Q2 2022 Fisker Inc Earnings Call
<unk> use for testing, we have five prototype vehicles in Michigan undergoing Adas testing.
It was magnum and also completing testing for high pressure water tightness of high and low speed features powertrain and much more.
Our U S internal crash testing, which we do in house by the way with prototypes achieved five-star equivalent ratings, which gives us confidence and formal ratings when they come out now we are not in charge of windows formal ratings come out because.
Basically.
IHS and other rating companies have to bio vehicles next year and do their own testing independent testing, but we are very confident that we achieved a five star equivalent rating what we have done so far because obviously, we have done all the testing internally.
I personally received my Ocean test vehicles early and have been very impressed with the handling and performance.
Driving around on many different streets in L. A and I'm just so amazed about what we've accomplished was vehicles. So far and this is not even the final vehicle is still needs fine tuning, but I've also driven this vehicle actually in a in a.
Later stage on the suspension on the high speed track in Italy, and I can promise anybody this is going to be one of the best handling Suvs in the world hands down specifically when you combine.
The actual cornering and driving ability and performance compared with comfort, it's easy to make a super sporty car and is easier to make super comfortable car, but combine the two for everyday use super difficult and we are really achieved this with a physical erosion I can't wait for people.
Getting them driving.
Now the ocean demand has remained strong.
Marketing and brand building efforts are working most impressive is selling out of all the 5000 Ocean one's launch editions preorders with customers in all nine launch countries.
And all 48 Continental U S States, our customer outreach was limited to our launch market.
In reservation order based on our information. This is the largest deposit amount of number of launched units for any premium affordable vehicle. So I think we did really well here, we have a very unique internal.
Data base marketing strategy as well, we are using and we are building that scale internally.
Ocean is <unk> fully loaded edition the ocean one of the Fisker ocean than.
And then include rare Chisholm features uniquely only to the ocean one.
Including an ocean, one signal or batch plaque specific numbering and over $5000 of included options people love the big Blue So far most public Carlos election, we obviously can see what people have ordered and the $5000 Downpayment show us that customers are truly committed and allow us to plan the built with their unique color.
And specifications months ahead of ESOP, leading to a more seamless launch and initial deliveries I mean, that's another very important point.
The more you can plan your production ramp up the better it is and we are able to do that because of these firm orders we have got for the Ocean <unk>.
The only thing that customers recognize the great value proposition of the vehicle. The many class leading our industry, leading features and the confidence in the fiscal <unk> and magna to produce a high quality vehicle and we truly.
Also we also appreciate customers understanding.
The current elevated logistic costs.
Quite frankly in my view, a way too high but we are just passing over the cost of logistics to our customers and I will promise if we get to a point where these logistic costs are falling we will also lower our delivery cost. This is simply just a factor of the current environment and I want to remind everybody that we have not.
<unk> raised the prices for the first 40000 vehicles will deliver but we do have to pass over certain logistic costs, such as delivery costs. Unfortunately tool to our customers.
But I do think these costs will fluctuate based on logistics rates as we move forward and then we will adjust them as well.
So.
<unk> generally continued to increase and we have started to strategic discussions with magna to add capacity.
Continued strong growth because ocean a segment, leading has a great design and has managed sustainable credentials and as we get closer to S&P and continue to be increasingly transparent with respect to our product and what customers are getting and for what price perspective customers should only get more and more excited we're.
We're serving in the Ocean and we think we're seeing that already as you start comparing our vehicle and the specification with other competitors I think we're way ahead and of course, we are going to show even more detailed about some options and.
And actually equipment that we havent announced yet, but I think one is going to add to that.
Starting on November 18th the day after the official start of production. We are happy to announce that we will begin taking preorders for our customers who are interested in the ocean extreme trim and this will be followed by preorders beginning opening for our ultra and sports shrimps already in Q1 2023, we are going.
Out in phases, which will help us again plan, our production forecast and we have reserved both.
Ocean Ultra and Ocean sports production for next year. So even if we were to be completely sold out of <unk>.
Next year's production with extremes, we are promising we will still build some ocean ultra is on some ocean sports and.
They will be available from around Q3 next year.
Let's come to the payer update in early May Fox <unk> completed its acquisition of an operational $6 2 million square foot manufacturing facility in Ohio, and Thats, where payable will be built using the physical developed SLD one platform Thats a brand new platform that we are developing in house and again as I mentioned.
It's about reducing parts and cost so we can get a super exciting vehicle on the road with high technology without spending it on platform stamping uncomplicated structures et cetera.
And we intend to build a minimum of 250000 pair vehicles a year once the plant ramps up production and per reservation that have now surpassed 4000, we of course havent shown much of the peer that's a kind of a new image today, a little bit of the front.
Super Cool round front windscreen that we're working on getting into production, it's difficult, but we'll make it we make things happen in fiscal <unk>, we make dreams come true, we don't give up on innovation. So theres a lot of innovation features and the pair something that not only have you never seen in that prior price class, but do you think you have never seen it on.
Any car any production car before.
I'm Super excited about this vehicle I think.
This will really be redefining not only how you develop a vehicle, but also the content of the vehicle the design of the vehicle and finally, what you get for your money on electric vehicle and I know a lot of doubters out there.
That we won't be able to make these vehicles are on the 30000, but.
We're doing it with the Ocean and we'll do it would appear we have an internal process that is unique and with US really allows us to get that point, but you can get to that point. If you try to develop a vehicle like you have developed gasoline vehicles. The last hundred years, you completely have to rethink what mode.
<unk> device is of the future and Thats, what we have done with the peer and I think we're going to excite the market. When it comes out in 2024, which is still scheduled for and as I said.
Starting on the $30000 before it in sensors and I also want to mention again, we have this vehicle will be built here in the U S. So now we have manufacturing opportunities in Europe , and we have manufacturing opportunities in the U S and I think that's extremely important that we have been smart enough to hedge.
No matter what type of legislation comes in the future I think we are in a very safe position. We've got affordable vehicles, we have hedged our manufacturing strategy. We have brought in a super manufacturing guy that im looking into even more opportunities what we need to do for localization of manufacturing what do we need to do.
For potential battery manufacturing here in the U S. In the future battery Jv's et cetera. So there is nothing that we're not looking at all opportunities open and because we are so agile and fast as we can actually move and actually do what's needed to fulfill the market conditions and in fact.
We are already looking at actively.
For some pre sales of the oceans should legislation come into place.
Where we would want to take our customers to take advantage of the $7500 tax rebates for 2023, so if that becomes necessary. We have already a plan and we will announce that if as needed so I'm very comfortable with that as well.
Let's come to the customer experience strategy and an update physical brand launches we will.
We previously referred to as experienced centers will offer prospective customers the opportunity to see and experience the company's vehicles as well as speak with product experts on hand, depending on state law. Some physical lounges showrooms will also offer test drives there's a few states where that makes it more difficult. So we will find other ways to make that happen.
Don't worry.
Locations in addition to Elion Munich locations.
We expect to open later this year, we expect to announce further locations in the next few months already negotiating on a lot of different real estate, both in the U S and Europe .
We will also have physical center plus locations or center plus locations are really delivery centers and it service vendors and where you will go to test drives and Thats, a real unique fisker strategy that hasn't been used by any other car company in the world and we are doing.
That's what we can offer you the customer a much better experience, but also more value for money, we don't want to charge you for expensive buildings in leather couches and all that stuff, we want to come and pick up the coverage appropriate when you do once every two years or three years and you would rather go and get a great price for the car than having to go to a super <unk>.
<unk>.
<unk> Palace, and we have to add $2000 per car, we don't do that it's about getting product to our consumers that our state of the art at the best price.
Service centers will be operated by Fisker. We of course also have partners strategically placed until or even during these service centers operation, where we can also bring vehicles into service of course, with our fantastic and I think class leading warranty nobody really have to think about service.
For the first five or six years in fact, if there is any warranty issues, obviously its fiscal <unk> obligation and we will come and pick up your vehicle and we will either to mobile service or we will take it to one of our center pluses or we will take it to a partner of us, but we take care of it.
Absolutely you don't have to worry about as a customer.
Finally, our advanced sustainability vision, a clean future for all we are proud that <unk> produced and Magnus carbon neutral plant in Austria. The Fisker Ocean will contain over 50 kilos of recycled polymers in biobased materials more than any other vehicle that we know of currently on the market highlighting our.
Commitment sustainability, our vision when we started and we talked about that already two or three years ago was to make the world's most sustainable cars and we're coming through that we have an amazing in house team, we have a leader of ESG and we're going to soon announce our ESG impact report later this months and we're actually doing that.
Our head of production, which is very unique and I think this illustrates how integrated ESG is throughout our business and we also are still very firm on wanting to reach to create a cotwo neutral card by 2027, and most likely we will use the <unk>.
<unk> Marvel as a foundation for <unk> to neutral model. So already a lot of these ideas are flowing into the payer program and we are aiming to lead with the world's most sustainable vehicles.
I am very optimistic about <unk> future and realizing our vision of a clean future for all I now want to turn it over to <unk>, Our Chief Technology Officer.
Thank you Henrik.
Beginning with fiscal Ocean engineering testing and validation is progressing well and we.
We remain on schedule to achieve <unk> in November .
Super Agile teams at Cisco Magna efficiently collaborate in a modern way.
Shed reach and experience continue to ensure all our pumps are sourced delivered.
Assembled and tested on schedule.
Closely partnering with our supply chain to protect our November 17th production plants.
Our vantage point semiconductor chip availability is proving and positions us very well for us.
The old 55, who have a complete prototypes have been built and performance has been confirmed.
<unk> production.
Production intent design and components.
<unk> used for validation and all the attributes such as safety with the highest <unk> ratings, Adas and VH climate comfort powertrain system performance chassis electrical integration complete vehicle durability.
As we progress through the different performance tests or agent teams can quickly.
Synthesize the results and rapidly make any final modifications.
Just on extensive testing, including alone 40 vehicle level test sub system testing and simulations.
<unk> is on track to meet global certification.
We have recently begun to next bill phase, it's called the <unk>.
PTO built which is done with bodies built from the series manufacturing line and paint process and it is the final build before we enter or serial production. These vehicles are intended to be fully representative of the final series design and will later be built on the series final Assembly line.
They will be used for final validation and testing of complete vehicle performance controls and functions. In addition, these vehicles will be used to start all final certification and Homologation testing Henry.
Henry and I are going to go out next week to observe and monitor this final build phase.
We have been collecting data to owed or build phases and the closings of iteration loop to update the final phase as we approach serial production.
The full Ocean program has come nicely together.
We bought over several prototypes vehicles to the U S for testing of Adas, electrical and infotainment systems.
Overall functioning comfort we believe.
This is really important to have the data from every region to be customer oriented and every situation.
Great close collaboration with Bridgestone to ensure top performance generally we have done everything to maximize driving range of Ob codes, including optimization.
Work on the efficiency work and more.
Integration work on software and electronics is currently underway and all of the domains are coming together, including user interface interface user experience or we call. It <unk>.
Simplifying and integrating features a 100% customer reliability and satisfaction.
The customer experience inside and outside of the car is supported by our creation of a highly scalable secure multi cloud infrastructure to support Cisco's future vehicle fleet.
Our state of the art technology provides for a b directional connection between the vehicle into cloud.
This enables our <unk> mobile app to dynamically intact. The end result, the digitally connected vehicle with easy to use functionality that is always available for our customers.
The OTA over the updated ability strategy is unique and is fully driven by physical cloud. It allows us to update individual vehicles as well as portions of all of the fleet of vehicles.
We believe the revenue and margin potential of old connected strategy will be first of its kind.
Now to briefly touch on <unk> specifically.
Engineering has continued to ramp.
This ocean gets closer to S&P, we're transitioning more and more resources from the Ocean program to the <unk> program.
We have finalized the concept and have begun the a simple phase.
Half of truly.
Solutions electrical architecture with him and he's using traditional vehicle consolidated down to a few central computer units.
Physical continues to rapidly scale, our core technical competence with robust in house IP creation to both software and hardware engineering.
Yes, much in house software competence and I'll focus on the main domains software cockpit computer aid us battery and powertrain.
Our San Francisco Technology Center, along with our newly established India headquarters a focus on the design and engineering of software systems to support the ocean and future vehicle programs.
Our technical staff has grown over 50% year to date to approximately 300 strong.
A further illustration of our growing technical progress in house IP creation, Cisco's rapidly expanding global patent and patent pending portfolio currently around 70.
<unk> built a fantastic team.
And continue to invest in internal capabilities that will enable cisco to innovate and introduce cutting edge technology into our platforms.
I will now turn the call over to Guido. Thank you look at and welcome everyone with over just over three months to S&P. Our number one priority is ensuring development timelines.
On track and that our supply chain is JD first started production on November 17th.
<unk> ramp up in 2020.
In this current tough environment. It is extremely important that I emphasize our asset light strategy, which we started off with over two years ago is a very purposeful strategy designed to support us in all economic cycles. It also as scale benefits without the complexities risks and fixed.
Cost of a fully vertically integrated approach we can.
Continued to staff up with 530 full time employees across nine countries and of course that does not include over 500 colleagues, we have at Magnus tie and brought in engineering purchasing quality advanced manufacturing engineering and over 1000 colleagues we have.
<unk> build the corrosion at Magnus time.
Even after this growth we are still a small fraction of the size of other sector participants yet we aim to produce more vehicles.
First full year of operation than any other EV startup has done in history, our unique model reduces the high operating leverage inherent in this industry and dramatically shorter the development timeframe now let me share estimates our recent Ocean program milestones. In addition to what Henrik <unk> already spoke about the <unk>.
Prototype build phase is now complete with 55 prototypes deployed globally critical testing and validation required for launch is well underway and on track for a November S&P timing, we employ a comprehensive supply chain management approach I had mentioned last time on our earnings call that we have an executive team.
And executive supply chain task force between fiscal <unk> and Magna that continues to systematically conduct reviews meat suppliers and so any critical issues. We have with suppliers. These include in person visits to confirm bumper to bumper readiness, but tooling.
It is capacity and production part approval process achievement.
Also called <unk>, we continue.
To update our supply chain with our latest reservation and preorder numbers and discuss opportunities specific went expansion beyond existing capacity target staying on the supply chain topic commodity pricing has come off the boil. It since our last call for example, steel which is more important for ocean than aluminum is down four.
The percent from early May and 55% year on year key battery components have also moderated a bit. In addition, the strong dollar has mitigated inflationary pressures for us as well since many of our supplier contracts are euro denominated euro has weakened 10% year to date versus the us dollar and its currently bouncing.
Its lowest level in 20 years since 2000.
2002, as a reminder.
Our contracts favour factor in commodity prices inflation productivity and foreign exchange. Some of these critical elements will be calculated on a quarterly or annual basis as we start to ramp up production next year.
As a result, we will have much better visibility of the actual impact of commodity prices to a bomb further into 2023.
We plan to produce between 40% and 50000 Ocean vehicles in 2023, we expect this to be backend loaded reflecting a deliberate early production strategy to ensure we deliver a high quality vehicle to our early customers.
I want to level set revenue expectations for 2022 with a limited number of working days between November 17th in year end combined with holiday related factory closure and vehicle transit time to the U S. This translate to little to no revenue this year.
We have clear visibility and locations of our first 5000 Ocean one customers and are fully focused on establishing a seamless experience as we start delivering these vehicles. This insight provides significant advantages, including optimal customer service and efficient cost management by enabling us to sequence with position.
Our delivery centers phosphate houses last mile logistics network and local after sales support infrastructure last month, we announced this to finance a digital financing platform offering seamless and convenient loan purchase options to fiscal customers retail loan options include vehicle accessories and home charging equipment financing.
Reaffirm the nomination of Chase in the U S. In Santander consumer finance in Europe , as our retail financing partners as a complement to vehicle financing. We also aim to provide our customers with value added services, such as trade ins and competitive insurance on our digital platform before turning to our financial results I wanted to make some comments about customer did.
As Henrik mentioned, we're very excited to have sold out all 5000 preorders for Ocean, one launch edition secured by $5000 or excellent.
In local currencies deposits from each customer from an accounting standpoint, we will not recognize revenue until the underlying vehicles are delivered to customers. Our ocean one customer's hail from nine launch countries and utilize various payment methods, but their down payments and as a result, depending on the time payment method the.
Intermediary either transplant those deposits to fifth shortly after PR delek or when the vehicle is delivered.
Turning now to our Q2 results balance sheet and 2022 outlook our.
Q2, operating expenses of $88 7 million or $87 5 million ex stock compensation expense was consistent with our internal expectations capital expenditures of $54 2 million increase from Q1 levels due primarily to the timing of Capex spending operationally.
R&D decreased in Q2 versus Q1, primarily due to lumpier milestone timing in Q1 on ocean the.
The slight decrease in SG&A any expense quarter over quarter was due to effective cost controls and the non recurrence of major trade show events. In Q2, Q1 had CES and mobile World Congress, partially offset by team member quote as a reminder, equity interest in a Lego is reflected in non operating results.
We are working to develop seamless integration of the legos vast European charging network onto the <unk> App and <unk> and we will offer 12 months free of charging under Lego network. So activations prior to March 2024.
During the second quarter, we recognized a 10 million mark to market loss or roughly 0.0 cents.
<unk> per share on a level holding and other income, which will obviously fluctuate each quarter based on a lego share price back.
She'd remains solid we have stayed disciplined with our spending finishing the second quarter with $851 $9 million in cash.
Have the resources to fully fund the Ocean program launch in November and to stay on track with other projects in 2022 during the quarter. We also established a $350 million at the market equity program, which is part of the 2 billion shelf rehab.
During second quarter, we tested the plumbing on the ATM facility and we brought in approximately $14 million. We continue to evaluate multiple options across a range of funding channels to efficiently finance that growth beyond <unk>, including our working capital needs brick and mortar facilities and future vehicle platforms. In addition to evaluating <unk>.
The mental sources of liquidity, we regularly assess the levers we can pull to adjust Ben if warranted for example, the pacing of our physical infrastructure investments and regional.
<unk> activity in <unk>, we remain nimble and positioned to bolster our balance sheet and support our future growth opportunities as appropriate turning to the outlook as noted in the press release, our overall non-GAAP Opex plus capex guidance for 2022 remains unchanged at $715 million to $790 million.
The bulk of the spend is continued execution of ocean through launch plus cost of running the business with fed R&D spending ramp ramping up in the second half of the year.
Product related Capex is ocean driven as we don't expect any significant capex on pad this year.
We're proud of the entire fiscal team's determination and resilience and agility, including all our suppliers and partners, but navigating through a dynamic environment and maintaining a laser focus on launching an amazing vehicle on time, we're now happy to take your questions.
Thank you. Thank you I would like to ask a question. Please press star followed by one on your telephone keypad, if you'd like to remove that question. Please press star followed by Kim.
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As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question.
Our first question comes from Joseph Spak with RBC. Please go ahead.
Thanks, so much everyone and thanks for all the commentary.
And I know you went through this a little bit about some of the commodities moving in.
Contracts.
Resetting either either quarterly or annually, depending on countries or not.
There's still I think a lot of investor.
Fusion out there as to who is exactly are responsible for the different forms of potential inflationary costs. I mean, I think it's pretty clear that you compare with the cost on some of the batteries, but stuff like.
Steel versus energy costs for instance, like how does that work with your contract manufacturers.
Yes sure so.
I'd mentioned in my commentary that all our contracts they actually address.
Any inflation, which obviously clearly impacts labor if there is any commodity prices, which are indexed to London metal exchange, which is pretty normal and all these contracts and then there is obviously productivity.
Generally all contracts automotive contracts have productivity because you improve the way you do things means you do things faster and then there is foreign exchange and all the contracts.
Between physical and suppliers and we adjust them on a quarterly basis. So typically.
We of course as a customer responsible but we work with our suppliers to look at all these numbers on a quarterly basis and would adjust for them upwards or downwards.
Maybe just again just make tangibles of since we are not in production were not affected by any of these prices at this point in time.
Alright.
Okay, and then second question, Patrick and it's great to hear that.
These these prototype vehicles are getting out there.
So you and the team can catch them and make additional refinements, but.
You are.
About 100 days away from S&P.
Yes.
When do we need to lock down because I'd imagine you want to try to minimize changes on the line and the line once it starts it's certainly gotten some other startups and.
A little bit of trouble.
And then also I don't know that Theres, some prototype vehicles state side when should we expect.
Drives for.
Third parties like the media or maybe more investors and analysts.
Sure.
Yes, so first of all.
There is two different type are actually several different type of prototypes, so as I mentioned.
Was that we have already built 55 prototypes to actually useful to hardcore testing. So the test vehicles, we are getting here, which all nice nicely painted northern camouflage those of test vehicles, which are for me here and maybe a couple of our engineers to drive around and I would say a little bit more of a fine tuning.
For maybe some chassis feedback, but there is no real adjustments happening at this point in time.
As a result of driving around in those test vehicles, we have done most of that fine tuning on test tracks et cetera.
So.
These vehicles like I mentioned, we just got now are really like fully painted nicely done up in all that we are driving around them.
So thats not unusual and also remember I know you referred to other EV startups and then they I'm sure are doing their own.
Processes et cetera, but we are we are following.
Slightly more traditional OEM process when it comes to testing.
Because we are working together with Magna. So I don't think anybody should worry about us making any changes underline that's really not what we're going to do we have already made the changes we need to do the only thing that usually at this day and age when we're talking about new technology that is getting.
Improved and adjusted until you launch and actually even get upgraded after launch which happened in the smartphone world and the computer World of software. So we will continue improving software even after loans and upgrading our systems and I think theres already another car maker that has done that and I think you will see many.
Future carmakers.
Doing that because it is constantly evolving but the hardware itself. There is no more adjustments already to that that has already been frozen fixed.
So I don't really see any issues there at all when it comes to whenever you're getting.
People in the vehicles.
I would have like to cut people in the vehicles, a little earlier, but I don't want to get People's into a vehicle that is only 90%, 95%. There I wanted to be 100% perfect. So I think it's going to be closer to beginning in November .
As my Best Guesstimate right now you also have to remember that.
Every single vehicle that we're making right now is spoken for in terms of being used for something whatever that might be.
So I think it's going to be closer to around November timeframe.
Okay looking forward to that.
Maybe one more quick one.
And this doesn't imply.
A step up in.
Opex in the back half.
As we approach launch.
Kate.
Cadence perspective.
Is it is it more in the.
Third quarter with the launch or or is it more balanced because some of that spending your staffing in advance of launch.
I think it's more balanced Joe to be honest and.
We've been pretty prudent and we took some early measures.
As Henrik mentioned, we took some decisions on some of the operations that we didn't go into some of these expensive fiscal lounges. So.
Some of these numbers, we have the capability to control.
And I think there is absolutely zero change in some of the.
<unk> expenses, we have on ocean, so very balanced.
Thank you.
Thank you.
Thank you for your question.
Our next question comes from James Picariello with BNP Paribas. Please go ahead.
Hey, guys.
Regarding the proposed <unk> tax credit legislation.
And the final North America Assembly.
Assembly requirements to be eligible for <unk>.
On the $7500 credit.
If this goes through I mean.
Fisker utilize.
The Fox Con plan or just some other measure to meet that final.
Assembly thresholds so that the ocean is eligible for at least half of the credit just wondering what your initial kind of first blush contingency plan.
Youre thinking there.
Okay.
Yes, so what I mentioned earlier is that we have just hired senior vice president of manufacturing.
A lot of experience here in the U S manufacturing and we're putting together a strategy with him.
Should this legislation again to effect.
We would have some countermeasures, where we would.
Currently.
<unk>.
Ocean U S manufacturing, we're not ready to announce where and how but that's something we are actively working on absolutely.
And the battery supplier alliances that you have in place today.
Do those suppliers have U S capacity to meet the other half of the tax credit just wondering what your thoughts are there.
So.
First this is a very complicated legislation, where we are.
Also talking about materials, and the batteries and ironwood actually estimate.
I don't even know if there is one car today that fulfills all of these requirements that will get the full tax.
I don't have a pressure I don't even think its five cars. So it's definitely not a good legislation for any consumers don't want to buy an EV no matter, where it is made.
But in terms of battery for the Ocean, we have a very firm contract with CHL and.
I can't speak for them, but I think there's already been.
Some news about that Theyre looking for U S production.
For the pair we have not.
A final decision on who is going to.
Our supply of batteries or whether it's only going to be one supplier, but one thing's for sure it would be a better supplier that would have.
Essentially U S manufacturing.
<unk>.
I could see us make.
<unk> Corporation, a joint venture we are not quite ready to announce that yet, but it's something that we clearly are planning for with or without that legislation, because making 250000 vehicles in Ohio, you're going to need to have.
Battery manufacturing in the U S.
Yes, Okay. That's super helpful. And then just on the ATM $350 million ATM equity offering is there an exploration.
To that tranche.
Yeah, Great question, it's actually I'm, sorry did I hear two at $350 million. So there is a three year shelf life.
Okay and then my broader question on that point, just how are you thinking about.
Additional liquidity sources out to 2023.
If that equity offering comes in light through the rest of this year it sounds as though youre comfortable talking about cash on hand, giving you well through this do this year, but what are the options in your and your thoughts on liquidity as you sure.
Yes.
Yeah, Yeah, Great question, So again I want to repeat the other very very proactive last year. We're in a capital intensive business, we plan to bring full vehicle to market by 2025. So we clearly need capital to fund. These programs, we need capital for marketing sales and service we need capital.
To support customers. So we clearly need capital, but we also want to be mindful of raising capital at the right time at the right valuation and when it's opportune.
<unk> already showed that last year, when we placed the convertible note.
<unk> hundred $75 million.
We've had a five year maturity at great guns.
It's a great great instrument that we used in addition to that in the 2 billion fell to $3 50 is already allocated to ATM. It's a three year shelf life and as everybody knows the mechanics of an ATM, it's not something you closed within a day or so it's a long term instruments. So we have that instrument available as and when we need and we feel that.
Market is right now in addition to that there's obviously.
Obviously, kidney and equity market and we have a balance of $1 65 billion left in the shelf and we can use that shelf to place great equity if the market conditions are right, we could place a convertible note.
Those.
Both of those instruments, obviously go straight to the balance sheet and then.
Finally again.
We are talking to multiple banks to discuss an asset backed loan against.
Got it.
Our work in progress against finished vehicles, then believe magna and I in transit to our customers and the fact that we completed these 5000 Ocean. One preorders is a great Testament to show a potential of 250 million in revenue just from afar.
And your lenders, who can clearly see that we have imminent revenue coming.
So we are looking I understood. Thank these different.
All of these different approaches include.
Including others, which I haven't talked about it.
Credit sales and.
All the other options so.
We will absolutely strengthened the balance sheet.
In the coming.
<unk>.
Thanks.
Okay.
Thank you for your question James The next question comes from Adam Jonas with Morgan Stanley . Please proceed.
Okay.
Hi, everybody.
Sure.
I know youre going to have more visibility when you actually start making cars, but you did say that you have the discussions at least quarterly so <unk>.
Based on that how much doesn't ocean bill of materials cost today in U S dollars factoring in the year.
Crow weakness, but then the other puts and takes on the input prices and energy et cetera, how.
How much more does it cost today versus say one year ago order of magnitude not going to hold you to a specific dollar amount.
Adam It's a great question, we actually don't encourage those discussions because they don't really mean anything and the reason for that is that.
We talk to suppliers the only price out when we are ready to put a purchase order.
For a quarter so honestly.
We clearly have costs that are related to content that.
Related to our design intent parts currently and.
The reason why we never increased prices was because we were very confident.
What we are seeing and what we are discussing with our suppliers now I don't know what Q1 Q2 next year looks like but again, we are very confident that if there's upward movement in commodity pricing, we have enough headroom to absorb that and areas, where we feel it's justified to share with us.
<unk> as Henrik mentioned earlier is logistic costs and instead of building it into the price of the vehicle, we instead separated it out for full transparency.
I think to add.
Answer your question.
We haven't really done serial pricing right now with suppliers, because theyre not producing cars, but again I don't see any surprises next year, but we don't know okay.
Thanks, Peter and just as a follow up and thanks for the comments and being very open and transparent about the need.
For capital going forward.
But just specifically for the ramp of the Ocean. You said you have enough liquidity for year end and into 'twenty three for development work.
Is it safe to say that you would need capital to actually ramp production of the ocean.
So the ramp needs are obviously cash flow working capital needs that we have certainty on some suppliers.
Only realizing like I said revenue when the customer pays and typically the customer pays when you exchange the asset. So obviously as a startup we're trying to explore if we can get non dilutive funding and if there is a delta then absolutely we're going to have to raise money and we could supplement that through the ATM.
We could supplement that through a convertible loan depending on the borrow and depending on the market conditions, we could supplement that to another equity raise.
And we absolutely are working with banks to identify exactly what that capital need is and how should we structure. It.
Thanks Peter.
You are talking to banks, but is it too soon to think about.
Exploring strategic value for the company as well.
Thank you that's my final.
Yeah.
We are opportunistic Adam we are always thinking about any opportunity that comes our way. So absolutely. We are always looking at strategic opportunities as well.
Okay.
It will we're going to take a few questions from the retail shareholder pull online.
The first one is.
For you Henrik.
When will you be able to share rollout plans, including win reservation holders can expect delivery in their markets.
So we're looking at.
We are launching our new interactive configuration in October .
And.
What we just said was we're going to start taking firm.
Reservations on the extreme November 18th the day after we stopped production and at that point in time, we would definitely give.
Indication of the quarter, you'll get deliveries in and then of course as we get closer.
Two the actual delivery would give a firm probably about six weeks before so we are working on all these details right now and we want to be as accurate as possible and we will probably also allow people to somehow track, whereas the car and this entire process.
But we should be able to give.
In the end of this year, some pretty clear guidance on when people will get the car.
Thank you Eric next question with the way the economy is going is fisher going to market to masses are only meek.
Vehicles for elite consumers.
Well I think we're already R. R.
No.
We have already said that we will produce $37500 Ocean sport from Q3 next year, we have already announced our pair which will be starting under 30000.
I don't even think I can count on one hand, the amount of Evs that has kind of come on market.
In 2000.
24, that's going to be under 30000. So I think we will have a really unique proposition.
Super High volume potential for our two vehicles what.
What was important about the ocean was that we ultimately are able to get really high volumes out of that vehicle by having a base price of 37500 and what's important about the pear is to get it under $30000 because now youre talking about potential millions of vehicles. So absolutely I think we will.
Half.
A large span I think we have design, which is timeless, which.
It is done in a way where you can't really see what the price of our cars I mean, a lot of people think they can't afford the ocean. When this year for the first time, they don't know the car.
People, saying et cetera was $80000 of course is not.
So we.
We will we will definitely continue to offer value all the way from a peer on the 30000, all the way up to our rone and even if we do a $200000 car it would offer tremendous value and I think that's part of how we develop our vehicles. That's what we stand for as a brand.
Thank you Henrik and Alaska retail question is there a chance ultra production start sooner than Q3 2023 note at this point, we have to plan production far ahead, and we also have to think about the company's financial health.
I know there are a lot of investors on the call and I'm sure. There's also a lot of people who is maybe ordered an ultra or even some investors that are all audit and ultra but ultimately we are a business and what we are seeing right now is a very healthy demand for the extreme and the ocean <unk>.
Yeah.
And right now we can see that we should be able to fulfill.
Maybe even not all of these orders all the way to Q3, so normally if we wouldn't have committed to start ultra.
All transport production in Q3 next year, we may have been able to go all next year without producing any ulcers or any sports, but it was very important for the company.
To stand up to what we have promised which was to deliver a $37500 car and a $49900 a car in Q3 next year and we stand by that promise we have planned it into our production and that's what we're going to do.
Thank you and operator, if you go back to the analyst Q&A.
Thank you. Our next question comes from Pavel <unk> with Raymond James. Please proceed.
Thanks for taking the question.
You touched on the U S tax credit I wanted to ask about the U K you were planning to launch a right hand.
<unk> of the ocean in the U K market next summer.
And then in June the British government.
Right out the plug in car Grand.
Does that change your strategy for entering that market.
No in fact, we saw an incredible uptake in the Ocean won orders from the U K have yet actually allocated a certain amount to the UK, but they went way over so we didn't have see any impacts on that I think we're extremely price competitive.
Our vehicle already in the UK.
So, let's not forget that in the UK. This applies to everyone is not about if your vehicle is manufactured in UK or stuff like that so it really has no impact I think on our competitiveness if everybody.
I have to pay a little more than everybody else to pay a little more and we are still competitive so we haven't seen any negative.
The.
Feedback on that and we have not changed our plans, we will start delivering right hand drive vehicles in the U K mid next year.
Okay.
Up on that you have the charging partnership with a Lego in Europe of course do you have the interest in a similar kind of relationship where they charging company in the United States.
Yes, So let me explain a little bit about the.
Charging relationships that first of all.
We have a partnership with the group.
All the.
Charging infrastructure will be displayed on the HMA, which is obviously critical in all global markets.
And then the second level of integration is to then integrate our web app and our HMA.
Individual charging station providers. So we're in the process of doing that and then the third step is making deals with charging station companies to be able to provide better pricing or plug in charge. So we're doing all of these three and.
We obviously will have a deeper relationship and we're doing the same here in the U S. As well we are not ready yet to announce.
Those partners, but we will in the coming days and weeks as we integrate those in the <unk> App. We also have identified our partner for home charging installation that'd be all.
We're looking forward to announce in the coming weeks.
Got it thanks very much.
Thank you for your question. Our next question comes from <unk> Patel with Wolfe Research. Please go ahead.
Okay.
Alright. Thanks, so much for taking my questions I just wanted to follow up first on a question that was brought up earlier, so maybe just to be more specific.
Your.
Our agreement with.
With Magna.
Does how does.
Energy costs factor into that obviously I ask only because we've seen.
And in energy prices across Europe .
So is that something that gets passed on to fiscal or has that responsibility borne by magna.
So first of all energy cost for a facility like Magna.
Is there a fixed or variable utility cost and the.
Agreement, we have with that.
Magna is set.
Two levels the way vehicle contract manufacturing works is you have a fixed element and you have a variable element and typically.
Ren.
Leasing the space utilities et cetera. This typically fall in the category where they.
Sure those costs amongst various different.
Partners customers et cetera et cetera.
Specifically, what I can talk about in Austria.
There was talk about sort of gas now in our case Magnus die uses gas for pain shop, all of the areas are now being switched to biodiesel hydropower.
And in the case of Magna itself.
Our hedging and buying around 85% of the gas for next year, they confirm that to us.
Please.
Releasing that in our Q.
Austrian government is planning to put automotive as a priority given the number of jobs. It has in Austria and they've also secured 70% of that gas is there for 2023.
I frankly do not see this as any risk and it will be disclosed amongst our risk factor when we released the Q.
Okay.
Okay. Thanks Thats helpful.
And then you mentioned quite a few potential initiatives around project pier and potentially even forming joint venture relationship with battery manufacturers.
And you mentioned that no peer related spending our capex spending in 2022 so.
Im just trying to.
Think about the implications, though as we think about the ramp up of peer spending, especially in 2023.
Both on the Opex and Capex side, I guess, maybe how do we think about the needs for that program, especially if you compare it to what you've already had to spend on the ocean do you see the potential for leverage against the ocean level spending.
Are you going to have to actually spend more.
So this is a great really great question.
You asked that because what we're doing now actually as we are doing a lot more in house development on the peer then we were able to do with the ocean because we were scaling up the team and working closely with Mac now of course.
So by taking that work in house.
Less capital outlay, and we also moving people already know from the Ocean program over to the <unk> program and then finally, there's also a lot of commonalities on parts and suppliers between ocean and the pair so it actually.
Some of these parts will be fully carryover. So we don't have to necessarily to a whole new design for these parts and then there is the fact that Fox Con have already acquired the facility in Ohio, and we are working closely with them on how to lay out the factory. So I do see overall this program at least in there.
The initial phase to be much lower capital outlay than the ocean were initially.
To answer your specific question on capital needs. So this year the main investments on there.
<unk> so concept development.
Ian.
Look like mentioned earlier, we have a lot of engineers over 300, including engineers, we are hiring in India, who are now transitioning over to the <unk> program and we are starting to do supplier selection in the second half of the year. So come August September timeframe.
And then as we select suppliers.
I expect that at some point next year, we need to start getting into tooling.
However in the case of Pet program, we are going to do purchasing this time in a slightly different way given its a U S centric program, it's quite common in the U S to develop.
Commodities parts with suppliers, but it's also quite common bid out too.
It's uncommon to do that in Europe , but quite common in the U S. So we are looking into those strategies and that would require clearly investing capital and it's a high volume program. So I expect that some of the tools are probably more expensive than ocean. We are also as Luca mentioned looking at.
A virtual.
A lot of the hardware will become virtual so we expect a very efficient bomb when it comes to E. We expect very.
<unk> harnesses noteworthy harnesses.
Probably spend a bit more on the computer.
Battery, we will have to see where we end up it will probably have a smaller battery then the ocean given it's under 30000, So I think.
It would be definitely below ocean and I think we will get much more capital efficient on the pad.
Yes.
But we will have capital when we get into we will have to 100% <unk> capital to kickoff the tooling with suppliers next year.
Okay. That's really helpful. And then lastly, just can you remind us of your of your service strategy. It's something that you talked about back in 2020, but I believe your strategies to work with with Cox automotive.
Correct me, if that's changed but.
Can you just remind us what the how many what kind of Kpis are you targeting in terms of footprint.
The number of mobile vehicles that could provide service et cetera.
Yes, great Great question. So we divide service into multiple areas, obviously collision is by far the biggest and most complicated as you know and collision also falls outside warranty that involves insurance. So we are working on collision partners and all of the nine launch.
Market as we speak and collision is generally partnered we will also look at certified.
Articulation centers that will release more information on that towards the end of the year than the next area, but if you look at is the cloud.
You also.
We are looking in Europe equal is required by law. So we are also bringing an equal partners in Europe , we are actually going to offer that here in the U S as well even though it is not required by law. Then in addition to that we've named for other minor areas bid stone in the U S.
Certain parts of Europe , and <unk> in Scandinavia.
Other areas of service.
And they all have sort of different types of surveys.
Tire changer.
Other minor items that can be repaired and then in addition to that we're looking at a specialist areas, where we can build the service ourselves and then finally batteries need to be trained in a unique way and we are developing our own high voltage cleaning. We are developing we are working with <unk> as well.
<unk> some of these processes and procedures.
Okay, great. Thanks.
Thank you operator, that's all the time, we have for today's Q&A.
Thank you I'll now pass it back over to the management team for any further remarks.
Thank you very much everyone I thought there was a super exciting and very good earnings call and we are excited to move on and share news over the next couple of weeks and months as we progressed towards startup production was the fifth corrosion. Thank you very much everyone.
That concludes the <unk>, Inc. Second quarter 2022 earnings call. Thank you for your participation you may now disconnect your lines.
Okay.