Fisker - Q2 2023

Executive Summary

• Q2 2023 marked Fisker’s first quarter with automotive sales revenue: $0.83M, EPS ($0.25), and reported gross margin of 7.5% (18.5% excluding early-stage investor deliveries); production was 1,022 units as the Ocean ramp began.
• Guidance was lowered for 2023 production to 20,000–23,000 units due to a short-term capacity constraint at a supplier; full-year gross margin target maintained at 8–12%.
• Liquidity was bolstered via $300M gross proceeds from 0% senior unsecured convertible notes (12% OID), with pro forma cash, cash equivalents, and restricted cash at $822M as of quarter-end; notes carry a $7.80 initial conversion price and allow additional closings up to ~$340M more over the AIR period.
• Stock reacted negatively intra-day following the release amid the cut to the 2023 production outlook and light revenue; shares traded down ~5.7% to $5.99 on Aug 4, 2023.

What Went Well and What Went Wrong

What Went Well

• “Our second quarter marked an important milestone for Fisker as we started deliveries of our first Fisker Ocean vehicles to customers,” highlighting first revenue and initial positive gross margin on sold units.
• Ocean One/Extreme achieved EPA range of 360 miles, positioning as longest range in its class—a product attribute that can support pricing and demand.
• Expanded retail footprint (London, Oslo, Stockholm) and began deliveries in the US and Europe; assembly rate per day reached 140 by end of July, up from 80 at end of June, indicating operational learning-curve benefits.

What Went Wrong

• 2023 production guidance cut to 20,000–23,000 units due to a supplier short-term capacity constraint; this lowers volume expectations and revenue trajectory for the year.
• Revenue of $0.83M was well below Street expectations reported by external sources, reflecting limited Q2 deliveries (11 units) and logistics timing; the cadence caused a miss and raised near-term top-line uncertainty.
• Operating loss remained elevated at $87.9M in Q2; external reporting noted cash used in operating activities of ($128.1M), underscoring continued cash burn during ramp.

Transcript

Operator (participant)

Good morning, and welcome to Fisker Inc's Second Quarter 2023 Earnings Call. All participants are in a listen-only mode. After the speaker's presentation, we will conduct a question-and-answer session. To ask a question, you'll need to press star followed by the number one on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to Frank Boroch, VP of Investor Relations. Thank you. Please go ahead, sir.

Frank Boroch (VP of Investor Relations)

Thank you, operator. Hello, everyone, and welcome to Fisker's earnings call. As the operator mentioned, my name is Frank Boroch, VP of Investor Relations and Treasury here at Fisker. Joining me on today's call are Henrik Fisker, Chief Executive Officer, Dr. Burkhard Huhnke, Chief Technology Officer, and Dr. Geeta Gupta-Fisker, 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 projected.

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. Today's discussion also includes certain non-GAAP measures, including non-GAAP operating expenses.

Quantitative 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 Henrik.

Henrik Fisker (Chairman and CEO)

Thank you, Frank. Good morning, everyone. Thank you for joining us today for our second quarter 2023 earnings call. First, I would like to thank all our stakeholders, teams, and partners for all the hard work and the continuous progress we have made in 2023. The past few months, we have achieved several significant milestones. Our first product, the Fisker Ocean, achieved best-in-class range, providing access to large addressable markets, commenced production ramp-up, and began global deliveries.

We also had a large-scale media test event, completed an important financing, and unveiled our future product lineup yesterday. We believe all of these achievements position us well for long-term sustainable and profitable growth.

Talking about profitability, I don't know of any EV startup that ever made a double-digit profit margin on the very first cars that we have delivered, and I think that really sets the stage for where we're going in the future. Of course, it's interesting to see that nobody's really mentioning that anywhere in the news.

I think it's very, very important to mention it here, and I know our CFO is gonna talk about this as well because it really highlights our excellent engineering teams, how they executed the Ocean, the bill of materials of that vehicle, and what the possibilities are in the future for this vehicle and for our future vehicles, quite frankly.

It's been, you know, exciting to get the Ocean in the hands of our customers over the past few months, and we look forward to quickly expanding deliveries across our launch markets. The Fisker team and all of our partners are working around the clock to bring the best-in-class Oceans to our customers as fast as we can. Our direct-to-consumer sales and service network supports exceptional customer experience. Our North American flagship location at The Grove in Los Angeles has completed all construction.

We are awaiting final inspection next Monday, and as soon as that is completed, we expect to open the location. I'm really excited to open this store as it truly demonstrate the experience we want our customers to have. In addition to the comprehensive 24/7 digital storefront, we are establishing a growing physical retail footprint to complement the virtual experience.

We currently have customer locations opened in Austria, Denmark, Germany, Norway, Sweden, and the UK We expect to quickly expand our physical presence to more cities in North America and Europe throughout 2023. Additional upcoming locations include France, Arizona, Maryland, New York, and Tennessee, which will bring current locations to 15. We have a few dozen other properties in negotiation in North America and in Europe. They will also come online this year.

We have also expanded our internal service capabilities and Fisker technicians in the field and stationed at our physical locations. We complement our third-party service to complement our third-party service providers that offer broad geographic coverage in each of our markets.

You can actually see how fast we're able to respond to customers, and I think this really has shown that our broad service network is working really, really well. We have started our test drives events as well and will extend these to our Ocean One customers who have not received their vehicles yet, and of course, to deposit holders and new customers in North America and Europe going forward. We now have the vehicles we need to start doing these test drives.

We have teams ready, and in the last few days, we actually have done quite a lot of test drives. Let's do a little bit of a detailed Ocean update here. Our number one priority is launching and ramping a high-quality Fisker Ocean with class-leading features and range.

We're excited to have begun initial deliveries in Europe and the US, which will be followed by a fast ramp. In second quarter, the Ocean Extreme completed US homologation and achieved an EPA range of 360 miles, which is the longest range of any electric SUV in our class. Of course, in Europe, it's actually the longest range of any electric SUV on sale.

I had the pleasure, actually, of being on hand for initial customer deliveries, both in Europe and Germany and Denmark last quarter, and we have now delivered Fisker Ocean to customers across four countries and five US states, and are rapidly expanding to be in all of our nine launch countries and, of course, many more states here in the US

While we are prioritizing deliveries of the Ocean One and Extreme trims throughout most of 2023, we are currently working through the homologation process for Ultra and Sport trims. We anticipate customers deliveries of those trims will begin in the fall. Burkhard will also touch upon that a little later. I'm pretty excited actually, that both the Ultra and the Sport also will I anticipate they will actually also, overachieve on the specifications like range, when we get the final certification.

Again, I think both of these vehicles will be best in class and offer more range than any of our competitors. This will obviously broaden the entire customer, you know, all the customers that we have available in this segment.

The Ocean has a large total addressable market in both Europe and North America, which is where our nine initial launch countries are. We also have plans to expand into other regions as well. For example, we announced a limited edition deliveries into India, which will commence in fourth quarter this year, 2023. We actually see India as a key market for our vehicles, especially the lower priced PEAR that we showed yesterday.

Of course, India now is one of the largest car markets in the world, and we expect from 2026, India actually will start accelerating electrification as well. Of course, we have announced that we will open a delivery center later this year in China, and we will start deliveries in second quarter next year in China. All right.

On the Pear, the Pear, this program design and engineering continues to progress well. For those who had a chance to maybe see the real vehicle yesterday, you can see we pretty much finalized the design of this vehicle. It's frozen, the entire concept is frozen. We have, we have made some amazing steps towards creating what I think is gonna be the most exciting vehicle of the century, under $30,000. Parts count, which is actually reduced by 35%, is amazing.

I wanna congratulate our innovative engineering team to have come up with a completely new body structure for this vehicle. and I'm super excited about that, and that's really one of the reasons we can sell it for under $30,000, and we'll still make money on it.

It is scheduled to go, at least available for sale in mid 2025. Of course, we continue to work with Foxconn on finalizing plan for an innovative manufacturing setup that we will require for this uniquely engineered PEAR. Of course, yesterday, we held our Product Vision Day in California, and it was quite exciting to show all these vehicles. I believe that fundamentally, in the automotive industry, it's all about product. It's not just about any sort of car and just making another electric car. We have seen in the past that some electric cars came out, but they weren't really selling.

I think we have a fantastic, phenomenal product lineup, and I think the ability to go into some market segments where there's absolutely no competition, is going to give us really the potential to catch and to grab a giant part of that market. I mean, if I look at it, there really isn't any electric vehicle under $30,000 today, and let alone any cool electric vehicle.

I think we showed yesterday how cool the PEAR is. Of course, looking at our pickup truck, the Alaska, that vehicle, which with incentives, is $37,900, there is no electric pickup truck in that segment. I don't believe there's any electric pickup truck as cool, as sporty as the Alaska is.

With our versatility, we showed in that vehicle, with the bed going from 4.5 to 7.5 ft is just amazing. We already got a ton of response, positive response for that vehicle. I think we already got 1,000 orders overnight, and I hope we're gonna keep expanding the reservations when we get the word out about this truck in the future. I see huge potential there. The good news is that, that vehicle has a lot of Ocean carryover parts, so we should be able to get that very fast into production. I believe we're gonna have very high profit margins of that vehicle as well.

Then, of course, we also showed an expansion on the Ocean with the Force E package, which I think is just gonna broaden even more the Ocean market going into the more hard- hardcore off-road market, which I think is really unique as well, because there really isn't any off-road EV in our market segment that is available for people who wanna enjoy off-roading. I'm very excited that we're gonna offer that package already in first quarter next year.

Then, of course, finally, the Ronin. It's gonna be a low volume car. I think it's really about exploring new technologies in, in, in the end of the day. And of course, it's gonna build the brand, which I think is important as well. It's not gonna be too big an investment.

It's gonna be low volume, handmade vehicle, probably under 1,000 units. It's a super exciting vehicle, where we're gonna showcase our engineering capabilities and creating a vehicle with the world's longest range, 600 miles. I'm really excited about that as well. Finally, let's talk about sustainability, because it is one of our most important brand pillars, if not the most important. The hard work in ESG continues. We recently published our Life Cycle Assessment for the Fisker Ocean, which is a cradle-to-grave an- an- analysis that details the carbon footprint of the Ocean.

The findings were that the Fisker Ocean has the lowest published carbon footprint of any electric SUV, the lowest... We did really keep to our promise of making the Ocean the world's most sustainable vehicle.

It really highlights the unprecedented sustainability through five phases of the vehicle's life, from raw materials to the vehicle's end of use. We are very pleased with the results and believe it shows how sustainability is woven into every aspect of our business, and is core to what we stand for at Fisker. We are progressing on the company's targets, aligned with the United Nations Sustainable Development Goals that are materially relevant to our company.

I think overall, it's just absolutely been a fantastic week for us, showing all these products. Showing for the first time, I think any EV company on the first car sold a double-digit margin, I think it's huge. We are really expanding and ramping up our deliveries. Yes, we started a bit slow.

I think what's really important here is that we can very fast get to our 300 cars, 300 cars production a day, and we will achieve that within the next couple of months. We are on target for that, which ultimately, when we get to 300 cars a day, is 6,000 cars a month, and that is overachieving on a yearly production of 50,000, which were our original goal, but we will overachieve on the monthly target already this year. I'm very excited about the future, and I would like to now, hand it over to Burkhard, our Chief Technology Officer.

Burkhard Huhnke (CTO)

Yeah. Thank you, Henrik. During second quarter, we completed dual continent homologation in both Europe and the US for the Fisker Ocean Extreme, and achieved the longest range in its segment, as Henrik had pointed out, highlighting all the hard work from our engineering teams and our partners. We are currently working on Canadian and India homologation for the Extreme, which we expect to receive later this quarter. We are also focused on homologating our Ultra and Sport trim levels.

The Ultra follows a relatively streamlined process, given the similarities to the Extreme versus the Sport, which has a different powertrain and other characteristics. We expect to receive approval to sell these trims in the next month or two. Initial deliveries should start in the fall. As we have discussed before, a vehicle software will continually be iterated.

We have equipped the initial Oceans with essential features, which will be enhanced over the coming months, and will be complemented by more advanced capabilities. We are currently working to finalize the integration of new features and packages, such as Integrated Drive Assist and Auto High Beam, which we can push out via over-the-air release, since our vehicles are fully connected. We are incorporating early customer feedback to improve the product.

Our teams are working around the clock to make refinements, which we then flash updates to the fleet of vehicles. We are very proud of our product quality of the Ocean, and are seeing positive external feedback from those who participated in the media drives in Europe the past few weeks.

Yes, we know there's always room for improvement, and as I've mentioned, the vehicle will continually be updated, but we are pleased with the excellent product we're bringing to the market. We are ready to launch our OTA updates, and expect to deliver the first over-the-air update to our customers that will support enhanced connectivity, et cetera. Now, let me provide an update on PEAR. We are leveraging our experience from the Ocean program and the rapidly expanding in-house technical capabilities to create a truly revolutionary next generation of mobility.

As I emphasized yesterday at the Product Vision Day, the PEAR really exemplifies what it means to be a data-centric vehicle. Our team has developed a very fast, high-performance, centralized computing platform we call Fisker Blade. It supports modular, upgradable, single box compute and communications within the vehicle.

It's an all-new E/E architecture, designed on a blank sheet to reduce complexity with distributed zonal architecture. The PEAR is a highly connected vehicle with cloud analytics that allows us to continually monitor and improve the vehicle via rapid over-the-air software updates that makes the vehicle smarter, safer, and perform better over its lifetime. Fisker Blade is a scalable, reusable, and flexible platform that can be used for the various EVs in Fisker's product lineup. It's truly a win-win for Fisker and our customers.

It leads to lower costs and less software development for Fisker, resulting in more sustainable and affordable vehicles, while giving customers more flexible vehicles that are constantly refreshed and improved, resulting in increased vehicle longevity. In addition, we are introducing significant innovations in how hardware and software are developed, integrated, and tested much earlier in the vehicle development cycle, which we call shift left.

Shift Left transforms the traditionally sequential automotive development process into a parallel one. It enables designers to find mistakes earlier in the design process, where they are not only easier and cheaper to fix, but also where OEMs can have visibility into the earliest parts of the design through virtual models. With the Shift Left strategy, design teams can integrate functional safety and reliability into their PCB design from the start.

Begin software development and identify problems up to 18 months earlier before hardware is available, and incorporate security and quality into the software during development and testing and across the supply chain. We are implementing the tools and processes to achieve this for PEAR, Ronin, and any future vehicle programs. We have built an amazing team in-house and have some world-class partners. The Fisker Ocean is an exceptional class-leading vehicle.

I'm excited for the years of work we've put into the program to be experienced by more and more customers in the coming months. We are well positioned to support Ocean maturity and the upcoming vehicle platforms we shared yesterday. Thank you. I will now turn the call over to Geeta.

Geeta Gupta-Fisker (CFO and COO)

Thank you, Burkhard. I want to begin by thanking the entire Fisker team, our suppliers, partners, customers, and investors. A lot of hard work and focus has gone into building a global EV brand. It is extremely exciting to see the fruits of our labor with more and more Ocean getting in the hands of our customers. I was super excited and had chills when I saw the great product lineup that the team has put together. I hope we excited our customers, future customers, with this amazing product lineup.

In the first half of the year, we received approval to sell the Ocean in Europe and US and commenced deliveries in both regions. It's unprecedented and never been done before to actually receive homologation and deliver product in multiple countries at the same time and as a startup.

The focus for the company for the second half is now expanding into additional geographies and ramping production and delivery volumes. I will give a little bit more detail later on. Now, let me provide an update on our manufacturing and supply chain status. We made really good progress ramping up our manufacturing capabilities, ensuring that vehicles coming off the line are of the highest quality.

Our main focus has been on supply chain maturity and making sure suppliers are ramping, and they're delivering just in time, the volumes that we require to meet our targets. While as a whole, we've seen some supply chain disruptions easing, we have certain suppliers and sub-suppliers who request a bit more time to ramp and meet our annual high volume targets.

These are not unusual during launch and ramp-up phases, but these don't relate to any supply chain issues we expect to see over a long duration of time. While as a whole, our supply chain task forces work directly with our suppliers to identify and break through any volume bottlenecks, we need 100% of our suppliers to increase capacity to align with the adjusted volume forecasts. Again, this is not a scarcity issue which is harder to solve.

These constraints just require a little bit more time and increased collaboration, and we expect all our supplier partners to be able to eventually achieve our capacity requirements, and as Henrik mentioned, we'll exceed our monthly targets, and we expect to increase capacity next year. These challenges are common for new high-volume platform launches, and we are confident that we and our partners can solve them.

Now let's go to numbers. We produced 1,022 vehicles in entire second quarter, with majority of the production in late May and June, our first partial quarter of production, and exceeded our target assembly rate of 80 units per day at the end of June. In the month of July, which was a partial month, 1,009 units were produced, up from 741 units in June, and the peak daily assembly rate hit 140 units in July. Again, a 75% improvement from June's peak daily rate.

That's unprecedented, unprecedented for a startup! July production was impacted by reduced shifts and fewer working days due to the regular summer shutdown at Magna Steyr, which continues through August 15th.

This is a standard practice for certain OEM manufacturing sites, specifically in Europe, which consist of preventive maintenance and upgrades for the assembly facility. Our shutdowns will take place in the summer, currently, and at year-end. We are also using this summer shutdown to help some of our suppliers bank parts to support our volume ramp-up. Coming out of summer shutdown, we will be able to immediately resume manufacturing at the rate we would are due to the highly automated nature of advanced manufacturing today.

Since our US approvals happened late in the second quarter, we have begun our standard Ocean vessel transport to multiple ports in the United States and in Europe. In certain countries in Europe, we are trucking. This will enable us to expand both US delivery volumes and geographic distribution in short order.

To give you a sense of the near-term upcoming ramp, one of the key commodities is batteries. We already have over 8,000 batteries in transit to Europe or already received. With a total of 2,031 vehicles produced between second quarter and during the partial month of July, Magna Steyr handed over just under 60 vehicles in June and rest of the vehicles in July. That is around 876 customer vehicles, and the majority of these occurred, as I said, in late June and July, which are making their way through logistics to their respective countries and customers.

These include USA, Austria, Germany, Denmark, Sweden, and Norway. Let me talk a little bit about deliveries. Yes, we reported we delivered 11 vehicles in June out of the under 60 vehicles Magna delivered to us in June.

However, till date, we have delivered over 120 vehicles to customers, and as each day goes by, we increase our deliveries to tens of hundreds of vehicles every day because we are delivering in multiple countries every single day. The numbers will only go up every single day. Looking ahead, as we announced, we are investing in additional battery capacity to support higher volumes than originally anticipated next year. This enables us to expand beyond the initial 5 gigawatt hour annual capacity we announced in late 2021.

This decision demonstrates our confidence in the growth potential of our business, fueled by the impressive demand for our class-leading Fisker Ocean. Now, at Magna Steyr, without having to invest additional CapEx, we can go to 70,000 volume per year. Beyond that, we would have to invest in minor CapEx.

The critical point is to make sure all our suppliers, especially long lead parts, get ramped up simultaneously. We are already paying attention to growing customer demands globally. We are going to address increasing capacity with our suppliers already this year. Our digital-first, direct-to-consumer business model went live last quarter with the full digital purchase journey, including financing and insurance offerings, providing a convenient one-stop solution. Our approval rates are unprecedented.

We are very proud to be partners with Chase and Santander, providing great rates and solutions to our customers. We continue to enhance the Fisker web and app platforms to allow our customers to seamlessly purchase their vehicles. We plan to introduce new functionality over the coming months. We are introducing trade-ins, insurance, and many other exciting products that provide a complete ownership experience.

Now, turning to our second quarter results, balance sheet, and 2023 outlook. Second quarter was our first and a momentous first quarter with revenue derived from vehicle sales. A very exciting milestone for a company that brings the company from a PowerPoint, from a potential automotive company to a real automotive company in two continents, in Europe and in the US Second quarter revenue totaled $825,000, driven primarily by initial Ocean vehicle sales.

During the quarter, as I mentioned earlier, we delivered 11 vehicles of the 60 vehicles handed by Magna to us, but we had a unique situation during this period, as three of those vehicles were sold to some early-stage investors who had provided Fisker with capital very early on at lower interest rates in return for a free base vehicle, and they paid the difference between the base and Ocean One price, and this was not Henrik and myself. This population represents up to 30 potential vehicles. Our second quarter cost of goods sold totaled $763,000, reflecting some costs associated with initial production ramp.

Consistent with what we have guided before, we saw a positive gross margin for the quarter of $62,000 or 7.5%, despite the discounted early-stage investor vehicles and early operational costs that negatively impacted our margins in the quarter. Excluding these early-stage investor vehicles, our gross margin was an unprecedented, never done before by any other startup on the first initial vehicles, an 18.5%, an astounding 18.5%.

Our second quarter operating expenses totaled $88 million, which was flat year-over-year and a 28% decline quarter-over-quarter. That shows an unprecedented discipline on cash management, expense management. Loss from operations was $87.9 million, also approximately unchanged from last year. Net loss totaled $85.5 million or $0.25 loss per share, compared to $0.36 loss per share last year.

Capital expenditures came in at $91.3 million for the quarter, which were driven by primarily supplier milestone payments, packaging, and facility investments with respect to manufacturing. We continue to prudently access the capital markets to support our business plan. During the quarter, we raised approximately $88 million from our at-the-market equity program and subsequently canceled the remaining balance.

Similar to two years ago, when we issued the industry's first auto Green Convertible, we recently executed an innovative financing structure, which bolstered the balance sheet with a $340 million aggregate principal, 0% coupon, senior unsecured convertible notes offering due in 2025, which has the potential to double to $680 million in principal balance after 12 months. This transaction was conducted with an investor which has deep pockets with over $20 billion AUM, who wishes not to be named.

The zero coupon transaction resulted in gross proceeds of $300 million to Fisker. We finished second quarter with $522 million in cash and restricted cash, which would have been $822 million pro forma for the convert issuance on a gross basis, similar to year-ago levels. This cash balance excludes approximately $33 million in VAT receivables, which we expect to receive as refunds or to monetize against upcoming sales taxes.

Due to the original issue discount from the zero coupon bond, instead of actual cash interest expenses, we will accrete the non-cash discount on the P&L as interest expense of approximately $5 million each quarter. Turning to the outlook.

As noted in today's press release, we are updating our production guidance for 2023 to a range of 20,000 to 23,000 units, as our compressed timeline of producing these units in half a year are challenged by only one supplier's near-term ramp capability due to limited hours in a day for their labor to ramp their product. We do not expect this to impact any of our future years' production capacity. In fact, we expect our supplier to ramp further up.

We still anticipate gross margins for the full year 2023 in the 8% to 12% range, despite exceeding targets in second quarter, provided input costs do not change dramatically. Our overall non-GAAP SG&A R&D plus CapEx guidance for 2023 is now $565 to 640 million.

The increase from last year's quarter was driven by under-absorbed costs prior to production. Collectively, this guidance balances our asset-light model, disciplined cost management, and prudent investment plans.

The Fisker team is now represented in 12 countries and growing. Our reach is growing as we continue with the rollout of the Ocean One to all our launch markets and prepare for the next wave of countries we will enter. I'd like to thank the entire hardworking Fisker team for all their hard work, unwavering focus on launching an amazing vehicle, and customer service that we are now providing. We'll continue to show agility, resilience, and adjust whenever needed to stay on track. We're now happy to take your questions. Operator, please go to our first question.

Operator (participant)

Thank you. As a reminder to ask a question, please press star followed by the number one on your telephone keypad. In the interest of time, we ask that you please limit yourself to one question and one follow-up. Thank you. Our first question will come from Chris Pierce from Needham. Please go ahead. Your line is open.

Chris Pierce (Senior Analyst)

Oh, hey, good morning. I just wanted to see if you could help with the timeline on production to deliveries. You kind of went into detail on Magna's shutdown for the summer and gave some production numbers for July. I'm thinking that production is going to be very back-end weighted to the fourth quarter. Does that mean deliveries are going to be kind of deliveries of these vehicles will be in the first quarter of 2024? I just want to get the sense if I have that timeline right, then I have a separate question as well.

Geeta Gupta-Fisker (CFO and COO)

Yeah, I think, you know, as we mature our production and we translate what, what's handed over from Magna to us, we optimize countries where we can manage to deliver earlier, earlier in the quarter or countries where we have countries which have longer logistics get delivered earlier, countries which have faster logistics get delivered later. For example, Austria can pretty much be delivered within 48 hours as soon as Magna hands over the vehicles to us.

Just to put things in perspective, when Magna hands over vehicles to us, they have to be trucked to a train line, which is 8 kilometers away. Once they get trucked to this train line, they have to be loaded onto the train line. If they are trucked to Germany or Austria, they have to go on a truck.

We put about six, six vehicles on a truck. Once they get to a port in Zeebrugge, they have to be loaded onto a vessel to Scandinavian countries and to North America. East Coast is about 10 days to 14 days. West Coast is a bit longer. Obviously, these logistics, to a certain extent, govern how we manage vehicle movements from Magna to our prospective customers. Once the vehicles arrive in loca-- in Fisker locations, destinations, certain countries require a limited period of time when you can convert customers, if they are financing.

Of course, if they are cash customers, less restrictive, but if they are going through a Chase or Santander financing, and registrations require a certain period of time. You've got to give about a week or so to allow for financing, getting all the registration documents as well. I expect that the inefficiency will convert into more efficiencies and reduce time frames as we move further. Production to conversion will get only better with time.

Chris Pierce (Senior Analyst)

Okay. Okay, thank you for all that detail. Just lastly, on the gross margin, I believe, you know, other competitors or other startup EV OEMs have talked about, you know, unfavorable pricing that they're receiving from suppliers given their small supply runs for initial production. I'm just curious how you're able to kind of achieve these gross margins. Is the Magna relationship helping you guys, you know, with your suppliers, achieve better cost per unit when you make the vehicle?

I guess the broader question is, as you increase production, should gross margins go higher from here, or are you seeing the benefits, you're already seeing those cost per part benefits because of the Magna relationship, and that's how you're able to achieve those gross margins now? It's kind of how I'd ask the question.

Geeta Gupta-Fisker (CFO and COO)

Magna is a contract manufacturer for us. Magna doesn't buy parts for us.

Chris Pierce (Senior Analyst)

Yeah.

Geeta Gupta-Fisker (CFO and COO)

We manage supply chain relationships directly ourselves. To answer your question on gross margins, the first critical topic is to design and engineer a vehicle where you have thought about gross margins, you have thought about material input, you have thought about the number of parts. We, from the get-go, created an organization that thought about selling a $37,500 car, not a $100,000 car. The entire organization thinks about fewer parts. The entire organization thinks about a steel stamp body. How can we engineer the car for more efficiency? That's the first topic.

The second topic is that we've seen battery costs go down, so the input costs on batteries went down from first quarter to second quarter to third quarter, so I expect those trends to continue to further go down.

I think number three, what's really critical is to look at volumes in terms of the program lifetime. From a program lifetime, we have a 50,000 annual volume, and those volumes are fairly straightforward. We also, by the way, don't amortize our investments. I can't comment on what other startups do, but legacy OEMs do amortize their investments. They also amortize their ED&D that they in-house spend, which we don't amortize because we actually spend the money with our suppliers. Again, from our perspective, we have an asset-light strategy, a very different business model to other startups or legacy OEMs.

Chris Pierce (Senior Analyst)

Okay. Thank you. Appreciate it.

Operator (participant)

Our next question comes from Jeffrey Osborne from Cowen. Please go ahead. Your line is open.

Jeffrey Osborne (Managing Director of Sustainability and Energy Transition)

Hey, good morning. Congratulations on the, the strong margins, and thanks for the details so far on the call. You know, I was hoping to flesh out the nature of the, the supplier constraint. You mentioned labor. Was the, the component or product in question always intended to be labor-intensive, or is this an issue of toolings didn't work, and they're having to do rework? Any additional details on how you're gonna resolve that problem would be helpful.

Geeta Gupta-Fisker (CFO and COO)

Jeff, it's on a simple case of how many units can you crank out a day? As simple as that. Unlike electronics, where you can just sort of print millions of PCBAs, there are certain components in automotive which are more exhaustive to make, which require more time, and it's a cost of what a line can produce. What is the capacity of a line? What is a line tooled up to produce? This particular line is tooled up to produce 50,000 units a year, and they simply can't crank it out in six months.

Jeffrey Osborne (Managing Director of Sustainability and Energy Transition)

So just the, to put a pin in that, that'll be resolved by first quarter, that you'll, you know, run at that, that run rate that you talked about?

Geeta Gupta-Fisker (CFO and COO)

Yes.

Jeffrey Osborne (Managing Director of Sustainability and Energy Transition)

The $6,000 a month?

Geeta Gupta-Fisker (CFO and COO)

Yes.

Jeffrey Osborne (Managing Director of Sustainability and Energy Transition)

You exit the year at that, and you feel comfortable that the suppliers made the investment to resolve that in terms of hiring?

Geeta Gupta-Fisker (CFO and COO)

Sorry, Jeff, could you repeat the sorry, would you repeat the last point, please?

Jeffrey Osborne (Managing Director of Sustainability and Energy Transition)

That, that the supplier has made the effort to go through the hiring exercise to run at 6,000 a month by, you know, January or December. You said you would hit that run rate by the end of the year, so I just want to make sure that that's the only gating factor to get there.

Geeta Gupta-Fisker (CFO and COO)

Yeah, I think we it's a two-shift operation, so we're already running a two-shift of operation. If the supplier needs to run a three shift, they'll run a three shift, but I think that in a full year, a two-shift operation is good enough to get us the volume that we need.

Jeffrey Osborne (Managing Director of Sustainability and Energy Transition)

Got it. Just a quick one on the Fisker PEAR and Fisker Alaska. Great to see you last night in L.A. What is the commonality of the two platforms, in particular the Fisker Alaska? Certainly, you saw that with Tesla and the Y leveraging parts from the Three. I would imagine you'd be able to do the same, and those seem margin accretive. Is there any way to dimension what the commonality is for those two platforms, closer to the Fisker Ocean?

Henrik Fisker (Chairman and CEO)

Yeah, it's, it's very high. I would say, probably we're in the region of, I mean, if you exclude the, the body panels, we are probably in the region of about 85% to 90%. I would say it's extremely high commonality. It's really just an extended Ocean platform, where we have added a wheelbase towards the rear.

We are even using the same battery size, which allows us to have this Houdini trunk, which actually moves right down behind the battery, which would not be possible in any other pickup truck where the battery goes all the way to the rear axle. In ours, it doesn't. It also gives really good weight distribution, and you can put a lot of load in the back because you don't have the battery running all the way to the back.It's, like I said, it's very high commonality, and that's also one of the reasons we should be able to get a very fast to market.

Jeffrey Osborne (Managing Director of Sustainability and Energy Transition)

Appreciate it. Thanks, Henrik.

Operator (participant)

Our next question comes from Pavel Molchanov from Raymond James. Please go ahead. Your line is open.

Pavel Molchanov (Managing Director of Renewable Energy and Clean Technology)

Thanks for taking the question. It seems like battery prices have really plummeted in the past, you know, 100 days, kind of four or five months, perhaps. Is that consistent with your expectations, or is there perhaps some room to achieve cost savings, you know, compared to the initial assumptions?

Geeta Gupta-Fisker (CFO and COO)

You know, battery price is actually quite transparent. You can see, to be honest, there's LME and there's Shanghai Metal Exchange. Since it's not a secret that we buy batteries from CATL, Shanghai Metal Exchange is obviously the obvious exchange for us to look at raw materials, and you're absolutely right, raw materials have gone down, and I think everybody's benefited from it. We have two different chemistries, as you know, in our car, NMC and LFP.

And the mechanical components we have a good edge on because we are, of course, procuring them in China with CATL. I expect the trend continues this way, and it stabilizes the market. Because frankly, in my opinion, customers need to be able to afford electric vehicles. Batteries are a significant part of the BOM, and for us to make affordable EVs and for prices to stabilize, battery cost has to go down. There is no other way.

Pavel Molchanov (Managing Director of Renewable Energy and Clean Technology)

Okay. Let me follow up on the new models that you guys unveiled yesterday. For everything, except, of course, the Ocean in Austria, will the new models be produced in the United States, in-house?

Henrik Fisker (Chairman and CEO)

Obviously, the pickup truck, the Alaska, has to be produced here in the US because that's where the main market is. We are also eventually planning to bring Ocean over here to the US and build it here as well.

For the US market, we see the uptake in Europe and just the general outlook in Europe to be extremely promising, and I think Magna Europe can probably serve Europe already from next year with, with their capacity. So we need extra capacity probably by end of next year or beginning of 2025 here in the US The Pear, as we already announced, will also be built here in the US We are still in, in final talks with, with Foxconn.

I mean, when you deal with contract manufacturing, it's a little different because you have to go through all the details of each vehicle to understand the exact cost of assembly. Now, the vehicles we showed yesterday, all of them, it's not just a show car that we showed. Those are actually vehicles that have been in development for quite a long time. I mean, the PEAR, we started development in 2021.

The Ronin, we started in 2022, and the same with the Alaska, we started last year. All these vehicles are actually pretty far in their development time. Now it's just a matter of us, later this year, deciding on the exact manufacturing location or potential manufacturing partners.

Pavel Molchanov (Managing Director of Renewable Energy and Clean Technology)

Got it. Thanks very much.

Frank Boroch (VP of Investor Relations)

Operator, now we'll, we'll take some of the retail investor questions. First one, "It's, it's been mentioned that the Fisker team is in talks with other partners to expand production. Can you expand on this and update us on these partnerships? Will they be for the Ocean only or for all Fisker EVs? Then, any update on production start dates for the other vehicle programs?

Henrik Fisker (Chairman and CEO)

Well, I mean, obviously, when you have confidential talks, there's a reason why they're confidential, so we can't really, like, elaborate on those. I would say on a, on a, on a high-level note, what we are interested in is strategic partnerships that spans over all our product lines, and, and are large strategic partnerships. We are not really looking at just taking one vehicle out and doing a partnership on that. I think that's the important thing here. I do think that the amazing product line we showed yesterday, which is all vehicles that can go to market within the next two years, is something unique.

There's no other there's no other company, there's no other car company on the planet, I don't care if they're a traditional OEM or startup, that have a kind of product line that we just showed yesterday. Obviously, having a strategic partner would mean we might even be able to bring them faster to market in higher volume. That's something we're looking at. It's not something that is a must, but I think we are always open to discussions, and we continue to having interesting discussions with, with different potential partners. I can't really elaborate more on that right now.

Frank Boroch (VP of Investor Relations)

Thank you. Another question: "Some of the early customer feedback is that the Ocean software is slow or a little laggy. What steps are being taken to improve this, can this be addressed with OTA updates?

Geeta Gupta-Fisker (CFO and COO)

Actually, that's a really interesting one. I've read a number of comments, and in fact, yesterday I had a chance to talk to Sean Callahan, AKA Fiskerati, and I asked Sean: "Sean, I've read a bunch of comments online which says the UI, UX, and software is very laggy." I said, "You know, I have a feeling there was a fake Bloomberg article that tried to tell people that there was an issue with software, and software was laggy, and very few people want to defy that. Sean, tell me, what do you mean by software is laggy?" Two things.

First of all, I asked Sean to run a review on his forum, where he should ask people, especially the 120 owners who've received their cars, "Let's go from tap to tap to tap, and let's see how long it takes to go from tap to tap to tap, how many seconds, and then let's do a comparative vehicle." Sean said, "Well, you know, people are comparing this to the iPhone.

Now, if I'd like to be compared to the iPhone, that's a completely different metric." That's the first thing. The second thing is that I think that we have to put into perspective what we consider as the vehicle and the connected vehicle, and what do we expect of the vehicle. I'd like to pass it on to Burkhard now to talk about what is laggy software, and what can we do to make the experience like Apple?

Burkhard Huhnke (CTO)

Yeah, thanks, Geeta. As we have mentioned, the software will be continually iterated. We have equipped Ocean One with essential features, and this will be enhanced over the coming months and will be complemented by more advanced capabilities. We are currently working to finalize the integration of new features and packages, and we'll push that via our over-the-air pipeline and release that since our vehicles are fully connected. That is the smartphone experience Geeta was just referring to.

You get constantly update, and that makes it so interesting and attractive to keep the car fresh and updated. We have incorporated early, early customer feedback, so even incorporating into these updates, the customer feedback. Who can do that?

Our teams are working around the clock to make refinements, which we then flush into the fleet of vehicles. We're ready to launch our OTA updates and expect to deliver the first OTA to our customers that will support enhanced connectivity, et cetera.

Frank Boroch (VP of Investor Relations)

Thank you. Well, let's now go back to the analyst queue operator.

Operator (participant)

Thank you. Our next question comes from Adam Jonas from Morgan Stanley. Please go ahead. Your line is open.

Adam Jonas (Head of Global Auto and Shared Mobility Research)

Hi, can you hear me?

Frank Boroch (VP of Investor Relations)

Yes.

Adam Jonas (Head of Global Auto and Shared Mobility Research)

Okay, great. Thanks. Wanted to see some color for, or guidance on second half working capital. Thank you for the detail on the OpEx and CapEx, but given the working capital usage this quarter and maybe some of the ranges of gaps between production and deliveries you have, I didn't know if you could give us any sense for that. I apologize if this question was already asked. I had some audio difficulties. Thanks, Henrik.

Geeta Gupta-Fisker (CFO and COO)

Adam, except for adding $30 million in our SG&A, which we require for customer deliveries and for certain other expansion, there's no change to our guidance. We have the capital required for our second half.

Adam Jonas (Head of Global Auto and Shared Mobility Research)

Okay, thanks very much.

Operator (participant)

Chris McNally from Evercore ISI, please go ahead. Your line is open.

Chris McNally (Senior Managing Director of Global Automotive and Mobility Equity Research)

Thanks so much, team. Geeta, wanted to focus in on that production ramp that you talked about specifically, you know, if you would. It seems like from the implied guidance, you'll hit that 300 per day rate, sort of 6,000 per month, sometime either October or November, just looking at the case of what you described for third quarter and fourth quarter. Could you just maybe clarify the parts issue with the sub-supplier that you've talked about previously? Will they be ramped by fourth quarter, or is that a process that will take, you know, you know, longer from fourth quarter into first quarter?

Geeta Gupta-Fisker (CFO and COO)

As I mentioned, they're banking parts in the summer shutdown right now, and they are going to a two-shift, and if needed, they'll go to a three-shift operation to provide us the parts we need.

Chris McNally (Senior Managing Director of Global Automotive and Mobility Equity Research)

Okay. So, it basically seems that, that sometime in fourth quarter, you'll actually hit that, that, that, that rate, and then that, whatever, that 5,000 to 6,000 per month will extend into, into 2024. Is that the right way to think about it?

Geeta Gupta-Fisker (CFO and COO)

Yeah, the way to think about it is that when we can make 300 cars a day, we need the relevant parts to arrive at Magna Steyr. The bigger parts need to arrive the same week. The smaller parts can be stored. That's the way to think. What, what matters is when we assemble cars, we have the parts ready, and that's what you have to time. It doesn't matter if a supplier can ramp in December, second half, last two weeks, it doesn't help us.

What matters is the parts are banked, ready, and waiting if they don't have the ability to ramp at the time, and that's what we are working on right now. All the suppliers that have ramp issues are taking this two or three-week period to bank parts, and we're doing this right now.

Chris McNally (Senior Managing Director of Global Automotive and Mobility Equity Research)

Okay. Super clear. Second part of the question, I mean, Henrik, appreciate all the product displayed yesterday. I think some of the questions that people will ask then is, you know, with some of the timing, like Alaska talking about sort of, you know, again, around that turn of the year of 2025, when will we have the sort of the know-how of the agreements with Foxconn? Because basically, these vehicles are going to be built in North America to get the, you know, the IRA credit.

I'm conscious that we may not always get the, the, the full disclosure of, of that agreement, but when will there be something that's enough that you can kind of disclose, you know, where the vehicle is going to be built and, and just, you know, kind of talk about it, you know, Foxconn and Fisker together?

Burkhard Huhnke (CTO)

Yeah, I expect that we will announce manufacturing of these vehicles within the next three months.

Chris McNally (Senior Managing Director of Global Automotive and Mobility Equity Research)

Perfect. Okay. Thanks so much, guys.

Burkhard Huhnke (CTO)

Thank you.

Frank Boroch (VP of Investor Relations)

I think we have time for one more question.

Operator (participant)

Our final question will come from James Picariello from BNP Paribas. Please go ahead. Your line is open.

James Picariello (Director and Head of US Autos Research)

Oh, hi, everyone. Just in the, in the spirit of, of Geeta's, you know, prepared remarks on this, I mean, the, the unprecedented ambition with respect to a, you know, simultaneous, multi-continent, you know, homologation and delivery logistics effort on top of all the real-time, you know, servicing demands that will need to be met once these Oceans get out in the wild. You know, it, it does seem to be a strategy that might have, you know, no equal, you know, especially for a startup.

What gives the company the confidence to, to go after this launch in, in such a global fashion, you know, right out of the gate? You know, would it be more manageable and, and cost efficient to, to just focus on one region or, or, or not necessarily? Thanks.

Henrik Fisker (Chairman and CEO)

No, I think so, yeah, let me, let me take some of that question, at least. You know, we have actually set up quite an amazing organization in Europe already. We have people in all the launch countries already. We have service partners assigned in all the launch countries. We have, as Gita mentioned, finance, available in all these countries. I think we have already seen with our vehicle, I mean, you know, electric vehicles do not need the type of service that a gasoline vehicle need.

We have mobile technicians. We have been able to reach out to anybody who needed something extremely quickly. I think it's really a benefit for us. We don't really see that as a hindrance or a negative or something that holds us back.

On the contrary, I think it's great to be able to have customers in all these locations immediately. I think the US, we are concentrating in fewer states right now. I think we're in about five states delivering vehicles. In US, we actually are concentrating on, you know, five of the main states where we have most of the customers, because it is a little easier here. Europe, the all the launch countries there are pretty much laid out. I think it also means that we can accelerate extremely fast because we have such a huge customer base that are ready to take delivery of the vehicles.

James Picariello (Director and Head of US Autos Research)

Got it. Just that, that's very helpful. Then just on the, on the 20,000 to 23,000, you know, production range, I know there are a lot of factors, on the delivery side, but is there a, just a, a range off of this production target, to, you know, to think about deliveries?

Henrik Fisker (Chairman and CEO)

I think if I can just take that. First of all, you know, speaking about a yearly target, when we really only are talking about half a year production, is probably a little misguided, quite frankly. I think we need to talk about the daily volume that we wanna have. Now, talking about how many cars can we deliver, let's say we do, you know, 20,000 vehicles, how many of those can we deliver?

Like Gita mentioned, the strategy we have is that probably in November or is the last shipment that goes out to the US, so we can still deliver all these vehicles in late December. Then all the vehicles that are produced in December are gonna be delivered in Europe.

The very last vehicles, probably, you know, made just before Christmas, are gonna be delivered in Austria and Germany, because you're talking about, like Gita said, a couple of days to deliver those cars. I would say our target, it would be to get up to about a 95% delivery rate of our volume.

James Picariello (Director and Head of US Autos Research)

Thank you.

Frank Boroch (VP of Investor Relations)

We have time for one more question from the retail platform. There's been a lot of discussion and news from other automotive brands about charging networks. Can you update us on Fisker's charging network relationships and any plans for expansion?

Geeta Gupta-Fisker (CFO and COO)

Yes. We've announced our public charging partnerships, ChargePoint in North America, DEFA Power and Allego in Europe, to provide our customers with broad coverage. It's really encouraging to hear the various announcements about expanding fast charging network across North America. We're very open to discussing charging with all potential partners. We believe the more coverage, the better for the customer and for expanding EV adoption in general. It's important for our customers to have access to charge both at their homes and on the go.

Europe has a common standard, but US has competing standards. We believe competition advances innovation, and it helps improve the customer experience. I understand there's a lot of anxiety if we have any discussions with Tesla to use the Supercharger network. We absolutely will do whatever is the right thing for our customers, whatever supports our customers. From our standpoint, we have a fully drawn up agreement. Fisker has signed the next agreement. We're just waiting for a signature from Tesla.

Frank Boroch (VP of Investor Relations)

Great, thank you. That concludes today's Q&A, operator.

Operator (participant)

I would now like to turn the call back over to Henrik Fisker for any closing remarks.

Henrik Fisker (Chairman and CEO)

Well, thank you very much. I kinda wanna come a little bit back to two points. One, the products that we showed yesterday, I wanna emphasize that these are all vehicles that have been in development for quite a long time. We have an amazing team at Fisker. They work extremely hard. We have some really good suppliers we're working with as well on these vehicles, all of these vehicles. We're gonna be able to put all these vehicles into production within the next two years, which I think is super exciting.

It really will allow us to grab a huge market in whatever market we go in, a huge part of that market, because we don't see a lot of competitors for any of these vehicles, quite frankly, when you look at even what other car companies have announced.

That's something that I'm super excited about. I'm also really excited about our positive growth margins, quite frankly, because normally in an EV startup, you are running, or VC companies, running two or three years with massive losses, which obviously means you need to raise a lot of money just to cover those losses. We are not in that position. We kind of have now a program, the Ocean, which will start paying some of the bills, and that's just amazing.

I think, I wanna really give kudos to our engineering team, to our finance team, for having achieved this. This is just outstanding, and actually even overachieved. We actually have higher gross margins than we had anticipated, again, because of how we have structured this program and how our vehicles are engineered, and it's just amazing. Here in the end, I'd also like to thank our reservation holders. I know it's really tough to wait for this Ocean.

You read about it. It's got amazing reviews, and I know it's tough to wait, and we all here actually are really annoyed as well that we can't bring these vehicles quicker out to you. We are scaling up. We actually are hiring a lot more people.

you know, a boat does take, like Geeta said, 10 to 14 days to get into Baltimore, so we can't really change that. We are already shipping more vehicles on the boat. Several hundred vehicles are getting on boats. We are getting more trucks going. I think you're gonna see a huge acceleration in deliveries already here in August and really scaling up. I'm very excited about that. Of course, also, I wanna thank all our partners, everyone, and all our investors for also dialing into this call. Thank you very much, everyone.

Frank Boroch (VP of Investor Relations)

Thank you.

Operator (participant)

This concludes today's conference call. Thank you for your participation. You may now disconnect.