Faraday Future Intelligent Electric Inc. (FFAI) Earnings Call Transcript & Summary

We sincerely appreciate everyone joining Matthias Aydt who assumes the role of Global Chief Executive tomorrow and myself, Jonathan Maroko, Interim Chief Financial Officer today at our Hanford California factory. Before we proceed further with our prepared remarks, I would like to remind everyone that statements or comments made during this webcast will be forward-looking statements. Forward-looking statements encompass financial projections and other statements regarding the company's plans, objectives, expectations or intentions. However, it's important to recognize that these matters entail certain risks and uncertainties. As a result, the company's actual results may significantly differ from what is projected or suggested in any forward-looking statements. For a comprehensive understanding of these factors, we encourage you to review our SEC filings. With that, I will turn the call over to Matthias Aydt.

Thank you, Jonathan. And welcome to everyone joining us today on this webcast. I appreciate your presence and as previously communicated, I'm felt fortunate in my new role as the Global CEO of FF at this pivotal junction. We structured this webcast more as an opportunity to ask some of the questions that investors have been asking us over the recent weeks, but we also want to take this opportunity to share with the investor community what excites us about Faraday Future. First, I want to remind the investment community of the considerable foundational milestones that the company has achieved, which we believe may have not been fully reflected in the valuation of the company. Second, I want to give investors some direction on what I plan to focus on as the Global CEO of Faraday Future and setting up the company for its next phase of growth. And lastly, I want to talk about our market opportunity. So let's talk about what Faraday Future has accomplished and where we are today. With approximately $3 billion investment into the company, today it has an amazing people. FF 91 2.0 Futurist Alliance which is truly an all ability AI hypercar. It drives like a sports car, drives like a Luxury Sedan and at the same time can have a terrain-like an SUV, but it's not all. It also keeps you connected, you can ride and carry on with your business, be entertained, or you just relax. And the vehicle is already -- it is validated. It's road tested, sellable and has now been delivered to our first group of developer corporate users. This was a 9-year expedition. So I want to highlight this great product, which we are now ready to scale to the market as we have fulfilled all necessary U.S. compliance features, established a relatively comprehensive supply chain system and are building out our unique ecosystem O2O direct sales model to generate revenue. We've also made progress on our manufacturing capabilities. We are producing investors including continuous quality and process improvements. A company with particular quality inspections during the build and after manufacturing team -- after the manufacturing team releases the vehicle to the quality team. The final inspection includes static, dynamic and functional assessments of the vehicle to ensure the achievement of our product promise. Just be reminded, we are focusing on the Ultimate AI TechLuxury. That is a new definition of luxury and stands for itself. Second on my plan as a Global CEO, I want to first say we gratefully to accept for all the work we did in getting the company through the start-up production and the start-up delivery and it is exciting to see the cars being delivered to end users. Now the task at hand is to increase production and delivery of our brands and show the world what an amazing day for FF 91 2.0 is. It is the ultimate combination of luxury, performance and technology. On specific actions, I plan to focus on working collaboratively with buyers to align on mutual interest. I'm going to work to lead our team's effort to improve internal processes and systems to manage ongoing production and sales volume ramp-up. I'm going to work to improve the whole value chain of the creation of the FF 91 2.0 by increasing the efficiency of our operations, streamlining internal and external collaboration to maximize the economic performance of the product. And finally, I will oversee the continuous development of our co-creation partnerships. Co-creation is a unique ecosystem that FF is building where we are co-creating jointly with our spire users. It is designed to be mutually beneficial to help us grow the brand recognition and market interest in the vehicle. So far, we focused our delivery on influential people across multiple industries because this Developer Co-Creator, partners help FF build our brand and improve our product and does it in a cost effective way. To date, we delivered the first 3 FF 91 2.0 Futurist Alliance vehicles and we plan to increase deliveries going forward. We have scheduled to deliver the FF 91 2.0 Futurist Alliance vehicle with the founder of world's largest global supplier for American Halloween costumes this week end. Throughout October, we will continue to host delivery co-creation day events with 4 car orders. Emma Herman, Justin Bell and 2 other co-creating officers. And lastly, I want to reiterate our market opportunity. The FF 91 2.0 Futurist Alliance represents very special fusion of different performance and experience characteristic which makes it hard to compare, products that are in a similar market segment as the FF 91 2.0 sold approximately 55, 000 units a year globally with China and U.S. being the 2 largest luxury vehicle markets. We believe our FF 91 2.0 Futurist Alliance and our euro market [indiscernible] is well positioned to capture a meaningful portion of this demand and share of market as the world moves to more electric vehicles. We are the first pure EV of luxury brand. So as we navigate towards realizing our long-term strategic vision, our immediate focus is on meticulous execution of operational efficiency, building brand strength and ramping up production and delivery. Once more, I am immensely proud of the unwavering dedication and relentless efforts displayed by the FF team to get to this point. As we move forward, we will continue to provide updates as appropriate on our developments in the future. Now I'd like to turn the call over to Jonathan.

Thanks, Matthias. I'd like to discuss a few points. First, our current financing situation and how we now have better flexibility in financing the business. Second, I'd like to provide an update on meaningful cost-cutting measures we're implementing, which will still allow us to invest in research and development and sales and marketing. Lastly, I'll highlight the support and confidence of the senior management team. We recently announced an ATM offering. And I'd just like to talk about what an ATM offering actually is. ATM in this case stands for At The Market. In plain language, it's the selling of stock into the market at prevailing market prices. I believe the ATM is attractive to both the company and to our shareholders for a few reasons. First, ATM program is flexible. We can decide when we want to utilize the offering, you can turn it on and off, you can decide what we want to sell and the minimum price we want to accept, and we can adjust these terms day to day and even intraday. Second, the ATM program tends to have minimal market impact. And ATM programs are thus less dilutive than alternative financing options. The shares are sold into the natural trading flow of the market and the selling volume is typically a lower percentage of overall volume. Lastly, ATM programs typically have lower fees than traditional follow-on equity offerings. From our point of view, the establishment of the ATM program was a major win for the company and for our shareholders. Again, this form of financing is more flexible, less dilutive than other forms of financing and significantly less dilutive in the convertible notes we issued in the past year. The company will be responsible and prudent in using this financing tool. Now on to the cost cuts. We've also taken a hard look at our operating expenses and are working to dramatically cut costs. A statistic way to view operating expense categories is as follows: Research and development, sales and marketing and general and administrative. With the completion of FF 91 development, our R&D spending has dropped meaningfully compared to the last few quarters. But we also want to continue reasonable spending on the R&D side as we continue to innovate and push the technological envelope for luxury EVs. We also want to spend prudently on marketing. As we've mentioned we are very much in the brand building stage, and a strong marketing budget is necessary to establish a strong brand, generate buzz and enthusiasm and ultimately sell vehicles. So between these categories, what's left in terms of cost cuts, is G&A, and that's where we're focused. We're looking at every expense item, line item by line item and determining which expense are truly necessary to propel our business forward and we've already executed several cost reductions in this space. We believe that the reduction in these operating expenses will allow us to extend the runway from our capital raises and allow us to efficiently and effectively spend every dollar that we are able to raise. Lastly, I want to reiterate the support and belief in the company and its vision. As previously disclosed, Matthias and I, along with other senior members of management intend to take a portion of our salaries to purchase FFIE stock from the company at prevailing market price subject to shareholder approval of the plan. We will essentially be trading a portion of our cash compensation for equity compensation. I'd also note that FFGP has not sold any of its existing shares at the time of destack until this point. Lastly, and final point I want to make is that I'd encourage investors to look at annual vehicle delivery figures for ultra-high-end vehicle manufacturers. You'll see that production and massive production and delivery vehicles, requirements to establishing massive production and delivery vehicle -- I am sorry, massive production and delivery is not necessary to establishing large market capitalizations. What is required for us, though, is improved margin, increased awareness of our vehicles and the creation of brand strength. We are focused on that. Now we'd like to go over some of the questions that investors have asked. We addressed a few of these questions through prepared remarks. We want to additionally talk about these questions, which we've been often asked.

So first question, I can take this one. Why didn't the company use ATM financing before? were there restrictions? So to the answer this, yes. We had to have 1 year of timely financial filings to be able to file a standard shelf registration statement which is the ATM utilizes. After the timely filing of our 10-Q for Q1 2023, we were absolutely eligible and filed a registration statement on Form S-3 in June. Next question. I can take this one as well. How soon will the $90 million be issued? As I noted, we're going to be prudent with how we access the ATM offering. So therefore, the usage will partly depend on market factors. Next question. Do you expect additional issuance of more than 20% of the current share capital needs to be approved by the General Meeting of Shareholders. In view of the recent $90 million ATM announcement, does it mean that the general meeting will be held shortly to request the additional issuance? This is a bit separate because an aftermarket offering of securities, which is what an ATM is excluded actually from the 20% current share capital rule because it's a public offering securities at market prices. So for the ATM program, we would not need to hold an additional meeting of stockholders. Next question. The company's stock price is less than $5 and institutional investors are no longer able to invest. What are the company's strategies? First, I would note, we remain in active discussions with potential strategic investors. The $5 price is not a hard and fast rule in terms of whether or not an institution can invest. It's a guideline, but certainly exceptions are made and I think in our case, we hope to see those exceptions being made. In terms of the stock price, just to get back to that, we don't control the day-to-day the institutes of the stock price of market. But we remain focused on executing our strategy and creating value. We have already addressed the risks around the vehicle compliance, vehicle production and vehicle sales readiness.

Let me take the next one. Why does the company deliver one vehicle at a time instead of small batches? Is it because there are no orders or are there not enough cars? What are the real constraints on the delivery schedule? Look, we are in a crawl/walk/run phase. So at the moment, we are crawling, we are using the co-creation to collect valuable first feedback. We want to get that back into the product. And beyond the constraints right now, [indiscernible] now parts in funding. We feel good about the market demand prospects, about the feedback that we are getting but our production is unsecured, material is limited by funding and supply payment constraints.

This is another one about the ATM program, which I can take. What is the production and delivery plan corresponding to financing under the ATM program? Well, I think Matthias' response just now is a relevant response to this. I'm going to discuss the direct correlation between drawing X dollars on the ATM and producing Y vehicles. It's not a simple correlation like that. We'll, of course, spend much of proceeds on vehicle production delivery, but we'll also use proceeds for general working capital purposes which includes continued investment in products and technology developments. We're also running to further build out our global sales and service network. We will, like I said, ramp up production. There are potential joint ventures we are looking at and certainly, it can be spent on just various other business opportunities and other purposes.

Let me take the next one, Jonathan. With respect to the recent management's share purchase announcement, why did management announce the program to purchase shares from the company instead of the open market? As senior executives and management, we are often in possession of the material nonpublic information that precludes us from participating in open market purchases. Upon shareholder approval of the management share purchase agreements, management will be able to move systematically purchase company shares. In addition, during periods in which we are not in possession of material nonpublic information and FF management will consider doing open market purchases as well to support the company. Where from the company, open market, the prices will be -- will transact at prevailing market prices. Let me take the next one as well. Why does the company only sell to FF 91 [ high and lows ] now? Can you start with less expensive vehicles to seize market share? Yes, the company has definitely plans to launch FF 91 2.0 version and then later continue with FF 81 and 71. However, cars are heavily brand-driven products and FF being a pioneer in the ultra-luxury EV market. We want to focus our initial efforts on building that solid brand with our highest spend offering product before we expand into lower price [indiscernible]

Another one on the ATM here. Why is there no lockup period after the additional issuances under the ATM program? It's not exactly a relevant question. There is no lockup period because shares are sold into the open market with the ATM program.

The next question is around our China JV. What is the status of the China JV? We have completed the business registration for FF auto [indiscernible] Company Limited, marking a significant step forward in the progress of our China efforts. We continue to work with the China government on this matter and look to announce further updates as we reach additional milestones very much driven by exec who is focusing on the China business.

And then lastly, in terms of the Q&A, we had a number of requests to see the Hanford factory. So this morning, when I came to the factory, I took the opportunity to take some video footage to share with our investor community here now. And this wraps up our investor presentation and Q&A. Thank you for joining us today.

Thank you.