Fisker Inc.

Hello everyone and welcome to the CISCA Inc second quarter 2021 earnings call. My name is Brica and I'll be the moderator for today's event. If you would like the opportunity to ask a question today, please remember to press start followed by one on your telephone keypad. And I will now hand over to our host Dan Gels to begin. So Dan, please go ahead when you're ready.

Thanks a lot, Rika. Welcome to Fisker's earning call, everyone. Joining me on the call are Hendrik Fisker, Chief Executive Officer, Dr. Bukhar Khunka, Chief Technology Officer, and Dr. Geeta Gupta-Fisker, Chief Financial Officer and Chief Operating Officer. This quarter, we also have with us Christian Marty, our VP of European Marketing, Sales, and Service, to talk about our recent investment and partnership with Allegro. 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 for 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. will 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 non-GAAP financial information to the directly comparable GAAP financial information appears in today's earnings release. And with that, I'm happy to turn it over to Henrik.

Thank you, Dan, and welcome, everyone, and thank you for joining. I'm really pleased with the progress we have made on the two vehicle programs. We have made great progress in growing our team and also built some serious relationships with some really big suppliers and big business partners. And, of course, we have really far, far along with our supply chain. We have announced some, I think, great supply deals lately that we'll talk a little bit about. I also have a lot of confidence in the fact that we're on time and on budget on the ocean program. I know I sound like a broken record and it's boring, but I think in this case, the broken record is quite good to keep on saying that we're on time on the ocean program and we're on budget. Really, really important. And that really comes down to the execution that our team, internal team here in engineering, purchasing, design, finance have done in this program, of course, together with our partner in this program, Magna, and all our suppliers and our supply purchasing organization have done a great job to bring in suppliers that is helping us stay on time on this program. We've also made tons of progress on the pair program. The ability to actually execute two vehicle platforms, two different vehicle platforms in this stage as a startup company is quite unique. I think it really validates our strategy. I don't think there's any startup ever, even any U.S. startup, that actually have developed or started to develop two platforms simultaneously, despite probably some of them having raised more billions of dollars than we have. And I think it really shows the strengths of our business model, the strengths of our team, and of course the strengths of our partnerships, because we do have two amazing and two different partners, and I think that really sets us apart. In terms of our balance sheet, it's really strong and of course that is because we have a really strong internal control system with our finance team our purchasing team and our engineering team but but i think what's really important to notice here and something maybe a lot of people would miss the fact that we have over 950 million dollars on the balance sheet and we raised a billion over a billion dollars last year You could think why haven't we spent more money? Well, the reason is that we actually have some amazing suppliers that sees us as a very, very viable business. And you mustn't forget that suppliers actually get behind the curtain. They actually see our business model. They see our vehicle. They see the technical specifications. They see our detailed production planning. And only then a supplier decides whether they want to work with this company. And then they decide what are the payment terms for this company. Are they going to be normal or are they going to be different where you have to pay a whole bunch of money up front? And I think we have shown that we have credibility with our suppliers. And therefore, we're able to conserve the cash in this manner. And therefore, we're able to get extraordinary support from all our suppliers, which I think is really the reason why up to this point, we're doing so well. And we haven't announced any delays or any overspending when it comes to our ocean program. also we have of course added some spending this quarter here when it comes to our internal spending on engineering and testing specifically testing as you know we have developed something we call the ff path which is the fiscal flexible platform or agnostic design and that's really a development an accelerated development method which allows us to bring in new technology very late in the program. So today, if you buy a brand new vehicle, most likely that technology was selected three, four years ago. But in our case, we have brought it as close as 18 months before we launched the vehicle. That's probably similar to some electronic industries like the smartphone industry. So you will get really the latest technology from Fisker. And because we've been able to select some of that new technology, and we'll show you that in November this year, we also have to do some more testing. And we have decided to do some of that testing in-house because we want to make sure that we get the right customer attributes. So that's a really important thing for us. And finally, Gita and Christian will touch on our recent cooperation agreement with a large European charging network, Aligo. This will benefit our customers and I think really create a competitive advantage for Fisker in Europe. They have thousands of charging stations and Christian, our VP of marketing over in Europe, will go into that in a moment. We, of course, also will take care of our U.S. customers. As you might remember, we signed a deal with Electrify America, the largest group of independent charging stations in the U.S. And if you think about this, it took another pretty famous company probably about five to seven years to build out a charging infrastructure in the U.S. and Europe. When we start with the fiscal ocean in the next year, We will offer our customers between Electrify America and Allegro a larger charging infrastructure straight out of the gate. We don't have to build this up. We don't have to spend billions of dollars doing that. We will integrate our apps seamlessly with these two charging groups, and I think this will really be a unique experience and a competitive advantage for us. Finally, let me talk a little bit about in detail on the Ocean Program progress update. As I mentioned, we are on the track for SOP on November 17, 2022, so November 17 next year. All the agreements with Magna for platform sharing, development, and manufacturing, and our final, we have gone into a lot of detail on prototyping, testing, as well as the ramp-up phase in those agreements. And of course, this also means we have a clear visibility on cost as well. So that's something that's extremely important. And I want to also give you some detail on why we know we are on track. So we have a handpicked experience team that has grown significantly. In fact, a little faster than we originally anticipated. And it's consistently delivering to the engineering supply chain timelines. We also have the robust engineering process and gateways that ensures anything falling behind is highlighted early. And let's face it, I mean, this is the car industry. Nothing is going to run absolutely perfect all the time, but the key here is to create a culture where any issue is highlighted right away and where you work collectively to find a solution and remain on track. And it's also important that you have an internal tracking system where you immediately can see contingency plans and you catch up and make sure that you actually bring anything back on track that might have fallen behind, which it always does. But the key is, can you bring it back on track? And so far, we've been able to do that because we really have created an amazing internal tracking system. We have, of course, as I said, already reached not only full design freeze, but also we have frozen all the specification of the vehicle. We have already finalized our three variants. We're going to have the first variant called the Sport. We've just got rid of sort of the a base model, calling it a base model. So instead, we call it the Sport because we actually have quite a lot of equipment in that base vehicle. So we call that the Sport. So you get the Sport package with the original price of $37,500. Then we have two more models where we up the power. We add a lot of options, a lot of technology to these two other options. And we're going to announce details of that and pricing of that in November this year. I would expect that our middle vehicle, so the middle price will be the biggest seller of all the vehicles and we have a great profit margin on that vehicle as well. We have a robust process for testing and validation, homologation and certification that are of course signed off both by Fisker and Magna and our supply chain. And why is that important? Because of course, if you are a startup company and you just make your own car somewhere, you can obviously decide to skip some of the important testing and therefore risk quality, maybe even risk some safety. In our case, we are following very tight guidelines together with Magna and our supply chain to make sure that our vehicles are fully tested, we get the best safety ratings, and right out of the gate, we want to deliver the highest quality vehicles. now as i mentioned earlier uh this position of the in-house capabilities is something that we are building up because this will be important for the other vehicles that we're going to be launching in the future and as we have accelerated the peer program we are already using this cross-functional ability both on the ocean program and on the PAIR program. And as you know, we are actually working on two more vehicles, not as intensively as the ocean and the PAIR, but these vehicles, the two next ones, will also benefit from this in-house home negation testing and validation, and ultimately that will actually save us money. We also are already seeing benefits between these four programs of carrying over parts that Fisker have uniquely designed, and that's something that's going to benefit us Later down, when we start looking at the lowering of the building materials, higher volume for parts, etc. So, bottom line, a lot of work ahead, but pieces in place. We have a high level of confidence for the execution phase until production of the ocean starts next year, November 17th. Let me give a little bit of a marketing update. I know a lot of people are asking about marketing, and Of course, we have actually a really, really exciting marketing plan, but I don't really want to go out and use up the gunpowder too early. So we decided to really kick off this marketing plan simultaneously with the launch of the FISCO Ocean Production Vehicle in November at the LA Auto Show. And by the way, if for whatever reason LA Auto Show shouldn't go forward, we already have a plan B. So we will be launching our vehicle in November. Maybe it's an open air event or something else. We have a couple of ideas for that. But when we get to November, that's when we are actually going to reveal some of these new technical details that we have. In terms of the marketing, we will start really spending on marketing from November and, of course, into 2022, where we are opening experience centers. We are attending several other automotive shows, events. We are creating some really unique, I would say, uh unique partnerships uh some unique events something that nobody else have done before we're going to go heavily into digital marketing we have a lot of great collaborative partners and ambassadors that we're going to unleash next year we already have signed up our vehicles for a couple of different television series that we're going to get into so believe me we we are going to go all out from november this year now One of the things that a lot of people are asking as well is what are the main reasons for buying a fiscal erosion and what is the advantage over the competition? Well, let me just sort of maybe go through a few of them here. Design, you know, we are a design-led company. And as you move into electrification, let's not underestimate the value of design. Because in the end of the day, when you used to buy a gasoline car, it was about how the engine sound, how smooth was the gear shift. Well, little things are falling away. So I personally believe design is going to be more and more important. And who wants to drive a boring, dorky car if you can get a good-looking car for the same price and even faster, even better, have more technology? So I think design is going to be one of the leading things specifically in the marketing segments that we're going in. I mean, we're not making minivans and we're not making delivery trucks. We are making vehicles that people save to own. We are making vehicles that people are proud of, that people want. So I think design, we are the leader in that. Sustainability, number two. Sustainability, I think coming out of COVID, is going to be one of the key differentiators for us. I think today's consumers want to align with the brands they buy. You're spending a lot of money on a vehicle. And if you can get a vehicle that is not just another electric vehicle, but actually one of the world's most, and I believe we can make the world's most sustainable vehicle, I think that's a really, really strong brand pillar. So sustainability and ESG is actually one of our highest, highest brand pillars. Then, of course, there's the value. And when you think about it, you hear an electric vehicle is expensive. Well, compared to what? So you compare an electric vehicle in a certain price class to what else can I get for my money if I look at another vehicle? Either it's electric or it's gasoline. And I will say the Fisker Ocean, without three price points that we have and the amount of technology performance we have in these vehicles, we are, I would say, amazingly competitive. Now, you're going to judge for yourself when we release the final data in November, but I think you'll be very surprised, and I think that's going to be another differentiator for the Fisker Ocean. Then overall vehicle performance. Vehicle performance is also dramatically, in my view, going to change. You know, yes, we know you can make a fast electric car and, you know, there's talk about range and all that, but in the end of the day, how is this vehicle performance relating to how you drive and what you do with this vehicle in your daily life? We will have amazing performance options for this vehicle, so don't worry about that. I'm a car guy, and I love 0-60. And by the way, I also think we're going to achieve potentially the longest range in the size and price class of vehicle we're in. That's something that I'm fairly confident in. And then, of course, there is the battery pack management system, the drive unit itself, how it performs, you know, what can it do. And we got, I think, a pretty big surprise in terms of how this vehicle is able to handle. And in my view, I mean, I went out and I tested our powertrain on the test track. And I was just blown away. It actually makes you feel like a Formula One driver, what this vehicle can do. And it's not just about the acceleration, but actually how the vehicle handles. I personally have never driven an SUV that handles as good as the Ocean and have the type of responses that a Fisker Ocean has. So I'm super excited about it. Finally, I mentioned SUV, and that's exactly the keyword here. It's probably pretty easy to go out and make another hatchback crossover, get a little bit good CD figure and all this type of stuff, but how do you truly make an exciting vehicle that people really want? And again, there is zero doubt. And the data shows us that the highest growing segment in the world is Azure East. And I think we have a pretty hot one. And I think this is a big differentiator. Five is user interface. You know, we have a great person there leading the team in user interfaces, interacting with our engineering team, and they are working seamlessly together to create what I think is going to be the world's best user interface. My mandate to them was, you know, I want to feel when I get in this car how I felt the first time I got an Apple iPhone in my hand. You know, it was that moment of, is this really going to work? And then there was, wow, I don't need to read anything. It just works seamlessly. That's the type of feeling I want in the Fisk erosion. I'm sitting in the reviews, and I think we're on the way to this. It's not an easy path. We do it in-house. We're coding in-house. We're developing in-house. It's going to be fully connected. It's going to have a totally different way of using it, but I think it's going to be very intuitive. And, of course, it's going to have a lot of opportunities for over-the-air updates. So we are going to excite people with new features as we move along into 23, 24, and 25, and so on. So I think the exciting part is we're going to be able to keep this vehicle fresh and keep updating it with new exciting features. And then just the last thing, that's one of my favorites, is one unique feature, which we have talked about previously, is the California mode, which creates this convertible feel by the touch of a button. You know, it doesn't matter how much money you spend on a car. Even if you would buy a $3 million supercar, no other car has that feature. And you know what? Once you try it, it's pretty amazing. And to be able to get it in this price class is quite unique. So I'm excited about that, too. Let me finish with ESG. As I mentioned, an important pillar in the company. We continue to make significant progress on implementing ESG goals across our business. In fact, there are dozens of ESG deliverables assigned to various departments within Fisker. And most importantly, we aim to produce the world's most sustainable vehicle. And that goes all the way into our supply chain. You might have noticed we just announced a supply deal with Bridgestone. And I know it might not be too excited about reading details about tires, but we spend a lot of time to figure out who makes the world's most sustainable tires and what do they do, not just the tire itself, but in the way they get to this tire, how they actually develop it and certify it virtually and all that. And that's what we do with every single supplier. Again, also, of course, Magna, being the fact that our vehicle is going to be produced in a CO2-neutral factory already next year, I think is pretty amazing. Finally, in terms of the Fisker Ocean, you know, we obviously have other ideas about ESG and some long-term goals that we are working on within the company. We set the goal of making a CO2-neutral car by 2027. That's three years earlier than anybody else has announced they're able to do it. The team is aligned. They're aligned behind our brand. And I think that I can really feel within Fisker that we are going to be the best in ESG. I'm convinced about it. So thank you very much. We'll take some questions later on details, but I now want to hand it over to Burkhard. our Chief Technology Officer to provide us some detail on how he is directing efforts to develop two platforms at the same time, not an easy feat, and something that is only possible through our unique business strategy and partnerships. Burkhard.

Yeah, thanks, Henrich. As you mentioned, developing two vehicles at the same time on separate platforms is unique for a small early-stage company like ours. It's no doubt very challenging, but there are a few things I'd highlight that make it possible for us, but likely not for others. Number one, two programs at once would not be possible without our FF platform sharing and vehicle development strategy. which was specifically developed to leverage already developed non-customer-facing components and to engage with expert partners for engineering and supply chain support. So each program is strategically directed by us, but with the support of hundreds of engineers purchasing experts from Magna for Ocean and FM29 and Foxconn for PEA and FP28. So then number two, geography is on our side. The partner for ocean is in Central Europe and PAIR in Asia. So we can essentially work around the clock using time zones as an advantage for us. And let me say number three, fiscal ocean development because of that vehicle's affordability lays the foundation for the development of other affordable vehicles like PAIR. In other words, there's less work on the second program when a meaningful number of components and subsystems have already been developed for the first and can be shared. So this would be impossible if we attempted a mass market vehicle after starting with something in the high-end luxury market. And finally, we have hand-selected a brilliant, experienced technical team, as you pointed out, Henrik, that has executed many programs before, but not under our FF-PET development process. And now that they have experience with the ocean under the new process, executing the second program a year later, efficiency improves due to lessons learned that are still fresh. Thanks, and now I turn the call to Gita.

Thanks, Prakash, and welcome, everyone. I'm really excited to be talking to you again, this time about a week and a half earlier relative to the end of the quarter as we continue to build our finance processes and look to report on a schedule consistent with more maturing public companies. Our growing product development and purchasing teams are adapting daily to rapid decision making, executing to an aggressive timeline, and that sense of urgency within Fisker, our partners, and supply chain. And this is the message we are driving every single day to achieve our target SOP on time, on budget. In addition to business development and contract negotiations, I've continued to devote substantial amount of my time on purchasing side and with our supply chain. Supply chain has been a very big focus at Fisker since we are a startup. We have no products on the market and we have no pre-existing relationships with suppliers. We continue to excite suppliers with our asset-light strategy, a rapid decision-making process, the ability to scale by sharing parts across multiple programs, and a sequential cadence of part launches. And most importantly, our growing potential customer base. The fact that customers want our vehicles, we have a growing deposit base, is critical to excite our supply base. As a startup, it is certainly not a given that suppliers will pick up the phone when we call. We have been able to source many components consistent with traditional OEM pricing. Some we've sourced below industry benchmarks. Now, this is particularly the case with more tech-forward components where cost and efficiency is improving year on year. Our faster development timeline allows us to source closer to launch and take advantage of those steady cost improvements in the supply chain. However, there are some suppliers who continue to build in risk premiums for startups as they have experienced several setbacks with other entrants in the space. Now, in these situations, we are managing to navigate by agreeing to revisit pricing once we achieve certain volumes. The comments that Henrik made about Bridgestone and Bridgestone made in our recent joint press release and it called out Fisker's mission to make EVs accessible and our commitment to sustainability highlight that we are seen as an enticing customer for global tier one auto suppliers. We've also made significant progress with suppliers, and I believe the perception of Fisker as a compelling partner will only improve as we continue to execute build demand and brand awareness over in the near term. Beyond the BOM, assembly and logistic costs have also gained visibility, as we spent second quarter nominating several key suppliers and now have more visibility on part production locations, material labor, and local costs. COVID-related disruptions continue to create a volatility in logistic cost, but we anticipate these costs to normalize when we reach fully ramped up production in excess of 5,000 fiscal ocean units per month during 2023, which will contribute, of course, to our revenue and our cash flow targets. We also entered into a long-term definitive manufacturing agreement with Magna Stata to produce the fiscal ocean in Europe. This very critical agreement is broad-based and very comprehensive. It covers planning and launch phases, annual volumes, complete assembly costs, and quality metrics over the program's entire lifecycle. It covers all facility investments, a clear path to startup production in November 17, 2022, and a rapid ramp-up to full ground-rate production for quality vehicles in 2023. Also in support of an on-time launch cadence, we have begun to provide supplier quality assurance or SQA, support and embed resident engineers at key suppliers to ensure they meet our program timing and quality standards. We have also made progress on groundwork to set up business subsidiaries in India and China for future sales and in India specifically for our software development center in these markets. And there's more to come as we move forward in these countries. Before getting to the results and outlook, I wanted to quickly highlight an exciting activity we recently announced on the charging side. We subscribed $10 million to the pipe associated with the reverse merger of Allegro with a SPAC sponsored by Apollo, expected to close in Q4 of this year. This was a strategic opportunity for us to invest in a leading European charging network, but more importantly, to get access to a unique opportunity that will benefit our European customers substantially. Now, let me quickly turn you over to Christian Mahdi, VP of European Sales and Marketing, to provide a bit more detail. Christian?

Thank you, Gita. Yes, we are very pleased about this opportunity. Alego is already a large pan-European charging network with over 12,000 locations across 12 European countries and is in the process of expanding its network of innovative fast charging stations. One of Fisker's key priorities is to provide a frictionless experience to our customers. Public charging is one of the priority areas. Why? Because finding, accessing, and payment across the different networks is currently a pin point for many EV adopters. Prior to making this investment commitment and entering into a partnership agreement, Fisker performed its own due diligence on the Alenor network. We developed the cooperation agreement with the aim to directly benefit our European customers. In various ways, this is a unique competitive advantage for Fisker over our competitors. Under our cooperation agreement, we plan to work together to develop seamless integration of our Legos network onto the Fisker app under the guidelines of the new ISO plug-and-charge standard. This new alliance will allow us to offer 12 months of free charging on the Allegro network to Cisco Ocean customers that register the vehicle before March 31st, 2024. Thank you, and now I turn the call back to Gita.

Thanks, Christian. Now turning to our results and outlook, Q2 results on cash spending races were better than our internal expectations and the commentary we provided on the last earnings call. We ended the quarter with $962 million of cash versus our expectations in the $900 million range. This variance was almost exclusively related to capital expenditures, which were minimal in the quarter. Our Q2 expectations were based primarily on projections, which over the last several months turned into nomination letters and purchase orders with milestones attached and deliverable-based payment terms. This creates a former cash flow forecast for the program. Operationally, the increase in R&D versus Q1 2021 was primarily the result of increased headcount and continued kickoff of more and more suppliers, which drives engineering design and development spending. The increase in SG&A expense versus Q1 2021 was the result of higher headcount costs, including stock-based compensation, as we ramp up support functions like marketing and after sales in front of fiscal ocean startup production in 2022. Turning to our outlook, as noted in the press release, we are fine-tuning our operating and capital expense spending plan to a range of 490 million to 530 million, up about 30 million at the midpoint, with somewhat a tighter range than we previously reported in the last quarter. The increase is largely related to incremental prototype and testing spending in 2021. I just want to point out that whilst we are incremental, we are also narrowing our guidance. there are really three drivers number one more advanced technologies such as adas and powertrain versus our original plan are driving incremental test and validation work number two recently there have been changes to euro and cap and ihs safety regulations and our platform and technology can support this but the testing process is more intense number three we have made a strategic decision to develop internal capabilities for vehicle tests and validation instead of relying solely on third parties. What this will do is allow us to better control for vehicle features and customer expectations. It will also save us money on future programs by driving incremental spending for virtual validation software tools and headcount this year. As for quarterly cadence, given the substantial sourcing activity in Q2, we expect that the balance of 2021 spending will be focused somewhat more in Q3 than Q4. Now, one final comment. The company intends to implement an enhanced a goal-oriented performance incentive program for all our employees in connection with our anticipated start of production of the ocean on November 17, 2022. This is an extremely important driver and incentive to align everyone at Fisker to jointly execute to the ocean SOP date and subsequential ramp up in 2023. This is a once-in-a-lifetime opportunity for all Fisker stakeholders, for all our employees to be part of a high-volume EV launch on time, along with a very attractive compensation incentive. Overall, I'm extremely proud of the entire Fisker team for all the accomplishments so far in 2021. We have a lot of work ahead of us, many sleepless nights, and for sure we enter into the critical execution phase. But we have a lot of confidence in the plans we've established to execute a fantastic, profitable product on time, on budget. We're now happy to take your questions.

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

Thank you. If you would like to ask a question, please press star followed by 1 on your telephone keypads. If you would like to remove your question at any time, please press star 2. And when preparing to ask your question, please ensure your line is unmuted locally. The first question we have comes from Adam Jonas of Morgan Stanley. So, Adam, please go ahead.

Hey, guys. It's Evan Sullenberg on behalf of Adam Jonas. Quick question. What is the latest on your battery supplier? When is the latest this can be locked down without risking the November start of production for the ocean? Thank you.

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

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

Great. Thank you very much.

Thanks, Evan.

Thank you. The next question comes from Shreyas Patil of Wolf Research. So Shreyas, please go ahead.

Hey, thanks a lot for taking my question. In the press release, you mentioned that you had 17,500 reservations as of August 2nd. And I believe on June 29th, you had mentioned you had 17,000. So that would imply a 500-person increase in reservations over a 33-day period, which is about 15 reservations per day. And it seems like that number has come down versus the reservations per day that you were seeing in May. So what's going on? Yeah.

Yeah, I don't think anything is going on because... Yeah, go ahead. Yeah, I can take that question. So basically, as you know or may not know, we are not spending any dollars on marketing. We have really not announced any specifications of the vehicle. So I think if I were selling you a television without telling you the size of it or whether it was black and white or color, you probably wouldn't put a down payment on it. So I'm quite surprised that we actually have. 715,500 reservations. Remember, this is not $100 fully refundable reservation. This is a $250 reservation where we keep 10% if you cancel. So a lot of people, I think, are taking tremendous risk with us. not really knowing what the performance or the cost of the option is going to be in this vehicle. And as I mentioned earlier, we are not planning to start our marketing until November this year. We don't want to blow any marketing money on getting out there at this point in time in the middle of COVID. We believe, since we are still 15 months away from launch, that it's more prudent for us to spend our marketing dollar from November. OK.

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

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

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

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

And just to be clear, you would then be compensating Allegro for the one year free charging for customers? Is that how that would work?

No. We have, as part of our cooperation agreement, a benefit to Fisker, which is passed on to the customers.

Yeah, so there you go. Because the advantage, of course, is that we have an investment in this stack with Alito. So this could also be a financial upside for us on top of it.

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

OK. All right, that makes sense. If I could speak one last one, I'm sorry. It's just, you know, as you think about localization of battery capacity in Europe, you know, I believe it's, you know, from what we've seen in the industry, it's something like $80 million a gigawatt hour in terms of capex for a battery plant. And obviously you're not going to absorb all of that on your own. But, you know, how are you thinking about, as you work with some of these large battery manufacturers, the kind of contribution you would have to make to support a localized plant.

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

Thanks, Shreyas. And I just wanted to clarify that when Edith said battery assembly, she was referring to battery pack assembly, just to be super clear, because it's just confusing sometimes. Brika, I'm just going to jump in and ask a few questions that we received from retail investors, and then we'll get back to the queue. The first one is, how are you planning to align the mutual interest between Fisker and Foxconn, since the business model is different from Magna? Are you planning to take investment from Foxconn as well?

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

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

I would say it's an indication we're scaling forward on the aesthetics and the technology. So I'm really excited about showing and unveiling the new interior at the Los Angeles Auto Show in November. It is a complete new interior. We had just so many ideas, and we also had some new technology we want to incorporate in the interior that drove a bit the design. And I can promise you what we are doing, even with the screen, is unbelievable. It's actually something we're filing a patent on. right now, and I think it's going to be super exciting. The quality of the interior, I think, is just going to be standing out between any other vehicle in this class. The quality of the feel, the design, very, very clean, yet modern. But, yeah, you're going to have to see it and just wait until November. I'm sorry.

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

Thank you. So the next question comes from Brian Johnson of Barclays. So Brian, please go ahead. Your line is open.

Yeah, hi, team. This is Stephen for Brian Johnson. Thanks for hosting the call. Just had a couple of questions. One around the R&D expense, kind of just a little more color around the reasoning behind the increased R&D expense versus the original plan. And kind of as we think about the midterm economic operating model, how this kind of fits into that, are we going to potentially see higher ASPs or is this just a reflection of competitive dynamics and overall regulations in the industry driving increased?

Yeah, that's a great question. So if you actually look at the guidance, what we've done is we've upped it by $30 million. So we had $490 to $520 million. And we also narrowed it, if you look at the last guidance. Now, there are two dynamics that are playing here. So the increased R&D expense is A, of course, as we mentioned a couple of earning calls ago, that we are adding new content. The second part is that we do have more expenses when it relates to prototypes and testing. We believe it's actually a really good thing that we're doing that because we need to put new technologies like ADAS, powertrain technology, and that is resulting in improved performance and features. A few months ago, we actually brought in a new VP who is in charge of homologation and certification who comes in super experienced. In fact, he certified the Fisker Karma almost 11 years ago when electric vehicles were not a thing. Now, what we've also decided to do is do more prototyping and certification in-house. We need to spend more money on virtual validation tools, on certain other tools. But we can, of course, use these technologies across different vehicles. The other thing I want to point out is that we, of course, have more hiring. We've hired many more people, so there's an incremental headcount as well.

okay um that's helpful and then the other one is related to the uh it sounds like you developed an extensive marketing plan for the us and europe um starting with november 2021 at the la auto show uh just wondering can you remind us what how you're thinking about unit volumes and the kind of demand split um as well as the rollout of the fiscal ocean between the us and europe over the midterm

yeah so um i i want to get back also reservation our target is still to get at least 25 000 reservations by the end of this year and that's part of our detailed marketing plan i'm going to be tracking that so that's going to be quite an acceleration from november to end of december And then in 2022, our goal is to get 50,000 reservations, up to 50,000 reservations. So we will be sold out for 23. In terms of our production, we are starting production, as we mentioned, in November. We expect to do a few deliveries both in Europe and in the U.S. in the next year. And as we get into 2023, I would expect that about 75% of the vehicles are going to go towards the U.S. We are seeing acceleration orders in Europe, but of course the first orders came out of the U.S., so first come, first served. We expect also to get up to over 5,000 units per month in 2023. And I think we're going to be easily able to kind of beat sort of our forecast of around 40,000 vehicles in 23. You know, if we can get maybe an extra shift in, I'm very comfortable that, you know, we're going to be sold out for 23. And, of course, people are going to be waiting for the vehicles. So we're going to try and see how we can – you know, speed up the ramp up, but obviously a ramp up is a ramp up, but over 5,000 vehicles a month already in the first year, I think that would be a record among any startup company. Thank you, Steve. Thank you for taking our questions.

Next question, Brita.

Thank you. We now have John Murphy of Bank of America. So, John, please go ahead.

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

So, yeah, I can take that one. So I think it's going to be incredible positive for Fisker. I mean, let's not forget, it takes still the traditional automakers at least four years to make a vehicle. So even if somebody started today to say okay we're going to go full speed on evs you're looking at probably 2026 onwards we have already announced that we're going to have four vehicles on the market before 2025. i would also expect the biden administration to really put a lot of effort in that over the next four years and that's exactly when we're launching our vehicles I would expect them to put forward incentives for customers. Hopefully, it goes directly to the sales price. Now, one of the advances we have, which is very unique, is our price points of our vehicles. The first vehicle is sort of in the premium segment, but really starting at 37.5, we'll go up to 69. And of course, even if we sell sort of the average vehicle for 50, 55, which is where we're going to make a lot of money, with a good incentive of that vehicle, we're going to reach a pretty high volume market. The average vehicle in the U.S., about $40,000, the average, you know, purchase price of a vehicle. But then you think about the pair program, that vehicle will start under $30,000. And if you imagine there still is a $7,500 discount on that vehicle, you're now thinking about having a vehicle for $22,500. I mean, you're talking about I mean, a million-volume segment there. And I quite frankly don't believe that a lot of automakers would have reached this price point before 2025. One of the weak things that some of the larger OEMs are facing is that they have to disassembly their gasoline plants before they can do high-volume EVs. They also have no record of high-volume EVs or even a huge clientele that wants EVs, so it's very difficult for them to go out and order parts for a million EVs if they don't see a lightning in the tunnel to be able to sell them, because let's not forget they make money on the gasoline cars. In our case, to have 17,500 orders two years before launch, I don't know of many gasoline vehicles that have even 5,000 orders two years before launch. So I'm very comfortable that this is going to be a huge advantage for us. I have big expectations to the Biden government that they actually will put a lot of incentives forward as well as building up the charging infrastructure in the U.S.

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

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

Well, let me first say, and I know I had to go to Gita since she's running the supply chain. I just want to say from a larger perspective that we are facing a huge revolution in the automotive industry. And the revolution is also partly to do with supply chain. A future vehicle is going to be sourced more like a tech device than an automotive component. And what I mean by that, axles and, you know, stamped steel and stuff like that is going to be less and less important. That's going to be other things that where the consumer really is going to find value. So we have not changed our mind. We are not trying to build axles in-house or anything. steel seating frames and other components like that, which we think have absolutely zero value as a company or zero value for our consumers. So we are focusing on developing as much technology and software as we absolutely can.

in-house but i'll let you just speak a little bit more to our supply chain general yeah so i think the first thing i want to say is there is really no oem who does all the components in-house so uh it really vertical integration is really hard and i think in the past oems have done it but then they divested so really there is no oem who develops every single vehicle in-house especially as you go from ice to ev there is no oem who makes battery or drive units in-house so you have to go to supply chain so that's the first thing The second thing I want to talk about is if you focus on engineering services. Again, this is an area where we kept certain things in-house, as we said in our asset-light approach, something like design, something like UI, UX, something like software development, something like product attributes. All of the things, everything is done in-house. Then, of course, we leverage supply chain from product design, from engineering perspective, which translate into components that can be manufactured that are bomb targets. One critical item I want to mention that really isn't talked about in the industry is vehicle integration which is the most critical area and this is an effort that we jointly do with our partner magna it is so critical because it relates to manufacturability of the car so this is an area where we keep together we do design freeze together we do p releases together and vehicle integration is something where we have joint capability with magna and then finally as we alluded to multiple times Prototyping testing is something that's a skill set that we're developing totally in-house.

Thanks a lot, Aileen. Rika, we have time for one more question, please.

Thank you. The final question from the phone lines comes from John Lopez of Vertical Group. So, John, please go ahead when you're ready.

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

So the first thing I want to start by saying is OCEAN will be under a billion dollars. So the quantum fundamentally hasn't changed. And it's pretty common when you start a program, the first few quarters could be lumpy. But let me spend a little bit of time clarifying guidance for this year. earnings call we increased 30 million which is about a seven percent increase in r d spending but that's 100 related to project pair and that spending we forecast will be in 2021 it's a combination of in-house hiring it's a combination of bringing in new suppliers Now, of course, FAIR is a completely new program, and it was excluded from prior guidance. Now, in today's increase, we increased 9% at the low end, 4% at the high end, so 490 at the low end, 520 at the high end, and it's, again, directly related to incremental prototype activities we're doing in 2021 and again that's a result of activity and capability we want to develop in-house rather than spend the money outside now of course if you're building in-house capability you need to spend a little bit more because you need headcount you need tools software tools you need hills etc for certain components in EE And as I mentioned earlier, we also brought in a VP in charge. There are certain expenses that are driven by new regulation changes in the Eurozone for safety, so that did drive an increment in spending. But again, the overall quantum of spending doesn't fundamentally change. It just gets either less in another quarter or shifted to another quarter.

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

Yeah, so the 5,000 is not average. My comment there was we are reaching over 5,000 vehicles per month in 23. I'm a little reluctant to give you the exact date of that right now. There are some different factors that could drive a change in that. But the good news here is that when I say over 5,000, we have the capability with Magna to do a lot more than 5,000. So if we, for whatever reason, would be a couple of months later doing 5,000, we can catch up later in the year, which is why I'm very confident in our first year volume target of well over 40,000. I think actually it might get closer to 50,000. So I think in any case, whatever we may not catch up with in the beginning of the year, we can catch up later in the year. Because again, Magna has put us into their largest hall at Magna, where we ultimately are able to do well over 100,000 vehicles a year. They have a super skilled labor force. They have an amazing pre-production facility. They have a paint booth that can service multiple different vehicles. They have an inbound and outbound logistics system that's already set up. So we're not facing the typical you know, difficulties that any startup would have starting to making, you know, cars in their own factory where they have to train people that used to flip burgers or they have to like suddenly create an infrastructure of suppliers, et cetera. That's not the case with Magna. They are producing, you know, premium cars from other carmakers already and they have this entire infrastructure. They have the skilled labor, which we're going to take advantage of and why we are so confident.

All right, thanks, everyone, for joining the call. Thanks for the talk. Yeah, thanks a lot, John. And thanks, Brika, for running the call. We really appreciate, you know, anyone who joined the call today. And we'll talk to you next quarter. Thank you. Thank you, everybody. Thank you very much.

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