Author: Chang Yan
Today, two unexpected things happened.
First, it’s the first time that I have had the chance to write a serious financial report concerning Faraday Future in my lifetime.
Second, it’s the first time that I have had the chance to write a serious financial report concerning Faraday Future’s 2022 financial year in my lifetime.
Although it’s an extremely tough moment for the company, which has encountered various difficulties and obstacles along the way to IPO, the long-term turbulence and lack of transparency have made everyone skeptical about its long-term vision.
On March 31st, Faraday Future publicly acknowledged that some members of its management team and core employees had received subpoenas from the US Securities and Exchange Commission (SEC) regarding the company’s operations. In February, Faraday Future had already launched an internal investigation and established a special committee to perform internal audits of its finances and operations with the assistance of accountants. The industry once believed that the company was in a precarious situation.
This has also caused Faraday Future’s 2021 financial report to not be officially released until May 14th. Fortunately, this did not affect the timely release of this quarter’s financial report.
It is believed that both the upper and lower echelons of Faraday Future understand that maintaining the company’s listing is almost the only way for the company to obtain funds to maintain its production and delivery, and they must be extremely cautious. This was also reflected in today’s financial report and conference call.
Remedial Measures
For a company that has not yet produced a single car, losses are to be expected in the short term, and the important part of Faraday Future’s financial report is to tell everyone that the company is expected to incur significant losses.
In Q1 2022, Faraday Future had a total operating loss of USD 149 million, compared to only USD 19 million in the same period last year, mainly due to entering the formal production preparation period this year, where various equipment, factories, and other aspects are all burning money at an astonishing rate.
According to the financial report, as of March 31st, 2022, Faraday Future has accumulated total losses of USD 3 billion, and its total assets are now worth USD 706 million, with only USD 276 million in cash. Obviously, a new round of financing is imminent.
Therefore, during the financial report conference call, all of the core questions asked by questioners were focused on the company’s self-examination and remedial measures.
The most important reform measure of Faraday Future in Q1 is organizational adjustment, which includes the appointment of Susan Swenson as the CEO, Jordan Vogel as the independent director of the board, and Becky Roof as the acting CFO, to assist in the speedy implementation of the reform proposals, including financial control and major defect remedies, put forward by the special committee.
Therefore, at this earnings conference, we did not see the much-anticipated appearance of Jia Yueting, the CEO and founder of Faraday Future.
Faraday Future stated that the company is implementing remedial measures, including the departure of certain employees, changes in the roles and responsibilities of other employees, and disciplinary actions. Along with the organizational changes, the decision-making processes for the collection and processing of information by the company have also been adjusted, and these adjustments have been reported to the SEC.
“We have become a stronger and better company.”
“In the foreseeable future, the company is expected to continue to generate significant operating losses, as expenses are incurred before substantial revenues are generated.”
How soon will FF91 generate revenue?
Three months ago, we reported on the third “first production” of the FF 91.
At that time, FF’s statement regarding the number of FF 91 reservations was still in the thousands. After the warning from the SEC, FF has made significant progress in mathematics, and they have finally realized that they may have previously misread the unit, and the specific number is:
“The number of car reservations as of March 31, 2022 was 401.”
Initially, I thought that if the car was priced at 2 million, it would already be a good achievement to sell 400 units, but FF also added in the financial report that “the reservation has paid a deposit, the deposit is fully refundable, and there is no obligation.”
In other words, when these cars are finally delivered, the buyers may cancel their orders, and FF will not earn a single penny. Additionally, this is the result of the combined reservations from China and the United States.
During the time of delay, FF can still generate some cash flow through pre-orders, as the deposit for FF 91 Futurist Alliance is not low. According to the financial report, US customers need to pay a deposit of $5,000 to reserve FF 91 Futurist Alliance, while Chinese customers need to pay a deposit of RMB 50,000. For FF 91 Futurist, US customers need to pay a deposit of $1,500, while Chinese customers need to pay a deposit of RMB 20,000.
During the financial report conference, some investors asked how FF can improve sales, as the pre-order volume is not large.
“FF 91 belongs to the ultra-luxury segment market, which is not related to large-scale marketing activities, but more to achieve marketing through word of mouth and letting KOLs and influential people get the news from the brand,” said Bi Fukang.
“We will carry out a large amount of online marketing. We plan to display production vehicles at car shows and high-end consumer events, as well as participate in some investor and consumer activities. As we approach our launch, potential customers will see more of us.”
So, before many cars have been sold, FF’s next step is to open its first flagship store in Beverly Hills, where many celebrities gather. This will happen in Q4 of 2022.
Let’s not talk about how much FF 91 can sell for now, as it won’t produce many this year anyway. According to the information revealed during this financial report conference call, the Hanford factory currently has a production capacity of about 2,000 vehicles per year, and even if it operates at full capacity, it will not exceed 10,000 vehicles.
This was also confirmed during the conference call, “We expect to produce between 6,000 and 8,000 vehicles for the whole of 2023,” while the planned production capacity for 2022 is only a few hundred vehicles.
FF81 comes from South Korea
FF once declared to the world that they needed to complete six milestones in total.
In Q1 of 2022, they announced that they had completed two of them in one go: Milestone 4 – production vehicles for final engineering validation and certification, and Milestone 5 – the installation of the factory’s mechatronic systems.In order to save money, FF had to come up with some solutions for the factory: “We don’t want to invest billions of dollars in production sites at the moment. We need these funds to be invested in technology and products. That’s why we’re renting our own Hanford factory in California.”
From the financial report, it appears that 80% of the equipment required for the Hanford factory has arrived on site, with the remaining equipment to be delivered as planned. “I’d like to remind everyone that the completion of equipment installation is the last milestone before we start production (also known as the sixth milestone).”
It’s obvious that “FF 91’s revenue can’t save Faraday Future, and the Hanford factory can’t support Faraday Future’s dreams either.”
Therefore, FF announced today that it will sign a contract with South Korean automaker Myoung Shin Co., Ltd. to manufacture Faraday Future’s second car, the FF 81 with production set to begin in 2024 (SOP).
The FF 81 will be Faraday Future’s first mass-produced car, and Myoung Shin is one of many OEM suppliers and vehicle contract manufacturers located near Seoul, South Korea. The FF 81 will be produced at its mountainous factory and will provide a large, flexible and attractive port channel.
According to Bi Fukang, there are two advantages to working with South Korea: “The first advantage is that our partners will make investments. So we don’t need to make pre-investments on our website, and from our perspective, it’s very low-cost. Second, Korea is a good place for exports. Korea is a good friend to most of the world’s economies, with little tariffs on many countries, and much lower tariffs on other countries compared to other regions.”
“We don’t need to have all the funds at the same time. This allows us to look at a range of financing options with different amounts and different timing. Given market conditions, we need to be flexible and flexible.”
Also, during the conference call, FF mentioned two more products after FF 81. They are the FF 71 and the smart logistics vehicle for completing the last mile, which sounds like an autonomous delivery van.“`
Finally, let’s go back to Dr. Bi’s Chinese financial article of FF, in which he further stated, “In the first quarter of 2022, we also obtained a sales license issued by the state of California, allowing us to sell our cars online nationwide. We always believe that when we deliver the FF 91 in the third quarter of 2022, Faraday Future will redefine the most advanced intelligent electric vehicle.
I am looking forward to how this car, which debuted six years ago, will “redefine” it, and to FF colleagues who are still struggling in Hebei, I offer my sincerest respect.
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This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.