Fisker - Q4 2021

Transcript

Operator (participant)

Good afternoon, and thank you for attending today's Fisker Incorporated fourth quarter 2021 earnings call. My name is Austin, and I'll be the moderator for today. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. If you'd like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to our host, Dan Galves, VP of Investor Relations. Dan, go ahead.

Dan Galves (VP of Investor Relations)

Thanks, Austin, and welcome everyone to Fisker's earnings call. Joining me on the call as usual are Henrik Fisker, Chief Executive Officer, Dr. Burkhard Huhnke, Chief Technology Officer, and Dr. Geeta Gupta-Fisker, Chief Financial Officer and Chief Operating Officer. Before turning it over to Henrik, be advised we will make forward-looking statements within the meaning of the federal securities laws. Forward-looking statements generally relate to future events or future financial or operating performance. Our expectations and beliefs regarding these matters may not materialize. Actual results and financial periods are subject to risks and uncertainties that could cause actual 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.

The forward-looking statements in this presentation are based on information available to us as of today. We disclaim any obligation to update any forward-looking statements except as required by law. We'll reference our financial measures that do not conform to generally accepted accounting principles or GAAP during today's call, including non-GAAP operating expenses. This information may be calculated differently than the non-GAAP data presented by other companies. Quantitative reconciliation of our non-GAAP financial information to the 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 (CEO)

Thank you, Dan. Thank you everyone for listening in. I think we've got a really exciting earnings call. I'm super excited about it. This year has just been taking off extremely fast. We are still on target with our SOP date of November 17th this year. That hasn't changed. In fact, I'm really excited about flying over next week to actually get into an Ocean and see it come off the prototype line. I've already had a look at some of the first parts that came in. They look extremely high quality for being this early in the phase. We of course have people on the ground over there inspecting all the parts, et cetera, and working really closely with Magna. I have a lot of faith in Magna, I have to say.

We are working closely together. The quality of work they have shown so far has been amazing. I think we're both in for an amazing high-quality launch in November this year. Of course, the acceleration of reservations has also really taken off this year. It's actually been a 400% increase per day versus 2021. I'll talk a little bit more about that as well. You know, priority one for us is launching the Ocean. We are working extremely hard, and we are working with all our suppliers to make sure that despite any chip crisis or supply chain difficulties, that we are solving them week by week. It's something that takes a lot of work to do.

It's not easy to do it, but so far we have managed it. So far I am still fully sure that we will launch in November because we have this amazing team and these amazing suppliers. That's something that I think is. I wanna commend the team for because they are really working hard. I also wanna commend our suppliers for that as well. I think one of the reasons that our Fisker Ocean have increased in reservations this year is because, of course, we showed the vehicle last year, but this year it's clear for people this vehicle is actually coming out this year. When you compare the Fisker Ocean to any announced EV coming out this year, it's clear that we are the leader in so many areas in our price class.

For example, there is no really cool-looking SUV under $40,000. Let's just make that clear. Secondly, when you look at a $50,000 or even a $68,000 SUV, there is nobody that even comes close to us when it comes to range. The Ultra, which starts at $49,900, comes out at 340-mile range, which is clearly leading of any SUV or crossover in the entire world. The same with our Fisker Ocean Extreme, which comes out at 350-mile range plus. Now, that's not the only thing that differentiate the Fisker Ocean Extreme and the Ultra. The Extreme is seeing the highest reservation interest probably because that we have so many industry-leading features. In fact, features that no matter what you would pay, nobody even offer.

Even if you go out and try and buy a $400,000 Rolls-Royce, you will not have California Mode. You will not have, you know, solar roof. You will not have a lot of the things we have in the Fisker Ocean. One of the things that I'm super excited about that normally belongs to supercars is our torque vectoring system in the powertrain. I personally drove it on the test track. It just makes you feel like a race car driver. I think once we get journalists and customers out and experiencing this sometime later this summer, I think we're gonna see another amazing uptick in reservation because that is just in its class of its own. With all these extra things in this vehicle, I think we just a offer that cannot be, you know, compared.

I wanna add for the last thing, which for me sort of was a natural when I picked up my iPhone and turned it around to watch a movie. I said to our engineers, "Why can't we just do that in the car?" They were grumbling a bit, but finally they said, "Let's do it." I have to say, our engineering team did it. We have a, you know, world's first 17.1-inch rotating screen in the Extreme standard, just a push of a button, it rotates, you can sit and watch movies, and it's by the way also, I believe gonna be the highest resolution screen in the world, which again, is something that sets the Ocean apart. Now, what I'm excited about announcing today, which is brand new announcement, is our world-leading warranty program.

Why can we set out a world-leading warranty program? That's because we will have a super high-quality car produced with Magna in Austria. Of course, we have some extremely high-quality international suppliers as well. With this warranty, we are having a basic warranty of six years and 60,000 miles on our powertrain, and battery warranty of 10 years and 100,000 miles. Powertrain and battery warranty is 10 years, 100,000 miles. I think that is one of the key things that's gonna get people that hasn't had an EV before jumping into a Fisker Ocean because they wanna feel that comfort that they're gonna get the best warranty in the world. That means we're standing behind our product.

It really shows our confidence in the build quality, the technology quality, and the overall durability that we expect of this vehicle. Now, we think that, you know, what we can see, we have done, of course, our internal data on our buyers because we are able, because we interact directly with our customers, we're able to go out and actually do regular surveys to our existing reservation holders. What we have seen is that they really appreciate some of the features we have in the vehicle, but overall, design is number one, and that's something again that sets us apart and of course, it was, if it was easy to design a cool car, I assume that most giant automakers would never have a flop, but they obviously do once in a while, so it's not that easy.

That's something I think we're number one in the world, and we're gonna remain that. Then number two is our commitment to ESG and just creating the world's most environmentally friendly vehicles. You know, the sustainability aspect of our vehicles goes beyond electrification. It's the vegan interiors, the recycled materials, it's the solar roof. You know, all these things are things that people care about. If they have a choice and can get a sexy, sustainable vehicle versus an unsexy, sustainable vehicle or a sexy, non-sustainable vehicle, why not get both, best of both worlds? I think that's what we are seeing in our uptake in the reservations. Now of course, how can we come out with a vehicle this compelling at this great a price?

Part of this is of course, that we have an internal development process which is focused on developing vehicles for low cost. This goes, of course, hand in hand with our asset-light business model as well. Finally, we have a development process which is probably the fastest right now in the world, and it allows us to put in the latest technology, which usually by the way, is cheaper than the old technology. Therefore, when our customers take delivery of vehicle in November, they'll get the latest technology that we had only chosen probably last year and even some of the early this year. When you normally buy a car, that technology is probably already three or four years old. I think that's where we make a difference as well.

I also wanna say, finally, you know, we are seeing a saturation in the luxury EV market, and I think we have to recognize we were the first ones to think seriously about getting in to creating affordable EVs. I think that's really something that is now showing its fruits by the reservation that we have created. Of course, you know, with the Pear that we just decided to go out and open up reservations for, one of the reasons is that we have quite a lot of private people that had asked if they could put reservations last year for the Pear. We were really hesitant to do it that early. We kept on getting some pressure there.

Then finally, when we now lately have been in discussions with some global rental car companies that were interested in larger volumes of both the Fisker Ocean and the Fisker Pear, I personally thought it would be fair to offer reservations for the private people who already asked for it last year, because obviously once we make a deal with a large rental car company, they'll scoop up a large amount of these vehicles, which will mean it'll be more difficult to get your hands on one of the first ones. That's really why we opened up the reservations. I also wanna say that the Pear program, we actually just here last week passed one of our first engineering milestones on the Pear program, so it's actually quite on its way. Exterior design is pretty much frozen.

Now, why wouldn't we just go out and show this vehicle? Why not just show it and get a lot more excitement around the Pear? Well, you know, the Pear looks nothing like the Ocean. In fact, it looks nothing like any other vehicle in the world. I even hesitate to call it a car. I call it a mobility device. The reason is that this vehicle is so different in how it looks, how it's gonna function, some of the features, some of the way you store things in this vehicle has never been seen before. That's not something we wanna give away to the competition anytime soon, quite frankly. I also wanna highlight another thing that is the essence of Fisker and what we're doing with technology.

One of the things that's very important for Fisker, and where I think we're taking the first radical step in the world of any automaker, is, as we always said, we're a digital car company. Our plans in the future is to have an overwhelming amount of over-the-air digital features and updates rather than a whole bunch of hardware options. What that allows us is to create a recurring revenue over the lifetime of these vehicles. Of course, it opens up totally new revenue streams, not only for us, but also, for example, for a global rental car partner where you don't anymore have to, for example, you remember clearly when you, a few years ago, had to order a navigation system, and you actually had to take them all back and carry it out in the car and put it in there.

You know, with our vehicle, we're gonna offer probably dozens of over-the-air upgrades that you can do in your rental car and that we and our rental car partner can make money on. You only really need to order it if you need it, and you can actually order that probably any time during the time you use the car. That, of course, also goes through into our flexible lease where we will own this vehicle for 12 years. Imagine the recurring revenue you have over 12 years on a vehicle that has been paid off after probably about four years. That, of course, is a long-term vision, but I think it's important to have it in there because we are here to redefine the car industry as we know it.

Now, coming back to the Ocean here for a moment to talk a little bit about the revenue and the mix of buyers. About 80% of the Ocean reservation holders are planning to buy one of the two top trims. How do we know that? Again, we went out and we did our own survey with our reservation holders. That's one of the advantages about being direct to customers. We can do these surveys and get feedback within 24 hours. 80% intent to buy one of the two top trims, which gives us an average selling price of about $56,000 for the Ocean, which of course then will give us an average revenue of about already a potential revenue at this point in time with. By the way, we just passed 31,000 orders.

I think we announced 30,000 an hour ago, but we actually passed 31,000 orders, so they just keep coming in faster. With that, we have just passed a potential revenue of $1.7 billion, which I think is amazing. Now we see it again, as I mentioned earlier, with the Pear, reservations are coming in fast. I think it shows the outstanding product features and expectation there is to Fisker and the brand that we will deliver something super exciting. Now finally, conversion of reservations to orders. That's obviously gonna be something that we're gonna focus on later this year. We have sort of a placeholder on the website and a configurator. We are planning a very elaborate, I think, industry-leading configurator coming out late this summer.

That will allow people to go in to truly configure their vehicles into the minutest detail in an incredible, engaging way that has not been seen before. After that, in October, we'll start reaching out to customers and firm up their orders. My expectation is that we'll be able to firm up orders. I mean, we will be totally sold out for next year. I mean, seeing the rate that we're running in at now is 31,000. I don't see any problem in easily getting way past our goal of 50,000 reservations this year. In fact, probably a lot higher. The conversion into, you know, 50,000 firm orders shouldn't be that difficult. I'm fully convinced about that. Of course, also, we are opening a couple experience centers here this summer.

Now, why we're not blowing, you know, millions of dollars on TV commercials and all that? Because, you know, we have all these orders coming in, and I wanna have that firepower when I need it, and that's probably gonna be more next year. We, of course, still have done some marketing in a very innovative, efficient way, which of course is the reason why we keep getting all these orders in. Now, finally, I just wanna talk a little bit about the future product that we are planning. I wanna say that, you know, why somebody is asking, "Why are you starting the second car when you haven't even start delivering the first one?" Well, here's why. The real market of EVs, and I'm not talking about the EV luxury market, was already starting to be saturated.

If you think about the rest of the car market under $50,000, that is so thinly occupied. I mean, if you look at gasoline cars, you have at least a dozen, in many segments, two or three dozen alternatives in every single gasoline segment. Today, there are segments in the EVs that are completely unoccupied. You can't even find a car. I challenge you to go and find a real sexy SUV, and I didn't say a hatchback or crossover, but SUV for under $40,000. I'm challenging you to find a sexy, high-tech electric vehicle under $30,000. Just any one. Now, with that in mind, think about what's gonna happen in the next two years. All this market share is gonna be up for grabs.

If we are having a vehicle amount to very few, we will have the ability to take a much larger market share than we normally would have if you would have 50 competitors, and we don't. All these competitors that everybody's talking about is coming out with $60,000, $70,000, $80,000+ cars. We are coming out with vehicles and segments that nobody's even in and nobody's even announced the next two years. Let's face it, even if you announce a car today, it won't come out before 2025. The Pear, because we announced it yesterday, doesn't mean we started yesterday. We started that a year ago. We are already well ahead of the curve. We are well ahead of anybody that we are seeing as real competitors, in my view.

That's really what the advances with Fisker is, and that's why we are starting not one product, but two. Not two products, not three, but four products. We be sure that we have four segment-leading products in production before 2025, because we wanna go out and take a large slice of this pie. All these different segments that we're going into, we're gonna have the best vehicle, and that's why we're gonna be able to accelerate in our orders. We're not here to say, "Hey, let's make one car, and then three years later, let's start another car." That's not how these times work. The whole world's moving way too fast. The good news is, Fisker, we are moving the fastest, and we already took these decisions two, three years ago.

With that, I'm sure I forgot a few things that, for me, was maybe not so exciting about numbers and how many people and all that, but I know we have a lot of other capable people to talk about this. I wanna hand it over to Burkhard because he has some exciting stuff to talk about when it comes to technology. Burkhard.

Burkhard Huhnke (CTO)

Yeah. Thank you, Henrik. Let me start with Fisker Ocean. As Henrik said, the prototype test and validation program is fully on track. The prototype program has many phases and purposes. Of course, it's to ensure all the components are seamlessly integrated and that all our virtual modeling of performance is coming through in the physical world. It also has the critical function of keeping very tight coordination with the supply chain, ensuring that the entire vehicle is ready for launch, and that takes on added importance during a time of fragile supply chains. We are able to continuously monitor potential shortages of components, and when there are early warning signs, rapidly innovate solutions to de-risk any particular component. Here are some quick updates on the prototype process since last quarter.

Testing of a prior prototype stage is ongoing, so we're in the midst of a vehicle dynamics calibration and tuning in Italy. We've also begun cold weather testing in Sweden, where we can test our powertrain and chassis systems in extreme cold temperatures as well as a variety of snow, ice, and wet road conditions. The complete vehicle prototype shop at the assembly facility in Austria is fully operational, and the first complete prototypes, vehicles are coming off the line. These vehicles will soon start testing all vehicle attributes, such as safety, crash test, ADAS, climate comfort, powertrain system performance, the chassis, vehicle dynamics, electrical integration, and complete vehicle durability and more. This prototype operation will soon have the capacity to produce up to two cars per day on track with what we said on the Q3 call. Overall, the process progress has been very positive.

Our confidence in the quality and in on-time launch is very high and, as Henrik mentioned, has given us the confidence to launch Fisker Ocean with an industry-leading warranty. I also wish to say a few words on some of the technical aspects of Fisker Pear. Fisker's development and recruiting activities so far have led to significant growth in our in-house design and development competence on the entire hardware and software stack, both in the U.S. and India. This will be augmented by a powertrain development and technical center of excellence we are implementing here in Southern California that will focus on all powertrains aspects, both hardware and software, as well as general vehicle benchmarking and root cause analysis. On Pear specifically, this development of competencies and supply chain partnerships leveraging advanced silicon and software solution is enabling a next-generation electrical architecture for Fisker Pear.

With the dozens of EUCs in a traditional vehicle consolidated down to a few central computer units. This planned architecture will support a best-in-class connected high-performance compute ADAS system with embedded and cloud-supported machine learning and AI technologies. Fisker's software-driven ADAS architecture will enable a further leap in safety features and will support Level three advanced driver-assist functions. Inside the cabin, the cockpit computer will drive the highest resolution displays with cutting-edge graphic processors. The consolidation of ECUs and addition of smart zonal gateway compute adds tremendous capability, but also lowers mass, reduces complexity of the wiring harness, and lowers the overall bill of material cost. In addition, Fisker will continue to build on our existing over-the-air update updatable platform supported by 5G and Wi-Fi 6, including, as Henrik had stated, digital lifecycle management with highest level of security, always updated with the new software and technology improvements.

We call it seamless compute from cloud to edge. The car becomes smarter and even safer over its lifetime. Thanks very much. Now I turn the call over to Geeta.

Geeta Gupta-Fisker (CFO and COO)

Thank you, Burkhard, and welcome everyone. 2021 was a great year for Fisker, but it also went super fast. We all worked really hard to get to where we are today. We have continued to grow our talented and passionate team, brought on board all our key suppliers, and progressed in every area to get ready for launch. We have developed an amazing product packed with advanced technologies. All key suppliers are identified, nominated, and on board. We're in full execution mode for the prototype and testing phase, as well as serial tooling for high volume production, and all our partners are fully aligned with the schedule through launch. As Henrik mentioned, we're feeling really good about customer demand crossing 31,000 reservations for the Fisker Ocean today.

As a startup, we have both learned a lot and executed critical milestones in a very short span of time. The Ocean development process has generated significant IP at the platform, component design, vehicle integration level, including serial tools that we are funding. A good deal of these design components and tools can be used for our future vehicles. As the concept phase of Pear is completed, we are now identifying carryover content that will be shared from Ocean to Pear. Given the highly differentiated and unique design of Pear, we will clearly have new content, but all carryover parts will benefit the bill of materials of both Ocean and Pear. We expect that sharing of components and intellectual property will help us further optimize R&D and CapEx investments, which would typically be in billions for a traditional OEM.

We also anticipate volume-based reductions in general for PEAR due to its intrinsic high volume expectations and specifically for parts that can be shared among all our vehicles. Going beyond vehicle development itself, we've architected the company to scale in every which way. IT solutions and architectures are generally the least exciting part of the business, but I am personally committed to good process as this is the only way to scale all aspects ranging from engineering, supply chain integration, vehicle forecasting and ordering, and customer experience. All need to be managed seamlessly and efficiently. We've implemented several IT systems from ERP, CRM, PLM, as well as several platforms to create a seamless IT architecture that can be scaled globally for all our vehicle programs and for all customers all over the world.

We continue to invest in our critical IT infrastructure as this is key for the scalability of our businesses. We also continue to form our global entities as we will be selling in multiple launch markets or clearly beyond United States. Our teams are now knee-deep in architecting and fully integrating systems for a frictionless user journey from the ordering process to trade-in valuation, to financing, to ownership experience. I'm personally really excited to announce today that we have nominated JPMorgan Chase in North America and Santander in Europe as our banking partners for point-of-sale retail loans for all our customers. The customer experience inside and outside the car is supported by our creation of a highly scalable, secure, multi-cloud infrastructure to support Fisker's future vehicle fleet. We are utilizing state-of-the-art technologies and provide for bi-directional connection between the vehicle and the cloud.

This means that our vehicles and our mobile app are fully intertwined, and the changes in the vehicle will be immediately reflected on mobile devices and vice versa. Our over-the-air update strategy is unique and fully driven by Fisker cloud. This allows us to update individual vehicles as well as portions of all the fleet of vehicles. Overall, the goal of our digital strategy is to improve the user's ownership experience and develop unique touch points with the customer to create a positive feedback loop. The cloud infrastructure is also a key enabler to provide unique experiences to our customers through the human machine interface. We have invested in a state-of-the-art screen and are now focusing on utilizing that not only for intuitive control of the vehicle systems, but also to deliver exciting and useful content to our customers.

We are working with multiple technology partners and suppliers to deliver very unique content in a variety of areas, including data, navigation, music video, and beyond. We also look forward to making announcements in these areas prior to Fisker Ocean launch, and of course, these content opportunities will be included in all future products beyond Ocean as well. Now let's move to financials. Regarding the balance sheet, as you can see from our cash balance and guidance, we have stayed disciplined with our spending, and we have the resources to fund the Ocean program launch in November and to stay on track with our other projects in 2022. Looking at the Ocean ramp post November, we are developing a very robust working capital model and are in discussions with several large balance sheet banks for access to asset-backed credit lines to fund working capital needs in a non-dilutive way.

It also helps that we've been given industry-standard payment terms by many suppliers. Of course, if we feel the need to bolster the balance sheet further, we have shown in the past that we have good access to public markets. Finally, before turning to the outlook, I'd like to note that in addition to what Burkhard stated about our management of semiconductor and other component supply, we're also very well aware of global challenges in logistics pricing and timing. As we plan for sales and after sales, we are taking this challenge head-on and are already engaging with third-party logistics suppliers and specialists to plan ahead of time in terms of both inbound logistics of parts to Magna Steyr and outbound logistics of complete vehicles to various launch countries and repair parts to our designated warehouses and service partners.

Direct-to-customer sales approach means we know where our future customers are and can plan all the way to last mile deliveries way ahead of time. Now turning to our results and outlook. Our operating expenses in Q4 lined closely with internal expectations and the guidance we provided on our Q3 call. Capital expenditures more than tripled versus Q3 levels, but again, were somewhat below our expectations. Despite meaningful ongoing work, the timing of CapEx billing continues to come slower than our forecast. Operationally, the increase in R&D in Q4 versus Q3 was primarily the result of increased headcount, increased prototype spending, and meaningful payments to suppliers for engineering, design, and development.

Increase in SG&A expense in Q4 versus Q3 was a result of higher headcount and higher marketing expenses related to the LA Auto Show and other marketing activities. Turning to our outlook, as noted in our press release, our overall non-GAAP OpEx plus CapEx guidance for 2022 is $715 million-$790 million. This compares to a total of $458 million in 2021. The bulk of the spend is continued execution of Ocean through launch, plus costs of running the business with Pear R&D, R&D spending ramp in second half of the year. Product-related CapEx is exclusive for Ocean, as we do not expect any significant CapEx on Pear this year. Happy to answer guidance-related questions in Q&A, but I would like to highlight a couple of very important points.

Number one, on the engineering side. Our product engineering headcount will transition to spending the bulk of their time in on Pear over the course of the year. Engineering headcount will increase, but we are focused on adding incremental headcount at our development center in India, where there's a lot of talent but at a lower overall cost. As I noted above, we will be leveraging significant IP, which is shared between Ocean and Pear program. Number two, I'm very pleased we have green-lit a powertrain development center here in Southern California that will focus on everything from pack design, to thermal management, to battery management system design. We have already built strong internal capability in these areas, but we are building that out and providing the technology and tools required to increase expertise in this critical area.

This center of excellence will also be used for vehicle teardown benchmarking, as well as root cause analysis, as Burkhard explained earlier as well. Finally, as we approach launch, I want to re-emphasize something that is unique to our capital-light strategy. All our manufacturing planning and launch costs with Magna Steyr are included in this guidance, including the cost of manufacturing the initial Ocean volume in 2022. Any sharing of launch costs with our partner, including unabsorbed overhead at the manufacturing Steyr facility, are all fixed, prenegotiated, and included in our guidance, which helps us to avoid the uncertainty and cash spending volatility around the launch period that plagues many startups. We wanted to make that clear for your modeling purposes.

I am extremely proud of the entire Fisker team for all the accomplishments in 2021, and the sense of confidence across the entire organization as we look ahead to launch a fantastic vehicle on time and continue to show our innovation in product and our discipline in finance. We're now happy to take your questions.

Dan Galves (VP of Investor Relations)

Thanks, Geeta. Austin, can you collect the Q&A queue, please?

Operator (participant)

Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, it is star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly. Our first question is from Dan Levy of Credit Suisse.

Dan Levy (Senior Equity Research Analyst)

Hi. Hi, good evening. Thank you for taking the questions. Wanted to start with, you know, I see your press release, you have guidance on the spend, but maybe you could just comment here. I don't see anything, you're giving operating expense, but you haven't guided to the total EBIT amount given, you know, just factoring in revenue. What is a reasonable expectation for, in 2022, you know, the number of deliveries that you'll have by the end of the year, you know, given start launch of production mid-November, and just what that equates to or what you expect in revenue on that?

Geeta Gupta-Fisker (CFO and COO)

Hey, Dan. I'm not dumb enough to make that forecast. Hey, Dan, joking aside, just for the modeling purposes, I wouldn't wanna give this because it's not a material amount. We start SOP on seventeenth November, and bear in mind, December is holiday in the factory. I do think that the time to the vehicles being shipped out of the factory and in the hands of customers, there's always a lag. For modeling purposes, I would not put too much onus on any meaningful deliveries or revenues at the end of this year. I think what's critical is that we will reach SOP, and we will have the capability to have a full year of production and a very seamless ramp-up next year. That's what we are fundamentally focused on.

Dan Levy (Senior Equity Research Analyst)

Great. Thank you, Geeta. Just the second question is just between now and the start of production, is there a view on just what the largest pain point is that needs to be addressed? Or if there's any, you know, one risk that needs to be monitored more than anything else just to ensure you have SOP? I mean, what's the one variable that needs to be monitored to make sure that you're on time by mid-November, if there is one?

Henrik Fisker (CEO)

Yeah, hi, Dan. You know, as you know, we are in this sort of little uncertainty in the world around supply chain and chips, as I mentioned already. We are monitoring that weekly between all our suppliers. You know, Magna has been amazing here as well because, of course, it's not just Magna Steyr we are working with. We're also working with many other Magna companies. As a group, this is a, you know, gigantic corporation, and they of course also have a certain amount of purchasing power around the world. I think so far we have managed that really well.

The good news is that, you know, if we were launching next week, I might have been a little nervous, but in November, you know, we have been ahead of the curve, and we have already laid out our expectations to our suppliers. So far, I think actually that's going really well. Secondly, you know, I was, of course, always a little complaining to Magna, "Why can't we do earlier this or earlier that?" Now that I look at it's quite good to see the conservativeness of Magna starting, you know, prototyping. You know, I'm flying over, as I said, next week to see one of the prototypes on the line.

You will be making hundreds of prototypes before even SOP. That's very unusual for a startup. Again, we are taking that risk out. I'm not saying SOP is when we built the first handful of cars. I think that overall, we are really just monitoring and staying on top of things, and I think that's the key. There's no magic here other than a lot of hard work by a lot of talented people with incredible suppliers, and that's really what we are focused on.

Dan Levy (Senior Equity Research Analyst)

Just to-

Henrik Fisker (CEO)

Thank you, Dan.

Dan Levy (Senior Equity Research Analyst)

Thank you.

Dan Galves (VP of Investor Relations)

Next question, Austin, please.

Operator (participant)

Our next question is from Itay Michaeli of Citigroup.

Itay Michaeli (Director)

Great. Thanks. Good afternoon, everybody. Just two questions from me. First, the release mentions the potentially large volume commercial customers for Ocean and Pear reservation. Just curious if you could share a bit more detail around that size, timing, and maybe to what extent this could be, you know, rental fleets or even rideshare fleets. Just curious on what you're seeing there.

Henrik Fisker (CEO)

Yeah. Thank you. You know, we already have a couple of commercial deals, some rideshare groups in Europe. What we're talking about here is much larger deals with international rental car companies. As I mentioned, I think there's a few really innovative rental car companies out there who's seeing the opportunity to get first to market with the most exciting EVs. I also think they're seeing that very soon customers not only are gonna wanna have EVs, but might even turn to rental car companies to maybe even try their first EV before they buy one. Then finally, the revenue and profit possibilities with modern vehicles like Fisker with over-the-air options, et cetera, is a whole new development that has never been seen in the rental car market before.

You know, we have been in talks with several about some major deals and how we can both benefit from this. I expect we will do such a deal, not within months, but maybe rather within weeks. You know, we're still doing negotiations here, so it's a little too early to give more details on this.

Itay Michaeli (Director)

That's very helpful, Henrik. Maybe two super quick follow-ups on PEAR. One, I don't know if you could share anything on the initial round of reservations. And how should we think about the timing for, you know, a formal unveiling of the vehicle?

Henrik Fisker (CEO)

You know, as I mentioned earlier, normally I would, you know, wouldn't have minded unveiling it, you know, later this year. This is so radical, this vehicle, and I think if we can have a head start of a couple of years over EV anybody else, that's gonna be phenomenal for the type of market share we can take. My goal is that we will ultimately produce over a million Pears a year, sometime after 2025. Obviously, that's gonna demand multiple factories in multiple continents. I think this vehicle has the potential of being iconic globally. It's designed not to fit in a segment, but to fit in a future lifestyle. We just don't wanna give that revolution away to anybody else. We're not gonna show that vehicle probably before later next year.

Itay Michaeli (Director)

Got it. That's all very helpful. Thank you.

Dan Galves (VP of Investor Relations)

Thank you, Itay. Next question, please.

Operator (participant)

Our next question is from Jeffrey Osborne of TD Cowen.

Jeffrey Osborne (Managing Director and Senior Research Analyst)

Good afternoon, everyone, and thank you for taking my questions. Maybe first on Pear, following the news yesterday on the reservations opening up, which I think is a bit sooner than folks might have been expecting, as you alluded to, so, you know, very exciting to hear about your commentary on that. My question on it is about the minimal production of 250,000 units that came with the news, which I know you've spoken to before as an ultimate short-term target versus maybe a 150 range, you know, if a greenfield facility was the route that you went.

You know, just given the challenges that other automakers have faced in designing and bringing a sub-$30,000 all-electric vehicle to market, it'd be great if you could just speak to, you know, what you see as some of the gating factors or key milestones in reaching that level of production and what differentiates Fisker's plans from competitors. Just as we try and get a sense for all the moving pieces in terms of, you know, what parts of the supply chain are streamlined with parts sharing with the Ocean. You know, how you think about battery supply and sourcing. Then, of course, you know, what you all think about as you internally forecast demand.

Henrik Fisker (CEO)

Yeah, I mean, look, having already received over 1,000 reservations, I think the demand of 250,000 is easily gonna be achieved. Obviously, the Ohio factory that Foxconn have obtained gives us even higher potential than that. Coming back to some of the other areas of supply chain, you know, as you know, we signed a deal with CATL last year. That's the world's largest manufacturer of battery cells. In that deal is, you know, our ability to increase the volume by giving them at least 12 months sort of heads up. Sorry, 12 months sort of heads up. Sorry about that. I want to say 12 months. 12 months heads up, and then we can increase volume.

You know, here's the interesting thing is that, I think once you have developed a battery module together, and once you have developed battery pack together, it's a lot easier to increase the volume than if you're just randomly going around to different battery makers buying cells and making battery packs yourself. Because that becomes much more difficult, when you have to suddenly increase the volume. I think that the relationship that we have with CATL that's been built over many years is gonna help us get to the volume we need. Of course, let's also not forget, I think it's pretty public knowledge that Foxconn is also, very, intertwined with CATL.

I think we've got two conglomerates that have both interest in the Pear program, specifically when we talk about these type of volumes, and specifically when we talk about making these vehicles globally and potentially eventually make battery cells and packs locally, near these factories. I think that's really the advantage about this program. You know, what's happening right now in the EV world is that every manufacturer around the world is launching randomly EVs, and they're usually projected to make 50,000-100,000 of those EVs. You know, we're making a vehicle where we think the potential is one million in a market where you can easily sell one million if you have an incredible vehicle. That's really the different with this vehicle.

You know, suppliers love the idea of being able to supply one part in a million parts. There's nothing better for a supplier. That's really was the aim of this product. It was not just to do another EV where we think we can make 100,000 of them. It was really to break that mold, which has been the success mold of the gasoline vehicle industry of the big companies. Nobody's achieved that yet, and I think we can achieve it with this, but it means we need to have an outstanding product, and we do. We have an outstanding product.

Dan Galves (VP of Investor Relations)

Thanks a lot, Henrik, for your question.

Jeffrey Osborne (Managing Director and Senior Research Analyst)

Great. Thank you for the detail there.

Henrik Fisker (CEO)

Sure.

Dan Galves (VP of Investor Relations)

Austin, I'm gonna break in for a couple of minutes and ask a couple of questions that came in through the Say platform that we use to take retail investor questions. I'm gonna ask two. First one is: When can we expect to see the Fisker experience centers begin to open to the public? When will advertising start? How is Fisker planning to deliver vehicles and service them?

Geeta Gupta-Fisker (CFO and COO)

Hey, Dan. I'll take that question. Advertising can mean a lot of things. If the person who's asked the question, it means broadcast commercial, meaning commercials on television, it's unlikely we would ever pursue something like that until we are way down the road. Because these are expensive. These are very high-dollar items, and I think Super Bowl alone is about $20 million. After all, we are sold out well into 2023. The marketing that we've been doing so far is very cost efficient, and it's intended to provide awareness for the brand and the Ocean product, and it includes a direct engagement with our customers. Now, pursuing that and unveiling all the details of Fisker Ocean in November has led to a major increase in demand and brand awareness, as you can see in our reservation numbers.

On the experience side, we do expect to have two flagship experience centers, one here in L.A. and one in Munich this summer, and with more to come. We are developing plans in-house for very cost-effective, customer-centric concepts that take care of test drives, experiences, and vehicle deliveries, which are now in process.

Jeffrey Osborne (Managing Director and Senior Research Analyst)

Thanks, Geeta. Second question. What's Magna's maximum annual capacity for Ocean? How fast can they scale if Fisker Ocean sales ramp up much faster than you projected?

Henrik Fisker (CEO)

You know, with Magna, we laid out, I think, a very conservative plan originally about 5,000 per month. However, of course, Magna is an experienced contract manufacturer, and we are going into, I believe, the biggest hall that they have in their plant. Super modern equipment, and it would allow us to next year easily get over 7,500 units per month in the second half if we have the demand. It looks like we do have the demand, so I think that'll happen. In 2024, I think it's open to well over 10,000. It's gonna, you know, really come down to if you wanna invest a little bit extra to really get the demand or so the monthly rate way over 10,000.

I think with Magna, you know, the good news is that they have such a smooth running facility. It's so gigantic that I think I wouldn't say anything is possible. We probably couldn't make 1 million vehicles there, but we can make a lot of vehicles. They have extra land. They have a lot of capabilities to expand. I think we'll be fine with Magna in terms of being able to expand if demand is there.

Dan Galves (VP of Investor Relations)

Thanks, Henrik. Austin, can we go back to the analyst queue, please, for the next question?

Operator (participant)

Of course. Our next question is from Adam Jonas of Morgan Stanley.

Adam Jonas (Managing Director)

Great. Just two questions. How do you plan on funding the Pear? Because I mean, you pulled forward or kind of versus expectations, you know, opened up a reservation book earlier. You're providing a lot more details earlier, even if we can't see it. I think anyone on the call here would expect that the Ocean won't fund the Pear over the next 12 months or so, at least. You're guiding to $800 million of cash usage. Folks are wondering, you know, does the pull forward of reservation opening also be paired, pardon the pun, with a pull forward of capital needs? My follow-up question is, when is the Austria test drive event?

Geeta Gupta-Fisker (CFO and COO)

I'll take the first one, Adam, and maybe Henrik or Burkhard can take the second question. To answer your first question, Adam, the guidance that we're giving includes a full Ocean delivery start of production in November, and it also takes into account other projects, which obviously critically is Fisker and all the other items we mentioned throughout the year. There are certain overlaps between the two programs. Of course, our internal headcount will go from 400 to 800. We are doing some cost management strategies by having headcount in India and other low-cost jurisdictions. We're also looking at a significant carryover content where we have either invested in ED&D or ED&D and tools. That's the exercise that we've just completed and we continue to complete.

With the guidance we've given, we do project that for this year, we will be able to get Pear to a very good place. Now, we're very glad that we did the convert deal in August, and we effectively raised capital at nearly $20 a share, and we did the cap call at $32. Now, we knew it was the right thing to do to fully de-risk our spending needs in 2022, even though we do believe our valuation will be much higher in the longer term. Now, you're absolutely right. You can never have too much capital in this business. We are talking to banks about working capital, asset-backed lending when it comes to working capital needs for Ocean and beyond. Now, I don't expect that we would use revenues from any of our programs to only fund.

We will have to look at all different kinds of capital because we're in growth mode. We have to bring four vehicles to market by 2025. If I would say that we could do that with $1.6 billion, then I think we would be the best acquisition target for any traditional OEM. I do think that we would look at effective ways of using our IP, effective ways of using our existing capital, effective ways of maximizing return. I do think at some point next year, we will need money for CapEx on Pear, and at that point in time, we will look at potential opportunities which are non-dilutive. If there's an opportunity for us to consolidate our balance sheet, as I said before, we will grab that opportunity.

Adam Jonas (Managing Director)

Thanks, Geeta.

Henrik Fisker (CEO)

What was the second question?

Adam Jonas (Managing Director)

When can we go to Vienna?

Henrik Fisker (CEO)

I missed Austria.

Adam Jonas (Managing Director)

Yeah. When are we going to Vienna?

Henrik Fisker (CEO)

Oh.

Adam Jonas (Managing Director)

I want to start blasting Falco in the Mozart.

Henrik Fisker (CEO)

Hey, it's snowing over there. No, we will. I think we're planning here this summer to get over and get a few people over to do some test drives. That's still the plan. We have our race car driver, that's Abbie Eaton, British female race car driver who is gonna come over as well and do some fine-tuning and set up. Hopefully she can take you out in one and scare you and shake you up a bit because this thing is amazing.

Adam Jonas (Managing Director)

Look forward to it.

Henrik Fisker (CEO)

Thanks, Henrik.

Adam Jonas (Managing Director)

All right.

Dan Galves (VP of Investor Relations)

Okay. Thanks for your question, Adam. I think we have time for one more, and then I'm gonna turn it back to Henrik for one more thing. Thank you. Do we have one more question in the queue, please?

Operator (participant)

Our final question is from Pavel Molchanov of Raymond James.

Pavel Molchanov (Managing Director)

Yeah, thanks very much. On the 30,000 reservations for the Ocean, I know you haven't broken out the geographic mix, kind of country by country. Is the distribution evolving along the same kind of trajectory that you would have expected a year or six months ago?

Henrik Fisker (CEO)

First, I'm happy to say that during this call, we broke 31,000 reservations, so we're actually at 31,000.

Dan Galves (VP of Investor Relations)

That's on Ocean specifically, not Ocean and Pear.

Henrik Fisker (CEO)

Yeah, that's just Ocean. Geographically, sort of high level, I think we're about 80% North America and 20% Europe. You must remember, we haven't really officially launched in Europe yet. We are going in a couple of weeks to the Mobile World Congress in Barcelona and Spain to launch the vehicle officially. We expect, I think, 40 or so European journalists to attend that event, specifically to review the Ocean. I'm very excited about that. We'll have staff and myself over there to present the vehicle. Of course, that should drive, hopefully, a lot of press in Europe, and that would kind of become our first launch. I've given the task to our VP of marketing sales in Europe to actually get closer to Europe becoming, I think, about 40%, maybe even higher.

I think with some of the latest push that's happening in Europe on electrification, I think we can definitely get to a 40% share in Europe, maybe even 50% if some of the European governments continue to push for electrification as hard as they have. The other thing that probably will push suddenly reservations up in Europe is gonna be the fleet orders. Fleet is big in Europe, and our Ocean is definitely right spot on for fleet sales in Europe specifically because of the utility of being an SUV, but an aerodynamic SUV that then also have an incredible long range. You know, in Europe, we have our two vehicles having a range over 600 km, which barely any other vehicle have in this segment, even close to that.

That's something that's important for fleet customers 'cause they're used for sales representatives, executives, et cetera. I see that Europe will see a big push here in the next six to nine months as we move forward.

Dan Galves (VP of Investor Relations)

Thanks, Pavel. Henrik, I'm gonna turn it back to Henrik for one more comment, and then we're gonna close the call.

Henrik Fisker (CEO)

Yeah

Dan Galves (VP of Investor Relations)

Thanks to everyone.

Henrik Fisker (CEO)

Thank you, Dan. Actually, I do wanna say thanks to Dan because Dan has been part of this incredible startup phase that we've gone through. Now that we are sort of leveling out and everything is running, Dan has decided to take up a new challenge, Dan, so I wish you all the best for that. Maybe you can tell a bit about what that is. I'm sure people would like to know.

Dan Galves (VP of Investor Relations)

Yeah. Thanks, Henrik. Listen, you know, when I decided to come to Fisker, it was because I thought the company had the perfect strategy for building a car company in the 2020s. Everything I've seen since I've joined has only increased my confidence in that view. But I am gonna go back to a company I used to work for for a few years called Mobileye, who's gonna be public and announce an IPO coming up in Q2. You know, ultimately, I decided that the chance to go back to my roots with a company that I've missed greatly, that I only left because there was little use for my skills once Mobileye wasn't public anymore, help them go public again, was the right decision for myself and my family.

I'm really, really fortunate to be starting a new exciting opportunity, but also able to remain a long-term shareholder in Fisker and a Fisker Ocean owner very soon.

Henrik Fisker (CEO)

Well, Dan, we are gonna send you that Fisker Ocean, but it's gonna be without cameras. You're gonna have to pay for that yourself. I do wanna also say, you know, Eduardo Reis from ICR, of course, has been with us since we went public, and he'll continue to support us, as well as our in-house IR, Andrew McFarland as well, which is here, always on the call. We have adequate support, I think, in that area. Finally, I just wanna say, I am super excited to fly to Europe next week and get in an Ocean, one of these first vehicles coming off the production line, so stay tuned. I think that's gonna be super exciting. Thank you very much for attending, everybody.

Dan Galves (VP of Investor Relations)

Thanks everyone for joining the call. Thanks, Austin. We're gonna sign off. Thanks very much, everybody.

Operator (participant)

That concludes the Fisker Inc fourth quarter 2021 earnings call. Thank you for your participation. You may now disconnect your line.