Fisker Inc.

Good morning and welcome to Fisker Inc's second quarter 2023 earnings call. All participants are in a listen-only mode. After the speaker's presentation, we will conduct a question and answer session. To ask a question, you'll need to press star followed by the number one on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to Frank Boruch, VP of Investor Relations. Thank you. Please go ahead, sir.

Thank you, operator. Hello. Hi, everyone, and welcome to Fisker's 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. Bukhar Hunki, Chief Technology Officer, and Dr. Gita Gupta-Fisker, Chief Financial Officer and Chief Operating Officer. Please note that today's discussion includes forward-looking statements about our expectations. Actual results in future periods are subject to risks and uncertainties that could cause our 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. Today's discussion also includes certain non-GAAP measures, including non-GAAP operating expenses. Quantitative reconciliations of our non-GAAP financial information to the most directly comparable GAAP financial information appears in today's earnings release. With that, I'm happy to turn the call over to Frederick.

Thank you, Frank. Good morning, everyone. Thank you for joining us today for our second quarter 2023 earnings call. First, I would like to thank all our stakeholders, teams, and partners for all the hard work and the continuous progress we have made in 2023. The past few months, we have achieved several significant milestones. Our first product, the Fisk Ocean, achieved best-in-class range, providing access to large addressable markets, commenced production ramp-up, and began global deliveries. We also had a large-scale media test event, completed an important financing, and unveiled our future product lineup yesterday. We believe all of these achievements position us well for long-term sustainable and profitable growth. And talking about profitability, I don't know of any EV startup that ever made a double-digit profit margin on the very first cars that we have delivered. And I think that really sets the stage for where we're going in the future. And of course, it's interesting to see that nobody's really mentioning that anywhere in the news. So I think it's very, very important to mention it here. And I know our CFO is going to talk about this as well, because it really highlights our excellent engineering teams, how they executed the ocean, the building materials of that vehicle, and what the possibilities are in the future for this vehicle and for our future vehicles, quite frankly. It's been exciting to get the ocean in the hands of our customers over the past few months, and we look forward to quickly expanding deliveries across our launch markets. The Fisker team and all of our partners are working around the clock to bring the best-in-class oceans to our customers as fast as we can. Now, our direct-to-consumer sales and service network supports exceptional customer experience. Our North American flagship location at the Grove in Los Angeles has completed all construction. We are awaiting final inspection next Monday, and as soon as that is completed, we expect to open the location. I'm really excited to open this store as it truly demonstrates the experience we want our customers to have. In addition to the comprehensive 24-7 digital storefront, we are establishing a growing physical retail footprint to complement the virtual experience. We currently have customer locations opened in Austria, Denmark, Germany, Norway, Sweden, and the UK. And we expect to quickly expand our physical presence to more cities in North America and Europe throughout 2023. Additional upcoming locations include France, Arizona, Maryland, New York, and Tennessee, which will bring current locations to 15. In addition, we have a few dozen other properties in negotiation in North America and in Europe, and they will also come online this year. We have also expanded our internal service capabilities and physical technicians in the field and stationed at our physical locations. We complement our third party service to complement our third party service providers that offer broad geographic coverage in each of our markets. And you can actually see how fast we're able to respond to customers. And I think this really has shown that our Broad service network is working really, really well. We have started our test drives events as well, and we'll extend these to our Ocean One customers who have not received their vehicles yet. And of course, to deposit holders and new customers in North America and Europe going forward. We now have the vehicles we need to start doing these test drives. We have teams ready. And in the last few days, we actually have done quite a lot of test drives. Let's do a little bit of a detailed ocean update here. Our number one priority is launching and ramping a high-quality physical ocean with class-leading features and range. We're excited to have begun initial deliveries in Europe and the U.S., which will be followed by a fast ramp. In Q2, the Ocean Extreme completed U.S. obligations and achieved an EPA range of 360 miles, which is the longest range of any electric SUV in our class. And of course, In Europe, it's actually the longest range of any electric SUV on sale. I had the pleasure actually of being on hand for initial customer deliveries both in Europe and Germany and Denmark last quarter. And we have now delivered Fisker Ocean to customers across four countries and five U.S. states and are rapidly expanding to be in all of our nine launch countries and, of course, many more states here in the U.S. While we are prioritizing deliveries of the Ocean 1 and Extreme trims throughout most of 2023, we are currently working through the homologation process for Ultra and Sport trims. We anticipate customers' deliveries of those trims will begin in the fall, and Bukart will also touch upon that a little later. And I'm pretty excited, actually, that both the Ultra and the Sport also will, I anticipate they will actually also overachieve on the specifications like range, when we get the final certification. So, again, I think both of these vehicles will be best in class and offer more range than any of our competitors. So, this will obviously broaden the entire customer, you know, all the customers that we have available in this segment. The ocean has a large total address in rural market in both Europe and North America. which is where our nine initial launch countries are. But we also have plans to expand into other regions as well. For example, we announced a limited edition deliveries into India, which will commence in Q4 this year, 2023. And we actually see India as a key market for our vehicles, especially the lower price pair that we showed yesterday. And of course, India now is one of the largest car markets in the world, and we expect from 2026 India actually will start accelerating electrification as well. And of course, we have announced that we will open a delivery center later this year in China, and we will start deliveries in Q2 next year in China. All right. On the pair, the pair, the program design and engineering continues to progress well. For those who had a chance to maybe see the real vehicle yesterday, you can see we pretty much finalized the design of this vehicle. It's frozen. The entire concept is frozen. We have made some amazing steps towards creating what I think is going to be the most exciting vehicle of the century, under $30,000. Parts count, which is actually reduced by 35%, is amazing. And I want to congratulate our innovative engineering team to have come up with a completely new body structure for this vehicle. And I'm super excited about that. And that's really one of the reasons we can sell it for under $30,000 and we'll still make money on it. And it is scheduled to be available for sale in mid-2025. And, of course, we continue to work with Foxconn on finalizing plan for an innovative manufacturing setup that we will require for this uniquely engineered pair. And, of course, yesterday we held our product vision day in California, and it was quite exciting. to show all these vehicles. I believe that fundamentally in the automotive industry, it's all about product. It's not just about any sort of car and just making another electric car. We have seen in the past that some electric cars came out, but they weren't really selling. I think we have a fantastic, phenomenal product lineup. And I think the ability to go into some market segments where there's absolutely no competition is going to give us really the potential to catch and to grab a giant part of that market. I mean, if I look at it, there really isn't any electric vehicle under $30,000 today, and let alone any cool electric vehicle. And I think we showed yesterday how cool the pair is. And of course, looking at our pickup truck, the Alaska, that vehicle, which with incentives, It's $37,900. There is no electric pickup truck in that segment. And I don't believe there's any electric pickup truck as cool, as sporty as the Alaska is. And with our versatility we showed in that vehicle with the bed going from four and a half to seven and a half feet is just amazing. We already got a ton of response on this positive response for that vehicle. I think we already got a thousand orders overnight and I hope we're going to keep expanding the reservations when we get the word out about this truck in the future. I see huge potential there. And the good news is that that vehicle has a lot of ocean carryover parts, so we should be able to get that very fast into production. And I believe we're going to have very high profit margins of that vehicle as well. And then, of course, we also showed an expansion on the ocean with the Force E package. which I think is just going to broaden even more the ocean market going into the more hardcore off-road market, which I think is really unique as well because there really isn't any off-road EV in our market segment that is available for people who want to enjoy off-roading. So I'm very excited that we're going to offer that package already in Q1 next year. And then, of course, finally, the Ronin. It's going to be a low-volume car. I think it's really about exploring new technologies in the end of the day. And, of course, it's going to build the brand, which I think is important as well. It's not going to be too big an investment. It's going to be a low-volume, handmade vehicle, probably under 1,000 units. But it's a super exciting vehicle where we're going to showcase our engineering capabilities and creating a vehicle with the world's longest range, 600 miles. So I'm really excited about that as well. Finally, let's talk about sustainability because it is one of our most important brand pillars, if not the most important. So the hard work in ESG continues. We recently published our lifecycle assessment for the fiscal ocean, which is a cradle-to-grave analysis that details the carbon footprint of the ocean. The findings were that the fiscal ocean has the lowest published carbon footprint of any electric SUV. the lowest. So we did really keep to our promise of making the ocean the world's most sustainable vehicle. And it really highlights the unprecedented sustainability through five phases of the vehicle's life, from raw materials to the vehicle's end of use. We are very pleased with the results and believe it shows how sustainability is woven into every aspect of our business and is core to what we stand for at Fisker. We are progressing on the company's targets aligned with the United Nations Sustainable Development Goals that are materially relevant to our company. So I think overall, it's just absolutely been a fantastic week for us, showing all these products, showing for the first time, I think any EV company on the first car sold, a double-digit margin. I think it's huge. We are really expanding and ramping up our deliveries. Yes, we started a bit slow. I think what's really important here is that we can very fast get to our 300 cars production a day, and we will achieve that within the next couple of months. So we are on target for that, which ultimately, when we get to 300 cars a day, it's 6,000 cars a month, and that is overachieving on a yearly production of 50,000, which were our original goal, but we will overachieve on the monthly target already this year. So I'm very excited about the future and I would like to now hand it over to Burkhard, our Chief Technology Officer.

Yeah, thank you, Henrik. During the second quarter, we completed dual continent homologation in both Europe and the US for the fiscal ocean extreme and achieved the longest range in its segment, as Henrik had pointed out, highlighting all the hard work from our engineering teams and our partners. We are currently working on Canadian and India homologation for the Xtreme, which we expect to receive later this quarter. We are also focused on homologating our Altra and Sport trim levels. The Altra follows a relatively streamlined process, given the similarities to the Xtreme versus the Sport, which has a different powertrain and other characteristics. We expect to receive approval to sell these trims in the next month or two, and then initial deliveries should start in the fall. As we have discussed before, a vehicle software will continually be iterated. We have equipped the initial options with essential features, which will be enhanced over the coming months and will be complemented by more advanced capabilities. We are currently working to finalize the integration of new features and packages, such as integrated drive assist and auto-hydro. which we can push out via over-the-air release since our vehicles are fully connected. We are incorporating early customer feedback to improve the product. Our teams are working around the clock to make refinements, which we then flash updates to the fleet of vehicles. We are very proud of product quality of the ocean and are seeing positive external feedback from those who participated in the media drives in Europe the past few weeks. Yes, we know there's always room for improvement, and as I mentioned, the vehicle will continually update it. But we are pleased with the excellent product they're bringing to the market. We are ready to launch our OTA updates and expect to deliver the first over-the-air update to our customers that will support enhanced connectivity, et cetera. Now let me provide an update on PAIR. We are leveraging our experience from the ocean program and the rapidly expanding in-house technical capabilities to create a truly revolutionary next generation of mobility. As I emphasized yesterday at the product vision day, the pair really exemplifies what it means to be a data-centric vehicle. Our team has developed a very fast, high-performance centralized computing platform we call Fisker Blade. It supports modular, upgradable, single box compute and communications within the vehicle. It's an all new EE architecture designed on a blank sheet to reduce complexity with distributed zonal architecture. The pair has a highly connected vehicle with cloud analytics that allows us to continually monitor and improve the vehicle via rapid over-the-air software updates that makes the vehicle smarter, safer, and perform better over its lifetime. Fisker Blade is a scalable, reusable, and flexible platform that can be used for the various EVs in Fisker's product lineup. It's truly a win-win for Fisker and our customers. It leads to lower costs and less software development for Fisker, resulting in more sustainable and affordable vehicles. while giving customers more flexible vehicles that are constantly refreshed and improved, resulting in increased vehicle longevity. In addition, we are introducing significant innovations in how hardware and software are developed, integrated and tested much earlier in the vehicle development cycle, which we call Shift Left. Shift Left transforms the traditionally sequential automotive development process into a parallel one, It enables designers to find mistakes earlier in the design process where they are not only easier and cheaper to fix, but also where OEMs can have visibility into the earliest parts of the design through virtual models. With the shift left strategy, design teams can integrate functional safety and reliability into their PCB design from the start. begin software development, and identify problems up to 18 months earlier before hardware is available, and incorporate security and quality into the software during development and testing and across the supply chain. We are implementing the tools and processes to achieve this for PAIR, Ronin, and any future vehicle programs. We have built an amazing team in-house and have some world-class partners The Fisker Ocean is an exceptional class leading vehicle. I'm excited for the years of work we've put into the program to be experienced by more and more customers in the coming months. We're well positioned to support ocean maturity and the upcoming vehicle platforms we shared yesterday. Thank you. I will now turn the call over to Gita.

Thank you, Bukhat. I want to begin by thanking the entire Fisker team, our suppliers, partners, customers, and investors. A lot of hard work and focus has gone into building a global EV brand, and it is extremely exciting to see the fruits of our labor with more and more ocean getting in the hands of our customers. I was super excited and had chills when I saw the great product lineup that the team has put together, and I hope we excited our customers, future customers, with this amazing product lineup. Now in the first half of the year, we received approval to sell the ocean in Europe and U.S. and commence deliveries in both regions. It's unprecedented and never been done before to actually receive homologation and deliver product in multiple countries at the same time and as a startup. The focus for the company for the second half is now expanding into additional geographies and ramping production and delivery volumes. I will give a little bit more detail later on. Now let me provide an update on our manufacturing and supply chain status. We made really good progress ramping up our manufacturing capabilities, ensuring that vehicles coming off the line are of the highest quality. Our main focus has been on supply chain maturity and making sure suppliers are ramping and they're delivering just in time the volumes that we require to meet our targets. While as a whole, We've seen some supply chain disruptions easing. We have certain suppliers and sub suppliers who request a bit more time to ramp and meet our annual high volume targets. These are not unusual during launch and ramp up phases, but these don't relate to any supply chain issues we expect to see over a long duration of time. While as a whole, our supply chain task forces work directly with our suppliers to identify and break through any volume bottlenecks. We need 100% of our suppliers to increase capacity to align with the adjusted volume forecasts. Again, this is not a scarcity issue, which is harder to solve. These constraints just require a little bit more time and increased collaboration. And we expect all our supplier partners to be able to eventually achieve our capacity requirements. And as Hendrik mentioned, we'll exceed our monthly targets and we expect to increase capacity next year. These challenges are common when new high volume platform launches, and we are confident that we and our partners can solve them. Now let's go to numbers. We produced 1,022 vehicles in entire Q2 with majority of the production in late May and June, our first partial quarter of production, and exceeded our target assembly rate of 80 units per day at the end of June. The month of July, which was a partial month, 1,009 units were produced, up from 741 units in June. And the peak daily assembly rate hit 140 units in July. Again, a 75% improvement from June's peak daily rate. That's unprecedented, unprecedented for a startup. July production was impacted by reduced shifts and fewer working days due to the regular summer shutdown at Magna Steyr, which continues through August 15. Now, this is a standard practice for certain OEM manufacturing sites, specifically in Europe, which consists of preventive maintenance and upgrades for the assembly facility. Our shutdowns will take place in the summer currently and at year end. We are also using this summer shutdown to help some of our suppliers bank parts to support our volume ramp-up. Coming out of summer shutdown, we will be able to immediately resume manufacturing at the rate we would add due to the highly automated nature of advanced manufacturing today. Since our U.S. approvals happened late in the second quarter, we have begun our standard ocean vessel transport to multiple ports in the United States and in Europe. And in certain countries in Europe, we are trucking. This will enable us to expand both U.S. delivery volumes and geographic distribution in short order. To give you a sense of the near-term upcoming ramp, one of the key commodities is batteries. We already have over 8,000 batteries in transit to Europe already received. With a total of 2,031 vehicles produced between Q2 and during the partial month of July, Magnus Tire handed over just under 60 vehicles in June and the rest of the vehicles in July, that is around 876 customer vehicles. And the majority of these occurred, as I said, in late June and July, which are making their way through logistics to their respective countries and customers. These include USA, Austria, Germany, Denmark, Sweden, and Norway. Now, let me talk a little bit about deliveries. Yes, we reported we delivered 11 vehicles in June out of the under 60 vehicles Magna delivered to us in June. However, till date, we have delivered over 120 vehicles to customers And as each day goes by, we increase our deliveries to tens of hundreds of vehicles every day, because we are delivering in multiple countries every single day. So the numbers will only go up every single day. Looking ahead, as we announced, we are investing in additional battery capacity to support higher volumes than originally anticipated next year. This enables us to expand Beyond the initial 5 gigawatt-hour annual capacity we announced in late 2021, this decision demonstrates our confidence in the growth potential of our business, fueled by the impressive demand for a class-leading fiscal ocean. Now, at Magneshtire, without having to invest additional capex, we can go to 70,000 volume per year. Beyond that, we would have to invest in minor capex. The critical point is to make sure all our suppliers, especially long lead parts, get ramped up simultaneously. We are already paying attention to growing customer demands globally, and we are going to address increasing capacity with our suppliers already this year. Our digital first direct-to-consumer business model went live last quarter. With the full digital purchase journey, including financing and insurance offerings, providing a convenient one-stop solution. Our approval rates are unprecedented. We are very proud to be partners with Chase and Santander, providing great rates and solutions to our customers. We continue to enhance the Fisker web and app platforms to allow our customers to seamlessly purchase their vehicles, and we plan to introduce new functionality over the coming months. We are introducing trade-ins, insurance, and many other exciting products that provide a complete ownership experience. Now turning to our Q2 results, balance sheet and 2023 outlook. Second quarter was our first and a momentous first quarter with revenue derived from vehicle sale. A very exciting milestone for a company that brings the company from the PowerPoint from a potential automotive company to a real automotive company in two continents in Europe and in the US. Second quarter revenue totaled $825,000, driven primarily by initial ocean vehicle sales. During the quarter, as I mentioned earlier, we delivered 11 vehicles of the 60 vehicles handed by Magna to us, but we had a unique situation during this period, as three of those vehicles were sold to some early-stage investors who had provided Fisker with capital very early on at lower interest rates, in return for a free base vehicle, and they paid the difference between the base and Ocean One price, and this was not Henrik and myself. This population represents up to 30 potential vehicles. Our second quarter cost of goods sold totaled 763,000, reflecting some costs associated with initial production ramp. Consistent with what we have guided before, we saw a positive gross margin for the quarter of 62,000, or 7.5% despite the discounted early stage investor vehicles and early operational costs that negatively impacted our margins in the quarter. Excluding these early stage investor vehicles, our gross margin was an unprecedented, never done before by any other startup on the first initial vehicles, an 18.5%, an astounding 18.5%. Our Q2 operating expenses totaled $88 million, which was flat year over year, and a 28% decline quarter over quarter that shows an unprecedented discipline on cash management, expense management. Loss from operations was $87.9 million, also approximately unchanged from last year. Net loss totaled $85.5 million, or $0.25 loss per share, compared to 36 cents lost per share last year. Capital expenditures came in at 91.3 million for the quarter, which were driven by primarily supplier milestone payments, packaging, and facility investments with respect to manufacturing. We continue to prudently access the capital markets to support our business plan. During the quarter, we raised approximately 88 million from our at-the-market equity program and subsequently cancel the remaining balance. Similar to two years ago, when we issued the industry's first auto green convertible, we recently executed an innovative financing structure which bolstered the balance sheet with a $340 million aggregate principal 0% coupon, senior unsecured convertible notes offering due in 2025, which has the potential to double to 680 million in principal balance after 12 months. This transaction was conducted with an investor which has deep pockets with over 20 billion AUM who wishes not to be named. The zero coupon transaction resulted in gross proceeds of 300 million to Fisker. We finished Q2 with 522 million in cash and restricted cash which would have been $822 million pro forma for the convert issuance on a gross basis, similar to a year ago levels. This cash balance excludes approximately $33 million in VAT receivables, which we expect to receive as refunds or to monetize against upcoming sales taxes. Due to the original issue discount from the zero coupon bond, instead of actual cash interest expenses, we will accrete the non-cash discount on the P&L as interest expense of approximately $5 million each quarter. Now turning to the outlook, as noted in today's press release, we are updating our production guidance for 2023 to a range of 20,000 to 23,000 units as our compressed timeline of producing these units in half a year are challenged by only one supplier's near-term ramp capability due to limited hours in a day for their labor to ramp their product. We do not expect this to impact any of our future year's production capacity. In fact, we expect our supplier to ramp further up. We still anticipate gross margins for the full year 2023 in the 8% to 12% range despite exceeding targets in Q2, provided input costs do not change dramatically. Our overall non-GAAP SG&A R&D plus CAPEX guidance for 2023 is now $565 to $640 million. The increase from last year's quarter was driven by underabsorbed costs prior to production. Collectively, this guidance balances our asset line model, disciplined cost management, and prudent investment plans. The FISCA team is now represented in 12 countries and growing, and our reach is growing as we continue with the rollout of the OceanOne to all our launch markets and prepare for the next wave of countries we will enter. I'd like to thank the entire hardworking FISCA team for all their hard work, unwavering focus on launching an amazing vehicle, and customer service that we are now providing. We'll continue to show agility, resilience, and adjust whenever needed to stay on track. We're now happy to take your questions. Operator, please go to our first question.

Thank you. As a reminder, to ask a question, please press star followed by the number one on your telephone keypad. In the interest of time, we ask that you please limit yourself to one question and one follow-up. Thank you. Our first question will come from Chris Pierce from Needham. Please go ahead. Your line is open.

Oh, hey, good morning. I just wanted to see if you could help with the timeline on production to deliveries. You kind of went into detail on Magna's shutdown for the summer and gave some production numbers for July. So I'm thinking that production is going to be very back-end weighted to the fourth quarter. And does that mean deliveries are going to be kind of, deliveries of these vehicles will be in the first quarter of 2024? And I just want to get the sense if I have that timeline right, then I have a separate question as well.

Yeah, I think, you know, as we mature our production and we translate what's handed over from Magna to us, we optimize countries where we can manage to deliver earlier, earlier in the quarter, or countries where we have later, countries which have longer logistics get delivered earlier, countries which have faster logistics get delivered later. For example, Austria, can pretty much be delivered within 48 hours as soon as Magna hands over the vehicles to us. Just to put things in perspective, when Magna hands over vehicles to us, they have to be trucked to a train line which is eight kilometers away. Once they get trucked to this train line, they have to be loaded onto the train line. They then make their, or if they are trucked to Germany or Austria, they have to go on a truck. We put about six vehicles on a truck. Once they get to a port in the Bruges, they have to be loaded onto a vessel to Scandinavian countries and to North America. East coast is about 10 days to 14 days. West coast is a bit longer. So obviously these logistics to a certain extent govern how we manage vehicle movements from Magna to our prospective customers. Once the vehicles arrive in fiscal locations, destinations, Certain countries require a limited period of time when you can convert customers if they are financing. Of course, if they are cash customers, less restrictive. But if they're going through a Chase or Santander financing and registrations require a certain period of time, so you've got to give about a week or so to allow for financing, getting all the registration documents as well. But I expect that the inefficiency will convert into more efficiencies and reduce timeframes as we move further. So production to conversion will get only better with time.

Okay. Okay. Thank you for all that detail. And then just lastly, on the gross margin, you know, other competitors or other startup EVOEMs have talked about, you know, unfavorable pricing that they're receiving from suppliers given their small supply runs for initial production. So I'm just curious how you're able to kind of achieve these gross margins. Is the magnet relationship helping you guys, you know, with your suppliers achieve better cost per unit when you make the vehicle? Or I guess the broader question is, as you increase production, should gross margins go higher from here, or are you seeing the benefits? You're already seeing the cost per part benefits because of the Magna relationship, and that's how you're able to achieve those gross margins now. That's kind of how I would ask the question.

So Magna is a contract manufacturer for us. Magna doesn't buy parts for us. We manage supply chain relationships directly ourselves. But to answer your question on gross margins, The first critical topic is to design and engineer a vehicle where you have thought about gross margins, you have thought about material input, you have thought about the number of parts. So we, from the get-go, created an organization that thought about selling a $37,500 car, not a $100,000 car. So the entire organization thinks about pure parts. the entire organization thinks about a steel stamp body. How can we engineer the car for more efficiency? So that's the first topic. The second topic is that we've seen battery costs go down. So the input costs on batteries went down from Q1 to Q2 to Q3. So I expect those trends to continue to further go down. And I think number three, what's really critical is to look at volumes in terms of the program lifetime. So from a program lifetime, we have a 50,000 annual volume And those volumes are fairly straightforward. We also, by the way, don't amortize our investments. I can comment on what other startups do, but legacy OEMs do amortize their investments. They also amortize their ED&D that they in-house spend, which we don't amortize because we actually spend the money with our suppliers. So, again, from our perspective, we have an asset-light strategy, a very different business model to other startups or legacy OEMs. Okay. Thank you. Appreciate it.

Our next question comes from Jeffrey Osborne from Cowan. Please go ahead. Your line is open.

Good morning. Congratulations on the strong margins, and thanks for the detailed support on the call. I was hoping to flesh out the nature of the supplier constraint. You mentioned labor. Was the component or product in question always intended to be labor-intensive, or is this an issue of tooling just didn't work and you're having to rework it? Any additional details on how you're going to resolve that problem would be helpful.

Jeff, it's a simple case of how many units can you crank out a day, as simple as that. So unlike electronics where you can just sort of print millions of PCBAs There are certain components in automotive which are more exhaustive to make, which require more time, and it's a cost of what a line can produce, what is the capacity of a line, what is a line tooled up to produce. So this particular line is tooled up to produce 50,000 units a year, and they simply can't crank it out in six months.

And so just to put a pin in that, that'll be resolved by Q1, that you'll, you know, run at that run rate that you talked about?

Yes.

The 6,000 a month?

Yes.

Do you exit the year at that, and you feel comfortable that that supplier's made the investment to resolve that in terms of hiring?

Sorry, Jeff, could you repeat the, sorry, would you repeat the last point, please?

The supplier has made the effort to go through the hiring exercise to run at $6,000 a month by January or December. You said you would hit that run rate by the end of the year. So I just want to make sure, is that the only getting factory to get there?

Yeah, I think it's a two-shift operation. So we're already running a two-shift operation. If the supplier needs to run a three-shift, they'll run a three-shift. But I think that in a full year, a two-shift operation is good enough to get us the volume that we need.

Got it. And then just a quick one on the pair in Alaska. Great to see you last night in L.A. What is the commonality of the two platforms in particular in Alaska? Certainly you saw that with Tesla and the Y leveraging parts from the three. I would imagine you would be able to do the same in those two margin accretives. Is there any way to dimension what the commonality is for those two platforms closer to the ocean?

Yeah, it's very high. And I would say probably we're in the region of, I mean, if you exclude the body panels, we are probably in the region of about 85% to 90%. So I would say it's extremely high commonality. It's really just an extended ocean platform where we have added a wheelbase towards the rear. We are even using the same battery size which allows us to have this houdini truck which actually moves right down behind the battery which would not be possible in any other pickup truck where the battery goes all the way to the rear axle so in ours it doesn't it also gives really good weight distribution and you can put a lot of load in the back because you don't have the battery running all the way to the back so it's like i said it's very high commonality and That's also one of the reasons we should be able to get it very fast to market.

Appreciate it. Thanks, Henry.

Our next question comes from Pavel Malkinov from Raymond James. Please go ahead. Your line is open.

Thanks for taking the question. It seems like battery prices have really plummeted in the past, you know, 100 days, kind of four or five months, perhaps. Is that consistent with your expectations, or is there perhaps some room to achieve cost savings compared to the initial assumptions?

You know, battery price is actually quite transparent. You can see, to be honest, the LME and the Shanghai Metal Exchange. Since it's not a secret that we buy batteries from CATL, Shanghai Metal Exchange is obviously the obvious exchange for us to look at raw materials. And you're absolutely right. Raw materials have gone down, and I think everybody's benefited from it. And we have two different chemistries, as you know, in our car, NMC and LFP. And the mechanical components, we have a good edge on because we, of course, procuring them in China with CATL. So I expect the trend continues this way and it stabilizes the market because frankly, in my opinion, customers need to be able to afford electric vehicles. Batteries are a significant part of the bomb. And for us to make affordable EVs and for prices to stabilize, battery costs have to go down. There is no other way.

Okay. Let me follow up on the new models that you guys unveiled yesterday. For everything except, of course, the ocean in Austria, will the new models be produced in the United States in-house?

So, obviously, the pickup truck, the Alaska, has to be produced here in the U.S. because that's where the main market is. We are also eventually planning to bring ocean over here to the U.S. and build it here as well for the U.S. market. We see the uptake in Europe and just the general outlook in Europe to be extremely promising. And I think Magna Europe can probably serve Europe already from next year with their capacity. So we need extra capacity probably by in the next year or beginning of 2025 here in the U.S. The pair, as we already announced, will also be built here in the US. We are still in final talks with Foxconn. I mean, when you deal with the contract manufacturing, it's a little different because you have to go through all the details of each vehicle to understand the exact cost of assembly. Now, the vehicles we showed yesterday All of them, it's not just a show car that we showed. Those are actually vehicles that have been in development for quite a long time. I mean, the pair we started development in 21. The Ronin we started in 22. And the same with that last car we started last year. So all these vehicles are actually pretty far in their development time. So now it's just a matter of us later this year deciding on the exact manufacturing location or potential manufacturing partners.

Got it. Thanks very much.

Operator, now we'll take some of the retail investor questions. First one, it's been mentioned that the Fisker team is in talks with other partners to expand production. Can you expand on this and update us on these partnerships? Will they be for the ocean only or for all Fisker EVs? And then any update on production start dates for the other vehicle programs?

Well, I mean, obviously, when you have confidential talks, there's a reason why they're confidential. We can't really elaborate on those. But I would say on a high-level note, what we are interested in is strategic partnerships that spans over all our product lines and are large strategic partnerships. So we are not really looking at just taking one vehicle out and doing a partnership on that. I think that's the important thing here. I do think that the amazing product line we showed yesterday, which is all vehicles that can go to market within the next two years, is something unique. There's no other company, there's no other car company on the planet, I don't care if they're a traditional OEM or startup, that have a kind of product line that we just showed yesterday. And the reason we can bring them fast to market is because they are already very far into the engineering process. So obviously having a strategic partner would mean we might even be able to bring them faster to market in higher volume. So that's something we're looking at. It's not something that is a must, but I think we are always open to discussions and we continue to having interesting discussions with with different potential partners, but I can't really elaborate more on that right now.

Thank you. Another question, some of the early customer feedback is that the Ocean software is slow or a little laggy. What steps are being taken to improve this, and can this be addressed with OTA updates?

Actually, that's a really interesting one. I've read a number of comments, and in fact, yesterday I had a chance to talk Sean Callahan, aka Fiskaradi. And I asked Sean, Sean, I've read a bunch of comments online which says the UI UX and software is very laggy. And I said, you know, I have a feeling there was a fake Bloomberg article that tried to tell people that there was an issue with software and software was laggy. And very few people want to defy that. So Sean, tell me, what do you mean by software is laggy? So two things. First of all, I asked Sean to run a review on his forum where he should ask people, especially the 120 owners who received their cars, let's go from tap to tap to tap, and let's see how long it takes to go from tap to tap to tap, how many seconds, and then let's do a comparative vehicle. And Sean said, well, you know, people are comparing this to the iPhone. Now, if I'd like to be compared to the iPhone, that's a completely different metric. So that's the first thing. The second thing is that I think that we have to put into perspective what we consider as the vehicle and the connected vehicle and what do we expect of the vehicle. I'd like to pass it on to Bukhar now to talk about what is laggy software and what can we do to make the experience like Apple.

Yeah, thanks, Gita. So as we've mentioned, the software will be continually iterated. So we have equipped Ocean Summer One with essential features, and this will be enhanced over the coming months and will be complemented by more advanced capabilities. We are currently working to finalize the integration of new features and packages, and we'll push that via our over-the-air pipeline and release that since our vehicles are fully connected and that is the smartphone experience Guido was just referring to. You get constantly updates and that makes it so interesting and attractive to keep the car fresh and updated. We have incorporated early customer feedback, so even incorporating into these updates the customer feedback. Who can do that? Our teams are working around the clock to make refinement which we then flash into the fleet of vehicles. So we're ready to launch our OTA updates and expect to deliver the first OTA to our customers that will support enhanced connectivity, et cetera.

Thank you. Let's now go back to the analyst queue operator.

Thank you. Our next question comes from Adam Jonas from Morgan Stanley. Please go ahead. Your line is open.

Hi. Can you hear me? Yes. Okay, great, thanks. Wanted to see some color or guidance on second half working capital. Thank you for the detail on the OPEX and CAPEX, but given the working capital usage this quarter and maybe some of the ranges of gaps between production and deliveries you have, I didn't know if you could give us any sense for that. And I apologize if this question was already asked. I had some audio difficulties. Thanks, Henrik.

Adam, except for adding 30 million in our SGA, which we require for customer deliveries and for certain other group expansion, there's no change to our guidance. We have the capital required for our second half.

Okay, thanks very much. from Evercore ISI.

Please go ahead. Your line is open.

Thanks so much, Tim. Gita, I wanted to focus in on that production ramp that you talked about specifically. It seems like from the implied guidance you'll hit that 300 per day rate, sort of 6,000 per month, sometime either October or November, just looking at the cadence of what you described for Q3 and Q4. Could you just maybe clarify The parts issue with the sub-supplier that you've talked about previously, will they be ramped by Q4, or is that a process that will take longer from Q4 into Q1?

As I mentioned, there are banking parts in the summer shutdown right now, and they are going to a two-shift, and if needed, they'll go to a three-shift operation to provide us the parts we need.

Okay, so it basically seems that sometime in Q4 you'll actually hit that rate, and then that whatever, that $5,000 to $6,000 per month will expand into $24,000. Is that the right way to think about it?

So the way to think about it is that when we can make 300 cars a day, we need the relevant parts to arrive at Magneshire. The bigger parts need to arrive the same week. The smaller parts can be stored. So that's the way to think. So what matters is when we assemble cars, we have the parts ready. And that's what you have to time. It doesn't matter if a supplier can ramp in December second half, last two weeks. It doesn't help us. What matters is the parts are banked, ready, and waiting if they don't have the ability to ramp at the time. And that's what we are working on right now. All the suppliers that have ramp issues are taking this two or three week period to bank parts. And we're doing this right now.

Okay. Super cool. The second part of the question, I mean, Henrik, I'm pretty sure the product displayed um uh yesterday i think some of the the questions that people ask then is you know with with some of the the timing of alaska talking about sort of you know again around that that turn of the year of 2025 when will we have the the the sort of the know-how of the agreements with with with foxconn because basically these vehicles are going to be built in north america to get the um the you know the the ira credit um And I'm conscious that we may not always get the full disclosure of that agreement. But when will there be something that's enough that you can kind of disclose, you know, where the vehicle is going to be built and just, you know, kind of talk about it, you know, Foxconn and Disker together?

Yeah, I expect that we will announce manufacturing of these vehicles within the next three months.

Okay. Thanks so much, guys. Thank you. I think we have time for one more question.

Our final question will come from James Piccariello from BNP Paribas. Please go ahead. Your line is open.

Hi, everyone. Just in the spirit of Geeta's prepared remarks on this, I mean, the unprecedented ambition with respect to a you know, simultaneous multi-continent, you know, homologation and delivery logistics effort on top of all the real-time, you know, servicing demands that will need to be met once these oceans get out in the wild. You know, it does seem to be a strategy that might have, you know, no equal, you know, especially for a startup. So, you know, what gives the company the confidence to go after this launch in such a global fashion, you know, right out of the gate? would it be more manageable and cost efficient to just focus on one region or not necessarily? Thanks.

No, I think so. Yeah, let me take some of that question at least. You know, we have actually set up quite an amazing organization in Europe already. We have people in all the launch countries already. We have service partners assigned in all the launch countries. We have, as Gita mentioned, finance available in all these countries. And I think we've already seen with our vehicle. I mean, you know, electric vehicles do not need the type of service that a gas gasoline vehicle need. We have mobile technicians. We have been able to reach out to anybody who needed something extremely quickly. So I think it's really a benefit for us. You don't really see that as a hindrance or a negative or something that holds us back. On the contrary, I think it's great to be able to have customers in all these locations immediately. I think the U.S., we are concentrating in fewer states right now. I think we're in about five states delivering vehicles. So in the U.S., we actually are concentrating on, you know, five of the main states where we have most of the customers because it is a little easier here. But Europe, all the launch countries, they are pretty much laid out. And I think it also means that we can accelerate extremely fast because we have such a huge customer base that are ready to take delivery of the vehicles.

Got it. And just that's very helpful. And then just on the 20,000 to 23,000 production range, I know there are a lot of factors on the delivery side. But is there just a range off of this production target to think about deliveries?

Well, I think if I can just take that. First of all, you know, speaking about a yearly target when we really only are talking about half a year production is probably a little misguided, quite frankly. I think we need to talk about the daily volume that we want to have. Now, talking about how many cars can we deliver, let's say we do 20,000 vehicles, how many of those can we deliver? Like Gita mentioned, the strategy we have is that probably in November is the last shipment that goes out to the U.S. So we can still deliver all these vehicles in late December. And then all the vehicles that are produced in December are going to be delivered in Europe. And the very last vehicles probably, you know, made just before Christmas are going to be delivered in Austria and Germany because you're talking about, like Gita said, a couple of days to deliver those cars. So I would say our target, it would be to get up to about a 95%.

delivery rate of all volume. Thank you.

We have time for one more question from the retail platform. There's been a lot of discussion and news from other automotive brands about charging networks. Can you update us on Fisker's charging network relationships and any plans for expansion?

Yes, so we've announced our public charging partnerships, ChargePoint in North America and DeafPower in Allegro in Europe to provide our customers with broad coverage. And it's really encouraging to hear the various announcements about expanding fast charging network across North America. We're very open to discussing charging with all potential partners. We believe the more coverage, the better for the customer and for expanding EV adoption in general. It's important for our customers to have access to charge both of their homes and on the go. Europe has a common standard, but U.S. has competing standards. We believe competition advances innovation, and it helps improve the customer experience. I understand there's a lot of anxiety if we have any discussions with Tesla to use the supercharger network. We absolutely will do whatever is the right thing for our customers, whatever supports our customers. From our standpoint, we have a fully drawn-up agreement. Fisker has signed the next agreement. We're just waiting for a signature from Tesla.

Great. Thank you. That concludes today's Q&A, operator.

I would now like to turn the call back over to Henrik Fisker for any closing remarks.

Well, thank you very much. I kind of want to come a little bit back to two points. One, the products that we showed yesterday, I want to emphasize that these are all uh vehicles that have been in development for quite a long time we have an amazing team at fisker they work extremely hard we have some really good suppliers we're working with as well on these vehicles all of these vehicles and we're going to be able to put all these vehicles into production within the next two years which i think is super exciting and it really will allow us to grab a huge market, in whatever market we go in, a huge part of that market, because we don't see a lot of competitors for any of these vehicles, quite frankly, when you look at even what other car companies have announced. So that's something I'm super excited about. I'm also really excited about our positive gross margins, quite frankly, because normally in an EV startup, you are running, or we see companies running two or three years with massive losses which obviously means you need to raise a lot of money just to cover those losses. So we are not in that position. We kind of have now a program, the ocean, which is start paying some of the bills, and that's just amazing. And I think I want to really give kudos to our engineering team, to our finance team for having achieved this. This is just outstanding and actually even overachieved. We actually have higher gross margins than we had anticipated. Again, because of how we have structured this program and how our vehicles are engineered. And it's just amazing. And here in the end, I would also like to thank our reservation holders. I know it's really tough to wait for this ocean. You read about it. It's got amazing reviews. And I know it's tough to wait. And we all here. actually are really annoyed as well that we can't bring these vehicles quicker out to you. But we are scaling up. We actually are hiring a lot more people. You know, a boat does take, like Gita said, 10 to 14 days to get into Baltimore, so we can't really change that. But we are already shipping more vehicles on the boat. Several hundred vehicles are getting on boats. We are getting more trucks going. So I think you're going to see a huge acceleration in deliveries already here in August and really scaling up. So I'm very excited about that. And of course, also, I want to thank all our partners, everyone, and all our investors for also dining into this call. Thank you very much, everyone. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.