This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk01: Good afternoon, thank you for attending today's Fisker Inc. second quarter 2022 earnings call. My name is Frances and I'll be your moderator today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you'd like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to our host, Frank Borak with Fisker.
spk09: Thank you, Francis. Hello, everyone, and welcome to Fisker's second quarter earnings call. As the operator mentioned, my name is Frank Borak, VP of Investor Relations and Treasury here at Fisker. Joining me on today's call are Henrik Fisker, Chief Executive Officer, Dr. Burkhard Hunke, 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 securities laws. Forward-looking statements generally relate to future events or future financial or operating performance. Our expectations and beliefs regarding these matters may not materialize. Actual results and financial periods are subject to risks and 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 firmly described in our filings with the Securities and Exchange Commission. The forward-looking statements in this presentation are based on information available to us 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.
spk04: Thank you, Frank, and thank you, everyone, for joining this call. I first want to actually begin thanking all our teams and our partners for the incredible progress we have made here today. I'm really, really excited. I'm actually really excited about this call because we got so many exciting things to announce. Of course, the progress has continued at a great pace and is unscheduled when it comes to the ocean. And we're on track for SOP on November 17th this year, as we have stated previously. And that remains the same. And we have also continued into the next phase of our second program, the PAIR program. I'll talk a little bit about that later. We have completed 55 ocean prototypes. And they've, of course, been built to do all our testing. That continues. And we've got some great results. And Magna continues to build prototypes throughout the rest of this year until SOP. We also have had reservation growth that has continued at a rapid pace. We now have over 56,000 reservations, including 5,000 pre-orders for the FiscaOcean 1. So we have seen customers responding to the FiscaOcean's class leading and industry first features. I want to mention that getting thousands of people here in the U.S. to put down $5,000, a non-refundable on a vehicle they haven't seen yet, they haven't sat in yet, they haven't driven, really shows for me the commitment, but also the value proposition that we have in the Fisker Ocean, not only in terms of price, but all the things that we offer. And if you go to our website, Fisker Ring, you can see that we have many, many features that you can't even get on another car. You can't get such a big solar roof as we have. You can't get a California mode. You can't get a 17.1 inch rotating screen. And I can go on and on about all the features, these fantastic features that we have developed at the Fisco Ocean have, and quite frankly, makes it stand out in this class. Now, we opened the pre-orders in early July for a $5,000 or local equivalent down payment in Europe. And for the exclusive launch edition, which we call the Fisker Ocean One. And I'm happy to say that we are sold out of all the 5,000 Ocean Ones pre-orders and everybody paid $5,000 for that order. And that really represents, in my mind, a real order. And it's actually quite a historic moment because I don't think anybody has ever done that before in such a way. And it really also shows that we now have a potential revenue of $350 million, which are already secured before we start production, which I think is amazing. Let's get to the balance sheet. It remains solid at over $850 million in cash, and our business continues to scale. The fiscal team are now over 550 people representing over 60% growth year to date, including our new SVP of global manufacturing, who will focus on a lean manufacturing and innovative techniques. And what I mean by that is that Fisker have a development process where it's all about efficiency. So we are bringing a manufacturing brainpower in early in the development process, specifically on the pair program, because we have a very, very tough target to reach in terms of cost for that. And that includes, of course, ease of manufacturing. So I've given very clear guidelines to the engineering team, reduce parts, reduce cost. And we are now in the second phase of that program. And I'll talk a little bit about that. And we are still on target to launch that vehicle for under $30,000. Now, also, the organic marketing efforts continue. UK debut at Goodwood Festival of Speed. And we had a French debut in Paris. plus continued progress on our Fisker lounges, which is what we call our experience centers or showrooms, which we expect will open later this year, both here in the U.S. and Europe. And also stay tuned for more pop-up events and our inaugural appearance at the Paris Auto Show in October. So we obviously are starting to get more marketing vehicles in October, and that's when we're going to start getting out and showing our car a little more as well, because I know a lot of people have asked for that. but we are now starting to get these marketing cards in October that we can start showing. So let me go back to a little more detailed ocean update. So our number one priority is to launch a high-quality fiscal erosion on time, and we remained on track to do so. So on the prototype update, as I mentioned, we have completed the 55 prototype builds and continue to build vehicles, and the testing and validation is well underway. In July, Fisker Ocean Prototype arrived in the U.S. for testing. We have five prototype vehicles in Michigan undergoing ADAS testing with Magna and also completing testing for high pressure, water tightness, high and low speed features, powertrain, and much more. Our U.S. internal crash testing, which we do in-house, by the way, with prototypes, achieve five-star equivalent ratings, which gives us confident informal ratings when they come out. Now, we are not in charge of when those formal ratings come out because basically IHS and other rating companies have to buy our vehicles next year and do their own testing, independent testing. But we are very confident that we achieved a five-star equivalent rating, what we have done so far, because obviously we have done all the testing internally. I personally received my ocean test vehicle in LA and have been very impressed with the handling and performance. driving around on many different streets in LA. And I'm just so amazed about what we've accomplished with this vehicle so far. And this is not even the final vehicle. It still needs fine-tuning. But I've also driven this vehicle actually in a later stage on the suspension on the high-speed track in Italy. And I can promise anybody this is going to be one of the best handling SUVs in the world, hands down, specifically when you combine the actual cornering and driving ability and performance compared with comfort. It's easy to make a super sporty car, and it's easy to make a super comfortable car, but combine the two for everyday use is super difficult, and we have really achieved this with the Fisker Ocean. I can't wait for people to get in and drive it. Now, the ocean demands remain strong. Our marketing and brand-building efforts are working. Most impressive is selling out of all the 5000 Ocean Ones launch editions, pre-orders with customers in all nine launch countries and all 48 continental US states. Our customer outreach was limited to our launch market in reservation order. Based on our information, this is the largest deposit amount of number of launch units for any premium affordable vehicle. So I think we did really well here. We have a very unique internal data-based marketing strategy as well we are using and we are building that skill internally. The Ocean is a luxurious fully loaded edition, the Ocean One, of the Fisker Ocean that include rarities and features uniquely only to the Ocean One, including an Ocean One signature badge, plaque, specific numbering, and over $5,000 of included options. People love the Big Shore Blue. So far, most popular color selection. We obviously can see what people have ordered. And the $5,000 down payment show us that customers are truly committed and allow us to plan the build with their unique colors and specifications months ahead of SOP, leading to a more seamless launch and initial deliveries. I mean, that's another very important point. The more you can plan your production ramp up, the better it is, and we are able to do that because of these firm orders we have got for the Ocean One. And I think the customers recognize the great value proposition of the vehicle, the many class-leading or industry-leading features, and the confidence in the Fisker and Magna to produce a high-quality vehicle. And we truly also appreciate customers' understanding, you know, of the current elevated logistic cost that, quite frankly, in my view, are way too high, but we are just passing over the cost of logistics to our customers. And I will promise if we get to a point where these logistic costs are falling, we will also lower our delivery costs. This is simply just a factor of the current environment. And I want to remind everybody that we have not raised the prices for the first 40,000 vehicles we'll deliver, but we do have to pass over certain logistic costs such as delivery costs, unfortunately, to our customers. But I do think these costs will fluctuate based on logistics rates as we move forward, and then we will adjust them as well. So reservations generally continue to increase, and we have started the strategic discussions with Magna to add capacity. Continued strong growth because Ocean is segment leading, has a great design, and has many sustainable credentials. And as we get closer to SOP and continue to be increasingly transparent with respect to our product and what customers are getting, And for what price, prospective customers should only get more and more excited, we're serving a notion. And we think we're seeing that already. As you start comparing our vehicle and the specification with other competitors, I think we're way ahead. And of course, we are going to show even more detailed about some options and actually equipment that we haven't announced yet that I think only is going to add to that. Starting on November 18th, the day after our official start of production, we are happy to announce that we will begin taking pre-orders for our customers who are interested in the Ocean Extreme trim. And this will be followed by pre-orders beginning opening for our Ultra and Sport trims already in Q1 2023. We are going out in phases, which will help us again plan our production forecast. And we have reserved both ocean ultra and ocean sport production for next year. So even if we were to be completely sold out of next year's production with extremes, we are promising we will still build some ocean ultras and some ocean sports, and they will be available from around Q3 next year. Let's come to the peer update. In early May, Foxconn completed its acquisition of an operational 6.2 million square foot manufacturing facility in Ohio. And that's where a pair will be built using the Fisker developed SLV1 platform. That's a brand new platform that we are developing in-house. And again, as I mentioned, it's about reducing parts and costs so we can get a super exciting vehicle on the road with high technology without spending it on platform stamping and complicated structures, et cetera. And we intend to build a minimum of 250,000 pair vehicles a year. once the plant ramps up production. And pear reservations have now surpassed 4,000. We, of course, haven't shown much of the pear. There's kind of a new image today, a little bit of the front with the super cool round front windscreen that we are working on getting into production. It's difficult, but we'll make it. We make things happen at Fisker. We make dreams come true. We don't give up on innovation. So there's a lot of innovation features in the pear, something that not only have you never seen in that price class, but I actually think You have never seen it on any car, any production car before. I'm super excited about this vehicle. I think this will really be redefining not only how you develop a vehicle, but also the content of the vehicle, the design of the vehicle, and finally, what you get for your money on an electric vehicle. And I know a lot of doubters out there that we won't be able to make this vehicle for under $30,000, but we are doing it with the ocean, and we'll do it with a pair. We have an internal process that is unique and with us really allows us to get that point. But you can't get to that point if you try to develop a vehicle like you have developed gasoline vehicles the last hundred years. You completely have to rethink what a mobile device is of the future. And that's what we have done with the pair. And I think we're going to excite the market when it comes out in 2024, which is still scheduled for, and as I said, starting under $30,000 before any incentives. And I also want to mention again, you know, we have this vehicle will be built here in the U.S. So now we have manufacturing opportunities in Europe and we have manufacturing opportunities in the U.S. And I think that's extremely important that we have been smart enough to hedge no matter what type of legislation comes in the future. I think we are in a very safe position. We've got affordable vehicles. We have heads to our manufacturing strategy. We are brought in a super manufacturing guy that are looking into even more opportunities, what we need to do for localization of manufacturing, what do we need to do for potential battery manufacturing here in the US in the future, battery JVs, et cetera. So there is nothing that we're not looking at. All opportunities are open. And because we are so agile and fast, we can actually move and actually do what's needed to fulfill the market conditions. And in fact, we are already looking at actively offer some pre-sales of the ocean should a legislation come into place where we would want to take our customers to take advantage of the $7,500 tax rebate for 2023. So if that becomes necessary, we have already a plan and we'll announce that if it's needed. So I'm very comfortable with that as well. Let's come to the customer experience strategy and an update. Fisker brand lounges, which we previously referred to as experience centers, will offer prospective customers the opportunity to see and experience the company's vehicles, as well as speak with product experts on hand. Depending on state laws, some Fisker lounges showrooms will also offer test drives. There's a few states where that makes it more difficult. We will find other ways to make that happen. Don't worry. Locations in addition to LA and Munich locations, we expect to open later this year. We expect to announce further locations in the next few months. We are already negotiating on a lot of different real estates, both in the US and Europe. We will also have Fisker Center Plus locations. Our Center Plus locations are really delivery centers and it's service centers and where you will go to test drives. And that's a real unique Fisker strategy that hasn't been used by any other car company in the world. And we are doing that so we can offer you, the customer, a much better experience, but also more value for money. We don't want to charge you for expensive buildings and leather couches and all that stuff. We want you to come and pick up your car, which you probably only do once every two or three years, and you would rather go and get a great price for the car than having to go to a super expensive glass pallets and we have to add $2,000 per car. We don't do that. It's about getting product to our consumers that are state-of-the-art at the best price. Service centers will be operated by Fisker. We, of course, also have partners strategically placed until or even during these service centers operation where we can also bring vehicles in for service. Of course, with our fantastic and I think class-leading warranty Nobody really has to think about service for the first five or six years. In fact, if there's any warranty issues, obviously it's Fisker's obligation, and we will come and pick up your vehicle, and we will either do mobile service, or we will take it to one of our center pluses, or we will take it to a partner of us. But we take care of it. You absolutely don't have to worry about it as a customer. Finally, our advanced sustainability vision, a clean future for all. We are proud that Fisker Ocean was produced in Magna's carbon neutral plant in Austria. The Fisker Ocean will contain over 50 kilos of recycled polymers and bio-based materials, more than any other vehicle that we know of currently on the market, highlighting our commitment to sustainability. Our vision when we started, and we talked about that already two, three years ago, was to make the world's most sustainable cars, and we're coming through that. We have an amazing in-house team. We have a leader of ESG, and we are going to soon announce our ESG impact report later this month. And we're actually doing that ahead of production, which is very unique. And I think this illustrates how integrated ESG is throughout our business. And we also are still very firm on wanting to reach to create a CO2 neutral car by 2027. And most likely we will use the pair model as a foundation for that CO2 neutral model. So already a lot of these ideas are flowing into the pair program, and we are aiming to lead with the world's most sustainable vehicles. I'm very optimistic about Fisker's future and realizing our vision of a clean future for all. I now want to turn it over to Burkhard, our Chief Technology Officer.
spk03: Burkhard? Yeah, thank you, Henrik. Beginning with Fisker Ocean, engineering testing and validation is progressing well and we remain on schedule to achieve SOP in November. We have super agile teams at Fisker and Magna that efficiently collaborate in a modern way. Fisker and Magna's shared reach and experience continue to ensure all our parts are sourced, delivered, assembled and tested on schedule. we are closely partnering with our supply chain to protect our november 17th production plans and from our vantage point semiconductor chip availability is proving and positions us very well for sop the all 55 of our complete prototypes have been built and performance has been confirmed these vehicles have a production intent design and components and are used for validation in all attributes, such as safety with highest NCAP ratings, ADAS, NVH, climate comfort, powertrain system, performance, chassis, electrical integration, and complete vehicle durability. As we progress through the different performance tests, our ADR teams can quickly synthesize the results and rapidly make any final modifications. Based on extensive testing, including around 40 vehicle-level tests, subsystem testing and simulations, the Fisker Ocean is on track to meet global certificating. We have recently begun our next build phase. It's called the pre-PTO build, which is done with bodies built from the series manufacturing line and paint pauses. And it's the final build before we enter our serial production. These vehicles are intended to be fully representative of the final series design and will later be built on the series final assembly line. They will be used for final validation and testing of complete vehicle performance, comfort, and functions. In addition, these vehicles will be used to start all final certification and homologation testing. Henrik, Gita, and I are going to Graz next week to observe and monitor this final build phase. We have been collecting data throughout our build phases and are closing the iteration loop to update the final phase as we approach serial production. The full ocean program has come nicely together. We brought over several prototypes vehicles to the US for testing of ADAS, electrical and infotainment systems, and overall function and comfort. This is really important to have data from every region to be customer-oriented in every situation. We have had close collaboration with Bridgestone to ensure top performance. In general, we have done everything to maximize driving range of all vehicles, including optimization, work on efficiency, brake work, and more. Integration work on software and electronics is currently underway, and all the domains are coming together, including user interface, user experience. We call it UI UX. We are simplifying and integrating features for 100% customer reliability and satisfaction. The customer experience inside and outside of the car is supported by our creation of a highly scalable, secure, multi-cloud infrastructure to support Fisker's future vehicle fleet. Our state-of-the-art technology provides for a bidirectional connection between the vehicle and the cloud. This enables our vehicles and mobile apps to dynamically interact. The end result? The digitally connected vehicle with easy-to-use functionality that is always available for our customers. Our OTA strategy is unique and is fully driven by Fisker Cloud. It allows us to update individual vehicles as well as portions of all of the fleet of vehicles. We believe the revenue and margin potential of our connected strategy will be first of its kind. Now to briefly touch on PAIR specifically. PAIR engineering is continuing to ramp. And as Ocean gets closer to SOP, we are transitioning more and more resources from the Ocean program to the PAIR program. We have finalized the concept and have begun the A-sample phase. The pair will have a truly revolutionary electrical architecture with the many ECUs in traditional vehicles consolidated down to a few central computer units. Fisker continues to rapidly scale our core technical competence with robust in-house IP creation to both software and hardware engineering. We have much in-house software competence and are focused on the main domains, software, cockpit, computer, ADAS, battery and powertrain. Our San Francisco Technology Center, along with our newly established India headquarters, are focused on the design and engineering of software systems to support the ocean and future vehicle programs. Our technical staff has grown over 50% year-to-date to approximately 300 strong. A further illustration of our growing technical progress in in-house IP creation is Fisker's rapidly expanding global patent and patent-pending portfolio, currently around 70. We've built a fantastic team and continue to invest in internal capabilities that will enable Fisker to innovate and introduce cutting-edge technology into our platforms. Thank you. I will now turn the call over to Gita.
spk02: Thank you, Bukhar, and welcome everyone. With just over three months to SOP, our number one priority is ensuring development timelines remain on track and that our supply chain is ready for a start of production on November 17th and a subsequent ramp up in 2023. In this current tough environment, it is extremely important that I emphasize our asset-light strategy, which we started off with over two years ago. It is a very purposeful strategy designed to support us in all economic cycles. It offers scale benefits without the complexities, risks, and fixed costs of a fully vertically integrated approach. We continue to staff up with 530 full-time employees across nine countries. And of course, that does not include over 500 colleagues we have at Magnus, Ty, and Graz in engineering, purchasing, quality, advanced manufacturing engineering and over 1,000 colleagues we have who will ultimately build the fiscal ocean at MagnaStyle. Even after this growth, we are still a small fraction of the size of other sector participants, yet we aim to produce more vehicles in our first full year of operation than any other EV startup has done in history. Our unique model reduces the high operating leverage inherent in this industry and dramatically shortens the development timeframe. Now let me share some of our recent Ocean Program milestones in addition to what Hendrik and Bukhard already spoke about. The prototype build phase is now complete with 55 prototypes deployed globally. Critical testing and validation required for launch is well underway and on track for our November SOP timing. We employ a comprehensive supply chain management approach. I had mentioned last time on our earnings call that we have an executive team an executive supply chain task force between Fisker and Magna that continues to systematically conduct reviews, meet suppliers, and solve any critical issues we have with suppliers. These include in-person visits to confirm bumper-to-bumper readiness for tooling, part status, capacity, and production part approval process achievement, also called PPAP. We continue to update our supply chain with our latest reservation and preorder numbers and discuss opportunities for subsequent expansion beyond existing capacity targets. Staying on the supply chain topic, commodity pricing has come off the boil since our last call. For example, steel, which is more important for ocean than aluminum, is down 40% from early May and 55% year-on-year. Key battery components have also moderated a bit. In addition, the strong dollar has mitigated inflationary pressures for us as well since many of our supplier contracts are Euro-denominated. Euro has weakened 10% year-to-date versus the US dollar and is currently bouncing along its lowest level in 20 years since 2002. As a reminder, our contracts factor in commodity prices, inflation, productivity, and foreign exchange. Some of these critical elements will be calculated on a quarterly or annual basis as we start to ramp up production next year. As a result, we will have much better visibility of the actual impact of commodity prices to our BOM further into 2023. While we plan to produce between 40 and 50,000 ocean vehicles in 2023, we expect this to be back-end loaded, reflecting a deliberate early production strategy to ensure we deliver a high-quality vehicle to our early customers. I want to level set revenue expectations for 2022 with the limited number of working days between November 17th and year end, combined with holiday related factory closure and vehicle transit time to the US. This translates to little to no revenue this year. We have clear visibility and locations of our first 5000 Ocean One customers and are fully focused on establishing a seamless experience as we start delivering these vehicles. This insight provides significant advantages, including optimal customer service and efficient cost management by enabling us to sequence with precision our delivery centers, parts warehouses, last mile logistics network, and local after sales support infrastructure. Last month we announced Fisca Finance, a digital financing platform offering seamless and convenient loan purchase options to Fisca customers. Retail loan options include vehicle accessories and home charging, equipment financing. We reaffirmed the nomination of Chase in the U.S. and Santander Consumer Finance in Europe as our retail financing partners. As a complement to vehicle financing, we also aim to provide our customers with value-added services such as trade-ins and competitive insurance on our digital platform. Before turning to our financial results, I want to make some comments about customer deposits. As Henrik mentioned, we are very excited to have sold out all 5,000 pre-orders for our Ocean One launch edition, secured by $5,000 or equivalent in local currencies deposits from each customer. From an accounting standpoint, we will not recognize revenue until the underlying vehicles are delivered to customers. Our Ocean One customers hail from all nine launch countries and utilize various payment methods for their down payments. And as a result, depending on the town payment method, the financial intermediary either transfers those deposits to Fisker shortly after pre-order or when the vehicle is delivered. Turning now to our Q2 results, balance sheet and 2022 outlook. Our Q2 operating expenses of $88.7 million or 87.5 million X stock compensation expense was consistent with our internal expectations. Capital expenditures of 54.2 million increased from Q1 levels due primarily to the timing of capex billing. Operationally, R&D decreased in Q2 versus Q1, primarily due to lumpier milestone timing in Q1 on Ocean. The slight decrease in SG&A expense quarter over quarter was due to effective cost controls and the non-recurrence of major trade show events in Q2. Q1 had CES and Mobile World Congress, partially offset by team member growth. As a reminder, our equity interest in Allegro is reflected in non-operating results. We are working to develop seamless integration of Allegro's vast European charging network onto the Fisker app and HMI, and we will offer 12 months free of charging on the Allegro network for activations prior to March 2024. During the second quarter, we recognized a 10 million mark-to-market loss, or roughly 0.03 cents per share on a Lego holding in other income, which will obviously fluctuate each quarter based on a Lego share price. A balance sheet remains solid. We have stayed disciplined with our spending, finishing to a second quarter with 851.9 million in cash. We have the resources to fully fund the ocean program launch in November and to stay on track with other projects in 2022. During the quarter, we also established a $350 million at-the-market equity program, which is part of the $2 billion shelf we have. During second quarter, we tested the plumbing on the ATM facility, and we brought in approximately $14 million. We continue to evaluate multiple options across a range of funding channels to efficiently finance our growth beyond Ocean SOP, including our working capital needs, brick-and-mortar facilities, and future vehicle platforms. In addition to evaluating incremental sources of liquidity, we regularly assess the levels we can pull to adjust spend if warranted. For example, the pacing of our physical infrastructure investments and regional hiring activity and prioritization. We remain nimble and positioned to bolster our balance sheet in support of future growth opportunities as appropriate. Turning to the outlook, as noted in the press release, our overall non-GAAP OPEX plus CAPEX guidance for 2022 remains unchanged, at $715 million to $790 million. The bulk of the spend is continued execution of Ocean through launch, plus costs of running the business with FAIR R&D ramping up in the second half of the year. Product-related capex is Ocean-driven, as we don't expect any significant capex on FAIR this year. I'm very proud of the entire FISCA team's determination, resilience, and agility, including all our suppliers and partners, for navigating through a dynamic environment and maintaining our laser focus on launching an amazing vehicle on time. We're now happy to take your questions.
spk01: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you'd like to remove that question, please press star followed by two. Again, to ask a question, please press star one As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. Our first question comes from Joseph Spack with RBC. Please go ahead.
spk07: Thanks so much, everyone, and thanks for all the commentary. Geeta, I know you went through this a little bit about some of the commodities moving and contracts. you know, resetting either quarterly, annually, depending on who's in what. There's still, I think, a lot of investor confusion out there as to, you know, who is exactly responsible for the different forms of potential inflationary costs. I mean, I think it's pretty clear that you prepared the costs on some of the batteries, but, you know, stuff like steel versus energy costs, for instance, like how does that work with your contract manufacturers?
spk02: Yeah, sure. So, as you know, I mentioned in my commentary that all our contracts, they actually address any inflation, which obviously clearly impacts labor. If there is any commodity prices, which are indexed to London Metal Exchange, which is pretty normal in all these contracts, then there is obviously productivity. Generally, all contracts, automotive contracts have productivity because you improve the way you do things means you do things faster. And then there is foreign exchange. And all the contracts, they are between fiscal and suppliers, and we adjust them on a quarterly basis. So typically, we are, of course, as a customer, responsible but we work with our suppliers to look at all these numbers on a quarterly basis and would adjust for them upwards or downwards.
spk04: Maybe just, again, just make it clear, Joseph, since we're not in production, we're not affected by any of these prices at this point in time. Right.
spk07: Okay. And then the second question, Henrik, you know, it's great to hear that these prototype vehicles are getting out there so you and the team can test them and make additional refinements. But, you know, you are about 100 days away from SOP. I guess, like, when do we need to lock down? Because I'd imagine you want to try to minimize changes on the line, you know, on the line once it starts. That's certainly gotten some other startups in a little bit of trouble. And that's related also, you know, now that there's some prototype vehicles stateside, when should we expect, you know, drives for third parties like the media or, you know, maybe more investors and analysts?
spk04: Yeah, so first of all, you know, there's two different type or actually several different type of prototypes. So as I mentioned, was that we have already built 55 prototypes that actually use for the hardcore testing. So the test vehicles we are getting here, which is all nicely painted and not in camouflage, those are test vehicles which are, for me here and maybe a couple of our engineers who drive around in, I would say a little bit more as a fine tuning for maybe some chassis feedback, but there is no real adjustments happening at this point in time as a result of driving around in those. Test vehicles, we have done most of that fine tuning on test tracks, et cetera. You know, these vehicles, like I mentioned, we just got now are really like fully painted, nicely done up and all that we're driving around in. So that's not unusual. And also remember, I know you referred to other EV startups, and they I'm sure are doing their own processes, et cetera. But, you know, we are following a slightly more traditional OEM process when it comes to testing because we are working together with Magna. So I don't think anybody should worry about us making any changes on the line. That's really not what we are going to do. We have already made the changes we need to do. The only thing that usually at this day and age, when we are talking about new technology that is getting improved and adjusted until you launch and actually even get upgraded after launch, which happened in the smartphone world and the computer world, the software. So we will continue improving software even after launch and upgrading our systems. And I think there's already another carmaker that has done that. And I think you will see many future carmakers doing that because it is constantly evolving. But the hardware itself, there is no more adjustments already to that. That has already been frozen and fixed. So I don't really see any issues there at all. When it comes to when are we getting people in the vehicles, You know, I would have liked to have got people in the vehicles a little earlier, but I don't want to get people into a vehicle that is only 90 or 95% there. I want it to be 100% perfect. So I think it's going to be closer to beginning of November is my best guesstimate right now. We also have to remember that, you know, every single vehicle that we are making right now is spoken for in terms of being used for something, whatever that might be. So, I think it's going to be closer to around November timeframe.
spk07: Okay. Looking forward to that. Gita, maybe one more quick one. You know, the guidance does imply a step up in OPEX in the back half, makes sense, you know, as we approach launch. Just from a cadence perspective, though, is it more... than third quarter with the launch, or is it more balanced because some of that spending needs to happen in advance of launch?
spk02: I think it's more balanced, Joe, to be honest. And, you know, we've been pretty prudent, and we took some early measures. Also, as Henrik mentioned, we took some decisions on some of the operations where we didn't go into some of these expensive fiscal lounges. So some of these numbers we have the capability to control. And I think there is absolutely zero change in some of the expenses we have on oceans, so very balanced.
spk08: Thank you. Thank you.
spk01: Thank you for your question. Our next question comes from James Piccarello with BNP Paribas. Please go ahead.
spk08: Hey, guys. Regarding the proposed EV tax credit legislation and the final North America assembly requirement to be eligible for half of the $7,500 credit, if this goes through, I mean, could Fisker utilize, you know, the Foxconn plan or just some other measure to meet that final assembly threshold so that, you know, the ocean is eligible for at least half of the credit? Just wondering what your initial kind of first blush contingency plan in your thinking there, what that looks like.
spk04: Yeah, so what I mentioned earlier is that we have just hired a senior vice president of manufacturing with a lot of experience here in U.S. manufacturing. And we are putting together a strategy with him. Should this legislation take into effect, we would have some countermeasures where we would definitely have ocean U.S. manufacturing. We're not ready to announce where and how, but that's something we are actually working on, absolutely.
spk08: And the battery supplier alliances that you have in place today, do those suppliers have U.S. capacity to meet the other half of the tax credit? Just wondering what your thoughts are there.
spk04: So first, this is a very complicated legislation where we're also talking about materials in the batteries. And I would actually estimate, I mean, I don't even know if there's one car today that fulfills all these requirements that will get the full tax credit. For sure, I don't even think it's five cars. So it's definitely not a good legislation for any consumers that want to buy an EV, no matter where it's made. in terms of battery for the ocean we have a very firm contract with chl and uh you know i can't speak for them but i think there's already been uh some news about that they're looking for u.s production uh for the pair we have not made a final decision on who's going to supply batteries or whether it's only going to be one supplier but one thing's for sure it would be a battery supplier that would have eventually U.S. manufacturing. And, you know, I could see us make a closed corporation, a joint venture. We're not quite ready to announce that yet, but it's something that we clearly are planning for, with or without that legislation, because making 250,000 vehicles in Ohio, you're going to need to have battery manufacturing in the U.S.
spk08: Yeah. Okay. That's super helpful. And then just on the ATM, the $350 million ATM equity offering, is there an expiration to that tranche?
spk02: Yeah, great question. It's actually, sorry, did I hear too? It's $350 million. So there's a three-year shelf life.
spk08: Okay. And then, yeah, my broader question on that point is, you know, how are you thinking about, you know, additional liquidity sources out to 2023? you know, if that equity offering, you know, comes in light through, through the rest of this year, you know, it sounds as though you're, you're comfortable talking about cash on hand, getting you, you know, well through this, you know, do this year, but you know, what are the options and your, and your thoughts on liquidity as you.
spk02: Yeah. Yeah. Great question. So again, I want to repeat that we have a very, very proactive last year. We are in a capital intensive business. We plan to bring four vehicles to market by 2025. So we clearly need capital to fund these programs. We need capital for marketing, sales, and service. We need capital to support customers. So we clearly need capital, but we also want to be mindful of raising capital at the right time, at the right valuation, and when it's opportune. So we already showed that last year when we placed a convertible note, $675 million, which had a five-year maturity at great terms. uh it's a great great instrument that we used in addition to that in the 2 billion shelf the 350 is already allocated to atm it's a three-year shelf life and as everybody knows the mechanics of an atm it's not something you close within a day or so it's it's a long-term instrument so we have that instrument available as and when we need and we feel the market is right now in addition to that There's obviously clearly an equity market, and we have a balance of 1.65 billion left in the shelf, and we can use that shelf to place trade equity. If the market conditions are right, we could place a convertible note. So those, both those instruments obviously go straight to the balance sheet. And then finally, again, reiterate that we are talking to multiple banks to discuss an asset-backed loan against parts or work in progress against finished vehicles when they leave Magna and are in transit to our customers. And the fact that we completed these 5,000 Ocean One pre-orders is a great testament to show a potential of $350 million revenue to some of our potential lenders who can clearly see that we have imminent revenue coming. So we are looking at all these different approaches, including others which I haven't talked about, the emission credit sales and all the other options. So we will absolutely strengthen the balance sheet in the coming months.
spk01: Thanks. Thank you for your question, James. The next question comes from Adam Jonas with Morgan Stanley. Please proceed.
spk06: Hey, everybody. So, Geeta, I know you're going to have more visibility when you actually start making cars, but you did say that you have the discussions at least quarterly. So, based on that, how much does an ocean bill of materials cost today in U.S. dollars, factoring in the euro weakness, but then the other puts and takes on the input prices and energy, etc.? ? How much more does it cost today versus, say, one year ago? Order of magnitude. Not going to hold you to a specific dollar amount.
spk02: Yeah, Adam, it's a great question. We actually don't encourage those discussions because they don't really mean anything. And the reason for that is that, you know, when we talk to suppliers, they only price out when we are ready to put a purchase order for a quarter. So, honestly, these – We clearly have costs that are related to content that are related to our design intent parts currently. And the reason why we never increased prices was because we were very confident with what we are seeing and what we are discussing with our suppliers. Now, I don't know what Q1, Q2 next year looks like, but again, we are very confident that if there's upward movement and commodity pricing, we have enough headroom to absorb that. And areas where we feel it's justified to share with our customers, as Hendrik mentioned earlier, is logistic costs. And instead of building it into the price of the vehicle, we instead separated it out for full transparency. So I think to answer your question, we haven't really done serial pricing right now with suppliers because we're not producing cars. But again, I don't see any surprises next year. But we don't know.
spk06: Okay. Thanks, Geeta. And just as a follow-up, and thanks for the comments and being very open and transparent about the need for capital going forward. but just specifically for the ramp of the ocean. You said you have enough liquidity for year-end and end of 23 for development work, but is it safe to say that you would need capital to actually ramp production of the ocean?
spk02: So the ramp needs are obviously cash flow, working capital needs, right? We have certain terms from suppliers, and you're only realizing, like I said, revenue when the customer pays, and typically the customer pays when you exchange the assets. So obviously, as a startup, we're trying to explore if we can get non-dilutive funding. And if there is a delta, then absolutely, we're going to have to raise money. And we could supplement that through the ATM. We could supplement that through a convertible loan, depending on the borrow and depending on the market conditions. We could supplement that through another equity raise. And we absolutely are working with banks to identify exactly what that capital need is and how should we structure it.
spk06: Thanks, Geeta. And you're talking to banks, but is it too soon to think about exploring strategic value for the company as well? Thank you. That's my final.
spk02: We are opportunistic, Adam. We are always thinking about any opportunity that comes our way. So absolutely, we are always looking at strategic opportunities as well.
spk06: Thanks, Geeta.
spk09: We're going to take a few questions from the retail shareholder poll online. The first one is for you, Henrik. When will you be able to share rollout plans, including when reservation holders can expect delivery in their markets?
spk04: So we are looking at, you know, we're launching our new interactive configurator in October. What we just said was we're going to start taking firm reservations on the extreme, November 18th, the day after we start production. And at that point in time, we would definitely give an indication of the quarter you would get deliveries in. And then, of course, as we get closer to the actual delivery, we will give a firm probably about six weeks before. So we are working on all these details right now, and we want to be as accurate as possible, and we'll probably also allow people to somehow track where is that car in this entire process. But we should be able to give, in the end of this year, some pretty clear guidance of when people will get their car.
spk09: Thank you, Henrik. Next question. With the way the economy is going, is Fisker going to market to masses or only make
spk04: uh vehicles for uh elite consumers well i think we already are i mean our our you know we have already said that we will produce the thirty seven thousand five hundred dollar uh ocean sport from q3 next year we have already announced our uh pair which will be starting under thirty thousand i don't even think i can count on one hand the amount of evs that is going to come on market uh in 2004 24 that's going to be under 30 000 so i think we will have a really unique proposition uh in super high volume potential for our two vehicles what was important about the ocean was that we ultimately are able to get really high volumes out of that vehicle by having a base price of 37 500 and what's important about the pair is to get it under 30 000 because now you're talking about potential millions of vehicles so absolutely I think we will have a large span. I think we have design, which is timeless, which is done in a way where you can't really see what the price of our car is. I mean, a lot of people think they can't afford the ocean when they see it for the first time and they don't know the car. I've had people saying they thought it was $80,000. Of course it's not. So we will definitely continue to offer value all the way from our pair on the $30,000 all the way up to our Ronin. Even if we do a $200,000 car, it would offer tremendous value. And I think that's part of how we develop our vehicles. That's what we stand for as a brand.
spk09: Thank you, Henrik. And the last retail question, is there a chance ultra production may start sooner than Q3 2023?
spk04: Not at this point. You know, we have to plan production far ahead. And we also have to think about the company's financial health. I know we have a lot of investors on the call, and I'm sure there's also a lot of people who has maybe ordered an ultra or even some investors that have all ordered an ultra. But ultimately, you know, we are a business and what we are seeing right now is a very healthy demand for the extreme and the ocean one. And right now we can see that we should be able to fulfill Maybe even not all of these orders all the way to Q3. So normally, if we wouldn't have committed to start all transport production in Q3 next year, we may have been able to go all next year without producing any alters or any sports. But it was very important for the company to stand up to what we have promised, which was to deliver a $37,500 car. and a $49,900 car in Q3 next year, and we stand by that promise. We have planned it into our production, and that's what we're going to do.
spk09: Thank you. Operator, can you go back to the analyst queue now?
spk01: Thank you. Our next question comes from Pavel Malkanov with Raymond James. Please proceed.
spk05: Thanks for taking the question. You touched on the U.S. tax credit, I wanted to ask about the UK. You were planning to launch a right hand version of the ocean in the UK market next summer. And then in June, the British government wiped out the plug in car grant. Does that change your strategy for entering that market?
spk04: No, in fact, we saw an incredible uptake in the Ocean One orders from the UK. We had actually allocated a certain amount to the UK, but they went way over, so we didn't see any impact on that. I think we're extremely price competitive with our vehicle already in the UK. So let's not forget that in the UK, this applies to everyone. It's not about if your vehicle is manufactured in the UK or stuff like that. So it really has no impact, I think, on our competitiveness if everybody have to pay a little more, then everybody has to pay a little more, and we are still competitive. So we haven't seen any negative feedback on that, and we have not changed our plans. We will start delivering right-hand drive vehicles in the UK mid-next year.
spk05: Okay. Following up on that, you have the charging partnership with Allegro in Europe, of course. Do you have interest in... a similar kind of relationship with a charging company in the United States?
spk02: Yeah, so let me explain a little bit about the charging relationship. So first of all, we have a partnership with a group where all the charging infrastructure will be displayed on the HMI, which is obviously critical in all global markets. Then the second level of integration is to then integrate our web app and our HMI with individual charging station providers. So we are in the process of doing that. And then the third step is making deals with the charging station companies to be able to provide better pricing or plug and charge. So we're doing all these three. And we obviously with Allegro have a deeper relationship, and we're doing the same here in the US as well. We are not ready yet to announce those partners, but we will in the coming days and weeks as we integrate those in the HMI and app. We also have identified our partner for home charging installation that we are also looking forward to announce in the coming weeks.
spk05: Got it. Thanks very much.
spk01: Thank you for your question. Our next question comes from Shreyas Patil with Wolf Research. Please go ahead.
spk10: Hi, thanks so much for taking my questions. I just wanted to follow up first on a question that was brought up earlier. So maybe just to be more specific, your agreement with Magna, how do energy costs factor into that? Obviously, I ask only because we've seen a surge in energy prices across Europe. So is that something that gets passed on to FISCA or is that responsibility borne by Magna?
spk02: So, you know, first of all, energy costs for a facility like Magna is their fixed or variable utility cost. And the agreement we have with Magda, it's at two levels. The way vehicle contract manufacturing works is you have a fixed element and you have a variable element. Typically, rent, leasing the space, utilities, etc., they typically fall in the category where they share those costs amongst various different partners, customers, etc., etc. Now, specifically, what I can talk about in Austria, where there was talk about sort of gas. Now, in our case, MagnaStyle uses gas for paint shop. All other areas are now being switched to biodiesel hydropower. And in the case of Magna itself, they are hedging and buying around 85% of their gas for next year. They confirmed that to us, and we've released or releasing that in our queue. Now, Austrian government is planning to put automotive as a priority, given the number of jobs it has in Austria. And they've also secured 70% of their gas reserve for 2023. So I frankly do not see this as any risk, and it will be disclosed amongst our risk factors when we release the queue.
spk10: Okay, thanks. That's helpful. And then, you know, you mentioned quite a few potential initiatives around Project PEER and, you know, potentially even forming joint venture relationships with battery manufacturers. And you mentioned, you know, PEER-related spending, CAPEX spending in 2022. So, I'm just trying to, you know, think about the implications, though, as we think about the ramp-up of PEER spending, you know, especially in 2023. both on the OpEx and CapEx side. I guess maybe how do we think about the needs for that program, especially if you compare it to what you've already had to spend on the ocean? Do you see the potential for leverage against the ocean spending, or are you going to have to actually spend more?
spk04: So this is a great, really great question. I'm happy you asked it because what we are doing now actually is we are doing a lot more in-house development on the pair that we were able to with Ocean because we were scaling up a team and working closely with Magna, of course. So by taking that work in-house, we have much less capital outlay. We're also moving people already now from the Ocean program over to the PAIR program. And then finally, there's also a lot of commonalities on parts and suppliers between Ocean and the PAIR. So it actually, Some of these parts will be fully carryover, so we don't have to necessarily do a whole new design for these parts. And then there is the fact that Foxconn have already acquired the facility in Ohio, and we are working closely with them on how to lay out the factory. So I do see overall this program, at least in the initial phase, being a much lower capsule outlay than the ocean were initially.
spk02: Now to answer your specific question on capital needs. So this year the main investments on PEAR are ED&D. So concept development, ED&D and as Bukhar mentioned earlier, we have a lot of engineers over 300 including engineers we are hiring in India who are now transitioning over to the PEAR program and we are starting to do supplier selection in the second half of the year. So come August September time frame. And then as we select suppliers, I expect that at some point next year, we need to start getting into tooling. However, in the case of Pair Program, we are going to do purchasing this time in a slightly different way, given it's a U.S.-centric program. It's quite common in the U.S. to develop different commodities, parts with suppliers, but it's also quite common to bid out tools. It's uncommon to do that in Europe, but quite common in the U.S. So we are looking into those strategies, and that would require clearly investing capital. And it's a high-volume program, so I expect that some of the tools are probably more expensive than Ocean. We are also, as Bukhar mentioned, looking at a virtual – A lot of the hardware will become virtual, so we expect a very efficient bomb. When it comes to EE, we expect very efficient harnesses, low voltage harnesses. We probably spend a bit more on the computer. Battery, we will have to see where we end up. It will probably have a smaller battery than the Ocean, given it's under 30,000. So I think it would be definitely below ocean and I think we will get much more capital efficient on the pair. But we will have to raise capital when we get into, we will have to 100% raise capital to kick off the tooling with suppliers next year.
spk10: Okay, that's really helpful. And then lastly, just can you remind us of your service strategy? It's something that you talked about back in 2020, but I believe the strategy is to work with Cox Automotive. Correct me if that's changed. But can you just remind us what kind of KPIs are you targeting in terms of footprint, number of mobile vehicles that could provide service, et cetera?
spk02: Yeah, great question. So, you know, we divide service into multiple areas. Obviously, collision is by far the biggest and most complicated, as you know. And collision also falls outside warranty that involves insurance. So we are working on collision partners in all the nine launch markets as we speak. And collision is generally partnered. We will also look at certified third-party collision centers. So we'll release more information on that towards the end of the year. Then the next area that you look at is roadsides. You also, we are looking in Europe, e-call is required by law. So we are also bringing in e-call partners in Europe. We are actually going to offer that here in the U.S. as well, even though it's not required by law. Then in addition to that, we've named for other minor areas, Bridgestone in the U.S. and certain parts of Europe and McEnomen in Scandinavia for certain other areas of service And they all have sort of, you know, different types of service, whether it's, you know, tire change or certain other minor items that can be repaired. And then in addition to that, we're looking at specialist areas where we can do the service ourselves. And then finally, batteries need to be trained in a unique way. And we are developing our own high voltage training. We're developing, we're working with CATL as well to establish some of these processes and procedures.
spk10: Okay, great. Thanks.
spk09: Thank you, Operator. That's all the time we have for today's Q&A.
spk01: Thank you. I'll now pass it back over to the management team for any further remarks.
spk04: Thank you very much, everyone. I thought this was a super exciting and very good earnings call, and we are excited to move on and share news over the next couple of weeks and months. as we progress to a start of production with the Fisker Ocean. Thank you very much, everyone.
spk01: That concludes the Fisker Inc. second quarter 2022 earnings call. Thank you for your participation. You may now disconnect your lines.
Disclaimer