not spending any dollars in marketing. We have really not announced any specifications of the vehicle. So I think if I were selling your television without selling the size of it or whether it was black and white or color, you probably wouldn't put a down payment on it, so I'm quite surprised that we actually have, 750,500 reservations. Remember, this is not $100 fully refundable reservation. This is a $250 reservation where we keep 10% if you cancel. So a lot of people I think are taking tremendous risk with us, not really knowing what the performance or the cost of the options is going to be in this vehicle. And as I mentioned earlier, we are not planning to start our marketing until November this year. We don't want to blow any marketing money on getting out there at this point in time in the middle of COVID. We believe essentially still 15 months away from launch that is more prudent for us to spend our marketing dollar from November.

Okay. And then I wanted to just understand. So you mentioned the investment with Allego. But I guess I'm just trying to understand how that is a competitive advantage given that Europe has an open and interoperable charging network. So wouldn't anybody be able to access Allego charger? Or is there something exclusive in this agreement?

Yes. So if you read the agreement, you can see that we're offering our customers as part of that agreement up to a year or it's about a year free charge. I don't think that's something you can just go normally and charge for free. So the fact that we can do that, that's a huge competitive advantage that we can offer our customers to buy a lease of just corrosion, 1 year free. Secondly, we are developing a unique interface with a Allego for our app. And that's something we'll reveal a little later, but that's definitely going to be unique. We're also going to have an advisory for seat, so we can actually guide Allego in the direction we think is necessary to be successful. Of course, there's going to be other groups that's going to be able to use these charges. But I think those conditions for us have been extremely important for our first customers. And I think maybe the…

The last point, I just want to -- yes, the last point Shreyas, I just want to add is plug-in charge. Plug-in charge is really important for a seamless experience for customers. And we are also going to be developing jointly the plug-in charger technology with Allego. Christian, maybe he can add some color.

Yes, it's really standard in the European market that you need to identify yourself with the credit card or with a membership card that sometimes doesn't recognize you. And then you have to drive to the next station because that station doesn't recognize you as a potential customer. plug-in charge allows you a seamless experience. To drive to the charging station, you plug in, over the cloud, you get identified, the payment process is automatic. So you drive on once you have taken your charge. So I would call that a competitive advantage.

And just to be clear, you would then be compensating Allego for the 1-year free charging for customers. Is that how that would work?

No. Yes, we have as part of our corporation agreement, a benefit to Fisker, which is passed on to the customers.

So that's just there you go, [because the adventure causes] that we have an investment in the stack with Allego. So this could also be a financial upside for us on top of it.

I also want to assure us that we were the sole EV OEM, and that is one of our conditions. We wanted to have exclusivity as an EV OEM in the deal.

Okay. All right. That makes sense. And just last, if I could sneak one last one in, sorry. Just as you think about localization of battery capacity in Europe, I believe it's -- from what we've seen in the industry, something like $80-$90 a kilowatt -- gigawatt hour. In terms of CapEx for a battery plant. And obviously, you're not going to set up all of that on your own. But how are you thinking about -- as you work with some of the large battery manufacturers, the kind of contribution you would have to make to support a localized plan?

Great question, Shreyas. So we do not anticipate any investment in cell manufacturing. We would leave it to our expert partner who know how to set up cell manufacturing plants. We also don't believe that we have the capability financially or technically to take on that risk. So we leave that to our battery partner, where we come in is to look at battery assembly, where the financial commitment is much different to cell manufacturing. And it's really critical because once you assemble cells into modules into packs, the weight is quite large. And if you're transporting them over long distances, there is a carbon footprint, emissions, there's logistic cost. So that's the part that we want to eliminate at this point in time. And we will reveal in coming months how we intend to have localized plan. We're also looking at doing this with some really exciting key pocketed partners.

And I was -- I just wanted to clarify when Geeta said battery assembly, she was reporting to battery pack assembly, just to be super clear because they're confusing sometimes.

Brika, I'm just going to jump in and ask a few questions that we received from retail investors, and then we'll get back to the queue.

The first one is how are you planning to align the mutual interest between Fisker and Foxconn since the business model is different from Magna? Are you planning to take investment from Foxconn as well?

So we actually do not intend to take any equity investment from Foxconn. We believe that our partners interest should 100% be aligned with ours financially, and Foxconn interests are 100% aligned with ours. And the reason is we have a very unique deal structure where Foxconn is a co-investor in the program, and they are taking on investments in areas of manufacturing and taking over the technology supply chain where we are taking a lead on design on product definition, on product development, and of course, marketing and sales. And as a result, we are both joint owners of the program. We don't think that we need to take any investment from Foxconn in Fisker, since they are investing directly in the program and have equal skin in the game.

Second question is initial press release of your ocean vehicle included many interior photos. However, since then, there are no traces of the interior in your social media campaigning or on your website? Is this an indication that your company is scaling back on the interior aesthetics?

No, I would say it's an indication of scaling forward on this, they and the technology. So I'm really excited about showing and unveiling the new interior. At the Los Angeles Auto Show in November. It is a complete new interior. We have just so many ideas, and we also had some new technology we want to incorporate an interior that drove a bit the design. And I can promise you what we are doing, even with the screen is unbelievable. It's actually something we're finding a pattern on right now. And I think it's going to be super exciting. The quality of the interior, I think, is just going to be standing out between any other vehicle in this class, the quality field, the design, very, very clean, yet modern. But yes, you're going to have to see it and just wait until November, I'm sorry.

Brika, that's it for the retail investor question. Can you go back to the analyst queue, please?

So the next question comes from Brian Johnson of Barclays.

This is Steven Hempel for Brian Johnson. Just had a couple of questions. One around the R&D expense, kind of just a little more color around the reasoning behind the increased R&D expense versus the original plan? And kind of as we think about the midterm economic operating model, how this kind of fits into that? Are we going to potentially see higher ASPS? Or is this just a reflection of competitive dynamics and overall regulations in the industry driving increased? R&D upfront?

Yes. That's a great question. So if you actually look at the guidance, what we've done is we've opted by $30 million. So we are $490 million to $520 million. And we also narrowed it, if you look at the last guidance. Now there are 2 dynamics that are playing here. So the increased R&D expense is, A, of course, as we mentioned, a couple of earnings calls ago that we are adding new content. The second part is that we do have more expenses when it relates to prototypes and testing. And we believe it's actually a really good thing that we're doing that because we need to put new technologies like ADAS, powertrain technology and that is resulting in improved performance in features.

A few months ago, we actually brought in a new VP, who is in charge of Homologation and certification, who comes in super experience, in fact, he certified the Fisker Karma almost 11 years ago when electric vehicles were not the same. Now what we've also decided to do is do more prototyping and certification in-house, we need to spend more money on virtual validation tools on certain other tools, but we can, of course, use these technologies across different vehicles. The other thing I want to point out is that we, of course, have more hiring. We've hired many more people. So there's an incremental headcount as well.

Okay. That's helpful. And then the other one is just related to the -- it sounds like you've developed an extensive marketing plan for the U.S. and Europe, starting with November 2021 at the La Auto Show. Just wondering, can you remind us what -- how you're thinking about unit volumes and the kind of demand split as well as the rollout of the Fisker Ocean between the U.S. and Europe over the midterm?

Yes. So I want to get back on to the reservation. Our target is still to get at least 25,000 reservations by the end of this year, and that's part of our detailed marketing plan, and we're going to be tracking that. So that's going to be quite an acceleration from November to end of December. And then in 2022, our goal is to get 50,000 reservations up to 50,000 reservations. So we will be sold out for '23. In terms of our production, we are starting production.

As we mentioned in November, we expect to do a few deliveries, both in Europe and in the U.S. end of next year. And as we get into '23, I would expect that about 75% of the vehicles is going to go towards U.S. we have seen acceleration in orders in Europe. But of course, the first orders came out of the U.S. So first come first served. We expect also to get up to over 5,000 units per month in '23.

And I think we're going to be easily able to kind of beat sort of our forecast of around 40,000 vehicles in '23. If we can get maybe enough shift then. I'm very comfortable that we're going to be sold out for 23. And of course, people is going to be waiting for the vehicles. So we're going to try and see how we can speed up the ramp-up, but obviously, a ramp-up is a ramp-up. But over 5,000 vehicles a month already in the first year, I think that would be a record among any start-up company.

We now have John Murphy, Bank of America.

This is Aileen Smith on for John. A bit of a bigger picture question, and apologies if you've touched on this at all, I hoped on the call bit late. When we consider the Biden administration announcement from earlier today, the 50% EV sales target in the U.S. by 2030. As you think about the impact of Fisker, would you lean in the direction of the government push being a positive and a catalyst for the industry towards EVs or potentially a negative in forcing certain automakers to respond perhaps more aggressively and competition across the industry broadly increasing? And would you view it in any way as a catalyst for Fisker internally as maybe pushing faster on some of the product plans you have?

So yes, I can take that one. So I think it's going to be incredible positive for Fisker. I mean, let's not forget, it takes still the traditional automakers at least 4 years to make a vehicle. So even if somebody started today to say, okay, we're going to go full speed on EVS, you're looking at probably 2026 onwards. We have already announced that we're going to have 4 vehicles on the market before 2025. And I would also expect the Biden administration to really put a lot of effort in that over the next 4 years, and that's exactly when we are launching our vehicles. I would expect them to put us forward incentives for customers. Hopefully, it goes directly to the sales price.

Now one of the advances we have, which is very unique is our price points of our vehicles. The first vehicle is sort of in the premium segment, but really starting 37.5% or go up to 69%. And of course, even if we sell sort of the average vehicle for 50-55 is where we're going to make a lot of money with a good incentive of that vehicle, we're going to reach a pretty high-volume market. The average vehicle in the U.S., about $40,000, the average purchase price of a vehicle.

But then you think about the payer program, that vehicle was top under $30,000. And if you imagine, there still is a $7,500 of discount in that vehicle, you're now thinking about having a vehicle of $22,500. I mean, you were talking about $1 million -- I mean, 1 million volume segment there and I, quite frankly, don't believe that a lot of automakers would have reached this price point before 2025.

One of the weak things that some of the larger OEMs are facing is that they have to disassembly their gasoline plants before they can do high-volume EVs, they also have no record of high-volume EVs or even a huge clientele that wants EVs. So it's very difficult for them to broaden order parts for 1 million EVs, if they don't see a light in the end of the tunnel to be able to sell them because let's not forget, they make money on the gasoline cars.

In our case, to have 17,500 orders, 2 years before launch. I don't know of many gasoline vehicles that have even 5,000 orders 2 years before launch. So I'm very comfortable that this is going to be a huge advantage for us. And I have big expectations to the Biden government that they actually will put a lot of incentives forward as well as building up the charging infrastructure in the U.S.

I just want to add one more to point to that, that I personally think there's a lot of customers who still are sitting on the fence, and there's a lot of education that needs to be done about electrification products like us who don't have billions of dollars to spend. We rely on such great initiatives where the entire country Unites, and it puts us in the forefront as the leading EV brand.

Fantastic. That's very helpful color. And then I wanted to follow-up on how the supply chain for the Ocean is developing and specifically in reference to maybe some of your expectations of what is in-sourced versus outsourced. If I remember correctly in your merger presentation from last year, I think you identified design, obviously, but then also software and user interface areas that you wanted to insource on the vehicle, but that you would rely on the supply chain for connectivity and ADAS technology, among other components. Has your thought process around what gets insourced versus outsourced changed at all over the past 3 to 6 months as you're getting closer to a production vehicle? And are you finding more component areas where you can leverage the supply base rather than trying to rebuild the wheel, so to speak?

Well, let me first say, and I know I'll hand it over to Geeta since she's running supply chain. I just want to say from a larger perspective, that we are facing a huge revolution in the automotive industry. And the revolution is also partly to do with supply chain. A future vehicle is going to be sourced more like a tech device than an automotive component. And what I mean by that axles and some steel and stuff like that, it's going to be less and less important.

There's going to be other things that -- where the consumer really is going to find value. So we have not changed our mind. We are not trying to build axles in-house or steel seating frames and other components like that, which we think have absolutely 0 value as a company or 0 value for our consumers. So we are focusing on developing as much technology and software as we absolutely can in-house, but I'll let Geeta speak a little bit more to our supply chain, generally.

Yes. So I think the first thing I want to say is there is really no OEM who does all the components in-house. So it really -- vertical integration is really hard. And I think in the past, OEMs have done it, but then they divested. So really, there is no OEM who develops every single vehicle in-house, especially as you go from [Is] to EV, there is no OEM who makes battery or drive units in-house, so you have to go to supply chain. So that's the first thing. The second thing I want to talk about is, if we focus on engineering services. Again, this is an area where we kept certain things in house, as we said, in our asset light approach, something like design, something like UI UX, something like software development, something like product attributes, all of the things -- everything is done in-house. And then, of course, we leverage supply chain from product design, from engineering perspective, which translates into components that can be manufactured with our bond targets.

One critical item I want to mention that really isn't talked about in the industry is vehicle integration, which is the most critical area, and this is an effort that we jointly do with our partner, Magna, it is so critical because it relates to manufacturability of the car. So this is an area where we keep together. We do design frees together. We do ped releases together, and vehicle integration is something where we have joint capability with Magna.

And then finally, as we alluded to multiple times, prototyping testing is something that's the skill set that we are developing totally in-house.

The final question from the phone line comes from Jon Lopez of Vertical Group.

I just had a couple of quick ones. I apologize. I know we're getting late here. But the first one is just on the R&D spend. I want to come back to that for a second because I'm just trying to think about the practical sort of application here. Like you spent, let's call it, $35 million a little bit more on average in the first 2 quarters of this year. You're going to have to spend 100 in each of the last 2 quarters to do the revised number. I know part of this is payments to your manufacturing partner, but how much of it is that versus just ongoing run rate? And what does this tell us if anything about 2022 for your R&D strength?

So the first thing I want to start by saying is Ocean will be under $1 billion. So the quantum fundamentally hasn't changed. And it's pretty common when you start a program, the first few quarters could be lumpy. But let me spend a little bit of time clarifying guidance for this year.

So last earnings call, we increased $30 million, which is about a 7% increase in R&D spending, that's 100% related to project PEAR, and that spending we forecast will be in 2021. It's a combination of in-house hiring. It's a combination of bringing in new suppliers. Now of course, PEAR is a completely new program and it was excluded from prior guidance. Now in today's increase, we increased 9% at the lower end, 4% of the high end, so 490 at the low end, 520 in at the high end. And it's again directly related to incremental prototype activities we're doing in 2021. And again, that's a result of activity capability we want to develop in-house rather than spend the money outside.

Now of course, if you're building in house capability, you need to spend a little bit more because you need headcount, you need tools, software tools, you need hills, et cetera, for certain components in and as I mentioned earlier, we also brought in a VP in charge. There are certain expenses that are driven by new regulation changes in the Euro zone for safety, so that did drive an increment in spending. But again, the overall quantum of spending doesn't fundamentally change. It just gets either less than another quarter or shifted to another quarter.

Understood. Okay. And then my second question is just about the production targets, which I think maybe that's the first time you've shared this with us, at least formally. I guess my question is, what is the -- what's the period to ramp? So if it's -- if 5,000 sounds like maybe a monthly average or perhaps not perhaps as a target for some point in the year? I guess my question is, as you move from 0 to 5,000 per month, kind of how long does that take? And at what point would you expect to be at that steady state ramp level?

Yes. Yes. So the 5,000 is not average, that my comment there was we are reaching over 5,000 vehicles per month in '23. I'm a little reluctant to give you the exact date of that right now. There are some different factors that could drive a change in that. But the good news here is that when I say over 5,000, we have the capability, will to do a lot more than 5,000. So if we, for whatever reason, would be a couple of months later, doing 5,000, we can catch up later in the year, which is why I'm very confident in our first-year volume target of well over 40,000. I think actually might get closer to 50,000.

So I think in any case, whatever we may not catch up with in the beginning of the year, we can catch up later in the year because again, Magna has put us into their largest hall at Magna, where we ultimately are able to do well over 100,000 vehicles a year. They have a super skilled labor force. They have an amazing preproduction facility. They have a paint booth that can service multiple different vehicles. They have an inbound and outbound logistics system that's already set up. So we are not facing the typical difficulties that any start-up would have starting to making cars in own factory where they have to train people, they used to flip burgers or they have to like suddenly create an infrastructure of suppliers, et cetera. That's not the case with Magna, they're producing premium cars from other carmakers already and they have this entire infrastructure. They have the skilled labor, which we are going to take advantage of and why we are so confident.

Thanks a lot, Jon, and thanks, Brika, for running the call. We really appreciate anyone who joined the call today and we'll talk to you next quarter. Thank you. Thank you, everybody. Thank you very much.

Thank you. This does conclude today's call. You may now disconnect your lines and have a lovely day.