FFAI - NASDAQ

Greetings. Welcome to Faraday Future Intelligent Electric Inc. First Quarter 2023 Earnings Call. [Operator Instructions]. Please note, this conference is being recorded. I will now turn the conference over to Charles Hsieh, Investor Relations. Thank you. You may begin.

Thank you, and welcome, everyone, to Faraday Futures First Quarter 2023 Earnings Call. We issued a shareholder letter reporting our first quarter 2023 results this afternoon, May 11, 2023. Joining the call today from Faraday Future is our Global Chief Executive Officer XF Chen; Global SVP of Product Execution, Matthias Aydt; and our Chief Accounting Officer and Interim Chief Financial Officer, Yun Han. You can find a copy of the Q1 2023 shareholder letter now and a replay of this call later today on the Investor Relations section of our website at investors.ff.com. Please note that on this call, we will be making forward-looking statements based on current expectations and management assumptions. These statements reflect our views only as of May 11, 2023, and should not be relied upon as representative of views of any subsequent date. Except as required by law, we undertake no obligation to revise, update or publicly release the results of any revision to these forward-looking statements in light of new information or future events. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from those expressed or implied. For a further discussion of the material risks and other important factors that could affect our financial results, please refer to our filings with the SEC, including the section titled Risk Factors in our latest annual report on Form 10-K. In addition, during today's call, our management team will give their prepared remarks and answers to investors' questions in English. A translator will provide simultaneous Chinese translation which can be accessed through ff.com. All translations are provided for convenience only. In the case of any discrepancy, management's statement in English will prevail. With that, I will turn the call over to XF Chen, Global CEO of Faraday Future.

Thank you, Charles, and good day, everyone. Thank you for joining our conference call. To start the call, let me give you a brief update about where we are today. Aligning with our production plans, the unit price and our go-to-market strategy for those that are less familiar with the story. Following this, Matthias will present an overview of FF 91 vehicle and provide some update regarding our technologies. Yun will provide a review with our financials covering topics such as fundraising and measures, we've implemented to strengthen for the future. To start off, I'm proud to say that we have hit the ground running in 2023. On March 29, we successfully started the production of our flagship FF 91 vehicle. Though we faced some challenges during the earlier ramp up, our team is overcoming these obstacle. We continue to target kicking off our first phase delivery of FF 91 at the end of May as previously announced. To reach this important milestone, we have made considerable progress and accomplished numerous key operational and strategic objectives in recent months. On April 14, 2023, our first production FF 91 vehicle rolled off the line at our FF ieFactory California in a video streamed event that was watched by millions of FF fans globally. It has been a long path for Faraday Future, but we believe this is the year we made history. Homologation for FF 91 is progressing as planned. Most of the FMVSS testing have been successfully completed. We have performed the highest severity crash test and has passed all of these tests successfully, including the front, side and the rear crash tests. We are very happy with how the tests are progressing and believe these results really validate the quality of our engineering. On the systems and the software side, we've also made some significant progress. Two weeks ago, we showcased the FF 91 vehicle's ability to integrate generative AI to enable an intuitive and interactive experience for users within the vehicle. We believe this truly epitomized that Faraday Future has communicated to its users and investors all along that FF 91 is a pioneer of emerging technology. In terms of our manufacturing efforts, we achieved the start of production of FF 91 at the end of March as planned. Our Hanford team is hard at work ramping up production, with the goal of delivering the highest quality FF 91 vehicles to our users. As of today, we will build all the vehicles required for FMVSS testing. Further, the first production vehicles coming off the line provided the necessary learning for fine tune the process which has allowed the coming vehicles in production to run through the assembly more smoothly than the previous vehicles. Additionally, in the continuous spirit of FF co-creation and co-sharing vision, we recently outlined a 3-phase delivery plan aimed at delivering the best experience to all our users. In the first phase, FF will give our industry expert Futurist Product Officers or FPO, the first look, and allows these users their first chance to pay in full to reserve and experience the innovative FF 91. The industry expert, FPOs will take processing of the reserved FF 91 vehicles at the beginning of the second phase. This initial phase is slated for launch at the end of May, marking the start of our delivery plan for the vehicles. In Phase 2, targeted to start at the end of the second quarter, assuming receiving parts on our required time frame and the completion of the required tests. All FPOs are invited to start purchasing the vehicle to experience FF 91. Users will take full possession of the car and receive comprehensive trainings to make them most of the vehicle's many features. This also marks the turning point where for the Faraday Future will become a revenue-generating company going forward. The third and the final phase, our full co-creation delivery is geared towards all users. In this phase, the company will deliver FF 91 vehicles to all buyers/users that pay in full. All 3 phases delivery is designed to offer flexibility for our manufacturing operation and market demand while ensuring that all FF 91 users receive the best possible experience. We believe that this approach will also enable the company to avoid production shortfalls that may arise from high demand. Please note that successful completion of the third phase delivery plan is contingent on secure necessary balancing and receiving the parts on our required timeframes. Shifting to our go-to-market strategy and sales approach. Our FPO program is designed to reward early adopters through co-creation for providing direct feedback about their user experience. By leveraging cut edge technology and user feedback we believe we can provide the best possible experience for customers throughout their entire ownership journey. Additionally, we are undertaking several initiatives designed to provide a premium service solution to our customers. We are working with a National Automobile Club to offer 24/7 nationwide roadside assistance to all FF 91 owners. We have also introduced the all-new FF Home Charger that will support up to 19.2 kilowatts and its smart and Wi-Fi connected. Furthermore, we are introducing our FF mobile service, allowing users to enjoy concierge style service experience, which leverages our FF mobile service fleet and centrally located service hubs. We expect to roll out our service network in the Los Angeles Metro, San Francisco Bay Area, San Diego, and New York Metro markets for 2023. These initiatives demonstrate our commitment to providing our customers with the best possible service and support throughout their ownership experience. We remain excited for the future and looking forward to update you with our latest developments. Now I would like to turn the call over to Matthias.

Thanks, XF. I would like to take a few moments and provide a brief overview of our innovative FF 91 vehicle to those that might be new to Faraday Future. Our flagship FF 91 features sets a new standard for user experience and performance in the automotive industry. It features a customer electric drive unit with a fully integrated design, active oil cooling and independent rear axle drivers. Its 1,050 horsepower propulsion system is powered by a proprietary software and control algorithms, optimizing performance, stability and safety. With an EPA-certified range of 381 miles, the FF 91 features offers 50 to 70 miles more range than its good direct competitors and accelerates from 0 to 60 miles per hour in a remarkable 2.27 seconds. In addition to the robust performance of the vehicle, the in-cabin experience sets a new standard for the automotive industry, particularly as mobile connectivity is becoming an increasingly important feature for passengers. With a unique real intelligent internet and user experience that establishes a mobile connected intelligent and luxurious third internet living space and user mobility ecosystem platform. The FF 91 is raising the bar. Looking ahead, we recognize the importance of integrating AI capabilities into our everyday lives as AI is rapidly transforming human lifestyles and economic norms. We have been investing in software, AI and human machine interaction for a long time, and we believe that places us in a unique position to utilize these advances in AI. Specifically to use generative AI in a car requires a powerful computing platform, a robust operating system, Internet connectivity and suitable displays. The FF 91 was designed with advanced capabilities across these areas. On May 2, we announced our generated AI product stack that combines these capabilities, along with advanced large language models with the goal of empowering users to gradually utilize advanced generative models for a range of personalized applications in the vehicle, including complex text and voice queries, image and video generation, stock analysis, live translations, search, entertainment, education, e-commerce and more. We believe this is a major step towards transformation of the transportation industry with intelligent electric vehicle. The third intelligent internet space applies natural language communication abilities to various usage scenarios in the vehicle, which we believe will create an unprecedented immersive experience of artificial intelligence interaction and communication for users. With our FF AI technology users can enjoy an extraordinary level of personalization and convenience while on the go. With the rise of intelligent electric vehicles, driving experiences and digital cockpits are becoming increasingly intelligent. In the future, we believe AI will be the core competitiveness of mobility, transforming the way we think about mobility solutions. AI will redefine the user scenarios of future mobility solutions and create new mobility ecosystem that leverages cutting-edge technology to provide unparalleled user experience. With these advancements, we believe we are poised to revolutionize the way we think about transportation and unlock a whole new world of possibilities. FF has always been at the forefront of innovation and intelligent electric vehicles and is one of the world's first vehicle manufacturers to adopt generated AI technology. We remain committed to ongoing research and development of AI technology platforms. Our focus is on applying these technologies to autonomous driving platforms and the third intelligent internet space. Now I will turn the call over to Yun, who will go over the financials.

Thank you, Matthias. I would like to begin by providing a financial overview followed by a discussion on our funding efforts and cost-cutting strategy. First, I would like to summarize our financial results for the first quarter of 2023. Faraday Future reported operating expenses of $83 million for the 3 months ended March 31, 2023 as compared to operating expenses of $149 million for the 3 months ended March 31, 2022. The change in operating expenses was primarily due to a decrease in engineering, design and testing services as the company substantially completed research and development activities related to the FF 91 vehicle in 2022 and was focused on capitalizable activities attributable to start of production, which was achieved on March 29, 2023, combined with decreases in professional services, mainly due to the conclusion of the special committee investigation and other cost-cutting measures. Net income was $6 million for the 3 months ended March 31, 2023, as compared to a net loss of $153 million for the 3 months ended March 31, 2022. The change was primarily due to the change in operating expense and income of $95 million associated with mark-to-market measurements of the secured convertible notes and the warrants recorded in the first quarter this year driven by the decline in the company's stock price. Turning to our balance sheet. Total assets on March 31, 2023, were $575 million compared to $510 million of total assets as of December 31, 2022. Total liabilities were $319 million versus $328 million on December 31, 2022. Since inception, the company has incurred a cumulative losses from operations and negative cash flows from operating activities and the company's accumulated deficit was approximately $3.5 billion as of March 31, 2023. Net cash used in operating activities for the 3 months ended March 31, 2023, was $103 million compared to $122 million for the 3 months ended March 31, 2022. Capital expenditures were $17 million for the 3 months ended March 31, 2023, compared to $44 million for the 3 months ended March 31, 2022. Net cash provided by financing activities for the 3 months ended March 31, 2023, was $134 million compared to net cash used in financing activities of $86 million for the 3 months ended March 31, 2022. Cash as of March 31, 2023, was $33 million, including restricted cash of $1.5 million. The decrease in cash from March 31, 2022, to March 31, 2023, was mainly due to negative cash used in operations as part of the development of FF 91 vehicle and capital expenditures on the California plant readiness, partially offset by the proceed risk to finance such initiatives. Research and development accounted for 56% of total operating expenses in the 3 months ended March 31, 2023. Now I would like to provide a funding update. In Q1, we successfully secured $135 million of gross funding in support of our SOP and production plans, which we have received $120 million gross to date. Since then, our capital team have continued to work towards additional funding for our production, delivery and ramp. On May 9, we announced an additional $100 million of committed financing via unsecured convertible notes subject to certain conditions. FF Global Partners, consisting of 20 current and formal senior executives of the company has committed $80 million in this route financing. This investment shows FF Global Partners' continued commitment to the company as well as a show of confidence by our core management team in the company's ability to achieve its mid- and long-term goals. As a show of support, the unsecured investor and FF Global Partners have already funded a portion of this commitment. Additionally, we have remaining committed financing of $35 million, subject to certain conditions and milestones. We expect to have revenue from vehicle sales and we may receive $242 million financing, which is an option of our existing investors. Since the beginning of this year, the company has received $38 million in gross financing, which was at the auction of investors. This represents a significant portion of the option notes that the company allocated to previous secured financing. We also have equity line of credit of up to $350 million, subject to certain conditions, which we have not yet used as we want to be very strategic about accessing equity line of credit to minimize dilution. Furthermore, the company is also exploring asset-based financing opportunities. In addition to the fund raising, we have been implementing several cost-cutting initiatives that have enabled us to focus on core items that are essential to delivering the FF 91 vehicle. We continue to improve efficiency and reduce material costs and have developed a detailed road map of both engineering and commercial cost downs. Lastly, we reiterate our goal to create a profitable business with operating cash flow breakeven in 2025. With that, I'll hand it back to XF.

Thank you, Yun. Again, I'm very proud of hard work and determination shown by the FF team to successfully reach all our production milestones. We are looking forward to ramping up production at our Hanford plant in the coming quarters. Thank you for your time and interest, and I look forward to providing you with future updates on our latest developments. Operator, we are ready to take questions.

[Operator Instructions]. Our first question is from Stephen Gengaro with Stifel.

Two questions for me, if you don't mind. The first -- when we think about what the legacy OEMs are doing, and there's obviously a lot of new vehicles coming into the market, how do you differentiate yourself in the market? And maybe talk a little bit about the differentiation and sort of the target consumer for the FF 91?

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

Stephen, thank you for that question. Generally, if you think about the company's mission, vision, our ambition for the world is that people should be able to live, move, breathe more freely. That's why we started the business in 2014. So we generally think it's a net positive as EVs become more mainstream. It's better than having gas cars on the road, right? Now that said, we differentiate ourselves in at least 4 ways, right? And I'll go over, let's say, a little bit of detail in each, but let me lay out structurally how we think of those 4 ways. One is we are setting up a strong brand with a very differentiated product positioning and products, right? Two, it's a very attractive and large target market segment in our dual home markets of U.S. and China. Third is a clean sheet approach that we have taken to creating vertically integrated technology and the moat and the patents we've created around this. And then finally, the critical inflection point where we are at, like XF mentioned, we've started production, our first well line of done and very near deliveries. So those are kind of the 4 key ways we think of it and just to get a little bit more specific about your question in terms of user -- target users and segment. We will be the first electric vehicle in the segment competing with Rolls-Royce, Maybach, Bentley and Ferrari, right? And the way we think of the car, the flagship FF 91 is it's an all-in-one car, has the comfort of an SUV, the performance of and handling of a sports car and the driving dynamics of a sedan. And on top of that, it's ultra connected, it's technologically advanced. So that's how we think of the product. So it's a blue ocean market, very differentiated product where we've spent lot of time, money working with users to create a frictionless user experience. And we are going to take the car to the market with a direct sales model with both online presence and in-person experience centers with -- for constant user engagement. The technology, I think we've spoken enough about in the past. So maybe I'll not talk too much, but just at a high level, we've created our own variable platform architecture that you can think of it like a LEGO, you can create more vehicle models on it. You can stretch the wheel base. You can reduce the battery size, et cetera. We created in our own propulsion system. And most importantly, and which is where the third way is where we are different from our competition is our internet and AI capability, not only in software but we've invested a ton of time, money, resources and create a differentiated capability in software and AI. And all of that brought together with a new management, new Board, shareholder alignment that we've had over the last few months. All 600 employees are working towards this common goal of bringing -- starting deliveries of the FF 91 fairly shortly.

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

Yes. So our target users are obviously are busy people. People who value productivity, efficiency, they appreciate technology, right? So with that in mind, we have -- we've been building our capability not only in software, but in internet and artificial intelligence. So the FF 91 has 3 5G modems, right? It has -- the car has 3 5G modems. You can -- we have a compute platform, which is industry leading that we spend a lot of time developing. We have an advanced operating system. We've -- like I said, we've built ultra high-speed internet connectivity into the car. There is natural language processing capability. There has always been -- you could do complex queries with the car in the past, which -- it's far more advanced than other cars on the market where you can talk to like a Siri or Alexa-type interface. We've done our own natural language processing. The car has over 100 inches of displays. And now we've kind of brought it all together, even through a generative AI product stack, right? So these foundational capabilities are an advanced operating system, internet connectivity, compute platform and displays, you don't see that in -- I don't think it exists in any other car in the world today. So I think we are kind of the first or one of the first that we'll be able to launch with generative AI. So people can sit in the back of the car or while driving, they can interact with the car. And do more -- get a more personalized experience that was not possible before. And so to be able to do that, we have integrated advanced generative AI models like GPT and we have the ability to do a whole lot more. So we're quite excited about that part in bringing that capability to our users soon.

Our next question is from Edison Yu with Deutsche Bank.

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

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

Yes. Thanks very much for this question. We are fighting for the end of quarter two final delivery to the market. And also with -- by the end of May, we hold our Phase 1 delivery. So these are two major milestones. But before we hand over the vehicle to the customers, we have to complete all the FMVSS regulation tests. And right now, as we described in the material, we have done most of the FMVSS tests and being successfully completed. They remain crash -- the remaining test is major further crash. So up to now, we already produced and shipped all the test-related vehicle to the test proving ground and also the test level. As of today, we already completed the most sensitive crash test, which including the like front crash test, the side for crash test and the rear crash tests. So the result is quite positive to us. We will continue to finish that remain several crash tests. Then we will have a very good definition and understanding of how good our engineering is and when we can deliver the car before the end of May, end of June, this kind of first delivery. Out of that, we will continue to improve some of related handover because as we published the last time, we already got the sales license for the California areas and are we going to plan to deliver all their sales-related certification and all the -- that kind of EOES compliance items by the relevant milestone. So as the company previously identified, we have a 3-phase handover plan up to the successful completion of the final remaining test and all the contingence of this kind of EOES compliance item. And then we are working with our suppliers to get our parts on time so that we can -- I think we can deliver our vehicles to our customers.

Understood. Understood. How are you guys feeling about the manufacturing readiness and quality? We obviously see a lot of time line, a lot of EV starts having interest with that, do you feel that aspect is ready to go?

Yes. Regarding to our California FF ieFactory, we do have a very good facility already being installed, commissioned and approved and being used for the SOP, which we published during the SOP events. By end of March, we achieved the start of production, and we got the first car run through the whole manufacturing system as we defined, which -- and then we got the first car of within 2 weeks, which is mid of April. So this car is -- to run this first car, we call the first batch of the vehicles out of the line, which provide us a very strong lesson or knowhow for our people training, the quality improvement, the process validation and some of the efficiency improvement. So talking about the quality, no doubt, that's a business normal. For the first car, we were facing some of the challenges of the quality, no matter that's part quality and the process quality. I think that's quite normal in the industry. So my plan is to run a slow build process to get all the issues being resolved and updated batch by batch. Take an example, for the first , we -- for the first car in the first inspection , previously, we took around 5.5 days to get the cars through this inspection . But for the second car, we just use 1.5 days, and we pass through these stages. So with this kind of a slow build and batch build, we can gathering all the relevant issue and improve so that we can -- I think with this kind of current learning and fine-tune the process, we will get more smoother production later on. But in parallel, we are working with our supply chain about the whole year, the volume plan and -- for the second half of the year. We do have a business plan in place and we do have a lot of smart idea to improve our capacity for this year. The detailed information will be shared with the team separately in the coming future.

Understood. Understood. Last question on the funding side. I think you indicated -- I think the team indicated that we received an additional $240 million at the option of investors. Can you give a little bit more color on that?

Yun?

Okay. I can take that question. This is a good question, Edison, because we don't often talk about these optional notes, so in connection with our previous route of financing, the investor have the opportunities to match or invest a portion of their committed funding. So for example, if they committed funding of $50 million, they can match another 100%. And then there's certain contract, you have match up to 50%. So the total of those optional investment is $280 million. And since February to April this year, we require investors to fund $38 million out of the $28 million -- $280 million. So basically, if they don't put it in at a specific date and specific amount, they will lose it. And we got 100% of participation from the investors. So the investor funded all the $38 million that is allocated to the investor. So this shows that investors continuous confidence and supportive of the company.