Q3 2023 Fisker Inc Earnings Call

[music].

Hello, and welcome to the fifth Group, Inc. Third quarter 2023 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

If you'd like to ask a question. During this time simply press star one on your telephone keypad, if you'd like to withdraw your question again press. The star One I will now turn the conference over to Frank Barack Vice President of Treasury and Investor Relations. Please go ahead.

Thank you operator, Hello, everyone and welcome to <unk> third quarter earnings call as the operator mentioned I'm framework VP of Treasury and Investor Relations. Joining me on today's call are Henry <unk>, Chief Executive Officer, David <unk>, Chief Technology Officer, and Dr. Geeta Gupta.

Chief Financial Officer, and Chief Operating Officer. Please note that today's discussion includes forward looking statements about our expectations actual results in future periods are subject to risks and uncertainties that could cause our results to differ materially from those mentioned.

These risks include those set forth in the press release, we issued earlier today as well as those more fully described in our filings with the Securities and Exchange Commission todays discussion also includes certain non-GAAP measures, including non-GAAP operating expertise.

Reconciliations of our non-GAAP financial information to the most directly comparable GAAP financial information appears in today's earnings release with that I'm happy to turn the call over to Henry.

Thank you Frank Good afternoon, everyone. Thank you for joining us today for our third quarter 2023 earnings call.

Want to thank all of our stakeholders teams and partners for all the hard work and continued progress we've made in 2023.

Third quarter marks a strong probe the fifth grows we continue to ramp vehicle production and deliveries of the fifth corrosion raised.

Raised additional proceeds through an upsized financing transactions continue to spread our brands with new physical facilities test drives and pop up events in several cities across the U S and Europe and adjusting pricing pricing for the three ocean trends.

All of these actions continue to position us for long term sustainable and profitable growth as.

As our focus shifts to us ramping deliveries, it's incredible to see our product landed the driveways are more and more consumers everyday and I personally met a lot of customers who had my as early adopters and supporters of the physical brand. We have an amazing production ramp which has proven its ability to already have manufactured almost nine.

Units 9000 units at a level other EV manufacturers, taking four to five full quarters to achieve.

And solid demand.

We have not been able to follow through with deliveries fast enough.

People have paid and are waiting for the cars and some of them are really getting annoyed.

And that's something that we need to do something about so what are we going to do.

As we shift focus.

We have to focus on ramping deliveries, it's an incredible so we have to end up.

Really think about how do we get more real estate, how do we get more people and that's some of the most important things that we are doing right. Now we are basically hiring about shorting answer 30 people a week. We are opening new facilities. This months unless you can see the curve is growing really fast when it comes to deliveries in the last two weeks.

We also have more logistic partners, we started out with just one logistic partners and we have actually have multiple.

Partners at this point in time and all of this I think you will see in November and December are really really rapid growth in deliveries.

How do we continue the strong growth we have increased our marketing efforts and have just started TV and print advertising to increase our brand awareness as we want to keep an incredible momentum going we.

We also have changed our price strategy, both in Europe U S and Canada and is working we are seeing customers interest moving from ultra tree extreme.

And even though we don't get the IRA, Texas got them for our customers, we have a very competitive pricing in the U S. And we are seeing ongoing strong demand for our unique product in.

In Europe, we're even more competitive competitively priced even lower than pretty much all the Chinese segment competitors and of course, our European competitors.

As our own factory is in Europe, lower logistic costs combined with our direct to customer sales model.

All Continental Europe, and U S markets up and running so sorry, and UK market up and running Germany is the strongest market in Europe with customers coming from German premium premium brands that adopt the fisker ocean when it wasn't Germany, a couple of days ago I actually asked the call three random customers in Germany.

And I wanted to find out why they bought the physical Roshan what was the top reasons and all three actually happened to come from BMW car and they all said it was about sustainability. They wanted to be with a brand that not only made only electric cars, but also had top priority and focus on sustainability.

Some of the some.

Some of the features they like them vehicles above from that was basically the California moat, the solar roof and even the talk was trades. So that's obviously a unique features that nobody else have and I think that again put us in a really unique competitive situations.

Let's go through the detailed ocean update as mentioned earlier, we are encouraged to have delivered 1097 vehicles in Q3 and exceeded that piece in just the months of October and November is tracking even higher.

Now that we have filled our outbound logistics pipeline with finished vehicles moving through various stages, we can provide consumers with more accurate delivery estimates and strategically ramp our deliveries.

With a demonstrated ramp in production well underway. This heightened focus on our delivery capability will reduce the gap between production and delivery times. We have continued to add sales and service team members to support the strategic focus.

Our total number of marketing sales and service employees has increased more than four times since the end of 2022. This.

Remarkable team continues to work around the clock to bring world class vehicles to consumers.

Not only are we expanding into new markets, but also expanding within existing markets in Europe businesses are responsible for lost share of vehicle purchases more than in the U S. For example in the UK over 50% of new vehicles was sold two businesses last year.

Employers fleets programs are quite prevalent, especially those where companies offer their employees the ability to lease a vehicle with pre tax money.

Cisco is negotiating over 20 agreements with operators in Europe that will provide broader consumer access to the fifth corrosion and represent a new growth channel for us These agreements could add tens of thousands of potential ocean customers.

It has been exciting to see the positive feedback and reviews from early customers and third party sources. We also recognize we are continuing to pursue to optimize the user experience and we are pleased to have recently rolled out our first over the air software update to address box and enhance the driving experience very few companies.

<unk> actually have <unk> capabilities for in depth engineering functionality of the vehicles beyond entertainment functions I'm happy to say that physical does our new Chief Technology Officer, David King will address these updates and over the air software strategy further in his comments.

Additionally, we launched a series of how to journal video tutorial videos designed to help ocean owners navigate their way around the fiscal erosion.

Cisco Ocean Max range Challenge, a competition to see who can lock the longest range of physical auction recently concluded we are excited to see who emerged among the consistence in each country as a winner of a $1000 prices and who will be the grand winner of the mall and win in all expense trip out to our manufacturing facility in Graz, Austria.

The deliveries already underway in 10 countries, we are poised to rapidly expand in coming quarters, our deliveries in the third quarter of exactly 1097 a car.

Cars is the fastest.

Our first full year quarter delivery ramp of any U S based EV OEM.

And I want to thank our team for making this all possible.

To date, we have delivered over 3000 oceans with many more on route to customers and people are still actually waiting to get theirs.

Some customers in the U S. Wondered why we started already started delivering ocean extreme models in Germany, a few weeks ago, well, we have actually sold out of the ocean extremes in Germany, meaning we have delivered all of the ocean ones in Germany. So we have to start now delivering the ocean extremes and thats actually quite exciting.

We were able to do it that fast and we already are seeing strong demand for demand for OS in extreme and of course, Germany is the biggest market in Europe as I mentioned earlier.

And now all future product updates in August we held our product vision day in southern California, showcasing <unk> exciting future product lineup, including payer a radical new segment, Boston compact SUV designed to capture a large addressable market Ronan and luxury sports Com and Alaska.

In our segment of the zone now that several Oems have postponed the EV programs. This sweet spot. It's about the size of a Ford Ranger, So Alaska fits right in our new segment, where there's currently no evs and it's got unique features of course, it's got more luxury than the counterparts that gasoline engines.

And it'll have a flexible bet between four and a half foot to $7 a foot and the price is confirmed to started $45900 that really puts it in a complete unique segments and after this event. We brought these vehicles to Munich and put them on display ahead of the automobile show in Munich.

Lots of consumers and commercial bus, including from other Oems interested in a potential collaboration with Fisker, which could quickly increase our scale in manufacturing for these vehicles, including platform sharing and manufacturing.

Our communications with Foxconn is progressing in fact, I just talked to them. This weekend and we expect to finalize these plans very soon and of course it is to manufacture the pear in the Fox Con facility in Ohio, and this vehicle has 35% less part than a similar sized E V. So it's quite unique.

We will also have a surprise around the <unk>.

Which is about in a week's time, where we will actually show the production intent version of the pair to journalists and it will be available to see it all grow loans for about a week during the early auto show.

And now the excitement inciting development in the quarter was our announcement that physical will adopt the north American charging stand up on its vehicles. Starting in 2025, we signed an agreement with Tesla that will provide our customers with access to over 12000 additional super Chargers around the U S and Canada.

Sustainability as I mentioned is one of our strongest pillars in the company and ESG remains at the core of everything we Stanford Fisker in the third quarter, we published our annual ESG report that reflects the value driven culture, we have created across our people processes products and how deeply rooted sustainability isn't.

Our business and it's paying off it is differentiating us from any of our competitors as I. Just mentioned earlier. This report isn't unimportant tool that we use for ongoing C O two reductions and to apply for future vehicle programs. This ongoing analysts and analyze this helps us work toward our goal to create a climate neutral.

We also expanded our Es just re history reporting frameworks to now include reporting through the carbon disclosure project CDP.

I'm also proud to announce that we just kicked off our carbon neutral comp that will be based on the pair and it will arrive in 2027 way earlier than what anybody else are announced.

And next week.

<unk> is hosting a sustainability roundtable for journalists on November 18th to elaborate on our ESG initiatives discussed how we accomplish the lowest possible carbon footprint of any electric SUV.

And to encourage deeper engagement on these important topics as we are showing the production version of the pier and the Alaska electric pickup in about a week's time.

My optimism about the future of our products is extremely strong we have unique place in the automotive market, we have strong demand and I expect us to keep growing with a potential strategic partner in the works, where we can grow even faster, but first we need to increase the speed of deliveries and we are in the middle of doing just that I appreciate.

I appreciate all of you that are joining us on the journey toward a clean future for all before I turn the call over to our new Chief Technology Officer, David King I would like to say a few words of introduction about them.

I have known David for many years going back to our time together at Aston Martin He's a world class leader a tremendous engineer, who is who is <unk> SVP and leader Cisco Magic works. Our special vehicle Division have played a vital role in the company's growth. He excels is uniting teams and empowering creativity and I'm confident that.

He will provide the expertise and enthusiasm for innovation that we need to take physical to the next level as we accelerate ocean production and deliveries and prepare to launch per hour EV pickup truck and Rona and with that I'm now pleased to turn the call over to David.

Okay.

Thank you Henrik for those kind words.

I am very proud of what we've achieved together in a sofa and honored to take on the role of Chief Technology Officer.

The entire fiscal team has a wonderful opportunity in front of us to build on the launch of the ocean and create more world class vehicles with cutting edge technology.

We are entering a new phase for the company now now that our engineering release process is complete footballer ocean trim levels.

Whilst we continue to work hard on supporting and improving the ocean with our initial over the air updates based on customer feedback.

Engineering team is fully engaged and working diligently on our upcoming product pipeline, the pact compact SUV and the Alaska pickup and striving to deliver the innovation and engineering excellence that is expected in the fiscal <unk>.

More on those products shortly.

The first staying with ocean and that we are almost through with delivering our limited edition fiscal ocean ones. We are excited to get the extreme ultra and sport trips into the hands of our customers as well in the coming months.

And I wanted to highlight something in particular about the sport. This is fixed because most affordable trim and as a front wheel drive vehicles.

Trades versus the extreme at ultra and the ultimate range of performance that gives back with impressive driving dynamics, and particularly nimble and sporty handling on account of its lighter weight, it's lots of fun.

Now that we have thousands of cards in the hands of our customers. We are rapidly gathering real world data that we are using to continually improve our vehicles and I'd like to thank all our first adopter customers for their feedback both good and bad.

With all this feedback along with the anonymous fleet cloud data that we're gathering real time from our customer fleet. We are continually working to iron out box improved performance of features and functions and roll these out and frequent OTI updates.

It is a huge benefit to have a connected car and connected customers. In this moment monitoring will continue to grow as we deliver more vehicles and below.

Allow us to further optimize and refine performance.

This depth of OTI capability is something that very few car companies have but I'm proud to say that we do and this capability will continue to improve from here.

With regard to the ocean updates that we've rolled out we've recently completed the new Oti's update 110.

This was in direct response to early customer feedback.

And included optimization that to the electronic stability program, including improved traction control surface changing rates refinements to reach and braking improved energy management and connectivity for remote functions along with some other tweaks.

Amongst such positive feedback we've had from many customers the center screen UI UX system is being highlighted as very intuitive simple and enjoyable to use and we have further improvements and feature enhancements ready for OTI release imminently.

This ability to continually refine and enhance vehicle software and released it through our cyber security system and OTI platform means that the customer experience will continue to be enhanced throughout the life of the vehicle building on the foundation that we've released to introduce new features and make broad updates across various aspects of the vehicle.

So far we have four waves of updates deployed on vehicles in the U S. Europe, two of which have successfully been updated on over 2000 calls to date.

And it should be noted that this is all in house capability and I'd like to give a shoutout to our engineering team that competence and dedication has allowed us to develop an incredible first product at a very rapid rate.

Such an impressive team completely armed in house is a key component of our fixed cost strategy.

Our ongoing investment in great people and processes. It means all of OTI updates will further improve the speed and efficiency, allowing us to deliver a roadmap of new features and functions on a regular basis.

Over the next few months, we will be rolling out updates that include energy data on the solar Skywave adaptive drive control with radar cruise control also hilltown he'll hold and several others.

Yeah.

Now, let me update you on the Alaska.

We have been investing to build great competence and cute computer aided engineering or Cie, which allows us to accurately test almost all aspects of the vehicle virtually.

Reducing development time spent on crash safety NVA dynamics powertrain digital performance in the other testing.

Everything we've learned from the Ocean program as being embedded in hubs and we are now using this for the next programs, allowing us to dramatically reduce development time so.

So much so that we are already entering the prototype phase for Alaska, where we will build a fleet of fully representative vehicles to generate physical test data to validate our cie results before moving to production release.

In the past as was announced the August with that product vision date will feature.

New blade central computer, which will deliver six two teraflops of compute performance with seamless Wi.

Wi Fi connectivity.

We are excited to preview a short definitely this functionality during the La Auto show later this week.

Not only are we halted work on the future high volume programs, but my small team in the U K is busy developing several exciting niche projects, including the foresee Australia package for Ocean.

As an off road enthusiast and ex rally driver myself I'm, particularly looking forward to testing the foresee very soon I think it's going to be quite a beast.

Just in wrapping up I know from personal experience that driving an ocean daily for the past three months that we have created an outstanding vehicle.

We are proud to have played a part in all of the top talented team has accomplished in house and with our World class partners to deliver the ocean to market.

Now even more proud to step up to lead the technical team into our next exciting phase of product development.

Thank you I will now turn the call I get the ETA.

Thank you David I would like to begin by expressing my gratitude to the entire <unk>, all our suppliers and our customers who are with us on a very exciting journey the creation of a worldwide electric vehicles brand and the launch of the new vehicle involves intense dedication and concentration and her team worked.

<unk> Carless me across all hours and it truly is accelerating to weakness.

Initial results of that effort as more and more ocean wind their way into drive gains across U S and in nine European countries. It seems like only yesterday.

In developing the program.

Two nine calendar month in 2020 C. It is remarkable achievements, we have made as a company.

Beginning with the approval to sell the ocean in both North America and Europe, We have now produced thousands of vehicles.

Well on our way to delivering them across a broad array of markets and the scale and pace.

Other EV company has expanded as.

As we have seen an increase in our production ramp and the stabilized supply chain our focus for the remainder of the year is that now something rollout.

Service and delivery network.

Our goal is to shrink the time between production of the vehicles and delivery. So customers can enjoy the world class discussion as quickly as possible.

Let me provide you with an update on diesel production and delivery.

Continue to make great progress in ramping up production.

Ensuring there is a steady supply of parts from our suppliers.

Including the impact from summer shutdown in August.

1725 vehicles produced in Q3.

And Thats from monetizing 22 in Q2.

<unk> ramp up to the Q4 hundred and 30%.

With the production process hitting its stride.

Our priority has moved to supporting the growth and scale.

Around logistics delivery network launching multiple sites across EU and North America, so preparing vehicles with data software for delivery to our customers.

In the third quarter, we delivered 1097 vehicles up from 11 in the prior period and almost 10000% increase.

Let me provide some additional color on the delivery cadence during Q3, which grew from 86 vehicles to 279 vehicles in August two 732 vehicles in the last month.

Doing well.

Thank you. Thank you delivery efficiency was impacted by a variety of items.

Already improving.

We faced a logistical challenges as we ramp that Chuck and last mile transportation partnerships, and we streamlined our processes, which will come bounded by limited charging infrastructure at various processing centers.

And in order to alleviate them, we are now, adding mobile charging and static.

Thanks Kipp.

And in addition to that we also had some real estate constraints on <unk>.

Real estate, we experienced COVID-19 delays, which impacted the timing of permitting and construction schedules.

We have multiple initiatives underway that will continue to improve our delivery efficiency.

For example, we now have multiple sites ready ready to do go pick ups and home delivery and will be ready by the end of the year.

We are already thinking ahead for 2024 and accelerating the acquisition of physical real estate as we conducted a survey where more of our customers.

Wanted to pick up their vehicles on the physical facility as opposed to home delivery, which is also faster. We are in the process of opening up a dozen new locations in North America, which will increase our throughput and provide more options for consumers.

I recently visited our contactless pickup location in long Island in New York and it is a very central location very exciting location and we have more and more locations that are coming up.

In parallel we have added.

Three more delivery partners.

Reduced customer pickups, and also something called Cisco direct when dedicated <unk> employees and drive vehicles to customers. If the distance is under 60 miles and give a personal tour. After vehicle. We have had employees from all different various parts of the organization participate in this any.

It is and this has been a delight for several of our customers who enjoy listening to how the UI was developed on the call is designed how the propulsion works.

This strategy increases our geographic reach and delivery volume capacity.

Streamlining data integration to provide more accurate real time information flow will also help us more efficiently plan and schedule deliveries. We are in the process of integrating the ETS and delivery schedules. So we will be able to provide customers with more accurate home deliveries as we move forward.

Which I know has been an annoyance to several customers in the recent times.

Fast forward to October we delivered over 200 vehicles in October alone more than the entire third quarter.

On November one and two day delivery point to further growth versus October.

Illustrating the ongoing efficiency improvements in our delivery of that.

As Henrik mentioned earlier to date, we have delivered over 3000 vehicle and we have hundreds more underway too.

Two customers.

The ramp in production and deliveries is coming at an opportune time.

We are benefiting from several cost tailwind.

For example up.

Dominantly euro denominated supplier contracts.

Fitting from Forex exchange rate that are close to their lowest levels in nearly two decades.

Raw material and battery prices have also continued to ease favorably impacting our input costs.

Before moving on I want to comment a bit on few larger macroeconomic issues that correctly.

Interest rates are near 20 of highest and yes of course.

Impacting consumer spending.

And we have seen a direct response from seven Oems, while pushing out their EV production timelines.

This reduced industry supply is to a second extent possible. So first as it gives us more runway to develop an amazing portfolio of vehicles and allow us to continue to standout as a high quality option for consumers.

I'm, making purchasing decisions and for us to gain a larger market share.

In addition, our commitment to sustainability and the EV transition is unwavering.

Turning to supply chain.

We continue to make progress with most of our suppliers successfully ramping and maintaining high quality.

During this ramsey.

We do expect to experience the occasion bottleneck confused suppliers that may have challenges meeting our high volume target innovation what period of time.

Supply chain task force is engaged and deployed in the field working to support our suppliers to achieve our mutual objectives to give you. An example winter tires.

Most countries, where we sell in Europe have loss, making dry driving on winter tires obligate treat from the month of November to the month of March.

We experienced a shortage of winter tires that is now getting resolved absent successful resolution this could slow us down in the winter months in Europe.

By adjusting our near term production plan.

We provide our suppliers additional opportunity to focus on ramping.

While maintaining quality while at the same time, we redoubled our efforts on our deliveries.

In the U S. As I mentioned earlier, we are adding physical real estate to meet the surprising high demand for in person facility vehicle pickup as opposed to home delivery.

Just a few examples of how we continue to stay nimble and adjust incoming feedback and changing business needs.

Or a market condition.

Now turning to our Q3 results balance sheet and outlook for the remainder of 2023.

Third quarter revenue totaled $71 $8 million driven primarily by initial ocean vehicle sales during the quarter. We delivered 1097 vehicles, our third quarter cost of goods sold totaled $83 9 million, which included $18 2 million of noncash inventory.

<unk> impact associated with initial production ramp.

As our production ramp continues we expect inventory adjustments to diminish in the quarter GAAP gross margin was negative 17% and non-GAAP gross margin was 9%, which excludes the inventory adjustment.

Additional impacts from FX geographic mix and higher input costs.

First in first out inventory treatment that collectively shaved another few points of the margin, which would have ended up in the mid teens. If they are added back.

The positive adjusted gross margin demonstrates the benefit of our unique medical capabilities within the company and point towards a faster path towards positive EBITDA.

Our Q3 operating expenses totaled $87 4 million, which was down 38% year over year and down 1% over quarter as launch related R&D expenses continue to taper off while marketing sales and service investments increased.

Loss from operations was $99 6 million or 29% year over year improvement and a 13% quarter over quarter increase.

Net loss totaled $91 million or 27 cents loss per share compared to 49 loss per share last year.

Capital expenditures came in at $30 5 million for the quarter as launch related milestone payments diminished.

We maintained a very disciplined approach to accessing capital markets.

To bolster our business strategy during the quarter, we raised an additional $150 million of gross proceeds from an existing investor cause the same innovative financing structure as previously announced agreement in July this serve to further bolster the balance sheet. While also increasing the amount of additional gross proceeds that can be offered to <unk>.

$550 million of zero percent coupon senior unsecured convertible notes due in 2025.

We finished Q3 with $625 million in cash and restricted cash.

This cash balance excludes approximately $50 million NBA team receivables.

That we expect to receive as refunds or be monetize against upcoming sales taxes as we continue to sell cars in various European countries.

Turning to our outlook neither on production nor demand are limiting our deliveries, but rather it's the delivery and service infrastructure.

Have a great product and our customers want the product we are in the process of dramatically overhauling, our service and delivery infrastructure to keep up with the demand until the delivery process has reached angle, which we expect later this year.

We have now come to our statement production volume within an extremely fast in a very compressed timeframe.

That has never been done before by an EBIT company as we work to scale, our outbound logistics operations and we optimize our delivery and service network. We are updating our production guidance for 2023 to a range of 13000 units to 17000 units.

This is a very prudent change that we need to do to enable our global delivery and logistics platform.

So we can sell our customers even better and we are not sitting on inventory. This is also essential for our continued capital expenditure and Boston, particularly inventory discipline to better manage our working capital.

This may be short term pain and it may not be something that wall Street wants to hear but it is extremely responsible for us and it is essential for us that we do this for the long term to provide great service for our customers and set the organization foreseen this growth as our delivery capability expands our delivery.

<unk> should improve and with it working capital will become almost organic.

Logistics from Europe to ultimately last mile delivery to a customer in the U S is very complex and several customers may not understand it as several customers when they see on their Weber app that the vehicle is produced.

Wondering why do they not get it within a few days so let me explain a little bit of the complexity.

As vehicle units get produced by Magna and they get handed over by Magna to fiscal <unk>.

Arrive in a compound 20 kilometers away.

A week agreed to get to the port of <unk> in Belgium.

At that point in time, we had getting on a vessel and they make their way to five chosen ports here in the U S.

As they arrive at the ports they get required software as we have consistently releasing software.

During the course of.

Our previous several weeks and we will continue to release software.

These vehicles, then make their way to vehicle processing centers all over the U S.

Final pre delivery inspection and preparation.

For delivery to our customers. This entire journey can take anything from five to eight weeks more than what happens when a vehicle is going to a European customer.

Our overall non-GAAP SG&A R&D plus Capex guidance for 2023 remains in the range of 565 million to $640 million with SG&A moving higher in Capex decreasing.

Secondly, this guidance balances the asset light model disciplined cost management and prudent investment patterns.

Want to again express my gratitude to the entire team for their dedicated efforts and steadfast commitment to the launch of an exceptional vehicle. We have made tremendous progress in an extremely short period of time launched.

Amazing high volume product deliveries have started in 10 countries.

Fiscal team members are present in 15 countries.

Turning now to introduce.

Invesco, Brian and physical ocean to more and more customers. We are now happy to take your questions.

Operator could you Mike Goldwasser question. Please.

Thank you if you have a question. Please press star one on your telephone keypad, if you wish to remove yourself from the queue simply press star one again I'd like to now turn the call back over to Frank for a couple of pre submitted questions. Please go ahead.

Thank you we will start with some of the questions from the retail community question. One are there any updates in regards to U S manufacturing plans with Fox Con Ed.

And.

While it is anticipated that the pair in Alaska, maybe built in the U S are there plans for the ocean to be built in the U S. A at all fisker vehicles could be eligible for the U S federal tax incentives.

Yes, Thanks, Frank So let me touch on the Fox front like I mentioned during the earnings call I am in contact with Fox Com and I will say.

We have to finalize an agreement for manufacturing this year too. So I am quite optimistic that we are very close to finalizing agreement. Obviously, we will announce it when it's done it is a complex agreement.

But it's definitely in the Zen phase.

When it comes through and by the way it goes to the same with the Alaska.

We are we are talking to Fox Con about Alaska as well, but we're also talking to some Oems about sharing the Alaska platform and potentially building in their factory in the U S. So thats still on the table I expect.

We will have to make these decisions very soon.

On the Ocean.

It will depend where we end up with Alaska for example, because it can be synergies there, but we are already looking at potential.

Ways, we can manufacture the ocean here in the U S and yes, we need to manufacture eventual here because we will it's more sustainable will cut down on the transport times, we'll make more money on it. So absolutely there is something that eventually will do.

Thank you. Sir next question is we've heard talk of a slowdown in EV sales with companies.

Some of the Detroit brands, reducing their production forecast is fisker prepared for a market, that's slowing down and what measures you're taking to protect its interest.

So I think first if you look at the Big picture, what really happened there was a lot of excitement about evs, two or three years ago, maybe even longer four years ago.

And some companies brought out evs, because probably the impression that as long as you had any <unk> with shell I think reality is that there was not many evs that came out that had segment leading features so why would you buy some of these new entities. When there was other evs on the market that's still we're better.

I think thats, what we have seen however, with the ocean. We have a segment leader we have the longest range of any issue we sold in either Europe or U S. In our class and that is a segment leader and now there's a reason to buy an ocean secondly, as I mentioned earlier, we have features that nobody else has that a lot of the <unk>.

Customers Love, California mode solar et cetera.

And if you want these features there's only one car you can buy and that's a fifth corrosion and I think that's why we see continued demand of course, what are we doing if for whatever reason the demand would slow well.

As Peter mentioned, our vehicle is homologate globally actually so we are going into Canadian market. This year.

Our expanding in Europe is just expand into three new markets in Europe about a month ago, starting delivering there and in first quarter next year, we're expanding into several other European markets. We're not in yet for example, Spain, and Italy, and we still have many markets in eastern Europe as well.

We do have.

Basically importers four regions, we normally wouldn't go in asking us to become importers of those regions. So thats. Another area. We could take finally, we have announced they are going into China next year.

So all of these new markets actually.

It helps us keeping the momentum and the growth. So I don't she really for US at this point in time, a lack of demand and a lack of possibilities to expand our geography and I want to mention something else very important.

We have a vehicle that is in the U S considered a compact SUV in Europe, and China, It's probably more of a medium size.

It is a universal products that.

Sales globally.

Youre sitting if I was sitting on a full size pickup truck will be great for the U S, but probably couldn't sell it Nols in the world.

Sitting on a full size SUV same issue no, but very few people buy full size Suvs outside.

U S, but we have a global product and I think we have shown it. So our main issue now as we got to figure out how do we get it as fast as possible to our customers, meaning in big Big bundles and not just you know 100, a day, we got to get to a 300 a day as fast as we can and we've already put that in motion and I expect there.

We will get there very soon.

Great and the last question from the retail community with deliveries delayed how was fisker addressing customer support and how fast can fisker reps reach.

Customer as well.

Driver has questions.

Well so we of course recognize as I mentioned in my script earlier that we have a gap in our service delivery infrastructure.

Infrastructure.

First thing we've done is in terms of our marketing sales and service employees is actually increased more than four times since the end of 2022. So we are hiring in every area. We are hiring in home delivery just the direct a team that delivers vehicles to you. We are also ramping up our real estate initiatives.

<unk> increased the number of delivery partners. In addition to that we have also set up a call center, where customers can call in and ask questions about their delivery and ask questions about that service.

We actually have currently an initiative ongoing in the company called Excellence in service.

<unk> behalf with the group of <unk>.

Experts together to look at how they can reach out to all the customers because we still are obviously in the Townsend.

Still in the single digit thousands and to make sure that if there are pending accessories or if theres any areas that you need to support customers, including any software upgrades or any questions about the vehicle or any dense scratches the customer needs help lead or any usability issues, we are constantly informing and engaging the customers.

All customers may not have received a phone call, but every customer will add this task force inbound embarks on making sure that all our customers are hurt. We're also in the journey of hiring mobile techs all over the country. We already have a very substantial pool of technicians almost bordering too.

<unk> 75 technicians and this will keep growing so we can serve our customers no matter, which part of which state you're in or which parts urine as long as our mobile tax have their tool kits and a computer and they have the ability to repay a vehicle we have partnered with various body shops across the country. So if there are any cosmetic issue.

<unk> those can easily be done to it we are currently utilizing our global network with a third party called ADESA, but as I've mentioned earlier, we have our own locations coming live which will also have capabilities of service now we typically do not expect customers to come to our facilities and we will come to you pick up your vehicle.

But second facilities will also allow customers to visit and that is more convenient.

A remarkable team continues to work around the clock to bring up.

World Class vehicles, and again I wanted to remind everybody that we have oh on April four number where customers can call to receive immediate assistance or they can also email their queries.

Typically.

Thank you operator can we please go to the line for the next question.

Your next question comes from the line of John Babcock of Bank of America. Your line is open.

Hi, Thanks for taking my questions and thanks for all the details here.

I guess, just starting out if you could just provide a little bit more clarity on the production I mean, it sounds like.

Basically what you are doing this point back production.

To make sure that you can deliver the vehicles and a reasonably expedient fashion, but also at the same time not not building inventory. If you could just provide some clarity on that and also whether you're having any challenges in getting the vehicles Bill I just want to make sure I fully understand that setup.

Yeah. So I think on production I wanted to reiterate as I mentioned earlier, we have absolutely zero challenges in ramping up production. In fact, we even have days, where we have hit 200 units. A day are absolutely no challenges in building vehicles and absolutely no challenges in getting parts into the factory and building our vehicles.

As Henrik mentioned, we've already built up a very healthy inventory of 9000 units, where we are today is the lag between getting the vehicles from.

Europe into U S. As I explained in detail and along the way. We are also of course performing software updates as we're releasing software on a continuous manner and this creates a second language delay as the vehicle arrives in U S and processing as we built up a very healthy inventory, we think it's Nate.

And it could almost be irresponsible do not control that inventory in a more responsible manner and also to make sure that we don't have too many vehicles sitting around since these are all pre sold we want to get the vehicles as fast as we can to the customer. So it's a conscious very prudent approach to make sure we manage our inventory.

Customer expectations provide a world class experience and also do.

Top of cash management.

Also goes to show that as we ramp up our service and delivery infrastructure.

Along with that we can completely ramped ultimate target, which as Henrik mentioned with 300 units a day.

Got you. Thank you that's perfect.

And then just one follow up here.

As it pertains to Fox Con Youre working to finalize the contract there assuming that is ultimately completed how far along is the Fox com facilities. So in other words is it at the point, where you'd be able to produce vehicles. There in 2025 or might it be pushed back a little bit because there's still a decent bit of setup that needs to be done within the facade of that too.

Kept vehicle production to that site.

So you are correct, we are still on target to start producing vehicles in 2025.

It also shows that can make them.

Thank you. Your next question comes from the line of Chris Mcnally of Evercore. Your line is open.

Okay.

Thanks, so much and again I appreciate the detail on the growing pains. So just to follow up on John's conversation may.

Maybe to start there'll be a focus on.

Keith you mentioned that the.

The cash cycle and with the big working capital outflow in Q3, as you sort of close the gap on on production versus deliveries in Q4 could you just talk about how we should see that working capital change into Q4, and maybe the beginning of next year is probably the biggest swing.

On your free cash flow.

Yeah, I mean, Chris I think our goal like I mentioned earlier was to bridge the gap between what you produce and what you deliver and there was always there will always be a lag of course, but I think that the goal is to get that gap shorter and shorter and shorter and I don't think were ready to give guidance for 2020 for yet.

But I think it's very obvious what we can produce and it's as we mentioned we have a goal as to where we want to go too when it comes to actual deliveries. So I think our goal is to have.

Pretty much.

At the most the inventory that's in transit and to come very close to have a very high level of efficiency on the inventory that's on hand.

Typically the five to eight weeks is something that you can shorten time when a boat is time and about but the goal is to make sure that we ensure that everything at hand is.

It's very quickly delivered to the customer maybe one thing I could just add Bruce to this is if you look at how fast we were able to deliver the oceans. The ocean ones in Europe, they're pretty much delivered I mean, Germany is the biggest market.

Delivered all the ocean ones, there and we are now already delivering the extreme and we'll start all transport in a few weeks as well.

So that's obviously something where once we catch up you can see how fast it will go we just have to model it correctly.

And get the big much bigger throughput here in the U S. But we have shown we can do it in Europe you already shown we can do it here in the last few weeks. So I think youll see a very fast ramp also here in the U S. I think also Chris just to highlight that as we get our real estate going what we found is that contrary.

Contrary to what we believe during COVID-19 that customers don't want to pick up the vehicles customers actually do wanted to pick up their vehicles. So as we get our real estate are organized we will be able.

And we will provide more pickup locations throughout the country and that should also help speed up some of these deliveries we were and we have been using what they call them close trucks there is a.

Shortly during closed trucks in the U S, especially given our mass bank vehicles, and we have encountered just a shortage in close up to get the cars to our customers.

Those are the logistical challenges that you want to overcome.

Okay.

Thank you and then and then the two follow up questions just on timing I guess on rectifying some of the issues. The first is how long do you think the delivery infrastructure she had.

You talked about some of the.

Some of the hiring patterns do you think this is sort of a one to two quarter.

Issue or could it be longer and then either on just just wanted to give you the ability to talk about the delay in the 10-Q you know obviously there is some statements on material weakness again just given.

Given the personnel changes how long before.

That's rectified as well.

Yes. So look we are a growth company. So it's not like we're expecting that in one months were up at certain level and let me stop hiring and now we just keep delivering we're gonna be hiring and growing for many many years. However, when we talk about the immediate need is to get to the 300 and I think.

We will be able to do that by the end of this year.

We are opening I think is about three or four facilities in the next over the next months or.

Select Dita mentioned the difference is if you think about sending out 100 trucks to a 100 people versus inviting just on four places.

One in five people to come and pick up the car you can probably even the invite 100 people on each of these locations. So now you can much quicker get to these 300, a day and Thats something we have left we have not been April.

I'm sure people may not understand that unfortunately, we could not invite people to ADESA is something closed compound where no people are allowed to enter the middle of nowhere where people barely can drive and it's just not a facility you can do deliveries so that impacted us much more negatively than we are.

We have thought and we immediately changed that in the last couple of months and we are now ready to start these mass deliveries at our own facilities.

Chris to answer the second part of your question Q3 was a highly complex quarter.

Went from 800000 of revenue to $71 million of revenue in multiple countries and Forex are very complex accounting along with convertible notes and accounting for derivatives. So we experienced quite a lot of complexity in the business.

And as you rightly pointed out personnel changes as well.

We of course continue to understand all these different areas.

Continuing to Ohio, we do have already three controllers and place wanted to enter the U S. One in Europe, and we continue to strengthen the team we continue to add more experts within the team.

Some other areas that were extremely complex.

Because of contract manufacturing.

Things like raw material.

<unk> accounting and finished goods inventory accounting things that we had not done before and extremely complex as you look at integrations with Magna in house integrations. So these are.

Unfortunately, growing pains and we are addressing all of these different areas. So we can also mature assistance are high and wont be for higher mortality to address all these different areas.

And it's a it's a work in progress.

We're working tirelessly very hard to get the Q done so more to come on that.

Okay.

Your next question comes from the line of Nick <unk> of Cowen Your line is open.

Hey, everyone just a couple for me.

Just thinking about just in regards to all of US hiring 20 to 30 people a week.

Yet only a $20 million increase.

And SG&A and kind of operating expenses staying flat just wanted to know how to kind of think about that.

Given the SG&A level, and <unk> and I wish they bought it going into <unk> and then along the same lines.

The increase in your.

Real estate footprint.

Across across different geographies yet.

Opex.

Is decreasing so just wanted to kind of round out those operating expenses.

Understand but what we can kind of think of as run rate.

Yeah, So I think on SG&A.

Absolutely continue to increase because we're going to continue to hire people.

Technicians store.

We're going to continue to lease facilities.

Facilities were not buying real estate, so we don't own real estate on the books.

The main Capex is obviously an EV.

Any less.

So any towards the port in that to be honest.

That major compared to the overall facility and are paid all in hiring people within that facility. So we will continue to expand.

Our footprint and obviously at some point there is a ratio of how many sales agents and how many delivery agents and how many service agents you have but the one lesson that we definitely learned is that we are going to overcapacity is so we can provide a stellar service to a customer.

So when we look at our next production ramp will be add additional models, we are prepared and ready.

I think that we could have potentially invested in real estate and started hiring.

Maybe a couple of quarters earlier.

But we did not foresee that the delivery infrastructure and service infrastructure or permitting would be so difficult.

I would expect SG&A to continue to.

To continue growing.

Okay.

Got it.

And then just with regards to kind of the deliveries again.

So 3000.

Kind of to date, so that would imply roughly like an exit rate of around 45 vehicles. A day just seems like it seems that a steep ramp to the end of the year to get to 300 understand that opening multiple multiple different areas, where youre able to pick them up but want to wanted to kind of confirm to you guys had mentioned additional.

Logistics partners.

Are those in the process, because I know kind of going back a couple of quarters.

Was some kind of more growing pains with the logistics partners being able to get them up.

Enough vehicles on the ships and stuff like that is it seems like that's probably not going to be an issue but.

Just wanted to see how how long of a ramp period, there is associated with that to try and get that able to be done on a month to get to that 300.

Vehicles, I think yes, I can answer part of the question. So I think the 45 number is a little bit skewed because obviously every day we are increasing.

The number of deliveries so if I have to look at the last couple of days, we were almost close to 100 deliveries.

So I think the ramp is very very cheap.

As we move forward. In addition to that you asked one of them challenges. So some of the challenges as I alluded in my script was one of the challenges. We have is the charging infrastructure. When we are at the facilities.

So the slow charging we obviously wanted to deliver vehicles that are charged to 80% or above.

And.

Slow charging of LTE charging is obviously something that slows down the one of the things. We've done is have in certain parts like in California, we can get more than fast charging.

We can drive equal to a nearby fast charging that obviously is not scalable. So what they're doing is they're getting the static skids with fast charging at some of these facilities.

In addition to that getting our own real estate would also helps significantly because we have our own people. We can work around the clock in some of these locations. We have there could be unionized labor, where there are restrictions of hanmi hours a day. One can work we can work so access to some of those facilities limit.

[laughter] Timeframes and then finally as I mentioned earlier.

Home deliveries were you need an enclosed truck is a little bit of a challenge just because of the.

A reduced number of enclosed truck availability, but increasing the number of logistic partners have helped us well.

Also looking at some integrations with some bigger logistic partners to help.

Moving forward I personally think that.

We have a mix of pickups with home deliveries this ratio will vastly improve and I expect that more than 50% of our delivery should be a pick up or something under 60 miles that we delivered direct to the customer maybe just one last thing I can add.

I think if you look at any car company in the world. During the first six months of ramp those vehicles always demand more care.

One show up and running because you might be doing actual slashing software you might be adjusting certain things and that's normal in any car rep. So I would say at this point, we are now at a point, where the cars. We get delivered there's no more adjusting theres no more flashing it's really over the air updates that we're doing it.

It's way easier and then ask either mentioned people coming in and picking up cars at our facility.

Totally different because we cannot have people coming on these other external facilities is not allowed so that's going to make a huge change.

And your last question comes from the line of Chris Pierce of Needham. Your line is open.

Okay.

Hey, I just wanted to get I know you don't want to talk about 'twenty four but is it safe to assume that.

Ducking into production in the fourth quarter this year would be around not around 9000 units.

That's a low end of the spectrum for 'twenty forward because of what Youre pulling back on production is that the right way to think about it broadly.

Sorry, I didn't really I think this was not clear which is would you mind repeating the question again, yeah. So your 13 thousands of 17000 production guidance for the year.

Came back into around 9000 units in the fourth quarter is that a low quarterly run rate for 'twenty for like a baseline assumption because you're pulling back production right now I just wanted to get a sense how to think about 'twenty four and without a specific number.

No I don't I don't think that it's an indication of what can be achieved in 24, I think pulling back production simply means that we are being more pragmatic about inventory.

And I think from a production run rate, we have made investments both with suppliers and at Magna to achieve what we can achieve so I don't think this is an indication of guidance for 2024 in any way.

Okay, and the 300 <unk> you kind of mentioned minimum 300, a couple of times.

Just to confirm 300 was ideal production per day in Magna, but 300 is also <unk>.

<unk> deliveries per day in the fourth quarter I, just want to make sure I fully understand but its a 300 a day.

Yeah. So 300, a day is a daily production rate that we have currently the capability if we wanted to.

If we had the capability and we couldnt deliver those vehicles, we could make that at Magna of course, it's a fully fully capacities production. It would of course mean that we would also have to ramp suppliers since magna would require suppliers to cut me capacities at that rate.

Well.

Of course, the main thing there is that you have to be able to catch up to production deliveries for that great.

Okay, and then just lastly.

So now if we had to narrow it down to one big surprise factor.

You guys were producing these vehicles in Australia, you knew they were going to come to the U S. So that part wasn't new but what's new is the difficulty that ADESA, but that's what you're kind of came to realize and thats. What you are looking to solve right now that that was a surprise factor.

I think that's correct, we had booked during COVID-19 anticipated.

More home deliveries easier home deliveries.

And we are now seeing that it just is not going fast enough for home deliveries. We also saw people are happy to come and pick up the car if they can get at a week earlier in one of our facilities, which is why we accelerated getting our own facilities like I mentioned I think you know how many facilities you have now signed.

I think we're actually in.

Almost around 15 facilities, where we have either the facilities have opened like we have in Huntington Beach and I mentioned the one in long island, we have in Tempe, Arizona, we have owing mills.

We have.

Almost 15 facilities, either opened or LOI signed.

So I think this is where we.

We have pivoted over to now so we can do much more deliveries and Thats why we are confident to get to 300, because we actually will have the infrastructure. We just realized that the infrastructure with this outsourced facilities just wasn't going to work.

Thank you ran out of time for any further questions I would now like to turn the call over 200 Fisher for some closing remarks.

Well first of all thank you everyone for listening I would like to say that.

We did see some surprises here in our deliveries as we have talked about most of the time.

We saw them actually a couple of months ago. So we have obviously made adjustments gone out getting more real estate quicker hired more people than we anticipated. We have also seen us. Our original idea was to be a fully digital car company, where everything was done digitally we have seen people actually like to meet people.

<unk> I'll get on the phone and talk to a real person. So this is things that we have accelerated up and adjusted to and I think that's one of the strengths of our company that we've been able to adjust to the situation. We have a great manufacturing facility, we have great demand for the last part of the possible is getting this deliveries right Vince.

With our team we can do it and I'm really excited about the next coming weekend next couple of months. So thank you very much everyone and thank you to the fiscal team as well.

This concludes today's conference call you may now disconnect.

You get to the physical team as well.

This concludes today's conference call you may.