Fisker Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Fisker Inc. fourth quarter and full year conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Dan Gallops, BP Investor Relations. Thank you. Please go ahead, sir.

Thanks a lot, David, and welcome everyone to Fisker's inaugural earnings call discussing Q4 2020 results, the 2021 financial outlook, and a comprehensive update on the business. Joining me on the call are Henrik Fisker, Chief Executive Officer, Dr. Bukhar Khunka, Chief Technology Officer, and Dr. Geeta Gupta-Fisker, Chief Financial Officer. One thing before I read the disclaimers, the outlook released today does not assume any impact from the MOU announced with Foxconn yesterday, so keep that in mind. 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, 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 FCC. 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 don't conform to general accepted accounting principles during today's call, including adjusted operating loss, free cash flow, 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. Welcome, everybody, to Fisker Inc.' 's first earnings call. I'm extremely excited about all the accomplishments we have achieved over the last six months, so both in 2020 and 2021 until now. And it really has, I think, put forward the vision of what Fiskaring is and has, I think, really put to life our business model. And most people are starting to understand how competitive we really are going to be What we have completed so far is we, of course, completed the merger and listed publicly on New York Stock Exchange. We kicked off the Ocean program, completed PPS milestone in November last year. And then we have accelerated hiring. We have about 148 people as of today. And a lot of people we have hired are really amazing, talented people, both from within the car industry, but also a lot of people from without the car industry, from the tech industry, for instance. We have nominated dozens of global suppliers. We have nominated our battery cell supplier, which is extremely important, ADAS, as well as domain controllers. Plant specifications have improved quite a lot, and that's something I think is really important to emphasize compared to what we showed back in 2020. Daily reservations rate up 400% sustainably since we listed publicly, and we are now at about 12,467 total reservations. In summary, Fisker completed all of our 2020 goals on time and on track to launch the ocean on time, starting at $37,499 next year. On our business model, we are reinventing the automaker's business model in a different way than anyone else. And that alone is creating a competitive advantage versus both startups and traditional car makers. The advantage versus traditional automakers is really platform sharing, our unique development process that we call FF Path. Rapid decision making. I personally sit in engineering meetings starting from 5 or 6 in the morning to late at night. And I do that because I want to be available for the team to make decisions right there and then with zero bureaucracy. And that is really something that enables us to cut development time in half. It also allows us to make technology decisions within 18 months before we launch the vehicle. And that has already paid dividends. in analyzing market segments, improving range and acceleration, state-of-the-art ADAS, which we call FIPilot, and then modern electric architecture. In today's world, locking the product two and a half to three years ahead of time is just going to lead to obsolete products. So what we are able to do is put the latest state-of-the-art technology into our vehicle and thereby get ahead of our competitors. One example, by the way, would be the battery cells, which we first locked in very recently, and we are getting the latest technology, whereas if we had actually locked them in last year, we would have actually got last-generation battery cells. So, again, in today's world, locking a product three or four years before you launch it is just not going to work, in our opinion. So, at Advantage versus startup automakers, Contract manufacturing, small markup is nothing compared to on-time SOP, fast ramp-up, high initial quality, and it allows us to focus on things that matter to the customer. Our relationship with Magna has been outstanding. They have a long-standing experience in producing high-quality vehicles, and we have developed with them the Ocean so far to be a high-quality vehicle, and we can see that, and we expect our expectation in that area to come true. Let's go to the 2021 goals and objectives. The priorities are ocean program remains on track and to a stellar product, building our brand and a reservation growth, kicking off design and development of future vehicles because you're not a car company unless you have a range of vehicles, and we are planning several new vehicles before 2025. And then priority one is really differentiating ocean and creating IP. Our talented team, fast decision-making plus supply chain buy-in has led to improved specifications versus what we originally planned and will turn into a unique FM29 platform filled with Fisker IP. And this will spawn other models on the FM29 platform. In fact, we are already... designing and working on the second vehicle on the FM29 platform. To fill in some of the details and key areas of the vehicle, I turn it over to our CTO, Dr. Burkhard Honke.

Yeah, thank you, Henrik. I've been really pleased with the talent we've been able to attract and the positive reception from the global supply chain, which I think is due to the capability of our team, our strong balance sheet and our de-risked production strategy. Plus, it's quite attractive to the supply chain to launch their latest advanced technology in 18 months from sourcing because then they can demonstrate their capabilities to other customers quickly. Who wants to win the contract and wait three years to launch it? That's the old way. And the supply chain is eager for a new process. To be specific on our technology advancements, I will share a few examples. Safety. We are modifying certain areas of the vehicle architecture to enhance crash ratings. We benchmark the competition and are targeting the highest crash performance in our segment. ADAS FI Pilot, the Fisker Intelligent Pilot, is the first system integrating digital imaging radar and one of the first programs to use Mobileye's next-gen camera and chipset. It's run on a single domain controller and integrated by Magna Electronics. We've spent a lot of time thinking about how to use this hardware to make customers' driving experience better. We've come up with a set of industry-unique features focused on safety, reducing annoyances, and enhancing entertainment. These features are developed by Fisker's software team and we believe will serve as a great platform to monetize software content initially and over the life of the vehicle. The powertrain, we recently nominated suppliers for battery cell, drive unit, and powertrain domain controller at pricing in line with much larger OEMs. Be confident, Ocean will really blow away our originally planned specs with a 350 plus mile range for the ultra-long range version and sub-4 second 0 to 60 times for the base version. We continue to build out our cloud and machine learning platform to monitor the performance of our powertrain, and we'll use that data to improve performance over time over the year. Speaking of connectivity, the goal is for Fisker Ocean to become a mobile device. We are developing a next-generation electrical architecture centered around several domain controllers supporting the major subsystems. That system is connected to the clouds by a 5G data pipeline developed by our edge computing team. We plan state-of-the-art collection and machine learning to analyze overall system performance to support predictive maintenance and over-the-air software updates to optimize range and performance and to enable new revenue streams by offering upgrades to features and functions and integrating third-party services. Notably, The upfront investments we are making in these technologies go beyond the ocean as subsystems like user interface, FI pilot, and powertrain apply to future vehicles as well. Overall, I anticipate we will execute sustainable SUVs that truly stand out from the competitive landscape we see in 2020 and beyond, and will be profitable at an affordable price. Thank you. I will now turn this back to you.

Thank you, Burhan. So our second priority is increase the brand awareness and drive the next wave of reservation growth. I'm really pleased with the uptake we've had in the reservations so far, considering a lot of these reservations were made two years before we launched the vehicle with pretty much zero marketing dollars. We also have a unique ability to actually go back to our reservation holders and and figure out exactly what they want, who they are, and how we can create a targeted marketing campaign. So, for example, we are encouraged by the broad appeal, where 70% of our reservation holders have never owned an EV, and over 50% are from non-premium brands. And that really shows the appeal of the fiscal ocean. We have also found out, I would say, unfortunately, or you can say fortunately, however you want to look at it, but we did find out that the majority of the reservation holders are men. And it actually is interesting because it allows us to make targeted marketing towards women because we actually think, and I personally think, the fiscal ocean is also perfect for women. So we are going to create some targeted marketing in certain areas, which is normally very difficult when you don't exactly know who's interested in your vehicle or if you don't understand who actually have not ordered your vehicle and why not. But those are the type of things we can figure out. We have a full marketing plan to do all this. And we will obviously not really start that until we start showing our final production vehicles later this year. We have already done a lot of virtual kind of online visuals with our Fisker Ocean. And now that we will have the prototypes ready, we want to fight the right time as COVID hopefully get over to show our vehicles later this year. Most people might know that we originally had planned around the Los Angeles Auto Show that was going to come here in May, which has now been delayed until November. So I would suspect that there's a good chance our launch will be just before November this year, coinciding with the Los Angeles Auto Show. Branding and product and marketing opportunities in 2021. We are releasing more details on our specifications and trim levels, so people are going to be able to actually sit down, have some fun, deciding which vehicle, which package they want to offer. And also specification, I think, is going to be really exciting to see how competitive they are. We're also going to have a design studio on our app where you can go in and play around with colors, et cetera. And then, of course, later when we have our prototypes ready, we're also going to let some journalists into the vehicle driving it so we can get some feedback and everybody can read about how our vehicle performs. That's going to be a very important part of our marketing later this year. And then at the same time, we launched the product. We also launched our sort of brand campaign, which is really going to be around sustainability, beauty, and design. The high technology is going to be a given, and you will see that as we mentioned more of the specifications for the future. And, of course, our brand is in line with our ESG goals, and our ESG strategy is a responsible supply chain with the right policies in place. And we work with our suppliers on that, and we benchmark the competition to ensure the ocean is class-leading in sustainability. Our aim is still that the Fisker Ocean will be the world's most sustainable vehicle, and our aim is that the vehicles we make in the future will take the lead in sustainability. We've got an ESG director that have been assigned deliverables, and he is assigning deliverables to each department to make sure that we are adopting and we are measuring the performance. We are adopting the right ways of doing things and measuring the performance as well. And that's something that we're going to be releasing data on at a later point in time. Priority number three, drive profitability growth beyond the ocean and, of course, start production of the ocean. So the Ocean, when we launch it, will really have a lot of segment-leading features. And this is something where we are very, very confident in our sales predictions of this vehicle. We think it's really going to be outstanding in the market segment. We also expect three more distinct models to come to the market by 2025. And they will each go into market segments where we would expect either really i think bust up the market segment with something completely different or maybe even create a brand new market segment we're not going to make any me too cars that's not what fisker is about we will have at least one additional model on the fm29 platform where we'll be able to share a lot of common systems and therefore make it very cost efficient as a second model on that platform that of course we are working together with magna on uh we expect that sometime late 23 or early 24 that we would have u.s manufacturing for fm29 uh platform and we've already had some discussions with magna about that as well And then, of course, eventually we're going to have to work on both sales and assembly in China. I expect that we will be opening up reservations for the fiscal ocean end of this year in China. It's obviously the world's largest EV market, and it's a very important market that we must enter. And we have clear plans to do so. Additional platforms, including MOU with Foxconn, of course, is something that we have always said is part of our strategy. Our strategy has always been to actually have several multiple partners talking about different platforms for different vehicle segments. And we have announced the second part on our Foxconn. And we are in constant conversation with other groups about other very exciting projects. And that's something, of course, that we will talk about when we are ready. But it has always been part of our business model. Finally, we are... Credible and will continue to prove points everything we're doing in 2021. I think that you've already seen how we are on time and you will see later this year when we start building prototypes, we will prove that we are serious about being on time as a startup. And that's something that I personally will make sure I follow up on every single day in the company, seven days a week. I'd like to hand it over now to our CFO.

Thanks, Henrik, and welcome, everyone. Before going through our results and outlook, I'll take just a minute to discuss my key priorities as a company CFO and the metrics and performance indicators we are focused on. Number one, we are a team that values the capital we are entrusted with, setting aggressive but reasonable targets and achieving them. We have laid out our 2021 guidance today, and while actual results may differ from those we project, these goals are my personal commitments to all fiscal stakeholders that I will work very hard and relentlessly to achieve. Our executive team is committed to driving a unique culture, a culture of asset light, what things should cost, and rapid decision-making, as Henrik mentioned. I am in daily meetings with both Magna and Fisco teams in our purchasing, finance, and engineering departments to make supplier selections and drive efficiencies in the overall Fisco Ocean program. This daily deep dive and intelligent decision-making is critical in us hitting our bomb targets now, which we believe is the most critical aspect to ultimately hitting our profitability targets. We are working in an extremely methodical manner with MagnaStyle in inviting multiple suppliers to bid on our components, challenging them in a variety of ways, and ultimately selecting the most qualified and cost-competitive vendors on a program lifecycle basis. As an executive team, we have to set up the company for long-term success, and we have to think of future products and platforms now. Yesterday, we announced a very exciting partnership with Foxconn, and this was consistent with our partner strategy, which you saw last year. We have a very strong and a deep relationship with Magna Group of Companies, as you saw in our agreements on equity with Magna International, Magna Steyr on platform sharing and contract manufacturing, and with Magna Electronics on ADAS. Both companies are working tirelessly to meet our joint program deliverables. We also completed the Volkswagen parts and sharing agreement for the fiscal ocean program last year. As a startup, we need to maximize the ROI on our assets. Every day with my finance team, I look at opportunities to make our cash go further and get a multiple of return for every dollar we spend. In that spirit, we are exploring other opportunities, such as monetizing our future emission credits or even licensing the FM29 platform to other potential partners. Let me turn to KPIs. In terms of KPIs, we are committed to a set of goals that will drive long-term financial performance that benefits all our stakeholders. Our overall priority KPIs are, number one, a stellar product. Number two, build materials that underpins market-leading growth margins. Number three, SOP on time. And number four, overall program cost and in that order of priorities. Our near-term focus in terms of external metrics is on operating expenses and capital expenditures. As we get into start of production in Q4 2022 and beyond, volume, average selling price and growth margins will come into focus. However, I want to re-emphasize one more time that the work we are doing today to achieve those margins is happening every single day with finance, purchasing and engineering teams. And the key benefit of our Acid Light strategy is that it lends to a low overhead. We expect that to flow through into positive operating income and free cash flows in our first full year of production. Now turning to our results and outlook. Our Q4 results were in line with internal expectations at the start of the quarter. Operationally, the increases in R&D and SG&A expense in Q4 2020 versus prior periods were primarily a result of the ocean program gaining momentum in Q4. At the end of 2020, we were 101 employees full-time, and as of today, we are 148. We also reported a non-cash gain in changes to fair value of convertible equity security. That security was retired as part of our reverse merger, so we should not see any activity in that line item going forward. I would also like to note that the first tranche of magna warrants vested during Q4 2020, we have capitalized $58 million related to that as an intangible asset. Once we start production Q4 2022, that asset will amortize over the life of the ocean program within cost of goods sold. Finally, regarding Q4, most of the ocean program related activity including scoping product attributes identifying key suppliers and creating an execution plan for long lead components our spending was mostly headcount related If we review our reverse merger announcement in July, we expected a significant amount of supplier-related R&D and capital spending to occur in Q4. However, given a much more informed forecast for the program working along with Magna and our suppliers, that spending will now occur in early 2021. Now turning to our outlook. As noted in the press release, we expect overall cash spending to be $450 million at the midpoint of the range, which would consist of an R&D expense of approximately $195 million, SG&A of approximately $30 million, and CapEx of approximately $225 million. We expect the cadence of spending to be roughly steady across all four quarters in 2021. Beginning in Q1, our R&D expense will increase meaningfully as we continue to build our internal organization, kick off loan lead suppliers, and ramp up payments to third-party service providers. The rapid ramp up of spending in Q1 should give you plenty confidence that the concept and supplier evaluation work we did in Q4 was successful and the program is now in full execution mode. Finally, we have excellent visibility on ocean program spending. It is based primarily on supplier nomination agreements and a well-defined timeline and a highly diligent cost schedule on vehicle integration and production preparations developed in collaboration with our partner, Magnus Tire. While we cannot guarantee everything will go to plan, we are highly confident that the many unknowns and risks that all startups face are more limited by fiscal due to our unique business model. This cost and timing visibility sets us far apart from other new EV startups, and we expect it will lead to growing investor confidence over time. Finally, we have taken sophisticated program cadence methodologies that established OEMs follow and combined it with rapid decision-making at each program gateway to reduce cost and time to SOP. This helps us check our program timing and budgets at all key gateways of the program. As both R&D and production tooling kickoff is key focus in 2021, I would like to provide some additional color on our 2021 spend. In 2021, spend is driven by three main categories. Number one, our engineering headcount. Number two, engineering design and development payments for various components and services provided by our suppliers. Number three, cost to build new and prototype vehicles for validation purposes. CAPEX consists of tooling for unique parts at supplier facilities and for unique tooling and equipment at Magnus Tire manufacturing facilities to produce our fiscal vehicles. Our guidance includes our choice to spend more than originally planned for R&D on specific technologies to make our product more exciting and class-leading, as Hendrik and Bukha had discussed earlier. Importantly, we do not expect the incremental spend will impact program timing or the price and margin structure of any trim levels of the ocean. However, we believe the better than expected performance across several areas enable an ocean to stand out from our competitive landscape, supports strong demand, strong mix, and more importantly, we are equipping our vehicles with the right hardware that enable monetizing, software-enabled revenues generated at the point of sale and beyond. Overall, I am extremely proud of the entire FISCA team for all the accomplishments over the past six months and the plans we've established to execute a fantastic, profitable product at a time and on budget. We're now happy to take your questions.

David, if you could assemble the queue, please.

Certainly. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound or hash key. Please stand by while we compile the Q&A roster. Your first question comes from the line of Mark Delaney with Goldman Sachs. Your line is open.

Yeah, good afternoon, and thanks very much for taking the questions. I was hoping to start by asking about the new announcement with Foxconn. I believe Fisker have been targeting 200,000 to 250,000 deliveries by mid-decade, with the majority of that coming from the Ocean SUV. But in the announcement from yesterday, you talked about the potential for the Foxconn relationship alone to be 250,000 units, although I don't think there was a timeframe specified for getting there. So can you help us understand to what extent the MOU with Foxconn may change your 2025 delivery target?

Yeah, this is Henrik here. Thanks for the question. I think it will have a positive impact on our projections. You know, this is a program that really has come to life here, a little, you know, kind of alongside our original projections, and I'm really, really excited about it. And if all goes well, which I hope it will, we actually could see us surpassing our original goal of $250,000 by 2025.

That's helpful. And maybe hoping to better understand why Fisker is choosing to collaborate with Hanhai for the future platform. You mentioned there's potential other options. I understand Hanhai is the biggest iPhone assembler in the world, and there's been a lot in automotive components, and the company is expanding into other automotive partnerships. But I don't believe Hanhai has a lot of experience in doing full vehicle assemblies. Maybe you can talk a bit more about what, you know, led to this relationship and, you know, some of the things that excite you about working specifically with Hanhai. And then, you know, are there any drawbacks of starting to work with multiple manufacturing partners as opposed to potentially working more exclusively with Magna and perhaps benefiting from some economies of scale by concentrating your manufacturing relationship? Thank you.

Thanks. Well, first of all, you know, as we have always stated, our business model was always about having multiple partners. I think that allows you to go into different segments, have different type of innovations happening with different partners. Magna has been a great partner and will continue to be a great partner. We have a lot of plans with Magna that is specifically around the FM29 platform. When it comes to Foxconn, That's quite a unique deal because Foxconn is also investing into this vehicle. So we're really co-developing this vehicle. That's the number one. Number two, this is not another electric vehicle. This is reinventing the form of mobility for the future. I think, you know, Foxconn was really set on finding what they said is almost like, you know, the next Apple of cars. You know, what is that going to be? How do we create this sort of momentum where we think completely different about the automobile today? If you think about the automotive industry, they're bucks themselves. into segmentation. So when a new car comes out, it's clearly stated it fits in this segment. And if I'm an accountant or a designer earning this salary, then I should be driving that car. And if I'm somebody else, I might choose a different car because that's not in this segment. And what we want to do is we want to create a vehicle which have nothing to do with these segments. It should be able to be bought by anybody because it is the perfect choice of mobility, specifically in urban areas and as a commuter vehicle. And that's quite a big task. What's interesting here about Foxconn in this particular area is that if we want to create a premium vehicle and we want to have a lot of innovation in it, we have to take cost out somewhere. And I think that's probably one of Foxconn's strengths as being, I believe, the largest manufacturer in the world. They got an incredible large supply chain. They believe that they have the ability to take a lot of cost out of an automotive supply chain, having looked at it and investigated it. And that was very attractive to us. Also, coming from a clean sheet of paper with really no heritage, I think Foxconn might be one of the few companies in the world that have not made a car who actually can come up with new ideas of how to make a car in a different way. And I think that's the sort of exciting thing about this project. And because we have several projects, and because we are talking to several different uh companies uh you know it's not like we're taking a risk with just one company doing one experiment uh however i feel with this particular vehicle being somewhat of an experiment to be quite frank it's a huge challenge to try and do what we're doing but i couldn't imagine a better partner than foxconn to do it because they have been able to take these experiences and experiments in the path i mean That's essentially what made them famous, that they jumped in and did the iPhone with Apple. So who better to be our partner in a project like that?

Yeah, it's very helpful. Thanks so much for taking the questions, and congratulations on having your first-round answer part.

Thanks, Mark.

Your next question comes from the line of Jeff Osborne with Cowan & Company. Your line is open.

Yeah, great. Congratulations for getting the first call done. A couple questions on my end. I was wondering if you can touch on the percentage of the ocean bill of materials that is nailed down now to give you the confidence in the margins that you talked about. You highlighted a few key components, but just is there a magnitude that you can give us for the full vehicle cost?

Thanks, Jeff. This is Geeta. I'll take that question. Jeff, we've organized the program in very sophisticated gateways. Our first gateway last year was what we call the product specification gateway, where we fundamentally identify specifications in the vehicle. Our next gateway, which is upcoming in March, is what we call target assessment. At that point in time, we have nominated all our major suppliers, especially with long lead tooling, and this gives us a very high confidence in terms of what our BOM would look like. At this point in time onwards, we clearly decide what features we think provide great content to the customers or features we think that we may not want at this point in time, but may introduce later in the life cycle of the product. so we are very confident that we have achieved the bomb targets we wanted to achieve in fact i would say that we have more content in the vehicle than we had originally planned for in july got it that's great to hear and then i'm going to miss miss uh didn't hear you correctly but uh on the experience center you highlighted introducing the vehicle in november at the la auto show

I think originally you were hoping to have an L.A. experience center where people could see and touch a prototype in May. Is that still on schedule given COVID? I wasn't sure if that's delayed.

You know, due to COVID, it would make no sense to open an experience center right now because nobody would be really able to go there. So we decided there was no point in taking that extra cash outlay at this point in time. However, we have several locations that we're in the middle of negotiating. whether we launch our vehicle at an experience center or another event, we haven't decided yet. But like I mentioned, due to COVID, I expect that the launch would be sometime maybe before November, hopefully, at least end of this year. And again, we are a little bit in the hands of COVID here. I don't see the point of doing a virtual launch because we have already shown, you know, our vehicle in many different online media. And so I really want to show this vehicle in reality, having people drive it. That's the whole idea. So we'll find the right moment later this year to do it.

Got it. That's all I have. Thank you.

Your next question comes from the line of Atay McCauley with Citi. Your line is open.

Great. Hi, everybody. Congrats on the first earnings call. Just wanted to – I just wanted to talk strategically as we think about your growth over the next few years and the revenue opportunities beyond the sale of the vehicle. Maybe specifically, I was hoping to get an update on your latest thoughts on the Flex lease model. I think that you mentioned some software opportunities that you're pursuing as well, as well as any potential options for your customers to share their vehicles through peer-to-peer and other constructs like that. I just wanted to get a sense of There's thoughts sort of in terms of the larger opportunity beyond the vehicle sale itself.

Yeah, so maybe I'll just take the beginning of this question and hand it over to our CFO. So the whole idea about our flexible lease is that, you know, we own the asset and we lease this vehicle out over probably from the beginning to its end of its life, and that could be somewhere between 12 to 15 years. And you could see, let's say, maybe 8 to 10 people getting into this vehicle over those 12 to 15 years. And if you imagine that the first person leases this vehicle, and as they are enjoying this vehicle, they're deciding to purchase some feature over there for $1,000. and enjoying that feature they then hand this vehicle back let's say after two years we now lease it out to another person but before we send this out to for another lease for a slightly lower price we reset the vehicle to zero if you want which means if this person the second person wants to lease this vehicle then they're again paying for that feature that we have already developed And that shows you the potential of selling a feature multiple times over the life of the vehicle. Of course, also potentially upgrading this feature to give it even more value, but it shows you the mobility revenue that is possible when we own this fleet and we operate the vehicle And we also think that our vehicles, after four to five years, will be way more attractive as a used vehicle in this lease form versus any other competitor, because our vehicle is going to be maintained by us, the OEM. And it'll be on the full warranty because we maintain it. And that, I think, is really going to be a unique competitive advantage. I'll hand it over to Gita to talk a little bit more about the revenue opportunities.

yeah the additional revenue opportunities as i mentioned earlier of course is emission credits which are clearly assets that we would generate we are looking at even potentially pre-selling some of these emission credits and i think some some other companies have shown that can be a great potential to generate revenue and as i also mentioned that there are opportunities for us to share the fm29 platform so that's another potential source of revenue another area since we are direct to customer and we have our own app where we engage with our customers on a regular basis. We're exploring whether we should look at the business of captive insurance with shared risk with various underwriters.

Great. That's all very, very helpful. One last one. I think the press release mentioned some ongoing discussions for fleet reservations. I don't know if you could share an update on maybe the size or timing around what we might expect around growth in fleet. I think it's particularly in Europe.

Yeah, we see this as an incredible promising market, specifically in Europe, because in Europe it's more normal than even large corporations actually offering their employees a lease vehicle as part of retaining or attracting employees. employees. And we have already, we have just added a specific salesperson for fleet sales in Europe, started a few weeks ago. So that's something that we're going to go aggressive into and beyond discussions with several groups over there. And I have high hopes for this because our vehicle has the perfect size in Europe. It's obviously built in Europe. So I think this could be a very attractive avenue for growing sales for us.

Great. That's all very helpful. Thank you.

Your next question comes from the line of Adam Jonas with Morgan Stanley. Your line is open.

Thanks. Evening, everybody. Henrik, apples are nice, but there's just nothing quite like a fresh, juicy pear, right? I have a question on engineering and capital resources. You're running two major projects. Well, again, let's assume the MOU moves forward, okay? And it seems like that process is moving fairly aggressively, as is your model to move fast. But you'd be running two major projects, you know, by the middle of the year or later this year with two separate manufacturing partners in two different regions at scale. It's an amazing opportunity to take your technology and business model to scale to jump on competitors while managing the risk. But I'm wondering if your current capital base is set up to run these two programs simultaneously, or whether there may be a need or opportunity to bring in more capital to ensure your financial strength as a partner during this important time of execution. And can you remind us how you think about minimum cash levels as well, Geeta, and anything else you might give us Are you able to give us right now in terms of if the MOU moves forward, how your projections of cash consumption by order of magnitude could change this year? I'm sorry, there's a few questions in there, but I think you get the gist, and I think they're important.

Yeah, thanks, Adam. Appreciate it. You know, let me just start by saying that we actually already have started this program, and the good news is that I'm pretty low paid in the company, and I do both these jobs, so that's a good start. and uh so so that's not a big influence right now as we're in the design phase but you're absolutely right eventually we're going to have to uh spend some money on this project one of the unique things i just want to highlight in this program is that uh foxconn is committed to invest in this program and that's something we're going to be going into details over as we move forward but the program is on full speed we're extremely excited about it and uh You know, a personal electric automotive revolution is something that I think is needed and really could change the market dynamics. Specifically, if you talk about more mass market or higher volume in the right price segment, then this vehicle will be priced well below the ocean. And I think that's where the real opportunity is. But I'm going to hand it over to Gita to go more in details around your financial questions.

yeah thanks adam adam first of all i want to confirm that i'm a fairly risk-averse cfo whilst we have a ceo who looks at very exciting products i am a risk-averse ceo looking at a balance sheet and investments that give us the right roi so first of all we have no debt we ended the year with over a billion dollars we have a clean balance sheet So you're absolutely right. How would you look at resources for two programs? First of all, we are looking at how we maximize existing resources in both the companies. Both the companies have existing IP, they have existing capabilities, and that's what the next few months will be spent. At the end of these next few months, we will clearly identify what investments both companies need to make. Now, let's talk a little bit about our existing balance sheet. So today, this year, we will be investing hundreds of millions of dollars in production tooling and equipment that we will own. Our discussions indicate that these can be potentially financed at low cost in a variety of ways if we want to do that specifically for ESG forward company. Then again, I'd mentioned about emission credits that can be monetized. Now, both the companies are committed to investing. just fiscal investing. And as we all would agree, capital markets have decided that electrification is the future of automotive. And once we achieve some of our key R&D and production milestones, if we see both a need and an opportunity to further bolster our already strong balance sheet, we will do that in an efficient way.

Okay, thanks for that, Keita. And I just have one follow-up on batteries. I've been accused of overreacting on this, but I'm kind of a nervous guy. I'm thinking that there could be a battery shortage, a very serious... supply-demand imbalance as we see EV demand and then the number of EV entrants promising such large volumes. Now, you got, again, you got to jump on this. And I would imagine that Magna and Foxconn are two partners that, you know, if they tell someone we need the batteries, that that's something you want to try to do. But am I crazy? From your lens, agita or henrik uh you think their battery shortage where would you rate battery shortage risk on a scale of one to ten and and how can you assure us here that that's not a gating factor for you i'm talking cell supply specifically um as you as you as you to make good on your sop and ramp efficaciously thank you yeah thanks adam so you know we have already nominated our cell supplier and it is one of the largest

cell suppliers in the world that we have worked quite a long time with. And I, at this point, do not really see an issue for us, for Fisker. And the reason is that this supplier is very well known for both Magna and Foxconn. as you said, so it's not like either of the three companies have to go in on a cold call there. So for Fiske, I don't see it as an issue. Now, can it be issues for other companies entering this space? Possibly. I also think it depends on how fast, of course, the EV growth is on each continent. Now, we have seen that, for instance, in Europe, there is a lot of new factories being set up, as well as in Asia. I actually think the one that's lacking behind right now is the U.S., and that's just talking generally about battery cell and battery pack production. So We are already in discussions with our nominated cell supplier about setting up battery cell and battery pack manufacturing, both in potential Europe and the US. So it's definitely something where you've got to have a tight-knit relationship. with long-term in mind to make sure you have what you need. Geeta, you have a few things?

Yeah, Adam, I just want to add, you know, you're absolutely right why you're sceptic, because whilst we've been talking to multiple battery companies, they've been burnt by many OEMs who haven't delivered on the volumes that they requested. And as a result, what we found is all the battery companies are very, very selective in who they want to work with. And when you want to have a capacity lockdown, you have to have relationships. You also have to have a desirable product that the battery companies will want their batteries to be in, because they've heard this story before that somebody wants to make an EV, but fundamentally nobody wants to buy. So it's not just the function of locking capacity, but it's exciting battery suppliers, bringing them beyond the journey, making them believe that this will be a win-win. And, of course, there's only one company that's been able to do that, and we are very confident will be the second one.

Thanks so much. Thank you, Adam. David, I'm going to jump in here for a second. Guys, retail investors are important to us. They make up a big percentage of our shareholder base. And I solicited some questions. We'll try to do them rapid fire so we can get back to the analyst queue. But I'm just going to ask a few. I'm going to start with one. We heard you talking on social media about an IT center you're establishing in India. Can you give us a little bit more detail on that?

Yeah, sure, Burkhard. So it's actually not an IT center. It's a software development center that we intend to grow. With our source code lab in San Francisco, Silicon Valley, we are building up software excellence teams, which will focus, A, on embedded software in the car domains, and B, on secure data pipeline from the car to the cloud, and C, edge computing capabilities. including machine learning in the backend of our Fisker cloud. And in India, we will find all the additional smart talents and resources we need to further develop our software competencies in these areas. So from embedded automotive operating system experts and programmers to data analysts and data scientists. Great. Thanks, Bukhar.

Next question is, what is not changing over the next 10 years and how will Fisker Inc. capitalize on that belief?

Well, actually, I would say everything is going to change, and that's the power of our plan, to reinvent a car company of the future. And I think we have really shown how we're executing this plan. We started out with Magna and what we're doing with Magna in terms of getting fast to market with an incredible product, the Fisker Ocean. And we now follow up this. showing seriousness about it with Foxconn, we'll be taking it another step. So I'm very confident that we're on the right path here. And no, we're not staying stale, and we really don't want to have zero change. We want to have a lot of change.

Thank you, Henrik. Next question, will Fisker redeem their public warrants?

okay i assume the question is referring to the 18.4 million public warrants at 11.50 we do have the right to redeem those warrants if i share prices above 18 for 20 out of 30 consecutive trading days which could potentially drive an inflow of over 22 over 200 million in cash and there's a reason why i didn't use that when adam asked me the question how can you additionally leverage your balance sheet And the answer to the question is we do not have any intention of doing so for a couple of reasons. Number one, those warrants expire in a bit less than five years, so there is meaningful time value, and we do not want to limit that value for the holders of the warrants. Number two, 18 million shares is a very meaningful amount of dilution for all our existing common shareholders at a price that is below today's value and very much below what we believe the future value of Fisker could be if we execute our milestones as planned. Eventually those warrants will exercise and the shares will come in, but we don't think it's a good signal for us to choose to take dilution at that price. Bottom line is we have a strong balance sheet, and we believe there are multiple avenues to bolster that if we choose, as I explained earlier.

Okay, great. Thanks, Geeta. David, can we go back to the queue for probably our last question, maybe one more?

Certainly. Your next question comes from the line of John Lopez with Vertical Group. Your line is open.

Hey, good evening. Thanks very much. I had a couple of real quick ones, if I could. The first is, I guess, maybe just a clarification. I was also encouraged to see the reference on the fleet developments. When you guys are taking reservations from fleet, is that number resident in the reservation count you've offered, or are those only retail reservations?

Yeah, so it is showing up. I think in the future, we're probably not going to emphasize so much on releasing numbers so often. You know, each deal is different. And in fact, One of the deals, the first deal that we did with Vigo, they actually want to order a lot more vehicles, and we sort of kept it a little bit back. So, again, I see this as a huge potential. Specifically for fleets, though, I expect – these orders to really start coming in next year because sometimes, or probably end of this year, I would say, because they normally order about a year out, these fleets in Europe. So I could see that kind of accelerating more towards the end of this year.

But John, just to be super clear, within the number that we released today, there's 300 fleet units, which we announced last year. Yeah. Perfect. Thanks. My second one is just, on China, Henrik, I think I heard you say you guys would perhaps like to start taking reservations there by year-end. Hopefully, I heard that right. Can you just remind us, processes, procedures, any regulatory items? What do you need to check off between now and then to begin that process? And can we assume that any costs for those would be resident in the current spending plan?

So just to be clear, yeah, there is a lot of kind of rules and regulations from China, and I'm going to hand it over to Gita. But we definitely want to start taking reservations from China, from our app, online, et cetera, end of this year, because we have had a lot of requests. from various potential customers out of China already. But let me hand it over to Geeta just to explain why that's a little more difficult.

Yeah, well, first of all, you know, I want to start off by saying that the fiscal ocean will be a globally certified vehicle, including China. So clearly it is a very large market for us. In terms of China-specific, we are actually in the process of setting up Fisca China, just long procedures that it takes with COVID to set up a company. Of course, Magna has a presence in China, so we have the ability to leverage Magna's existing facilities in China. When it comes to taking reservations in China, clearly we have to have the right software development within the app. so people in China can access it. We would also look at local language and whatever we need to do. I think we've budgeted for an experience center in China. It may not be this year, it may be next year. But from our point of view, this year taking reservations in China would not be an incremental cost since we are largely based off our digital app and web.

That's really helpful. David, I think we can take one more question. Thank you.

Your next question comes from the line of Pavel Bolinchov with Raymond James. Your line is open.

Thanks for taking the question. Congrats on your first earnings call. I was intrigued by the demographic analysis that you've been doing with the reservation book. And I'm curious, when will you take that next step of polling your reservation holders about which version of the ocean, you know, base, sport, et cetera, and which options they may want to ultimately pay for?

Yeah, absolutely. Thank you. So, first of all, you know, there's a couple of things here. We will start releasing option packages and specifications end of this year. so people can already start seeing which specific package they want for the ocean and, you know, colors, et cetera. But in terms of actually approaching people and get them to commit, we have to do that fairly close to start a production because we don't, you know, if you do that this year and somebody's credit score changes, et cetera, that would be too difficult. So I would expect we do it a few months before the actual production starts and that would be in the next year. That's kind of how I see it. We have to sort of just look at it from a practical standpoint. You know, some people who have, you know, reserved the car, we don't know which model they want at this point, so there may be a certain lack of certain models depending on how fast we can produce them. We are planning to offer even the base model from the beginning. So there will be availability, I believe, of all the four packages right now. But ultimately, we will obviously want to sell most of the high-priced version because that's the highest profitability vehicle for us, and cash flow is important for us as we start. But we're not going to wait several years to offer the base car because we make money on the base car as well. But as I said, I'll expect end of this year, we'll show the option packages, and then end of next year, we'll start selling. kind of honing in on people and make sure that they're committed.

Right. Thanks, Henrik. Pavel, you have a quick follow-up?

Yeah, quick follow-up on that. Given that you've done some of that demographic work and you've identified 70% of reservation holders own a non-luxury vehicle today, does that say anything about which version they may ultimately have interest in?

No, so what we said was that about 50% is coming from non-luxury cars. And non-luxury cars don't mean that they'll have to be cheap. I don't want to make any brands here, but there are some mass market brands, you know, that sell $50,000 or $60,000 cars. I think what we are showing here is the market opportunity that we have. Whether a person climbed a few thousand dollars up to our vehicle or whether they come a few thousand dollars down and they stay at the same room, I think the real opportunity here is that if somebody... who's coming from a mass market brand, so millions of vehicles a year are coming to us, While that mass market brand is already offering an EV in that same space, I think that is the real key message here and the excitement for us to see that we can actually get people out of traditional mass market brands where usually you have very conservative people who rarely change brands and specifically not to a new EV startup. So that's the encouragement that we see here. Thanks very much. Thanks, David. Thank you very much. Thanks, Pavel. I'd like to thank everybody for listening in. It was great to have the interactive communication as well. And I think thanks on behalf of the FISCA team. Really appreciate it.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.