Q1 2021 Fisker Inc Earnings Call

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Good day and thank you for standing by welcome to the fifth current incorporated first quarter 2021 earnings call. At this time, all participants on a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on.

On your telephone please be advised that today's conference is being recorded if you require any further assistance. Please press star zero and I would now like to hand, the conference over to and through Dan Golf, Vice President Investor Relations. Sir. Please go ahead.

Thanks, Lee and welcome everyone that concludes our first quarter earnings call. Joining me on the call are Henry <unk>, Chief Executive Officer, Dr. Bukhari Chief.

Chief Technology Officer, and Doctor Guida group debt Thats, Kurt 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 uncertainties that could cause actual results to differ materially from those projected. These risks include those set forth and the press release, we issued earlier today as well as low as more fully described in our filings with the Securities and Exchange Commission.

We're looking statements in this presentation are based.

On the information available to us as of today, we disclaim any obligation to update any forward looking statements, except as required by law, we will reference our financial measures that do not conform to generally accepted accounting principles or GAAP during today's call, including non-GAAP operating expenses. This information and maybe calculated differently than the non-GAAP data presented by other companies Quant.

A reconciliation of our non-GAAP financial information to the directly comparable GAAP financial information appears on today's earnings release with that I'm happy to turn the call over to Henrik Thanks, Dan and thanks, everyone for joining.

I'm extremely pleased with the progress we've made and the ocean so far.

As I've said many times, we will not lose COVID-19 excuse to delay anything we're on track for production and deliveries to start and the next tier.

Complete a major engineering milestone and March this year, which enabled us to kick off tooling and start Bulls on test and validation for some key components.

Next big milestones in August and.

And we will have chassis move builds complete and that will allow us to do some more testing and fine tuning. We also will do more.

So on prototypes and yields over the course of the year and when we start adding more and more production level components.

And of course virtual prototypes for safety and elevations are also and process and that means that we will have one of the safest vehicles on the on the road. In fact, we are already working on fulfilling 2023.

Safety ratings from five star So that means if you would buy vehicles a day.

Any vehicle our vehicle will be saved from him and vehicles by two day, because we really reach from the long term highest on March.

Also engineering powertrain model and supports our expected range and acceleration, we will have up to 350 mile range and I'll chop vehicles would be share and a sixth and less than four seconds. So we are definitely not only going to be on par with competitors, but that's really on.

Super car territory for a family SUV, which is pretty amazing for the price, we're offering up and <unk>.

From self certification and home litigation and <unk>.

Clear and crisp plan in place I know, it's not very exciting, but it's critical.

And the concurrent launch in both U S and Europe.

And that's actually something that and.

Ensures that we are ready to deliver our vehicles both in the U S and Europe next year, that's pretty unusual most car can we start on one market.

And we've got to do simultaneously and.

Europe and U S.

Our supply chain as a major success story suppliers are being very selective and digging into the products business case, it's not only about the Oems name. It's also about the viability of that product and our strategy is appealing.

Because first of all we are showing demand confidence we have growing demand every single day, we get.

Reservations and a win over 16000 reservations and just see that continuing.

And in fact, our plan is to accelerate debt towards the end of the year.

And of course, the fact that we have designed and will deliver a midsized suvs and fastest growing market segment and the world I would say and you probably have the most compelling design on our specifications are quite frankly amazing with total.

Total affordable price, we were offering starting at 37500 and I would actually say I don't think there is any issue. The electric SUV that has been announced so far coming out even end of next year that starts at 37500 type of design and specifications that we will.

Ofer so when some people are saying that we have plenty of competitors coming next year is simply not true. There's a lot of it should ease coming out, but they are way more expensive debt.

<unk> capabilities and all of the vehicle and I don't think there and really have the design that we have neither so I think we have a truly unique product.

And of course.

Supply confidence when it comes to confident that Mac nickel hit volume targets and ramp timing.

Why is that important because suppliers do not want to sit with a whole bunch of parts that our company has ordered if the company is not capable of scaling out fast enough and I know it sounds very enticing and exciting.

And on EV startups and go on blowdown planned and learn how to manufacture a car build is that means that you are two or three or four years.

And to actually scaling up that means your suppliers you are leaving them hanging and this is not something that we're going to do and something where our suppliers have confidence because they know Max it's a professional automaker and they know how to scale up and I think that's a very important part of why we get the best suppliers on our side.

And then of course, the long terms growth confidence net.

Net up again, when you combined SME 29 platform and SP 20 platform volumes.

We have one of the highest volume combinations in the industry. We are talking about several hundred thousands of volumes already and now we're seeing suppliers, giving us great deals on various parts of the by the way also sharing between the two vehicles and future vehicles bottom line, the insurance estimates and targets into REIT.

We have a clear plan in place for all of the <unk> harm and component that goes into a vehicle and nearly all of the vehicle cost and out based on hard vendor coach our contracts and support our previously communicated cost pricing and profitable goals profitability growth.

So we will be profitable with this vehicle even from the price that we're launching on that and again that has to do with the amazing.

Volume pricing, we're getting direct to consumer and just our lean business model nearly all of the sorry.

One thing I, just wanted to and as well as a clear execution plan from now until that are fully supported and committed by Max on all of our vendors is another important point, while we know we're going to start to deliver on vehicles next year.

When it comes to talent, we're now fully and execution phase and have the talent and place to execute we have over 200 people and the company and they are all of the highest caliber do take a little longer to hire people because we want the absolute best and today. There are several hundred Macknay engineers working on our behalf as well.

And definitely accelerating since January.

And at about 10 people per months and Q4 last year and 25 per month. So far on 2021 engineering isn't a great place novel and build out sales and marketing talent and we have already started to hire quite a lot of marketing people, both here and the U S as well as in EU and in Europe, and as you know, California.

And is the best place to attract talent.

Now I feel really good about over $16 and reservations one thing just kind of given the comparison.

On the Tesla model S was 18 months about 18 months before and so Pete Tesla had about 3004 hundred orders were about 18 months before <unk> 16000 orders.

I think thats pretty amazing, specifically and some people say that it's a crowded market out there and on top of that.

Particularly we have daily marketed the vehicle, we really start to ramp up the marketing and November when we show the car at the La Auto show will be actually will have quite a few surprises with ice, which I think will add a lot of extra reservation and interest and the vehicle.

We expect on emotional design and technology impact affordable electric SUV can pull from a very broad addressable addressable market so well.

And also out on that extra one data.

And that.

And sort of basically a survey on our reservation holders and what we can see is that about 70% of our reservation holders accident driving and gasoline vehicles today.

And the 15% drive and non premium brand and <unk>.

And 50% drive vehicle types other than Suvs and it comes back to my point that we're not just trying to get or.

Hoping to get people out of and SUV and into our fiscal erosion, we're already getting people out of the other type of vehicles <unk> sedans and into the Cisco originally I think that's a huge differentiator and our vehicle.

When it comes to portfolio expansion.

And on plan for delivering four different vehicles by 2025.

As you might have read we have kicked off the payer program and complete a binding agreement with Fox Com.

Vehicle will be quite unique it's in great shape for launch in Q4 2023, as we are about 30 months out and we have already completed exterior design and sourcing several key components.

This vehicle by the way is not just another electric car. This is about creating a revolution, it's about China and everything upside down we have so many inventions and this vehicle right from how you load per vehicle. It doesn't have a normal trunk opening it has a unique way.

Usability and functionality and the interior and you've never seen before the vehicle itself. I think is iconic I personally think is my best design work ever and I'm just I'm Super excited about this vehicle I think we will easily be able to sell more than 250000 vehicles of that a year.

And just wait to see it is just amazing.

In terms of the last two vehicles for the total plan of four coming together between 2000 and before 2025, we actually already have designed the third vehicle on the fourth vehicle, they're already in negotiations force.

Or something pretty unique about that vehicle as well so the full vehicles actually are on plan.

Right.

Finally competition and Thats been a lot of talk about compensation and there will be quite a bit low dove, but it's important to building and context use outlets on Friday and noted there'll be 12 electric Suvs on the marketing and the U S. When we launched the ocean and as I said earlier, yes that will but a lot of them will be a lot more expensive. They don't look as good they won't have the tablets.

Acknowledging that we have let's not forget again, we're inserting our advanced technology into our vehicles. This year because of on very unique development process that means if you go and buy assist for Suvs Ocean next year, you will get newer technology than any other car because any other car you buy.

Next year that technology has already been chosen several years before so we are very confident that we will have some of the best technology and Vietnam actually going to showcase some of it in November at the La Auto show.

Finally, ESG is something that is one of our brand pillars, and we have published our responsible supplier policy.

We have the on course, and Q1, where we serve it out work force to assess where our business can be and we all.

Also have a clear framework and.

And we have kind of come out with some data that I think it's going to be quite amazing and we want to be able to quantify what we mean by ESG.

And finally.

We and deep into a companywide starting on the value evaluating.

Feasibility of a scientifically based truly climate neutral and vehicle over the midterm and that's something we're going to talk about a little later.

But quite frankly, I will channels and launches show me, a 37 and $500 issue debt even comes close to the ocean and nobody has been able to do that yet when somebody had mentioned and SUV is always moving up market segment is quite frankly has never peer to peer compare.

Arizona.

So thanks, and I'll now turn it over to Blue card, our Chief Technology Officer, Brian and some more detail on our software efforts and if you're on a core technical lead to full price.

Thanks, and associated relevant and there is the key priority for Frisco controlling a major customer facing aspects of the vehicle itself to stick as bulk for similar reasons, let me explain the low.

And then it allows us to design and execute a seamless easy to mitigate user experience that is fully integrated developed mobile app.

And then number two we can add features and improved performance and.

Fix customer annoyance and other issues rapidly so it would be <unk>.

And in the industry for a long time and low costs perfect from day, one the protection, we must be able to deploy the improvements <unk> already on the road.

And number three.

Data from its something that should be changed we don't want to rely on and suppliers to rewrite software, which can take months and need to own the relevance of domestic to customer can see and experience every day like the user interface and the overall customer experience.

And then before we want to pursue opportunities to monetize product upgrades and other digital and data services. So that's the goal.

And then the other to accomplish that we need to.

On the one.

Pipe that delivers good data back and forth from the region. We are bidding on a physical software excellent centers with programs and data scientists and San Francisco, so to commit and India.

This includes the pipeline from the car to the cloud and voice with or will be on pace and edge computing capabilities.

So you need to own the growth where the data store.

And you're bidding on own Frisco closed and if the data scientist and analyzing data to potentially optimize the net features and functions.

So.

And do you need to own software and the key domains that impacts the customer and book to isolate what is important.

And these new designers to write software to control it and build those force. This is a commodity that supply chain is under control, but the other hand components of the infotainment system that speak directly to the customer.

Two one debt.

Performance updates on total trains is owned by us.

Computing that controls data flowing in and out of the trial to go on forever.

So finally.

You need a modern consolidated electrical architecture to efficiently move data around the vehicle.

We have been able to source key multi domain controllers, using that and Asus and system on chips that supply is EBIT growth with us on.

Because it's just the future.

So we have some advantages small and nimble company with very large COVID-19 have been talking about with interest debt helps with low.

Cultural cash between software and software engineers.

Pick and choose our staff for example, Ela user experience design and subsequent teens mainly.

And mainly from outside the industry. So we make technology decisions further and you beat it.

And process to get the most modern.

J P G communications domain controller technology and displays into the book.

We still have a lot of work to do but soon.

And we have a clear plan and that other substitutes and San Francisco from India. After the test.

And we are already experiencing success. We recently successfully proved on proposals from the software from our growth and to be per domain controllers and on to the mobile App. So you tend to see.

Thanks, Tim no term debt.

And with visa.

To cut and welcome everyone and really excited to be here today on our second earnings call on and report back that on Q1 results were in line with the comments, we made on our Q4 call back in February we display our financial discipline, and a weighted departments executed well and spending time debt on track.

And your guidance, we previously communicated which did not include any spending on Pant program now with a binding agreement in place and Fox Con, we are adding $30 million to the midpoint about 7% increase to overall spending our balance sheet remains extremely strong with 980 <unk>.

5 million cash and no debt basically flat once a day.

And the 31 2020 and $89 million of inflows came in from warrant exercises this incremental cash offsets on Q1 spending.

Current cash reserves are sufficient to fully fund the ocean program to start of production.

And can be very cash we have no need to raise additional capital in 2021.

Many of our future business has taken immediately following.

And we progressed and lead time, what were once estimates for the Ocean and Biller materials engineering test and validation and.

Actual contracted costs.

And sourcing activities, and then they'll defined timeline and highly diligent cost schedule for legal integration and do you think assembly.

What we have done as institute and very robust sourcing doses at fiscal debt I need in collaboration with our engineering and purchasing teams, both the physical and Magna and now at Fox on a new partner.

My understanding is key and we have a camp concept and specification that each pipe and.

Analytics team has worked with engineered to target what the particular component should cost. This benchmarking activities tax loan default sourcing and continued throughout the entire project lifecycle.

Using these financial models, we are well prepared to have in depth discussions with our suppliers about the input and production costs for each component in our work to convert these supply growth and to see the contracts as one team engineering purchasing purchasing quantity and finance and <unk>.

And with our supply base to ensure timing cost ESG and quality targets unmet simultaneously.

And last engineering milestone and March the tender talked about and we have suppliers identified per 100% of box, including on the ocean dividends, we have established.

And for each pipe to support testing and validation activities, which are boring, but theyre necessary.

And now well underway and Dakota simple boarding season production contracts with over 60% of the pipe accounts, representing more than one and parts and we're more than that by dollar value I think.

Police force or in the negotiation phase.

We will share more information on key suppliers during the course of the year.

Overall on the bond side, we now have high visibility and achieving the previously communicated bomb estimate on.

Opportunities identified by our teams to guide back even lower.

We are particularly excited about our cost position on batteries. Once an agreement is reached on localized back production and we will share more details around on favorable position on vaccines and our supplier partner.

Assembly and logistics have also gained visibility and levels that are consistent and estimates we discussed back in July time between when the announced business combination overall, we're on a great fleet and the high majority of Ocean cost for now based on competitive competitive and hot quote orders all current.

And track.

Switching gears.

I want to highlight the cashless warrant exercise, we executed in March and April the choice to only allow cash since exercises and mitigated dilution to our shareholders by three and a half point and also signal confidence and our balance sheet future spending plans and access to capital finally, yes.

Very excited to have reached a binding agreement with Foxconn to develop a second platform SB 28, with the initial due to launching and fourth quarter 2023, both companies have tremendous resources to contribute to the program and then the human capital intellectual property and existing supply chain.

On the third product itself. This relationship has a very positive impact on ocean and the SME 29 platform and several ways.

Let me highlight these data.

Number one we have fixed and have already built and organization that is focused on diesel affordability and corresponding supply chain that support support affordable price bump. This means there are many relevant synergies between ocean and that phone number to the ocean and debt program.

Have a great opportunity to share several components and subsystems such as domain controllers control units batteries.

Is that we talked about to date connectivity and various on the hardware and this is only possible because the ocean was already designed with affordability in mind, let's and several other startups that are looking at very extensive products and have an organization that does not think about zika affordability companies the design.

$100000.

And very limited opportunity to share.

Parts and bill of materials with and Affordable C segment vehicles.

Culture that via and pulling at Cisco.

The three deep supply chain and relationships on the Fox coincide.

Any bearing fruit fly on Ocean program on nomination of shop that we announced this morning from an extremely unique display was immediately and that could have not happened without the Fox current relationship and is a great example of component chairing between two different backgrounds and vehicles.

We have also gotten assistance from Foxconn and chipset sourcing, which is obviously, a very critical component and our current environment.

Before we now have an opportunity could you drive additional cost reductions for the Ocean program throughout volume sourcing Peaches and added volume effect the close timing with these two launches at the end of 'twenty two and the other one at the end of <unk> and still keep on long term volume opportunity to suppliers of being awarded on those two separate programs.

This is going to being on the most innovative automotive programs and via and lighting suppliers to participate now today.

And how quickly is on includes done some guidance I just wanted to remind everybody of the kpis that everybody and physical is focused on and on measured by overall crank Apis and number one let's tell a product and number two a bit and makita that underpins market need and gross margins and the three started production on time and number.

For overall program cost and in that order of priority.

On what my performance metrics and based on as well as well as every single team member at Cisco and we remind all our suppliers and partners on these key kpis that drive system.

Now turning to our results and outlook. Our Q1 results were in line with internal expectations and the commentary we provided on the last Unempowered operationally the increase in R&D, but as Q4 2020 was primarily the result of increased headcount and initial kickoff with many suppliers that drove initial engineering design and development spend.

And the reduction in SG&A expense versus Q4, 2020 was the result of non recurrence of one time costs incurred and the prior quarter due to closure of a business combination.

Also reported and non cash expense associated with the public and private brands I just want to remind everybody that our net loss totaled $176 8 million and 60 63 loss per share however, excluding a $145 2 million noncash.

Non operational loss, reflecting changes in fair value.

Convertible equity securities and embedded derivatives and net loss actually totaled $31 6 million and 11 loss per share.

As of April 19, these public and private more and more fully retired and be mitigate so we should not see any of this activity and that line item going forward our cash.

Capital expenditures rose meaningfully in Q1 $21 million to $66 million versus half a million dollars and Q4, 2020 again in line with expectations. As you began meaningful capitalized spending on the Ocean platform. Finally, we also reported some revenue from exciting merchandize sales and I wanted to.

And mine all the analysts as non material and we do not recommend any analyst and time forecasting it and you see this as a critical marketing tools and a critical tool for a fan, but we do not see it as an important aspect of.

And the revenue it is an important aspect of brand building and engagement with our customer base turning to our outlook as noted in the press release.

<unk> the midpoint of our guidance for over on cash spending by $30 million to the high end of the prior guidance. The guidance now includes estimated spending on project debt.

Which the prior guidance.

Explicitly did not include.

And the balance of this year's aggregate spending to be roughly steady across the remaining three quarters and between 'twenty one.

And G&A should modestly increase sequentially due to higher head count R&D spend will be a bit heavy in Q2, and Q3 than Q4 due to timing of incremental supply EDT and authority type testing and validation program.

And would expect capex to be somewhat low in Q2 than in Q1.

Specifically on the <unk> program, we are using existing resources to define and develop the program to be very specific. This is our current human capital that can be highlighted in his remarks and intellectual property and book on highlighted we've developed alone or in collaboration with suppliers and the timeline.

And it's and mitigate the ocean was last year and the second half of 2020 and.

Leveraging existing assets and resources that we've developed over the last year. So spending in 2021 is modest.

I'm extremely proud of the intensive fitting for all the competition and we have in 2020, one and the plant and we've established to execute a fantastic profitable product on time and on budget, we're not happy to take your questions.

And we could you queue up the analysts please sits and Lee at this time, if you would like to ask a question simply press star one on your telephone keypad against ask a question. Please press star one on your telephone keypad.

Your next your first question comes from the line and Adam Jonas from Morgan Stanley. Your line is now open.

Thanks, and good afternoon, everybody so data I E.

On a comment I may have misheard you. When you said that you are moving into.

Contracts for 60% of the parts on the Ocean and I think you said that represents over 1000 parts. How many parts are in those cars.

<unk> hundred $5 Adam.

And that includes obviously.

And all the all the systems and we may have additional subsystems, but it's about <unk> hundred including subsystems.

I am curious how that compares to other vehicles, you think it would be going up against in terms of.

Complexity.

It seems like a very low number although I know there's some definition.

International noise and that really comparable it's on it.

And similar level.

And so these reduce a couple of components and electronics, sorry, but in general you could say that's.

And similar radio compared to other.

Okay great.

And I appreciate the deal on the sharing between FY 'twenty nine and FY 'twenty eight.

And you called out some parts I didn't know if it was.

By order of magnitude the value of those parts.

What we're thinking about.

Could it be something substantial like 20 or 30% or <unk>.

Or closer to 50% I think you had mentioned a sharing of battery, but just wanted to kind of get a sense of dollar terms.

On a range how much you think you could share between those two platforms.

Because obviously the batteries and major part of the vehicle.

The innovative screen and we are developing together with sharp.

And then there's a few other things as well as our debt.

And I say easily will be over 30% in terms of value.

Okay, and just a final one from me there's so many there's so many great things to have but.

Last one from me.

When we finalize the JV ownership.

Structure or details about the JV itself beyond the binding agreement with with Fox Con and Han <unk> and I'm wondering if you could give us a sense of timing of more of the details behind that binding agreement.

Hi, Adam as you can imagine and the.

Program that is so complex says the best program, we are taking to consideration intellectual property and they take into consideration tax also this program needs to be a global program. So we're looking at all possibilities at this point and time, we Havent said, but and this is a joint venture of both companies will continue to operate.

<unk> as they are and we'll look at a more commercial we are commercially contractually way of investing and sharing profit at this point and time via leading through all the complications of tax and I think but we do have a path forward and we hope to share that in the coming months.

Okay. The data then.

You are so efficient and answering I'm going to slip one more on here for you.

And I believe when you presented the ocean timing at the time of day.

Earlier this year.

Our understanding was that the company was fully funded through the end of 2022 again, excluding per you mentioned no need for additional capital this year, but I.

And I imagine there could be quite a big inflection and spending next year could you could you say the company is fully funded through launch of pair or is that a totally different situation now and we need to see how those capital commitments play out and the next year. Thanks. Good question, Adam and I did expect that one from me and so two things.

Total items, we do not need to raise any additional capital in 2021 to either fund Ocean of Pan as you know we took an additional 89 million debt throughout our cash reserves to a very healthy balance sheet of $985 million. The forecast that we gave the guidance a day and additional clarity.

And which goes to operating expenses.

The per program. So given the fact that would be on leveraging our existing asset base. We are on track for per the are on track for Osha and now let's talk a little bit about your question do we need to see additional cash and 'twenty two and the balance sheet remains strong with $985 million. We also show.

A tremendous discipline and given our guidance and sticking to it and Q1 and you will see it in the coming quarters I just want to remind everybody. How we can optimize the balance sheet and we need to so at this point and time theyre investing hundreds of millions of dollars and production tooling and equipment. Some of that you see and our Q1 numbers and.

A lot of this can be financed at a low cost and a variety of fees and a <unk>.

Forward manner.

Number number two we again.

Have a significant amount of IP that's in book.

And from 29, and SP 28 programs and we still have 90 calculated net of debt.

License and power are not number three we control all of emission credits and there are opportunities to monetize these and ahead of time, if he wanted to and again I want to remind everybody. My comments last time net capital markets continue to believe that electrification is the future of automotive. So once we have some additional.

Milestones and we feel we need them and more cash and the balance sheet, we will but at this point and time, we do not see and youll need to raise additional cash this year.

Next question please.

And thank you and your next question comes from the line of eats on Mike Kelly from Citi. Your line is now open.

Great Hi, everybody.

Couple of questions just firstly I think the release mentioned some additional deals for fleet in Europe, and Q2 can you talk a bit about about those deals and.

Or are they some of those and the reservation numbers.

Yes, so we actually hired a specific person over in Europe to pursue the fleet deals and that we are pursuing the top 100 companies in Europe, where the highest ESG goals debt actually want to go fully electric.

And I think we will be announcing some interesting deals here and the near future. It's a low too early to talk about it right now, but I see incredible price to trend because when you look at the European market and our segment of vehicle about half of all vehicles sold in Europe.

And actually fleet deals and our vehicles perfect position for that so I'm pretty excited about the forecast of that and I think youre going to see some significant upside already and this year.

That's helpful.

Follow up.

Two product questions first on the ocean and any update on the win.

And we'll see or you will launch the kind of focus. Thank you later for all the trim combinations.

And then secondly on the.

FY 'twenty eight and anything you.

Could share in terms of targeted range.

Performance for the starting price.

Yeah. So on on the ocean sort of waiting on some November because we've got some pretty significant news on technology.

And that we're going to show up.

On the Ocean and at November at the L. A auto shows we have decided to actually make that coincide with our App and website update will you then be able to fully configure the vehicle colors option packages, we will announce details on specification details of the pricing and <unk>.

Everything is pretty much in line with our forecast. So unfortunately have to wait until November but it really is borne out of the fact that we added some new technology features and the vehicle that we think is going to really put us way ahead of the competition. So we don't want and showed up to early on.

And it comes to the per program.

As I mentioned.

This was kind of a.

Really revolutionary program.

And the recently working with Fox Con on business, because we truly want to create the revolutionary vehicle and Thats something that doesn't happen often and the car industry and.

<unk>.

The point with this vehicle is trying to see if we can re imagine what our vehicles should be for the future consumer and IC personally a lot of trends that will change significantly over the next three to five years that I think this vehicle Kincaid us from first of all.

I think people are going to move away from the traditional segmentation on vehicles and what she had already with ocean, where more than 50% of that.

People, who has ordered the ocean are coming from other vehicle categories, which is kind of unique.

And then the industry for 30 years and when you develop a vehicle and we always look at your main competitors and you get 95% of your customers from those that's not the case with ocean. So because of that and we are specifically targeting the per as almost like a non segment and vehicle that could take customers away from.

Any vehicle of any type and because of that and each have a vehicle that also then basically introduces some completely new innovative features and nobody else have but everybody will desire and im sorry to kind of uses very typical example, but that's it.

And.

Exactly what happened with the iPhone when it came out it was the first.

Fone, there was a small computer low buttons and at attractive people from Motorola Nokia and every other phone maker Blackberry. The last that held out from them was that went to Apple and of course now we have Samsung et cetera, but the point of this vehicle is exactly to do that and I can't imagine anybody better than.

And fast time to do that was in terms of specification absolutely no I don't want to give away to the competition and what we're thinking because it so radical it's a complete departure and away from today thinking of making a car I personally have to get completely out of my little car box and think about.

How would the check company design and vehicle rather on Howard a car design, our car company design on vehicles.

Thanks for your time on that question Lee.

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

Good afternoon everybody.

And maybe just a quick follow up to that from.

And then Henry.

Developing a revolutionary new product and the industry $3 million and spending this year seems like non a lot of money.

<unk> costs, a lot more money and the future for both yourselves and Fox gone and how I mean, how should we think about program costs for this.

For something Thats very revolutionary that sounds very inexpensive.

Yes, So I think there's a couple of things is very unique and this program first of all Fox gone and <unk> jointly investing in this program both of US have quite a lot that we bring to the table. We now have.

Pretty well staffed and engineering and design group.

And we don't have to go out and hire those people for that sort of coming into this program.

And is moving to the next phase of commercialization and.

And then you're a fox on of course debt.

Has an immense supply chain and here's what I think a lot of people what nobody is talking about the fact is that as we move from gasoline vehicles, which have been perfected over 100 years, we moved from gasoline vehicles into.

Electric vehicles.

And the only part of the story and the actual moving into vehicles with theoretically our computers on wheels.

Now who would be the best supply on the world to supply the most cost effective highest quality components for your computer and the smartphone.

Reflects GAAP.

Jeff on the biggest supply chain and electronics in the world I have been amazed when I have seen the pricing for some of these components.

I couldn't even imagine because the pricing is so different what I'm used to on the car world and Thats why were going to be able to make a vehicle for less than 30000. So I can concentrate not on having to invest and certain electrical components, but rather coming up with truly innovative things and innovation doesn't necessarily need to cost more money.

It's about being brilliant and smart ideas and things that box and taking the risk and this low risk to product and rewards could be huge which I think there will be people, who is kind of a seamless program and it's very few and keep the chop scheper are quite frankly amazed by it but it is so low that we don't want to go out and talk about it.

Now, it's just too early.

And 30 months away and.

And we're giving too much away to the competition, but in terms of investment.

The big investment will really start happening and 23 and at that point <unk> is making on health revenue.

Secondly, second question real quick head count at the same kind of thing you are being incredibly efficient.

And I got it and that you're going to lock on with 203 people.

And I'm sure everybody's sweat cards here at the company hidden and and working really hard to get on this done because it's a lot for 203 people.

At some point do you think you need to expand and accelerate that head count dramatically easier to get closer to Sop.

Or are you going to be able to operate with a very efficient army and very hard working people.

Get a whole lot a whole lot done.

And our leverage partnerships to get it on.

So.

If you're truly big into the traditional car industry, you will realize that despite that only talk about it a lot of the components on cars today are made by suppliers.

I think we have just kind of.

Got a little.

On the on a more extreme level on that what we have said a lot of things that are not really creating IP or are mundane task.

We are getting on our suppliers and we have a great relationship on Mac than they have and an amazing engineering force, while we have hundreds and hundreds of people working there on our behalf and on a program of course, we keep expanding and Thats why I said I can see us, adding quite a lot of development people, but we are trying to avoid is hiring fillers.

I know some companies out there are really excited about announcing when they have hired 1000 people and you know maybe half of them 500, and just fillers, but we don't have any similar and we don't want any fillers.

Took that doesn't even have a secretary.

And sometimes your users me, but it's true.

It was is that we are just so efficient.

Debt.

Myself designing the cars and I think Thats again innovating doesn't come if I gave you a million people. It doesn't mean, they're going to come up with an amazing idea.

Einstein and a few others that are pretty much by themselves. So I'm not worried about that.

I think the of course as we as we.

Get out to the market, we're going to higher channel marketing and salespeople and we're going to have people standing on our experienced census, and expanding our vehicles, but that's still about 18 months away until then we are.

Really just hiring a lot of drilling and engineer software engineers.

Really smart people that helps create innovative products Hey, John I, just wanted John and I, just want to highlight a little bit about on asset light model and your.

Question is actually quite good because it kind of answers the fundamental philosophy of the company, which is the platform sharing the backfill and so I just want to remind that the startup programs with something called platform sharing and as a result, we and on developing and we can do component on the car from scratch. So you don't need to have.

And engineering talent that is designing and engineering every single component. If you don't do that you don't need to have a corresponding budgeting team or a corresponding.

Jenny staff. So tack on sharing is really critical to that Lee and asset light the second part and want to highlight and book. The program. We are co engineering that we do have a staff at Magna that supports the engineering programs and it's hard to find I want to highlight Wildcat.

Talk about.

Tariq staff at fifth third we also have a huge pool of indirect and direct labor on the books of Magna and <unk> David.

And they will be building a car. So there will be thousands of people who will be building our car and magnify famous talk Scott and then finally as Henrik alluded to we are ramping up on sales and service staff, both in Europe and U S. So, yes, we will ramp up but and the right manner. We would not have cash that is that can make sense and is there.

Every day, adding incremental value.

Thanks, John Lee and I'm, just going to jump and we took some questions from the <unk> technology platform over the last couple of weeks from retail investors I wanted to ask a couple of both the.

The first one is that there are actually several highly voted question on chip supply and how fiscal plans to secure supply commitments and this area the card happy.

Happy to take debt so.

So-called chip.

Chip shortages, so difficult challenge for the industry, but it's not really a shortage.

The result of petroleum.

Chip industry to repurpose capacity towards higher value consumer electronics trips and.

And just away from low margin legacy automotive Microcontrollers, and let's say 28 nanometer nodes and.

So the general industries.

And then this situation will work itself out over the next 12 months with even if it doesn't we see a few reasons it will be less impacted than most if at all.

Let me explain and number one we have the luxury of finalizing the concept phase for the ocean three knowledge and situation to our own context and old partners.

Low debt to make design and supply chain choices, but focused on needs to areas of supply chain with ready subtypes Wood chips for example, moving.

And I assume the vehicle control major chipset partner and recommend and other external but its and displays.

Sean is designed and the components, who I have known and sourcing semiconductors based on what is readily available.

And number two.

We always.

And in electrical and computer architecture that is more centralized.

We are focused on high performance domain controllers based on those modern SEC's. So this includes than us.

Sandoz strength with a mobilized vision systems and solid state for the radar sensors powertrain Btu per FTE connectivity module and these chips on multi short supply.

So and finding and published.

Probably most importantly, and comparison to other startups.

The old partner network.

Mcnamara and Foxconn financially invested and our ability to satisfy demand growth.

And to partner with deep influence and the rest of the interest and trading supply commitments for all components such as chips.

Already seen multiple instances where this is.

Okay.

Thanks <unk> next question is do you have a definite date to begin production of the Ocean. What's your plan to show early prototype versions of the vehicle and what government subsidy do you anticipate.

Absolutely we have very high confidence I mentioned early on our Q4.

2020 to us would be next Gen fact, the actual SRP date is November 17th next year, if you want to have and expecting and Im sure.

The confidence supported by macro that we will actually make that day.

Secondly, we start initial deliveries both in U S and five key European markets also and of next year and and more importantly, full run rate production will happen from the first half of 2023, and that's something that no. Other EV startups and haven't done and I think quite frankly will only be path.

With somebody like Magna and.

In terms of the demonstrator vehicles I mentioned already will show first production on vehicles in November we're planning events assured and Europe shortly beginning of next year and.

And then in Q1 next year, we'll actually get the first journalist and some analysts and the vehicles and drive them all first demonstrated on vehicles and quite frankly.

Both <unk> and me, we already drove our powertrain.

It's unbelievable the powertrain it actually it makes you feel like a formula one driver because we have some really unique and.

<unk> in this powertrain that allows you to handle this vehicle on the limit and such an amazing way I can't wait for people to try it.

Unbelievable and this price glass price less so I'm super excited about it and again remember our vehicles start at 37500 on hand and U S. Now finally.

And in terms of such subsidiaries.

We believe we are legible for all the subsidiaries.

Available at least the way it is today.

And that includes from Europe, and just to give an example in Germany with subsidiaries.

Our vehicle will be price at a low 32000 and euro.

And for anybody on this call you go on and take a look at what you get from 32000, Euro and Germany, and Thats, including near about Stoller, which the sales tax and Germany, which is pretty high. So that's an incredible competitive vehicle and that's why Germany is one of the first countries youre going to launch in Europe, as well and where we got a lot of quarters from on already.

And lot of reservations, Okay. One more retail question and then we'll get back to the on off Q2.

And that one of the most shorted stocks on the market does the company have any plan to help protect shareholder value against short selling and manipulation. Absolutely. We are only thinking of long term shareholder value now and the challenges there and so many new mobility and easy companies that are using this back method to raise capital as we've seen and the last few months and several companies.

And along the way have changed that strategy that targets now not only the das and.

Casting doubt and all you need is it is also putting everyone in the same bucket and the only differentiator is execution and the ability of and experienced and dedicated company like physical to deliver quarter on quarter and we are doing exactly that just wanted to remind everybody that we knew we needed to raise a $1 billion and we did.

Lastly back to Derisk, whilst we are not generating any revenue over the next few months and number two original targets of 10 and back to our original business model has not changed we have not changed goalposts and and now based primarily on contracts not just estimate number three and <unk>.

True to our asset light business model and a positive day by signing two partners to be able to deliver the current and planned for and that was it.

And the filing which is why we have the ability to forecast and updated guidance on the path program number four and our 2021 and things going on a milestone delivery and spending very much on target with our guidance. We are disciplined and experienced management team that knows what they're doing say credibility there.

Does not happen overnight and we intend to continue to put out a proof point that they are not part of this crowded startup and experience in this space and it is no doubt it will be reflected and our stock price and the medium and and the longer term, we cancel all else equal weighted and we are building the company for long term success I just want to add something.

Just on.

I know that there are some hedge funds that needs to go out and do some shorting, but I actually feel sorry for the people who invest on those because it's clear that some of those shorts. They just are very superficial that don't have deep knowledge of how complex. The automotive industry is and I think if you spend a little bit of time understanding our.

And this relationship with Fox Con and Mac math, you will quickly understand that you stand to lose a lot of money if youre short against Cisco, but hey, that's my opinion and I hope, we can prove everybody wrong.

Okay. Thanks, Thanks, Henrik on Lee can we go back to the analyst to for the last few minutes.

So on and everybody. Please please limit your question to one please.

Thank you moving on your next question comes from the line of John Lopez from vertical group. Your line is now open.

Hi, Thanks, so much.

I hope it to one but I'm going to do a two parter if thats, okay I apologize.

But I wanted to push youre digging a little bit more on powertrain and battery specifically so.

And sort of part a day here or are you just to make sure I'm clear you're comfortable with commitments.

Both pricing and volume on the sell side not just through the initial production launch, but all the way through to full volume ramp in 2023 can you speak to that for a second and and the second part just to throw it in.

You've talked about comfort in up to 350 miles of range on the higher trim burdens models of the Ocean I'm wondering if you can just talk for a second about any sort of range dispersion as we get closer to the base model are you willing to start talking to us a bit about the range.

And what it might look like there.

Thanks very much.

And I.

I'll take the first part of the question. So what excites me about our powertrain is three things first of all we have very high quality suppliers and we're not ready to reveal the names and we're going to keep it and secret a little bit, but Baltimore, Boston and suppliers vendors.

Our partners and the Ocean program and we'll be partners on the Pep program really really excited they are committed they knew and physically they have a long term partner second thing yes. Our partners are committed we are in the testing phase we are not just in our contact fees on Powerpoint, where actually and testing phase we are testing book.

And the systems on their own so they're testing dummies witnessed and the systems on their own and we have plan to testing and being consistent and see different meal kits and build to tag the PTO PPE to all of those and then finally the thing that really excites me, it's actually the pricing I think we are at such a good pricing for both parties.

System, which is in fact at par and some of the tier one tier one Oems and their fleet and force for both the seller and the driver and that's now I believe on the batteries. We are at a cost per patient, which is very competitive and different levels. The places.

I see a further cost on opportunity, which will make us extremely competitive is in Pakistan, and we finalize the leak and integration testing and validation, but we will release more information on both cell and pack and construction due course once we finalize on localization I also want to remind everybody that.

For Ocean, we are looking at Europe and of course for that program. We are looking at U S. And both are partners are geared up for both these locations on.

Angel tankage on the book.

And.

We believe the 350 miles charted for the high and powertrain is very likely because that is what a ritual poultry and modeling is telling us.

Able to simulate EPA Hs cycle.

Powertrain is fully solved and stick it out.

With all the variables and.

Efficiency rates that we know will be then production version, so plus because we compete the anchors one team and all the non powertrain engineering groups over and arena and efficacy of plan to achieve aerodynamics and day targets required to achieve low growth remains mixed solution. So it's physically testing with production and components.

And we didn't see later this year.

But bottom line is a real.

Challenging targets, but from a modeling and our planning and saying we can achieve them.

And it maybe I can just add to this debt will.

And when we showed our vehicle originally and.

In the beginning of 2020, and we had estimated 200 and fixes firm on a range and again that comes back to the point, we were able to put the newer technology on the vehicle, which is right and I'll get because of the $3 50 in terms from a base current it hasnt changed like I've said 250 to 300, and so the base probably closer to 250 miles but I.

I think you will see two type of people and the future of those people who are okay with carrying around expensive battery want the range and I think youre going to see people, who realize that most of the daily commute from $30 40 miles and they don't really need to pay for a giant pet battery pack on carried around let's not forget some.

Staying ability on the environment caring hungry.

Hundreds of pounds around every day, if you're on a go 30 or 40 miles doesn't really make any sense. So we really see two types of people here ordering all vehicle those who probably have a lesser need for super long range and when those will help meet the super low, but the silver along on what we call. It the ultra long range.

Available both in the medium and the top version so only the base first and we'll have slightly less range more than adequate and I think more than most vehicles on the segment.

Great. Thanks, Henrik and let's try to squeeze one more question, but I have to be pretty efficient.

Lee.

Youre Welcome. Your next question comes from the line of Jeff Osborne from Cowen and company. Your line is now open.

Amy and Andrew.

All of your comments are about the $37000 a vehicle, but the medium term operating model for the company suggests that the prices will be up and the mid $50 to 60000, and so I didn't know what level of comfort you have that some of the features that you will be showing at the La auto show and other performance features that will be actually what the consumer wants just especially given.

Response to your question about environmentalism and the limited range that people need.

Yes, I'm fully confident that we have not changed any of that of course in fact.

Only our top vehicle will be over 50000, and I think it will be.

So very surprised with our.

Our first two vehicles and factory of scrap the base and we called out a base to support model and the second vehicle as the power sport.

And.

<unk> will also be on the 50000, and so we're very comfortable with the equipment and they have and the vehicle, we're going to be able to offer additional things with over the air updates.

But I don't think there's any any car out there or any vehicle is even close to compete with low.

Offering.

Across the range.

Thanks, Jeff.

And we're at a time for Lee can you close out the call. Please thanks, everybody for your participation and thanks for your interest and <unk>. We really appreciate it. Thank you very much everybody appreciate it.

Thank you presenters and ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect.

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