Fisker Inc.

Good day and thank you for standing by. Welcome to the Fisker Incorporated first quarter 2021 earnings call. At this time, all participants are in 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 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press part zero. I would now like to hand the conference over to Mr. Dan Galt, Vice President Investor Relations. Sir, please go ahead.

Thanks, Lee. Welcome, everyone, to Fisker's first quarter earnings call. 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 and Chief Operating Officer. Before turning it over to Henrik, be advised we will be making forward-looking statements within the meaning of the federal security 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. With that, I'm happy to turn the call over to Henrik.

Thanks, Ben. Thanks, everyone, for joining. I'm extremely pleased with the progress we've made in the ocean so far. As I've said many times, we have not used COVID as an excuse to delay anything. We're on track for production and deliveries to start in the next year. We completed a major engineering milestone in March this year, which enabled us to kick off tooling and start both test and validation for some key components. The next big milestone is in August, where we will have chassis move builds complete, and that will allow us to do some more testing and fine-tuning. We also will do more builds of prototypes and murals over the course of the year, where we start adding more and more production-level components. And of course, virtual prototypes for safety validations are also in process, and that means that we will have one of the safest vehicles on the road. In fact, We are already working on fulfilling 2023 safety ratings for five stars. That means if you would buy a vehicle today, any vehicle, our vehicle would be safer than the vehicle you would buy today because we really reach for the long-term highest standards. Also, engineering powertrain modeling supports our expected range and acceleration. We'll have up to 350-mile range, and our top vehicles will do 0-60 in less than four seconds. So we're definitely not only going to be on par with competitors, but that's really supercar territory for a family SUV, which is pretty amazing for the price we're offering at. In terms of certification and homologation, we've got a clear and crisp plan in place. I know it's not very exciting, but it's critical for a concurrent launch in both U.S. and Europe. And that's actually something that ensures that we are ready to deliver vehicles both in US and Europe next year. That's pretty unusual. Most car companies start in one market, but we are just actually going to do simultaneously Europe and US. Our supply chain is a major success story. Suppliers are being very selective digging into the product's business case. is not only about the OEM's name, it's also about the viability of their product. And our strategy is appealing because, first of all, we are showing demand confidence. We have growing demand every single day we get reservations. We're now well over 16,000 reservations, and we just see that continuing. In fact, our plan is to accelerate that towards the end of the year. And of course, the fact that we have designed and will deliver a midsize SUV, the fastest growing market segment in the world, I would say we probably have the most compelling design. Our specifications are quite frankly amazing with a type of affordable price we're offering starting at $37,500. And I would actually say I don't think there's any SUV, electric SUV, that has been announced so far coming out even in the next year that starts at $37,500 with the type of design and specifications that we will offer. So when some people are saying that we have plenty of competitors coming next year, it seems not true. There's a lot of SUVs coming out, but they're way more expensive. They're lesser capabilities than our vehicle, and I don't think they really have the design that we have neither. So I think we have a truly unique product. And of course, supply confidence when it comes to confidence that Magna will hit volume targets and ramp timing. Why is that important? Because suppliers do not want to sit with a whole bunch of parts that a company have ordered if the company is not capable of scaling up fast enough. And I know it sounds very enticing and exciting for an EV startup to go and build their own plant and learn how to manufacture a car, but if that means that you're two, three, or four years into actually scaling up, that means your suppliers, you're leaving them hanging. And this is not something that we're going to do. It's something where our suppliers have confidence because they know Magna is a professional automaker and they know how to scale up. And I think that's a very important part of why we get the best suppliers on our side. And then, of course, the long-term growth confidence. Let's not forget, when you combine the FM29 platform and the FP20 platform volumes, we probably have one of the highest volumes combinations in the industry. We are talking about several hundred thousands of volumes already now. We're seeing suppliers giving us great deals on various parts. And we're, by the way, also sharing between the two vehicles and future vehicles. Bottom line, we have turned estimates and targets into reality. We have a clear plan in place for all the 1600 components that goes into our vehicle. Nearly all of the vehicle costs are now based on hard vendor codes or contracts and support our previously communicated cost, pricing, and probability goals. So we will be profitable with this vehicle, even for the price that we are launching it at. And again, that has to do with the amazing volume pricing we are getting direct to consumer and just our lean business model. Nearly all of the, sorry, one thing I just want to mention as well is a clear execution plan from now until SOP that are fully supported and committed by Magna and all our vendors is another important point why we know we're going to start to deliver our vehicles next year. When it comes to talent, we're now fully in execution phase and have the talent in place to execute. We are over 200 people in the company and they're all of the highest caliber. We do take a little longer to hire people because we want the absolute best. And today there are several hundred Magna engineers working on our behalf as well. Hiring definitely accelerated since January. We added about 10 people per month in Q4 last year and 25 per month so far in 2021. Engineering is in a great place. Now we build our sales and marketing talent, and we've already started to hire quite a lot of marketing people, both here in the U.S. as well as in Europe. And as you know, California is the best place to attract talent. Now, I feel really good about over 16,000 reservations. One thing, just to kind of give a little comparison, when the Tesla Model S was about 18 months before SOP, Tesla had about 3,400 orders. We're about 18 months before SOP, and we have 16,000 orders. I think that's pretty amazing, specifically if some people say there's a crowded market out there. And on top of that, In particular, we have daily marketed the vehicle. We really start to ramp up the marketing in November when we show the car at the LA Auto Show, where we actually have quite a few surprises, which I think will add a lot of extra reservation and interest in the vehicle. We expect our Motul Design Technology Packed Affordable Electric SUV can pull from a very broad addressable market. So we went also out and did actually our own data. We went out and did sort of basically a survey on our reservation holders. And what we can say is that about 70% of our reservation holders actually are driving a gasoline vehicle today. Over 15% drive a non-premium brand. and 50% drive vehicle types other than SUVs. And it comes back to my point that we're not just trying to get or hoping to get people out of an SUV and into a fiscal ocean. We're already getting people out of their other type of vehicles, hatchbacks, sedans, and into the fiscal ocean. And I think that's a huge differentiator on our vehicle. When it comes to our portfolio expansion, we are fully on plan for delivering four different vehicles by 2025. As you might have read, we have kicked off the pair program and completed a binding agreement with Foxconn. This vehicle will be quite unique. It's in great shape for launch in Q4 2023. As we are about 30 months out, we have already completed exterior design and sourced several key components. This vehicle, by the way, is not just another electric car. This is about creating a revolution. It's about turning everything upside down. We have so many inventions in this vehicle, right from how you load the vehicle. It doesn't have a normal trunk opening. It has a unique way of usability and functionality in the interior that you have never seen before. The vehicle itself I think it's iconic. I personally think it's my best design work ever. And I'm super excited about this vehicle. I think we will easily be able to sell more than 250,000 vehicles of that a year. Just wait to see it. It's just amazing. In terms of the last two vehicles for the total plan of four coming together before 2025, we actually already have designed the third vehicle and the fourth vehicle we're already in negotiations uh for something pretty unique about that vehicle as well so the four vehicles actually are on plan All right. Finally, competition. There's been a lot of talk about competition, and there will be quite a bit, no doubt. But it's important to put it in context. News outlets on Friday noted there will be 12 electric SUVs on the market in the U.S. when we launch the Ocean. And as I said earlier, yes, there will, but a lot of them will be a lot more expensive. They won't look as good. They won't have the type of technology that we have. Let's not forget, again, we are inserting our advanced technology into our vehicles this year because of our very unique development process that means if you go and buy a fiscal suv ocean next year you will get newer technology than any other car because any other car you buy next year that technology has already been chosen several years before so we are very confident that we will have some of the best technology on a vehicle, and actually we're going to showcase some of it in November at the LA Auto Show. finally esg is something that is one of our brand pillars and you know we have published our responsible supplier policy we have we are in course in q1 where we serve it out workforce to assess where our business can be and we also have a clear framework and we're going to come up with some data that i think is going to be quite amazing we want to be able to quantify what we mean by esg finally We are deep into a company-wide study on evaluating the feasibility of a scientifically-based, truly climate-nutrient vehicle over the mid-term, and that's something we're going to talk about a little later. But finally, quite frankly, I will channel anyone to show me a $37,500 SUV that even comes close to the ocean. And nobody's been able to do that yet. When somebody mentions another SUV, it's always another market segment. It's quite frankly, it's never... peer-to-peer comparison anyway so thanks and i'll now turn it over to buchart our chief technology officer to provide some more detail on our software efforts and if you're a cool technical leader yeah thanks andre yes uh software development is a key priority for fisca

Controlling a major customer-facing aspect of the vehicle software stack is important for several reasons. Let me explain. Number one, it allows us to design and execute a seamless, easy-to-navigate user experience that is fully integrated with our mobile app. And then number two, we can add features, improve performance, and fix customer annoyances and other issues rapidly through over-the-air updates. I've been in the industry for a long time and no car is perfect from day one of production. We must be able to deploy improvements to vehicles already on the road. Number three, when we identify something that should be changed, we don't want to rely on suppliers to rewrite software, which can take months. We need to own the relevant software stack the customer can see and experience every day, like the user interface and the overall customer experience. And number four, we want to pursue opportunities to monetize product upgrades and other digital data services. So that's the goal. And in order to accomplish that goal, we need to, number one, own the pipe that delivers the data back and forth from the weaker. We are building our fiscal software excellence centers with programmers and data scientists in San Francisco, Silicon Valley, and India. This includes the pattern from the car to the cloud and vice versa over the air updates and edge computing capabilities. So you need to own the cloud where the data is stored. We're building our own Fisker Cloud and have data scientists analyzing data sets to continuously optimize the net features and functions. So as explained, you need to own software in the key domains that impact the customer. Important is to isolate what is important. And we have no desire to write software to control window motors. This is a commodity that supply chain is under control. On the other hand, components of their infotainment system that speak directly to the customer, you need to own that. Performance updates of the power chain is owned by us. Edge computing that controls data flowing in and out of the cloud is owned by us. So finally, you need a modern counter-related electrical architecture to efficiently move data around the vehicle. And we have been able to source key multi-domain controllers using modern ASICs and system-on-chips that suppliers are eager to work with us on. Because that's just the future. So we have some advantages. We have a small, nimble company with very large development partners with influence. That helps. We have no culture clash between hardware and software engineers. We can pick and choose our staff. For example, our user experience design and software teams are mainly from outside the auto industry. So we make technology decisions fairly late in the development process to get the most modern cloud gateway 5G communications domain controller technology and displays into the product pack. We still have a lot of work to do, but we're confident we have a clear plan and that our software teams in San Francisco and India are up to the task. And we are already experiencing success. We recently successfully proved out the process to download software from our cloud into vehicle domain controllers and onto the mobile app simultaneously. Thanks, and now I'll turn it over to Rita.

Thanks, Bukhar, and welcome, everyone. I'm really excited to be here today on our second earnings call and report back that our Q1 results were in line with the comments we made on our Q4 call back in February. We display our financial discipline as our various departments executed well as per our spending plan. We're on track to the full year guidance we previously communicated, which did not include any spending on PEER program. now with a binding agreement in place with foxconn we are adding 30 million to the midpoint about seven percent increase to overall spending a balance sheet remains extremely strong with 985 million cash and no debt basically flat versus december 31 2020 as 89 million of inflow This incremental cash offsets our Q1 spending. Our current cash reserves are sufficient to fully fund the ocean program through startup production. And to be very clear, we have no need to raise additional capital in 2021. The predictability of our future business has taken a major what were once estimates for the Ocean Bill of Materials, engineering, test and validation spent into actual contracted costs. This includes sourcing activities as well as a well-defined timeline and a highly diligent cost schedule for vehicle integration and vehicle assembly. What we have done is institute a very robust sourcing process at Fisker that I lead in collaboration with our engineering and purchasing teams, both at Fisker and Magna, and now at Foxconn, our new partner. Prior to sending RFQs, we have a clear concept and specification for each part, and our cost analytics team has worked with engineering to target what the particular component should cost. This benchmarking activity starts long before sourcing and continues throughout the entire project lifecycle. Using these financial models, we are well prepared to have in-depth discussions with our suppliers about the input and production costs for each component in our work to convert these supplier quotes into serial contracts. As one team, engineering, purchasing, quality and finance engages with our supply base to ensure timing, cost, ESG and quality targets are met simultaneously. As of our last engineering milestone in March that Hendrik talked about, we have suppliers identified for 100% of parts, including all the ocean derivatives. We have established a plan for each part to support testing and validation activities, which are boring but very necessary. We are now well underway in the process of awarding serial production contracts with over 60% of the part count representing more than 1,000 parts, and well more than that by dollar value, either fully sourced or in the negotiation phase. We will share more information on key suppliers during the course of the year. Overall, on the bond side, we now have high visibility in achieving the previously communicated bond estimate with opportunities identified by our teams to drive that even lower. We are particularly excited about our cost position on batteries. Once an agreement is reached on localized pack production, we will share more details around our favorable position on batteries and our supplier partner. Assembly and logistics have also gained visibility and we're at levels that are consistent with estimates we discussed back in July 2020 when we announced our business combination. Overall, we're in a great place as a high majority of ocean costs are now based on competitive vendor hard quotes, purchase orders, or contracts. Switching gears, I want to highlight the cashless warrant exercise we executed in March and April. The choice to only allow cashless exercises mitigated dilution to our shareholders by 3.5 points and also signals confidence in our balance sheet, future spending plans, and access to capital. Finally, we are very excited to have reached a binding agreement with Foxconn to develop a second platform, FP28, with the initial vehicle launching in fourth quarter 2023. Both companies have tremendous resources to contribute to the program in terms of human capital, intellectual property, and existing supply chains. Beyond the pet product itself, this relationship has a very positive impact on Ocean and the FM29 platform in several ways. Let me highlight these for you. Number one, we at Fisker have already built an organization that is focused on vehicle affordability and corresponding supply chain that supports an affordable cars bond. This means there are many relevant synergies between Ocean and PAIR platforms. Number two, the Ocean and PAIR program have a great opportunity to share several components and subsistence, such as domain controllers, control units, batteries, displays that we talked about today, connectivity, and various other hardware. And this is only possible because the ocean was already designed with affordability in mind, versus several other startups that are looking at very expensive products and have an organization that does not think about vehicle affordability. Companies that design $100,000 cars have very limited opportunities to share any parts of bill of materials with an affordable C-segment vehicle, the culture that we are instilling at Fisker. Number three, a deep supply chain and relationships on the Foxconn side are already bearing fruit for our ocean program. Our nomination of SHOP that we announced this morning for an extremely unique display was a major win that would have not happened without the Foxconn relationship and is a great example of component sharing between two different platforms and vehicles. We have also gotten assistance from Foxconn on chipset sourcing, which is obviously a very critical component in our current environment. Number four, we now have an opportunity to drive additional cost reductions for the ocean program throughout volume sourcing due to the added volume of fare. The close timing of these two launches at the end of 22 and the other one at the end of 23, and simply the long-term volume opportunity to suppliers have been aborted on those two separate programs. This is going to be one of the most innovative automotive programs, and we are inviting suppliers to participate now, today. Before quickly running through results and guidance, I just wanted to remind everybody of the KPIs that everybody at Frisco is focused on and are measured by. Our overall priority KPIs are number one, a stellar product. Number two, a bill of materials that underpins market-leading growth margins. Number three, starter production on time. And number four, overall program cost, and in that order of priority. These are what my performance metrics are based on as well, as well as every single team member at Fisker. And we remind all our suppliers and partners of these key KPIs that drive Fisker. Now turning to our results and outlook. Our Q1 results were in line with internal expectations and the commentary we provided on the last earning calls. Operationally, the increase in R&D versus Q4 2020 was primarily the result of increased headcount and initial kickoff with many suppliers that drove initial engineering design and development spending. The reduction in SGN expense versus Q4 2020 was the result of non-recurrence of one-time costs incurred in the prior quarter due to closing of our business combination. We also reported a non-cash expense associated with the public and private warrants. I just want to remind everybody that our net loss totaled 176.8 million and 63 cents loss per share. However, excluding 145.2 million non-cash, non-operational loss reflecting changes in fair value or convertible equity securities and embedded derivatives, our net loss actually totaled 31.6 million and 11 cents loss per share. As of April 19, these public and private warrants were fully retired and delisted, so we should not see any of this activity in that line item going forward. Our capital expenditures rose meaningfully in Q1 2021 to 66 million versus half a million in Q4 2020, again in line with expectations as we began meaningful capitalized spending on the Ocean platform. Finally, we also reported some revenue from exciting merchandise sales, but I want to remind all the analysts, it's non-material and we do not recommend any analyst spend time forecasting it, as we see this as a critical marketing tool and a critical tool for our fans, but we do not see it as an important aspect of any revenue. It is an important aspect for brand building and engagement with our customer base. Turning to our outlook, as noted in the press release, we are adjusting the midpoint of our by 30 million to the high end of the prior guidance. The guidance now includes estimated spending on project fare, which the prior guidance explicitly did not include. We expect the balance of this year's aggregate spending to be roughly steady across the remaining three quarters of 2021. SG&E should modestly increase sequentially due to higher headcount. R&D spend will be a bit heavier in Q2 and Q3 than Q4 due to timing of incremental supplier ED&T and our prototype testing and validation program. We would expect CAPEX to be somewhat lower in Q2 than in Q1. Now, specifically on the PAIR program, we are using existing resources to define and develop the program. To be very specific, this is our current human capital that Henrik highlighted in his remarks, and intellectual property that Bukhar highlighted we've developed alone or in collaboration with suppliers. The timeline for PAIR is similar to where the ocean was last year in the second half of 2020. Plus, we are leveraging existing assets and resources that we've developed over the last year. Overall, I'm extremely proud of the entire Fisker team for all the accomplishments we have in 2021 and the plans we've established to execute a fantastic, profitable product on time and on budget. We're now happy to take your questions.

Lee, could you cue up the analyst, please?

Certainly. At this time, if you would like to ask a question, simply press star 1 on your telephone keypad. Again, to ask a question, please press star 1 on your telephone keypad. Your first question comes from the line of Adam Jonas from Morgan Stanley. Your line is still open.

Thanks, and good afternoon, everybody. So, Geeta, I caught a comment. I might have misheard you when you said that you were moving into contracts for 60% of the parts on the ocean, and I think you said that represents over 1,000 parts. How many parts are in this car?

Over 1,600 parts, Adam. That includes obviously all the systems, and they may have additional subsystems, but it's about 1,600 including subsystems.

I'm curious how that compares to other vehicles you think that it would be going up against in terms of complexity. Seems like a very low number, although I know there's some definitional noise there.

It's pretty comparable. It's on a similar level. So we've reduced a couple of components in the electronics side, but in general, you could actually say that it's a similar value compared to others.

Okay, great. And I appreciate the deal on the sharing between FM29 and FP28. You've called out some parts. I didn't know if it was If by order of magnitude the value of those parts, what we're thinking about, could it be something substantial like 20% or 30% or closer to 50%? I think you mentioned sharing a battery, but just wanted to kind of get a sense in dollar terms among a range how much you think you could share between those two platforms.

because obviously the batteries are major part of the vehicle. So is the innovative screen that we're developing together with Sharp. And then there's a few other things as well. So I would definitely say it easily will be over 30% in terms of value.

Okay. And just a final one for me. There's so many great things to ask, but last one for me. When do we finalize the JV ownership structure or details about the JV itself beyond the binding agreement with Foxconn and Hanhai? I'm wondering if you could give us a sense of timing of the details behind that binding agreement. Thanks.

Hi, Adam. As you can imagine, in a program that is so complex as the FAIR program, we are taking into consideration intellectual property. We are taking into consideration tax. Also, this program needs to be a global program, so we're looking at all possibilities. At this point in time, we haven't said whether this is a joint venture or both companies will continue its operations as they are, and we'll look at a more commercial way or commercial contractual way of investing and sharing profits. So at this point in time, we are weaving through all the complications of tax and IP, but we do have a path forward, and we hope to share that in the coming months.

Okay, okay. Gita, then, just because you're so efficient at answering, I'm going to slip one more in here for you. I believe when you presented the ocean timing earlier this year, our understanding was that the a company was fully funded through the end of 2022, again, excluding PAIR. You mentioned no need for additional capital this year, but I imagine there could be quite a big inflection in spending next year. Could you say the company is fully funded through launch of PAIR, or is that a totally different situation now, and we need to see how those capital commitments play out in the next year? Thanks.

Good question, Adam. And I did expect that one from you. So two things. First of all, Adam, we do not need to raise any additional capital in 2021 to either fund Ocean or Pear. As you know, we took in an additional $89 million that brought our cash reserves to a very healthy balance sheet of $985 million. We forecast that, or we gave the guidance today, an additional $30 million, which goes for operating expenses to the PAIR program. So given the fact that we are leveraging our existing asset base, we are on track for PAIR, we are on track for Ocean. Now let's talk a little bit about your question, do we need to see additional cash in 22? Now the balance sheet remains super strong with $985 million. We also show a tremendous discipline in giving the guidance and sticking to it in Q1. and you will see it in the coming quarters. I just want to remind everybody how we can optimize the balance sheet if we need to. So at this point in time, we're investing hundreds of millions of dollars in production tooling and equipment. Some of that you see in our Q1 numbers. And a lot of this can be financed at a low cost in a variety of ways in an ESG forward manner. Number two, we again have a significant amount of IP that's in both the SM-29 and FP-28 programs, and we still have not evaluated whether we license them out or not. number three we control all our emission credits and there are opportunities to monetize these ahead of time if we wanted to and again i want to remind everybody my comments last time that capital markets continue to believe that electrification is the future of automotive so once we have some additional milestones if we feel we need to add more cash to the balance sheet we will but at this point in time we do not see any need to raise additional cash this year

Thanks, Adam. Next question, Lee, please.

Yes, thank you. Your next question comes from the line of Ita Maikele from Citi. Your line is now open.

Great. Hi, everybody. Just a couple questions. First, I think the release mentioned some additional deals for fleet in Europe in Q2. Maybe talk a little bit about those deals. And are they some of those in the reservation numbers?

yeah so you know we actually hired a specific person over in europe to pursue the fleet deals and we are pursuing the top 100 companies in europe with the highest esg goals that actually want to go fully electric and i think we will be announcing some interesting deals here in the near future it's a little too early to talk about it right now but i see an incredible trusted trend because When you look at the European market, in our segment of vehicle, about half of all vehicles sold in Europe are actually fleet deals. And our vehicle is perfect position for that. So I'm pretty excited about the forecast of that. And I think you're going to see some significant upside already this year.

that's helpful just as a follow-up to two product questions first on the ocean any update on when uh we'll see or you will launch the the kind of full configurator for all the trim combinations uh and then secondly um on the fp28 anything you could share in terms of targeted range uh and performance for the starting price yeah so on on the ocean uh we're sort of waiting until november because we've got some pretty significant

news on technology that we're going to show it on the ocean at November at the LA Auto Show. So we have decided to actually make that coincide with our app and website update, where you'll then be able to fully configure the vehicle colors, option packages. We'll announce details of specification, details of the pricing. And everything is pretty much in line with our forecast. So you'll unfortunately have to wait until November. But it really is born out of the fact that we added some new technology features in the vehicle that we think is going to really put us way ahead of the competition. So we don't want to show that too early. When it comes to the pair program, you know, as I mentioned, This is kind of a really revolutionary program. You know, the reason we are working with Foxconn on this is because we truly want to create a revolutionary vehicle, and that's something that doesn't happen often in the car industry. And, you know, the point with this vehicle is trying to see if we can reimagine what a vehicle should be for the future consumer And I see personally a lot of trends that will change significantly over the next three to five years that I think this vehicle can cater to, first of all, I think people are going to move away from the traditional segmentation of vehicles, and we see it already with the ocean, where more than 50% of the people who's ordered the ocean are coming from other vehicle categories, which is kind of unique. I've been in the industry for 30 years, and when you develop a vehicle, you always look at your main competitors, and you get 95% of your competitors. your customers from those. That's not the case with the ocean. So because of that, we are specifically targeting the pier as almost like a non-segment vehicle that could take customers away from any vehicle of any type. And because of that, you need to have a vehicle that also then basically introduces some completely new innovative features that nobody else have but everybody will desire. And I'm Sorry to kind of use this very, you know, typical example, but that's exactly what happened with the iPhone when it came out. It was the first, you know, phone that was a small computer with no buttons, and it attracted people from Motorola, Nokia, and every other phone maker, BlackBerry. The last that held out even with that went to Apple, and, of course, now you have Samsung, et cetera. But the point of this vehicle is exactly to do that, and I can't imagine anybody better, than Foxconn to do that. In terms of specification, absolutely no. I don't want to give away to the competition what we're thinking because it's so radical. It's a complete departure away from today's thinking of making a car. I personally have to get completely out of my little car box and think about, you know, how would a tech company design a vehicle rather than how would a car designer or a car company design a vehicle.

Thank you, Todd. Next question, Lee.

Thank you. Your next question comes from the line of John Murphy from Bank of America. Your line is now open.

Good afternoon, everybody. Maybe just a quick follow-up to that. Developing a revolutionary new product in the industry, $30 million in spending this year seems like not a lot of money. Could this cost a lot more money in the future for both yourselves and Foxconn? And how should we think about program costs for this? I mean, for something that's very revolutionary, that sounds very inexpensive.

Yeah, so I think there's a couple of things that's very unique in this program. First of all, Foxconn and Fisker is jointly investing into this program. Both of us have quite a lot that we bring to the table. We now have a pretty well-staffed engineering and design group, so we don't have to go out and hire those people for that. They're sort of coming into this program as the ocean is moving to the next phase of commercialization. And then you have Foxconn, of course, that has an immense supply chain. And here's what I think a lot of people, what nobody's talking about. The fact is that as we move from gasoline vehicles, which have been perfected over 100 years, we move from gasoline vehicles into electric vehicles. That's only part of the story. We're actually moving into vehicles which theoretically are computers on wheels. Now, who would be the best supplier in the world? to supply the most cost-effective, highest-quality components for your computer and your smartphone? Probably Foxconn. They have one of the biggest supply chains of electronics in the world. I have been amazed when I've seen the pricing for some of these components. I mean, I couldn't even imagine because the pricing is so different from what I'm used to in the car world. And that's why we're going to be able to make a vehicle for less than 30,000. So I can concentrate not on having to invent certain electrical components, but rather coming up with truly innovative things. And innovation doesn't necessarily need to cost more money. It's about being brilliant, coming with smart ideas, thinking out of the box, and taking the risk. And this is a risky product. The rewards could be huge, which I think they will be. The people who have kind of seen this program, and it's very few. You keep a tough secret. I'm quite frankly amazed by it. But, you know, it is so new that we don't want to go out and talk about it right now. It's just too early. I mean, we're 30 months away, and we're giving too much away to the competition. But in terms of investment, you know, the big investment will really start happening in 23, and at that point, Fisker is making a healthy revenue.

second second question real quick head count is the same kind of thing you're being incredibly efficient um and i gotta admit you're getting a lot done with 203 people um i'm sure everybody's sweating hard here at the company and and working really hard to get to get all this done because it's a lot for 203 people um you know at some point do you think you need to expand and accelerate that head count dramatically as you get closer to sop um or are you going to be able to operate with this very efficient

army of very hard-working people um to get a whole lot of a whole lot done um and leverage partnerships to get it done so so you know if you truly dig into the traditional car industry you will realize that despite it only talk about it a lot of the components in cars today are made by suppliers i think we have just kind of gone a little on a more extreme level on that, where we have set a lot of things that are not really creating IP or are mundane tasks. You know, we are getting out of suppliers, so we have a great relationship with Mac, and they have an amazing engineering force. Well, we have hundreds and hundreds of people working there on our behalf, on our program. Of course, we keep expanding, and that's why I said I can see us adding quite a lot of development people, but what we are trying to avoid is hiring fillers. You know, I know some companies out there are really excited about announcing when they've hired 1,000 people and, you know, maybe half of them, 500, are just fillers. But we don't have any fillers. We don't want any fillers. You know, Bucat doesn't even have a secretary. You know, sometimes he uses me, but, you know, the truth is that we are just so efficient. uh that i i'm myself designing the cars and i think that's in again innovating doesn't come if i give you a million people doesn't mean you're going to come up with an amazing idea you know einstein and a few others did it pretty much by themselves so you know i'm not worried about that uh i think of course as we as we get out to the market we're going to hire a ton of marketing and sales people. We're going to have people standing in our experience and just explaining our vehicles. But, you know, that's still about 18 months away. Until then, we're really just hiring a lot of brilliant engineers, software engineers, really smart people that helps create innovative products.

Hey, John. John, I just want to highlight a little bit about our asset-light model. And your question is actually quite good because it kind of answers the fundamental philosophy of the company, which is the platform sharing, the FF-PAC process. So I just want to remind that we start our programs with something called platform sharing. And as a result, we're not developing every single component in the car from scratch. so you don't need to have an engineering talent that is designing and engineering every single component. If you don't do that, you don't need to have a corresponding purchasing team or a corresponding SG&A staff. So platform sharing is really critical for that lean asset life. The second part I want to highlight in both the programs, we are co-engineering so we do have a staff at magna that supports the engineering programs the third part i want to highlight whilst we talk about staff direct staff at pisker we also have a huge pool of indirect and direct labor on the books of magnus tire where they will be building our car so there will be thousands of people who will be building our car at magnus tire same at foxconn and then finally as hendrick alluded to We are ramping up our sales and service staff both in Europe and U.S. So, yes, we will ramp up, but in the right manner. We would not have staff that is like Hendrick said, fillers, but they're every day adding incremental value.

Thanks, John. Lee, I'm just going to jump in. We took some questions from the Say Technologies platform over the last couple of weeks from retail investors. I want to ask a couple of those. The first one is, there are actually several highly-voted questions on chip supply and how Cisco plans to secure supply commitments in this area. Lukard?

Yeah, happy to take that. The so-called chip shortage is a difficult challenge for the industry, but it's not really a shortage. It's the result of a choice by the chip industry to repurpose capacity towards higher-value consumer electronic chips. just away from low margin legacy automotive microcontrollers and let's say 28 nanometer nodes and higher. So the general industry is that this situation will work itself out over the next 12 months. But even if it doesn't, we see a few reasons it will be less impacted than most, if at all. Let me explain. Number one, we had the luxury of finalizing the concept phase for the ocean with full knowledge of its situation to our own contacts and our own partners. This allowed us to make design and supply chain choices that focused our needs to areas of supply chain with ready supply for chips. For example, we are resourcing the vehicle control module chipset through our partner, Magna. Another example is in this place, where our supplier, Sharp, is designing the components right now and sourcing semiconductors based on what is readily available. So number two, we always have planned an electrical and compute architecture that is more centralized. We focus on high-performance domain controllers based on most modern SOCs. So this includes then our ADOS, It's a sensor set with a mobile eye vision systems, the solid-state 4D radar sensors, powertrain VCU, 5G connectivity module, and these chips are not in short supply. So finally, and probably most importantly in comparison to other startups, is our partner network. With Magna and Foxconn financially invested in our ability to satisfy demand, We have two partners with deep influence and invested interest in ensuring supply commitments for all components, not just chips. We've already seen multiple instances where this has helped us.

Thanks, Bukhar. Next question is, do you have a definite date to begin production of the Ocean? What's your plan to show early prototype versions of the vehicle? And what government subsidies do you anticipate?

Yeah, absolutely. We have very high confidence, as I mentioned earlier, in our Q4 2022 SOP next year. In fact, the actual SOP date is November 17th next year, if you want to have an exact date. And I'm super confident, supported by Magna, that we will actually make that date. Secondly, we start initial deliveries both in U.S. and five key European markets also end of next year. And then more importantly, full run-rate production will happen in the first half of 2023. That's something that no other EV startup has ever done. And I think, quite frankly, it will only be possible with somebody like Magna. In terms of demonstrator vehicles, I mentioned already we'll show first production vehicles in November. We are planning then to show it in Europe shortly, beginning of next year. And then in Q1 next year, we'll actually get the first journalist and some analysts in the vehicles and drive them, our first demonstrator vehicles. And quite frankly, both Bubra and me, we already drove our powertrain. It's unbelievable, the powertrain. It actually makes you feel like a Formula One driver because we have some really unique electronics in this powertrain that allows you to handle this vehicle on the limit in such an amazing way. I can't wait for people to try it. It's unbelievable in this price class, so I'm super excited about it. And again, remember, our vehicle starts at $37,500 US. Now, finally, In terms of subsidiaries, we believe we are eligible for all the subsidiaries that are available, at least the way it is today. And that includes in Europe. And just to give an example, in Germany, with subsidiaries, our vehicle will be priced below €32,000. Now, for anybody on this call, you go and take a look at what you get for €32,000 in Germany, and that's including Mervet Steuer, which is sales tax in Germany, which is pretty high. So that's an incredible competitive vehicle, and that's why Germany is one of the first countries we're going to launch in Europe as well, where we've gotten a lot of orders from already, a lot of reservations.

Okay, one more retail question, and then we'll get back to the analyst queue. Fisker is now one of the most shorted stocks on the market. Does the company have any plan to help protect shareholder value against short-selling and manipulation?

Absolutely. We are only thinking of long-term shareholder value. Now, the challenge is there are so many new mobility and EV companies that are using the SPAC method to raise capital, as we've seen in the last few months, and several companies along the way have changed their strategies or targets. Now, not only is this casting doubt on all EV players, it is also putting everyone in the same bucket. The only differentiator is execution and the ability of an experienced and dedicated company like Fisker to deliver quarter on quarter. And we are doing exactly that. Just want to remind everybody that we knew we needed to raise a billion dollars and we did exactly that to de-risk whilst we're not generating any revenue over the next few months. Number two, our original targets are still intact. Our original business model has not changed. We have not changed goalposts and are now based primarily on contracts, not just estimates. Number three, we have kept true to our asset-light business model. in a positive way by signing two partners to be able to deliver the cards we planned for in our original filing, which is why we have the ability to forecast an updated guidance on the PACE program. Number four, in 2021, our milestones, delivery and spending, very much on target with our guidance. We are disciplined. We are an experienced management team that knows what it's doing, so credibility, does not happen overnight. And we intend to continue to put out our proof points that we're not part of this crowded startup, inexperienced EV space, and it is no doubt it will be reflected in our stock price, in the medium, and in the longer term. We care for all our stakeholders, and we are building the company for long-term success.

I just want to add something what Gita just said. You know, I know that there's some hedge funds that need to go out and do some shorting, but I actually feel sorry for the people who invest in those because it's clear that some of those shorts, they just are very superficial. They don't have deep knowledge of how complex the automotive industry is. And I think if you spend a little bit of time understanding our business relationship with Foxconn and Magna, you will quickly understand that you stand to lose a lot of money if you're short against Fisker. But, hey, that's my opinion, and I hope we can prove everybody wrong.

Okay, thanks, Henrik. Lee, can we go back to the analyst queue for the last few minutes? Yes. And everybody, please limit your questions to one, please.

Thank you.

moving on your next question comes from the line of john lopez from the vertical group your line is now open hi thanks so much um i'll i'll hold it to one but i'm going to do a two-parter if that's okay i apologize um but i wanted to push her digging a little bit more on on powertrain and batteries specifically so sort of part a here are you just to make sure i'm clear you're comfortable with commitments both pricing and volume on the sell side, not just through the initial production launch, but all the way through the full volume ramp in 2023. Can you speak to that for a second? And then the second part, just to throw it in, You've talked about comfort in up to 350 miles of range on the higher trim versions models of the ocean. I'm wondering if you can just talk for a second about any sort of range dispersion. As we get closer to the base model, are you willing to start talking to us a bit about range, what it might look like there? Thanks very much.

I'll take the first part of the question. So what excites me about our powertrain is three things. First of all, we have very high quality suppliers. We're not ready to reveal their names yet. We want to keep it a secret a little bit. But both our partners, suppliers, vendors are our partners on the Ocean program and will be partners on the Pear program. Really, really excited. They are committed. They know in Fisker they have a long-term partner. Second thing, yes, our partners are committed. We are in the testing phase. We are not just in a concept phase on PowerPoint. We're actually in testing phase. We're testing both for the systems on their own. So we're testing dummies. We're testing the systems on their own. And we have in vehicle systems, so different mules, different prototypes, the PTOs, pre-PTOs, all of those. And then finally, the third thing that really excites me is actually the pricing. I think we are at such a good pricing for both the systems, which is in fact as par as some of the Tier 1 OEMs, and we are fully resourced for both the cells and the drive units. I believe on the batteries we are at a cost position which is very competitive at the cell levels. The places where I see a further cost down opportunity which will make us extremely competitive is in pack assembly as we finalize our legal integration testing and validation. But we will reveal more information on both cell and pack infrastructure in due course once we finalize our localization. I also want to remind everybody that For ocean, we are looking at Europe. And of course, for pair program, we are looking at U.S. And both our partners are geared up for both these locations. On range, I'll pass it on to Bukal.

So we believe the 350-mile target for the high-end powertrain is very likely because that is what our virtual powertrain modeling is telling us. And we are able to simulate EPA test cycle. And now that the powertrain is fully sourced and specced out, with all the variables and efficiency rates that we know will be their production version. So plus, because we completely act as one team and all the non-power train engineering groups are well aware and ethically plan to achieve the aerodynamics and weight targets required to achieve our goals and range and acceleration. So physical testing with production-intent components begins later this year. But the bottom line is we have challenging targets, but our modeling and our plan is saying we can achieve them with high confidence.

Maybe I can just add to this that when we showed our vehicle originally in the beginning of 2020, we had estimated 250-tram-hour range. And again, that comes back to the point we were able to put newer technology in the vehicle, which is why it now goes to 350. in terms of our base car it hasn't changed like i said uh 250 to 300 so the base car will be closer to 250 miles but i think you will see two type of people in the future those people who are okay with carrying around expensive battery want the range and i think you're going to see people who realize that most of the daily commute is 30 40 miles and they don't really need to pay for a giant battery pack or carry it around. Let's not forget sustainability and the environment. Carrying, you know, hundreds of pounds around every day if you only go 30 or 40 miles doesn't really make any sense. So we really see two types of people here ordering our vehicle, those who probably have a lesser need for super long range and then those who have need for super long. But the super long or what we call it the ultra long range, is available both in the medium and the top version. So only the base version will have slightly less range, but more than adequate, and I think more than most vehicles in the segment.

Great. Thanks, Henrik. Let's try to squeeze one more question, but it has to be pretty efficient. Thanks, Lee.

You're welcome. Your next question comes from the line of Jeff Osborne from Cowan & Company. Your line is now open.

Damian, Henrik, all of your comments are about the $37,000 vehicle, but the medium-term operating model for the company suggests that the prices will be up in the mid-50s to $60,000. So I didn't know what level of comfort you have that some of the features that you'll be showing at the LA Auto Show and other performance features will be actually what the consumer wants, just especially in response to your question about environmentalism and the limited range that people need.

Yeah, I'm fully confident. We have not changed any of that course. In fact, you know, only our top vehicle will be over 50,000. And I think you'll be very surprised with our first two vehicles. In fact, we have scrapped the base and we call now the base the sport model. And the second vehicle is the power sport. And the Powersport will also be under $50,000. So we are very comfortable with the equipment we have in the vehicle. We are going to be able to offer additional things with over-the-air updates. But I don't think there is any car out there, any vehicle that's even close to compete with what we are offering across the range.

OK. Thanks, Jeff. We're out of time. So, Lee, can you close out the call, please? Thanks, everybody, for your participation. Thanks for your interest in FISCR. We really appreciate it. Thank you very much, everybody. Appreciate it.

Thank you, presenters. And, ladies and gentlemen, this concludes today's conference call. Thank you for your participation. Imanat.