Fisker - Q4 2022

Transcript

Operator (participant)

Hello everyone, welcome to the Fisker fourth quarter and full year 2022 earnings call. My name is Bruno, I will be operating your call today. During the presentation, you can register to ask a question by pressing star one on your telephone keypad. I will now hand over to your host, Frank Boroch. Please go ahead.

Frank Boroch (VP of Investor Relations and Treasury)

Thank you, Bruno. Hello, welcome everyone to Fisker's earnings call. As the operator mentioned, my name is Frank Boroch, VP of Investor Relations at Treasury here at Fisker. Joining me on today's call are Henrik Fisker, our Chief Executive Officer, Dr. Burkhard Huhnke, our Chief Technology Officer, and Dr. Geeta Gupta-Fisker, our Chief Financial Officer and Chief Operating Officer. Before turning it over to Henrik, be advised we will be making 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 Principles [GAAP] today 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 (Chairman and CEO)

Thank you, Frank. Good morning, everyone, and thank you for joining us today. It's a little earlier than our usual timing, but we moved the call up as we are all headed back to Austria this afternoon to continue our hands-on manufacturing and supplier engagement. I wanna thank all of the stakeholders, teams, and partners for an amazing progress we have made in 2022. Of course, 2023 is an inflection year for Fisker as we reach industrialization and pivot from vehicle development to customer deliveries. The 850 strong Fisker team is hard at work readying our inaugural Fisker lounges in Center+, integrated with our trade-in and after-sale service and repair partners, and uplifting our initial mobile service vans, among many other key initiatives. We have a fantastic team and are partnered with world-class manufacturer and suppliers.

These strengths will shine through this year. It really is the basis for our business model. Let's start with direct-to-consumer sales and service. We have made progress on last mile delivery and support infrastructure. California DMV sales license is approved for the Fisker Ocean. We will utilize a third-party vendor for customer title and registration services in the U.S. and E.U., which will be integrated into Fisker's customer journey. We have home delivery partners identified for the U.S. and all European launch countries to complement our growing network of our own Center plus delivery locations. We are also planning initial pop-up delivery sites, specifically in areas where we may not have opened delivery centers yet. Trade-in services are available in the United States and Europe in all the launch countries and launch areas.

Our flagship lounges in Los Angeles and Munich, which are slated to open in mid Q2, as you remember, they were a bit delayed because of COVID, will be complemented by quickly expanding Center Pluses, including Vienna, Copenhagen, and Stockholm, where we will offer test drives, services, service and deliveries of our vehicles. In addition, we signed an innovative test drive and delivery center in Munich. We are currently in negotiations on more than a dozen properties for additional lounges and Center Pluses, vehicle processing centers, and service and pickup locations in the U.S. and Europe. We made charging your Ocean a more convenient and integrated experience with home charging and public charging partnership in Europe and U.S. now finalized. Fisker's flexible service approach includes third-party service and repair provider, plus Fisker's own service solutions.

Externally, we have nominated partners for after-sale service and repair in key U.S. and European markets, providing broad geographic coverage for Ocean customers right from the beginning. Initially, we will provide service options via Fisker-owned service centers and Fisker mobile service. We have started uplifting Fisker mobile technician vehicles to support our flexible and convenient service option. In addition to service partners, we have quickly expanded the Fisker collision repair network in the U.S. and Europe for certified high-quality EV repairs. Let's come to the Ocean update. Our number one priority is launching a high-quality Fisker Ocean with class-leading features and range. We are excited to get the Ocean in the hands of our loyal customers once the homologation process is complete. The Ocean homologation testing is expected to be completed in March, which will be followed by our regulatory approval processes.

I had expected us to be farther along when we last spoke in November, but we encountered some testing delays due to weather and COVID absences, and some complicated retests that slowed our process. We took on a lot by doing both U.S. and Europe homologation at the same time, but the ability to sell the Ocean in so many countries, an important de-risking strategy and gives us the opportunity to increase sales and shift to whichever market offers the strongest growth. I just wanna emphasize that it's not normal for any car company to actually do dual homologation in two continents, but I think once this is done, it's a huge advantage for us because we have also built out our complete service and sales network in Europe, so it really opens up endless possibilities for growth.

We recently completed our EPA and WLTP range test, and our internal findings show a longer range for the Fisker Ocean than we initially projected. This reinforces our expectation that the Ocean will have the world's longest range of any SUV or crossover priced below $70,000 or E.U.R 70,000, and Burkhard will go into that detail later. If you remember, we had announced 350-mile range here in the U.S. EPA, and I would just say I think it's gonna be closer to 360 than 350. In Europe, we had announced 630 kilometers, and I think this will be closer to 700 than 630. We obviously can't announce the exact numbers yet because they have to be verified by the two agencies.

We have run all these tests, and I wanna say, congratulations to our engineering team because they've done an amazing job in refining every little detail that attributes to getting this long range, more than we originally had expected, because we actually used some of these vehicles from our startup production to actually refine and refine and refine. Of course, there's not one element alone that makes this long range. It's really the genius, I would say, of our engineering team that has created this. Being a company that launched its first vehicle and achieved the world's longest range, I think is pretty amazing, specifically because it's also an affordable vehicle. Congratulations on that, and I'm super excited when we get the final ratings, but they're gonna be good. All right. Let's go to manufacturing and production update.

I, along with other senior leaders, have been based in Europe actually for the past few months, working closely with all our partners, preparing for production ramp, ensuring we deliver the highest quality possible Ocean from day one. I have to say, I love walking around on the production line, talking to the skilled Magna people and employees about the product, about the quality, doing reviews right there with the cars as they come off the line. It's just fantastic to actually stand there with people who has built cars, some of them for 20, 30 years, amazing high-quality cars. They actually I would say it's the other way, I almost learn from them exactly how you make such an amazing quality car. I'm super excited about that, quite frankly.

Last week, I oversaw the final extreme cold weather testing for powertrain and chassis systems. I have to say, it was amazing to drive this car on a frozen lake in northern Sweden. We also had our race car driver there, Abbie Eaton, and of course, our engineers there as well. Everybody was just amazed how well this car performed. I'm super excited again to get it in the hands of people. I think what you really do on a lake like this, you actually push the car to an extreme that probably no normal customer will rarely ever do. It really shows how safe, how predictable, how well this car handles. And part of that is not just electronics and everything else, it's also the actual proportions of the vehicle.

It has to do with the width and the wheelbase length. To get that optimized is a hardware thing. If you don't get it optimized, you can do a lot of tricks with electronic suspension. In the end of the day, this vehicle fundamentally have the right proportional setup. That's something that is just making an amazing experience when you drive it. The serial production line's undergoing also final tuning. General assembly staff training is almost complete. Supplier ordering is well underway. The high level of coordination and integration of the entire supply chain and assembly ecosystem has been impressive. Geeta will discuss the supplier ramp in more detail, key risks we are managing, and how we are working with our partners to support the ramp.

While almost all of our suppliers are performing, we are happy with our decision to begin with a slow ramp. We're confident we'll be ready for customer deliveries once we have received the required regulatory certifications, we maintain our 2023 production target of 42,400 units. This is important because, of course, supply chain have to deliver, of course there can be hiccups. Here is something very important I hope everybody will understand. That is because of the amazing ability of Magna to ramp, I'll give you the example, yes, we only made 56 cars since November last year, that was on purpose. Today, actually even last week and weeks before, Magna can already make 20 cars a day on average.

That's 100 cars a week already now. The key here, the key takeaway is that when we are ramping up, specifically in Q2, we are gonna have such a strong ramp that any units that may have been, you know, lost early on can easily be caught up later in the year. That's why we maintain our guidance of 42,400 vehicles for the year. Extremely important note here. All right. Let's get to the Ocean demand. Our reservations continue to increase despite new competition and competitors' price reductions. Net reservations and orders now total approximately 65,000 for the Fisker Ocean, reflecting the large and growing global addressable market for a well-appointed electric SUV. As we start deliveries, we expect increased brand awareness to drive even more customer considerations and demand for the Ocean.

We priced the Ocean extremely competitively, considering the many proprietary features such as class-leading range, California Mode, SolarSky, solar roof, the amount of horsepower in this vehicle for the price is amazing. The 17.1-inch rotating screen, a digital 4D radar, and on and on. I could keep on that, but it really shows that people appreciate how unique our vehicle is. As consumers have opportunities to interact in person with Ocean, we expect this value to increase and really resonate and drive even more sales. We continue to showcase the Ocean throughout a variety of brand-building activities. Two of the larger recent events include media investors and business partners in Austria and Las Vegas.

Our pop-ups continue to be very popular with reservation holders and prospective customers, many of whom drove long distances to get their first glimpse of the Fisker Ocean, which shows how passionate and committed our customers are to the brand. I really appreciate that, and I think it really builds, again, a strong foundation for our brand. Since our last earnings call, we also took the Ocean to 6 states here in the U.S., Texas, New York, Florida, Las Vegas, Utah, and California, and also did pop-ups in many European countries. Of course, we'll continue doing that and actually increase it as we move forward. I wanna just highlight a couple of really innovative things that are inside the Ocean.

One is the user interface, I know there's been, of course, a few videos on, you know, on social media about it, but those were all early pre-production versions of this user interface. The final user interface, I just wanna tell you, it's amazing. When I go in the car, and let me tell you, I actually hate computers, quite frankly. I'm really not good at them, and I don't know, when I use them, they always break down. I wanna tell you, when you get in this car and use it, you don't need any instruction on how to use it. It's just like the first time you picked up an iPhone. It just is intuitive. That is what's really cool about this user interface, and that was all developed in-house.

Also what is super cool, and I'm really impressed about what we have done in-house, is the Ocean over-the-air update capabilities, and they are now complete. It's amazing to experience the vehicle getting updated and improved fully over there. This was all developed in-house. It's just super cool to see. Finally, the Ocean will come with advanced ADAS controller and sensor suite, which is designed to be continuously updated through our OTA platform, and Burkhard will talk more about that. It obviously also give us endless opportunities to bring some really cool features to market later because the foundation is so advanced, like the digital radar, for example. Okay, let me get to a short PEAR update. The PEAR group program is progressing well.

We achieved our goal of a drivable PEAR prototype before year-end last year, which you may have seen me driving around in L.A. It was quite fun, actually. Today, we are revealing more of the exterior production design. For example, the rear lighting is a continuous light strip around the rear window with an integrated high-mounted brake light. The side view has a unique iconic graphic and a clean sculptural body side with pronounced fenders that really gives it a powerful wide stance and also means the car in this price range is gonna handle amazingly. The overall front lights have the signature of Fisker dual light bar surrounded by high tech light graphics. The vehicle sits a bit higher off the ground, and you also have a high seating position, even though it looks quite sporty.

That's really is perfect specifically for city driving. That is combined with this big canopy, that huge, round window, which I think today might be the most advanced front windscreen on a modern car, because there's a lot of new rules and regulations on how to do front windscreens. We don't see these super round windscreens anymore that we used to see in the 60s, but we have actually achieved that, and it gives you an amazing view of the road in front of you and anything that happens in front of you. Finally, the dynamic shape has already gone extensive aerodynamic testing in the wind tunnel, and we expect the truck version to achieve well over 300 miles.

We will offer two different battery packs because I also think because of the price and the size of the PEAR, this may be a second EV for many EV buyers that already love EVs and drive EVs, and therefore, they may not need to carry around a giant expensive battery if they're only using it as a city car. We'll offer some different variations there. We also have some super exciting different interior variations. We'll talk about that later. The PEAR is being engineered using new automotive specifications, and that's important, the new automotive specification, because that's how we achieve the base price of $29,900. That's not a price we just threw out there. We've actually gone through all the development to ensure that that is the price that we're gonna achieve. I'm super excited about that.

The current PEAR reservations are just exceeding 5,600. We did release some new images today, maybe that'll pop up a bit as well. Finally here, I wanna talk a bit about our future product portfolio. You know, in the end of the day, we do have our goal to reach 1 million vehicles per year. Later this year at our inaugural Investor Day event, we expect to showcase our future, at least some of our future product portfolio with several durable prototypes. They will all be in new segments. We are still keeping our promise of always having at least four unique features on each vehicle. We will showcase the PEAR, which has some amazing features never been seen before on any vehicle.

We will also showcase the Ronin, then we will showcase our Alaska program, which is our take on a pickup truck. We have some amazing features that have never been done on a pickup truck before. I'm super excited about showing that. There's another cool thing about this pickup truck, and that is that we actually are able to use a lot of the Ocean components in that vehicle, which means we're gonna be able to do it faster and more affordable than probably a lot of other electric pickup trucks out there. It's gonna look really, really tough, but still beautiful. I'm excited about showing that. Anyway, I can get carried away when we talk about product. Let's get to sustainability. That's another of our super brand pillars. It's really at the heart of what we are here for.

The hard work on ESG continues at the company. We are progressing on company targets aligned with the United Nations Sustainable Development Goals that are materially relevant to our company. Additionally, as we prepare for our next annual ESG impact report, we have completed our Life Cycle Assessment for the Fisker Ocean. Based on our foundation of transparency and to lead the auto industry, we expect to publish this LCA or Life Cycle Assessment during the first half of this year. We are super excited to share the results, furthering our leadership in sustainability. We mentioned on our last call that MSCI upgraded us, and the positive momentum continues. In addition, based on all our hard work and public disclosures, Sustainalytics recently upgraded Fisker 40 spots in global automotive industry rating. We are now the top-ranked U.S. passenger EV OEM, the top-ranked.

Meaning, we have the lowest risk rating based on ESG risk rating scores. I wanna come back and say I am super excited. I'm excited to get on the plane back from ARR-on, see the cars. I wanna, I wanna say one thing that's really the surprise here, and Geeta will go into details on that. That is that we are gonna be profitable this year, and she will explain that more in details. Just think about this for a moment. What we could do, not that we want to, but we could essentially just abandon all our future programs and just live off the Ocean. That is incredible de-risk. There is no other startup that I'm aware of that makes EVs that is profitable from the get-go, from the first year. I think that's what I'm super excited about.

I'm gonna hand it over to Burkhard to talk some more about other exciting things. Burkhard?

Burkhard Huhnke (CTO)

Thank you, Henrik. Out of the entire vehicle development process, the final stage that we are currently in has always been my passion. Encompassing aspects such as E/E integration and final ADAS validation. Getting into the details of final tuning, especially around software debugging, excites me as I see the tangible progress we are making each day towards completing the development of a truly spectacular product. Beginning with the Fisker Ocean, final engineering testing and validation has progressed quite well over the last few months. Of note, we have complete both our EPA and WLTP range testing. Our results show even a longer range for the Fisker Ocean than we initially projected. We look forward to the formal proclamations to validate this significant accomplishment. We are currently in the Ocean certification process to confirm all safety requirements. We continue progressing through the homologation phase.

Final validation activities to confirm our vehicle targets have shown that the majority of areas meet or exceed our engineering objectives. I want to commend our teams who have been fully committed to the extensive homologation testing process over the past few months, which has taken longer than originally expected. Let's unpack the homologation process a bit, which comprises multiple phases. We start with supervised testing, followed by documentation, some of which can be done in parallel with the testing component. We submit final testing results to regulators, followed by regulatory review and approval. Assurance of certificates, which is U.S. EPA Certificate of Conformity in the U.S. and European Whole Vehicle Type Approval certificate that enable us to sell vehicles. Let me provide a sense of the scale and complexity of the homologation phase.

First, we are the only startup that is homologating an advanced vehicle simultaneously in both North America and Europe that will apply to approximately 20 countries. There are over 100 regulations and around 270 various tests covering everything from crash testing to software readiness, and requires coordination with multiple regulatory authorities. Once this is achieved, it gives us the opportunity to launch in various markets, de-risk the total addressable market, and grow our brand in these critical markets. Each regulation could have hundreds of pages of requirements and testing. What's more, even stricter regulations apply from model year 2023, including increased safety standards and cybersecurity rules requiring hardened performance, all of which we now have to fulfill.

The new regulations became effective for this model year, including cybersecurity rules requiring hardened performance, spanning every level of control unit to the pipeline and the cloud to ensure functional safety resilience. We only have a few tests left that require calibration of parts and software by suppliers. This process is driving quality improvements and final calibration of both hardware and software into the product. We expect both European WVTA testing and U.S. FMVSS self-certification testing should be complete in March. We are working closely with the regulators to facilitate efficient review and approvals, but the ultimate time frames for these next steps are not in our control. Functional safety implementation has been a critical area of focus for our team. We don't want to risk anything when it comes to launching the Ocean.

We want to release a product that is reliable from day one, so we must make sure that everything is 100%. While the final implementation phase is very consuming, it is necessary to produce highest quality for our customers. Our functional safety software has been implemented, has been validated, and also needs to be documented. Through our various final testing, we have confirmed that the Ocean's performance is amazing as we planned. We've taken early feedback on driving dynamics, also for instance from automotive journalists, and have implemented those changes into the vehicle. Vehicle dynamics and ride tuning is complete, firmed with serious parts and tires in both warm and cold weather conditions. Results have been finalized and industrialized with our partners with very positive feedback.

With the 56 vehicles we have produced post-SOP, we saw there were certain areas where we needed to improve and strengthen the software at supplier level and in terms of integration, which is crucial for seamless high-quality experience. We set up a task force that uses agile methodologies for issue management and solving software matters with suppliers on a daily basis. We have seen tremendous progress optimizing and hardening the software maturity in the vehicle. Unlike the hardware aspect of the vehicle, we expect continual innovation progress with the vehicle's software. We are taking advantage of the valuable time we have until homologation certification is complete to deep dive into all possible customer scenarios, debug, and perform additional testing to provide customers with the best experience upon delivery. All of our efforts remain focused on launching a car with high-quality hardware and software functionality.

For example, the Ocean comes equipped with a great set of base ADAS features. The Ocean's ADAS functionality is very competitive and comparable to that seen in premium German brands. As Henrik alluded to, however, there is more validation work needed to finalize of our FI-Pilot ADAS system in the Ocean. We plan to launch OTA updates over time to continually improve the customer experience and product performance. In terms of OTA readiness, we have successfully implemented OTA updates of key domain controllers like ADAS, even including its sensor set of vehicle control unit or cockpit computer, to name a few. All of the OTA components, from ECU component level to Fisker pipeline and cloud, have been reviewed by a third party and have been proven to be functionally safe and ISO 26262 compliant and furthermore, cybersecurity compliant following ISO 21434.

Similarly, the Ocean multimedia integration is quite impressive. The sound system delivers two-year experience in the car. In cooperation with a leading sound studio, our multimedia experience has been optimized for low NVH and implemented with our unique UI UX, so users can enjoy a premium hassle-free experience. Now to touch briefly on PEAR. While we are currently focused on launch activities for the Ocean, PEAR engineering continues to ramp up, and we have made great progress by utilizing our India lab. Our first drivable PEAR prototype was built at the end of 2022, which marks a significant milestone in the program's development. The PEAR will have a truly revolutionary electrical architecture, with the many ECUs in a traditional vehicle consolidated down to just a few central computer units, which we call the Blade Computer.

This enables us to execute a fully next-generation electrical architecture for Fisker PEAR, which will be a software-driven car of the future. We have built an amazing team in-house with significant design and development competence. We have organized ourselves very well to collaborate seamlessly across our Los Angeles, Europe, and India teams and time zones and to fight the ongoing impact from COVID. Our team is focused on meeting our commitments and driving results that support the rapid scaling of our business. Thank you. I will now turn the call over to Geeta.

Geeta Gupta-Fisker (CFO and COO)

Thank you, Burkhard. Good morning, everyone. I'm extremely excited to be here today. I want to start my remarks by thanking the entire Fisker team and all our partners and suppliers for continued hard work and persistence to launch an amazing vehicle. Building an innovative global EV brand is challenging, and our team remains focused on execution, no matter the obstacles and on delivering a very high quality disruptive vehicle. I personally spent the last four weeks in Austria, with the purchasing and manufacturing teams at Magna. I guess that's more of my COO hat than my CFO hat, and quite frankly, I'm loving it. Let me provide an update on our manufacturing and supply chain status.

During the year-end holiday shutdown at Magna Steyr, we completed the final modifications on equipment processes and structure and facility installation and integration works that involved 25+ vendors and over 300+ construction workers. Final tuning is underway in the body and paint shops and the general assembly line, which is scheduled to wrap up by the end of March. Workforce training has occurred in lockstep with plant and facility readiness. Offline commissioning is ongoing, processes are optimized, and all relevant process partners are on site. Inline commissioning is also ongoing with integration and testing with equipment and software suppliers, and this is super critical for us to get into the phase of high-volume, ramped-up production.

In parallel to manufacturing plant readiness, we had an increased presence of various suppliers in January and February on-site at Magna Steyr, who are committed to supporting us during this launch phase. We have completed EDI integrations with all our suppliers and call us issued for near-term Q1, Q2, along with 2023 calendar year annual rolling forecast that has been released. Long lead material ordering commitments for critical items such as batteries and drive units have been confirmed with suppliers. Material planning and pre-production teams are in constant communication, sometimes on a daily basis, multiple times a day with suppliers in E.U., China and North America to make sure parts ordering is on schedule based on lead times and management of deliveries to support the logistic modes, ocean, truck and rail.

Our China operations are beginning to ramp up, including hiring of our key personnel in China. Our China consolidation center is fully operational, executing Q1, Q2 material receipt and shipping out of China to Graz to support our production schedule. We expect to begin receiving parts in March in Graz, most likely spread out over the month as our suppliers ramp up and we synchronize just-in-time logistics for all the parts. As we start getting initial parts and subsequently ramp up in Q2, any part shortages may now become more obvious. Our teams are prepared and have set optimal inventory levels with continuous monitoring of supply chain risks and logistic delays, and will react accordingly to avoid any part supply disruptions. Some of our suppliers have already requested more time for Run at Rate ramp to establish their internal PPAP processes.

As Henrik mentioned, the slow ramp-up was a very good decision to allow suppliers to ramp up parts with high quality. Specifically, one of our Tier 1 suppliers is constrained during this ramp-up period, and we are working jointly with them to try and compress this timeline. We are partnering with logistical experts to manage the timing and flow of our components. For all parts out of Europe and North America, Magna Steyr is executing logistics and managing shipping patterns based on plant production schedules. Battery shipping from China has been tested and verified for all three modes of shipping: rail, truck and sea freight.

For critical components like batteries with long lead and long transit times, we have partnered with a professional service provider, Maersk, who is managing our end-to-end shipments from China, including storing the batteries in Europe and managing the on-time delivery to the assembly plant. Maersk provides secure warehousing for our batteries. Whilst I was in Austria, I visited the state-of-the-art 3,000 square meter battery storage facilities, which is only 40 miles from Magna's plant, and it supplements battery safety stock on-site at Magna. I was extremely impressed with the practices that Maersk follows for storage, advanced and sophisticated ways in which they lock material. They look at safety procedures. We've seen continued improvements in commodity and logistic costs. Steel and aluminum are both down over 30% from 2022 highs.

Battery raw material prices such as nickel and cobalt are down meaningfully from peaks, while lithium carbonate has started to ease in recent months. We expect prices to continue to decline throughout 2023. I had an excellent discussion with our partner, CATL in China, and they have assured us that Fisker will get the best prices as material prices come down. We are even starting to hear industry watchers discuss potential oversupply of battery materials in the future. We've seen a significant improvement in European energy prices, with European natural gas prices now back down to mid-2021 levels. Logistic costs and container prices have reduced meaningfully as more container capacity has become available, and we frankly saw this as Maersk was shipping batteries from China to Graz. For example, ocean freight costs are approximately 70% lower than a year ago.

Slower economic growth and lower inflation this year could provide further commodity and supply chain relief and lower input costs in general. As a digital direct-to-consumer brand, our online ecosystem is a critical platform for interacting with our customers and connecting them with their vehicles. In November, we introduced our interactive 3D configurator and an updated app and website. I must say that I apologize on behalf of the entire Fisker team for early glitches in our digital offerings. We were a little too excited to get it out to get some excitement with our customers. We will continue to evolve the platform as our customers provide feedback on their experiences. The new version of our web application and iOS app is planned to go live this coming Thursday, March 2, and Android will go live on Thursday, March 16.

We look forward to receive your feedback. This new Fisker web and app are improved for a seamless and intuitive way to explore and own a Fisker EV. The benefits of the new Fisker app are as follows. Number one, new My Fisker account profile management hub for reservations and orders, which I personally architected with the team. Number two, new Ocean ordering process, including a price estimator with delivery, trade-in, and financing choices, which is an excellent task force that was done between marketing, between finance teams, between IT teams, a seamless collaboration completely developed in-house. Finally, an enhanced 3D configurator with the most up-to-date product information, packages, options, and accessories, and I must say it is one of the most easy-to-use configurators out there. Now, turning to our Q4 results, balance sheet, and 2023 outlook.

Fourth quarter revenue totaled $306,000, driven by sales of Fisker branding, home charging solutions, and merchandise. I know a lot of people are eager to understand whether we booked revenue for the 15 fleet vehicle sales to Magna. Let me address this. We built 15 fleet vehicles for Magna in December. As of year-end, in 2022, these vehicles were still on our books as we built them in December. In January, Magna started using these vehicles for data collection improvements and validating additional features to be added in months to come. Due to planned vehicle use, revenue recognition per GAAP does not apply.

One of these vehicles is currently being showcased to 15 OEMs in Sweden to highlight joint powertrain capabilities of both Fisker and Magna, and I'm personally super excited to go out there in about 10 days and see how that vehicle is doing. Our Q4 operating expenses were $178 million, or $176 million ex stock compensation expense, while capital expenditures came in at $34 million for the quarter. Full year OpEx and CapEx of $702 million, excluding stock compensation expense, came in below the low end of our guidance range of $715 million-$719 million. We are pleased with this result and believe it is a continued testament of our ability to carefully manage spending while continuing to execute on our business plan.

Such discipline does not come by chance, it comes by design. SG&A was modestly lower on strong cost control and lean operations, and also because we needed to do less marketing overall since Henrik talked about the excellent reservation numbers we have. CapEx was also well contained, again, due to disciplined management, due to certain benefits with respect to FX, some real reductions in CapEx which we didn't need, and also certain payments moved into 2023. On the other hand, R&D was higher as we started to reach industrialization and certain key milestones, which actually triggers accruals of certain ED&D. In addition, in order to keep our program timing on track, we also made a decision to utilize some low-volume tooling during this period, which also increased R&D. As a result, some of the CapEx also moved into 2023. Our balance sheet remained solid.

We finished Q4 with over $736 million in cash, better than we had expected and higher than consensus forecast due to deliberate cost management and opportunistic ATM usage. For reference, this is approximately $100 million higher than consensus average as we see it. This excludes approximately $28 million of VAT receivables which are delayed to 2023 and would have added to cash balances if we had received them last year. During the quarter, we brought in approximately $57 million from our $350 million at the market equity program, which is part of the $2 billion shelf. We have demonstrated our agile business management and prudent liquidity. We remain focused on optimizing our investments and cost structure to remain fit for purpose and aligned with our production and delivery cadence.

I want to highlight in 2022, our 2022 OpEx may seem higher than expected, but overall, CapEx, taking into account, we are way ahead. Turning to 2023 guidance, our overall non-GAAP SG&A, R&D, plus CapEx guidance for 2023 stands at $535 million-$610 million range. This guidance reflects our efforts to advance our product development goals while maintaining liquidity that is commensurate with our asset-light model. We've also identified strategic levers we can pull if our sales plans change. We have the capital for Ocean launch. If we decided to focus only on Ocean, as Henrik mentioned, we can enhance liquidity further in case capital markets are tighter.

We have engaged an investment bank to secure non-dilutive capital. I'm pleased to say that we have received a couple of initial terms and are in discussion with lenders for working capital facilities for later this year as we go into series production. We are currently evaluating these initial offers. We are targeting 2022 production of up to 42,400 units, provided our supply chain delivers as forecasted and we receive homologation in a timely manner. Similarly, we expect 2023 growth margins in the range of 8%-12% and potentially positive EBITDA. These numbers could get better as we achieve efficiencies with our suppliers and if input costs keep going further down. We will be self-sustainable as a company with these margins given our asset-light approach. Fisker continues to strategically strengthen our in-house technical capabilities, total team members now over 850.

We are broadening our geographic footprint reflective of our global business model. Today, we are incorporated in 16 countries, and we currently have team members in 10 of these markets. We anticipate opening new markets shortly. Our technical center of excellence in India has accounted for significant hiring in the past few quarters, providing Fisker with round-the-clock technical expertise. I'm extremely proud of the Fisker team, our partners and suppliers for all these accomplishments we've made in 2022 and already in early 2023 and the unwavering focus on launching an amazing vehicle. We continue to show agility and resiliency and adjust whenever needed to stay on track. We're now happy to take your questions.

Frank Boroch (VP of Investor Relations and Treasury)

Operator, please start the question answer session.

Operator (participant)

Sure. Ladies and gentlemen, if you'd like to ask a question, please press star followed by one on your telephone keypad now.

Frank Boroch (VP of Investor Relations and Treasury)

I think we already do.

Operator (participant)

If you'd like to cancel the question, you press star followed by two. Please do also remember to unmute your microphone. Our first question is from Chris McNally from Evercore. Chris, your line is now open. Please go ahead.

Chris McNally (Senior Managing Director and Lead Equity Research Analyst)

Thank you so much, team. Really, appreciate all the guidance you tell us. It's very helpful. Maybe, two questions, one for Henrik on demand and one for Geeta on gross margins. Henrik, how do we monitor and sort of encourage the order conversion? I think investors seem super focused on, you know, 65,000 net orders is great, but it's only a couple hundred down. How do you keep sort of the lower trends engaged where they may have wait times of over nine months? I know you've talked about the higher trends mostly being delivered in 2023, but if you can talk about order conversion and how you're monitoring customer engagement, that'd be great.

Henrik Fisker (Chairman and CEO)

Absolutely. I mean, first of all, as I think most people know, we have already converted quite a lot of orders that were done out of two reasons. One, we had a limited 5,000 Ocean Ones where we took a non-refundable $5,000 deposit. Those are pretty much gone. We actually have 1,000 people on the waiting list to get an Ocean One. We also have sold or fully firm orders for several thousands of other vehicles out of the U.S., which came out of the IRA, where we had that one week where we took the opportunity to offer people to make a firm commitment. They had potentially the possibility to get this tax refund of $7,500.

That's already gone. We're gonna open up for firm reservations, starting with the Extreme very shortly, both in Europe and U.S. We have a lot of people who are super excited about doing that, so they can obviously make a firm order, start putting in their colors and wheels, et cetera. I think we're seeing a really, really firm commitment from most of our reservation holders. We are reaching out to our reservation holders almost every week. We also don't wanna inundate them with stuff from us, but we keep them up to speed with, you know, what's going on. We have not raised prices, we have been firm with our pricing.

We set a pricing a long time ago. It works with our business model. We make money on our vehicles. I think that's a very important part of why we have loyal customers. I also think once we get this vehicle on the road or even people can go and actually try it, I actually think that's gonna be the ultimate conversion weapon when somebody gets into the vehicle and go, "Wow, this thing is amazing." That's all I will say. The fact that we continue seeing a growth in our reservations, I think really shows the unique product that we have because, you know, not everybody keeps seeing growth when you see, you know, more competition coming and somebody, you know, lowering prices, et cetera. I think that really shows that we have a great product.

Chris McNally (Senior Managing Director and Lead Equity Research Analyst)

Awesome. Thanks so much, Henrik. Geeta, maybe really quickly on the gross margins. Again, appreciate the visibility. Could you just walk us through sort of the risks and opportunities around the range 8%-12%? You know, how do we think about ramping that throughout the year? Could it be gross margin positive sort of in, you know, one of the early quarters, let's call it Q3? Just remind us how the margin and the supply agreement works in contract manufacturing. Thank you.

Geeta Gupta-Fisker (CFO and COO)

Sure, Chris. I think that the 8%-12% gross margins that we have outlined, these are actually GAAP accounting based. They include stock-based compensation. We have taken into account all the investments we have made, and we have factored those in when we look at these gross margins. I think you asked the question, what are the risks and opportunities? I think from my point of view, to achieve these gross margins, I don't frankly see a risk unless battery prices treble. I don't frankly see a risk on achieving the gross margins.

We make these gross margins from the first car, and I think I've highlighted that multiple times in multiple earnings calls, and that is because of our asset-light strategy, and we don't have those huge factory billions of dollars of costs to account or amortize against. Opportunities,

Chris McNally (Senior Managing Director and Lead Equity Research Analyst)

Sorry, Geeta, I just wanted to interrupt. Is it possible you could just give how long? I mean, you have obviously visibility on your battery prices for a certain number of quarters. When you were making the comment about battery, is that for longer-term gross margins? Obviously, there would be more variability. Anyway, interrupt.

Geeta Gupta-Fisker (CFO and COO)

Yeah, sure. Chris, when it comes to battery prices, our battery contract is already set in stone, and what changes is the certain material prices, which are linked to indexes, which are common to everybody, not just us. The second place where you have the ability to influence the battery price is volume, obviously. As Henrik mentioned, as our opportunity to grow increases, I'm expecting, as I discussed with our partners, CATL, volume can also have an impact. The third area that can have an impact on battery pricing is if we decide with CATL to jointly participate in mining. I don't see that happening anytime soon.

We are an, you know, we are an asset-light business, but I would never say never, should we have an opportunity to do something which is ethical and which is exciting to address the pricing. I'm not concerned about battery pricing. I think we've seen the highs of the highs, and I'm expecting that we are now going to get tapering off with respect to battery prices. I'll talk a little bit about opportunities, then I'll come to contract manufacturing. In terms of opportunities, if input prices keep going down, I see that as an opportunity for us to improve our growth margins. I think that we have an opportunity here to look at a very sustainable product with respect to all the components and commodities.

I alluded earlier to steel and other areas. Now let's look at contract manufacturing. Contract manufacturing, again, I think we've talked about it many times, and you were in the plant, and you saw on your own why we don't have the inefficiencies and Magna doesn't have the inefficiencies that every startup has. There are multiple products made on the same line, we are part of the multiple product line. That means that you share the cost base along with other customers. That's the first thing. The second thing I wanna highlight is that this is launch year. It's not a full year of production. This is launch year, any fixed costs, they apply for next year. We have a fairly defined manufacturing agreement. We don't reveal our assembly costs.

That's our trade secret, so we keep that in-house, but we're very confident that these prices stay. Of course, there's been an increase with respect to inflation, so those labor costs are very well known. The labor is union, but we factored in even those inflationary increases in the gross margins that I gave you guys.

Itay Michaeli (Senior Equity Research Analyst)

Next question. Operator?

Operator (participant)

Our next question is from Jeff Osborne from Cowen and Company. Jeff, your line's now open. Please go ahead.

Jeff Osborne (Managing Director and Senior Research Analyst)

Thank you. Two quick ones. Maybe just to follow up on the prior line of questioning. Geeta, what is the lag of raw material price changes to when it would flow through on your battery pricing? Is that, like, six months, 12 months? Is there any timeframe you can add to that?

Geeta Gupta-Fisker (CFO and COO)

Quarterly. Quarterly.

Jeff Osborne (Managing Director and Senior Research Analyst)

Quarterly. Got it. Perfect. Speaking of quarterly, how should we think about the cadence of production through the year? Last quarter, you had given some helpful commentary on, you know, what you thought production would be by quarter. You obviously reiterated guidance for the full year. I assume we should be all on the same page, not assuming any deliveries in calendar Q1. Is the old production ramp still applicable or no?

Geeta Gupta-Fisker (CFO and COO)

Those are a lot of questions, let me take one by one. Deliveries have nothing to do with production. Deliveries have to do with homologation and getting the approvals to sell the cars. I want to separate the two. We can produce cars today. Like I mentioned earlier, we are starting to get parts. I saw batteries last week. I'm seeing other parts coming in. As long as parts keep coming in, we can produce the cars, no problem. What we need is the certification to sell the vehicles in Europe and U.S., and I think Buchert went into great detail about that already. Let's come to production itself.

We can produce, Henrik mentioned, 20 cars a day, and we have a very clear plan with Magna Steyr on how to increase this production capacity week on week on week, all the way through to December this year. The numbers we had, the guidance we had given hasn't changed in terms of what we can produce. What we need to monitor, as I mentioned, is supplier ramp-up. As I alluded to, certain suppliers, they feel they need a little bit more time for their own PPAP processes, high-quality PPAP processes, and we will monitor what that means between March, April, May in terms of where they get to peak production.

I'm expecting that by June timeframe, all the suppliers are fully ramped up to our production needs, which is more or less 5,000 a month at this point in time.

Jeff Osborne (Managing Director and Senior Research Analyst)

Perfect. Thank you.

Operator (participant)

Our next question is from Dan Levy from Barclays. Dan, your line is now open. Please go ahead.

Dan Levy (Managing Director and Senior Research Analyst)

Hi. Good morning, and thank you for taking the question. Wanted to ask about the R&D guide. You're guiding to 2023 R&D of $160 -190 million. This is a significant step down from the $400 million+ you did in 2022. Maybe you could just talk about, please, the underlying requirements or dynamics in R&D spend, why it steps down, and maybe what R&D is required in the future for new product, be it PEAR, Ronin, or Alaska. Thank you.

Geeta Gupta-Fisker (CFO and COO)

Great question, Dan. Dan, when a company starts up operations, you have a certain level of inefficiency, and that's why we have a lot of outside suppliers, and we have relied on Magna to do some of the engineering. Also, we relied on certain suppliers to do some of the engineering, which is why you saw a higher ED&D bill for Ocean. As we go into the second vehicle, on one hand, we have enhanced our own internal team, including a pretty significant employee base in India, which as we know is a much reduced cost than hiring here in California. That accounts for some of the reduced costs where we brought some of the R&D in-house. The second point is that we have certain areas where we don't have to repeat the engineering.

Let me give you some examples. For example, the OTA pipeline that Burkhard talked about, once those investments are in place, we don't have to repeat them. Henrik talked about UI/UX. Once that development, the base UI/UX experience is developed, now you're doing a spin-off, you're going to modify that. There are many, many, many areas, including I can talk about in E/E architecture, where we have the capability to take over certain components from certain suppliers and carry over and use those over our second vehicle. Finally, you know, we are more efficient. We have a team that works together, smarter, just far more efficient when it comes to next year.

Henrik Fisker (Chairman and CEO)

Dan, maybe just to add to that, you mentioned Alaska. That will be very broadly based on the Ocean. We're gonna call it the FT32 platform, but it's really a derivative of the Ocean. again, you're not, you're not now, you know, engineering a car from ground up. that's also why we can create a driver prototype really quickly, because when we created the first driver prototype of the Ocean, there was nothing there. Everything had to be new. That's not the case with future vehicles.

Geeta Gupta-Fisker (CFO and COO)

Dan, I hate to say the final comment. Frankly, there is a price point for a new startup. There's a price of entry. Suppliers generally charge you a higher ED&D. Once you get past that phase, you are welcomed into the club, you get treated like a real OEM.

Dan Levy (Managing Director and Senior Research Analyst)

Great. Thanks. Just a follow-up, maybe you can talk a bit more about the timeline of PEAR. You know, you mentioned you have a prototype, but how many incremental prototype stages are there? You know, at what point do you start to do the supplier sourcing? When does the BOM get locked in? I think you had mentioned at one point that there was a high amount of carryover content from Ocean to PEAR. Maybe you can reiterate if that's still the case or any incremental color on that front, please. Thank you.

Henrik Fisker (Chairman and CEO)

First, what I mentioned was a new way to specify a vehicle. What I mean by that is that when anyone, anywhere in the world creates a car, it is a set of spec books. Spec books means that every part could be the mirror, for example. There's a spec book on the mirror, and that spec book, for example, on the mirror, might contain 20 different things from the little light it has to be to glass, the cap on the mirror, you know, everything that's in that mirror, the little electric motor, whatever. What normally happens is you create that spec book specifically as a startup together with suppliers sometimes.

What happens with normal OEMs or traditional OEMs that's been at it for a while, they take the spec book from their previous car, and they apply it to the next car, which essentially I mean, it's just like a recipe in a bakery, you know, when the son or daughter takes over, they will use the same recipe as the mother and father did, and nothing really changes. In our case, we decided with the PEAR to actually completely redo these spec books. We obviously had all the experience with the Ocean, and we fine-combed through it, and certain elements that are, you know, great at the Ocean that we can use, we'll use, but other things may be too premium because at the end of the day, the Fisker Ocean is a premium vehicle, you know, that goes all the way up to $70,000.

Of course, it has certain engineering solutions that fits that premium segment. When we looked at the PEAR, we wanted to come up with some ideas that has never been done before to achieve our goal of being able to sell this vehicle for $29,900 as a base price and make money on it. We went through all that and have already gone through all that. We have also gone through how can we lower the cost of the total development. Maybe we do less prototypes, maybe do prototypes at different stage. There's a whole bunch of things we're going through. I'm not about to, you know, show our menu just like Coca-Cola doesn't show their ingredients as they're lying in some safe somewhere, and so it does here at Fisker.

I'm not gonna elaborate more on that, but believe me, it's a pretty exciting program, and it will come out at $29,900.

Geeta Gupta-Fisker (CFO and COO)

Dan, you asked a question about the BOM, and you asked a question about supply engagement. I think what I'm super excited about is learning more and more about E-architecture from Burkhard and how amazing and lean the E-architecture will be. I'll pass on to Burkhard to explain a little bit, and then I'll jump back in on the BOM.

Burkhard Huhnke (CTO)

Let me talk about the central computers. In traditional car manufacturers, you have many ECUs, which are now consolidated to just a few. If you imagine how many ECUs need power supply, need packaging, need housing, and we can reduce that to just a few. With this, saying the complexity to consolidating into less computers is playing in that advantage, not just in regards to owning the software on one end side and all the features and functions being implemented in those fewer computers, but also reducing the complexity with suppliers, reducing the complexity on cost, reducing the complexity of wiring harness. Just a few centralized computers allow you actually to reduce extremely the cost from components to wiring harness to ED&D.

That is we are doing currently, consolidating into this new architecture, which really becomes now a software-driven car, where we see the future going. Specifically for PEAR, it allows us to reduce drastically the BOM cost from the E/E architecture. The complexity of the domain computers are increasing, this is the advantage of the future E/E architecture, which we are implementing into the PEAR.

Geeta Gupta-Fisker (CFO and COO)

Dan, just to highlight between Henrik and Burkhard, overall, the car has fewer parts, whether it's electrical components or it's mechanical components. Less material means less cost. Also means that you have less integration, both electrical and hardware. Means that your prototyping costs are less. Means that your overall complexity is less. The way we look at PEAR, we are engineering the entire E/E architecture in-house. It's well underway. We have identified some of our SoCs already. We have identified what chips we want with respect to infotainment, behind the process of finalizing ADAS. When it comes to the actual body and chassis, the development is being done in-house completely. We are almost final negotiations when it comes to powertrain.

We have identified pretty much all long-lead commodities and suppliers.

Itay Michaeli (Senior Equity Research Analyst)

Great. Thank you.

Operator (participant)

Our next question is from Itay Michaeli from Citi. Itay, your line is now open. Please go ahead.

Itay Michaeli (Senior Equity Research Analyst)

Great, thanks. Good morning, everybody, and congratulations. Just a couple of quick thoughts from me. First, hoping you could just talk a little bit about the cadence you expect for gross margin this year. Then Geeta, you mentioned earlier that this is a launch year and maybe there's certain, I guess, treatment of fixed costs. I was hoping you could elaborate a bit more on the gross margin kind of in year one and year two in terms of the earlier comment.

Geeta Gupta-Fisker (CFO and COO)

Itay, I'm not generally giving guidance for 2024. Sorry, is that the question? The gross margin I've given is on an annual basis, not giving guidance on a quarterly basis.

Itay Michaeli (Senior Equity Research Analyst)

Got it. I guess would there be different treatment of certain costs next year? Just want to elaborate that there's a comment you made around, sort of, the gross margin treatment initially in a launch year.

Geeta Gupta-Fisker (CFO and COO)

No, because we don't have our own factory, as I explained. All the costs we have are amortized over the period of time. We haven't determined whether the life of those tools is seven or 10 years. That's still to be determined as we get into sales. I don't see minor launch costs, but I would not. If you're putting a model together, I would not simulate it based on other vertically integrated EVs.

Itay Michaeli (Senior Equity Research Analyst)

Got it. Perfect. That's helpful. Just wanted that clarification. Just secondly, I think going back a bit to the PEAR, to the earlier commentary on the Blade Computer and the new electrical architecture, are you able to quantify maybe at a high level how much of that is contributing to more efficient R&D spending this year, as well as what you think the ultimate BOM kind of benefit would be of that next generation architecture?

Geeta Gupta-Fisker (CFO and COO)

You know, at a overall vehicle level, it's enormous. It's just enormous because you're reducing the number of hardware and you're fundamentally able to upgrade features through the application layer. Once your hardware is in, your operating system is in, you're fundamentally changing things through your application layer. Reducing hardware means a lower BOM. I think, this is our trade secret, so I would hate to give our trade secret on what the BOM is.

What I can tell you is that we're starting to develop the entire vehicle from the basis of the E/E architecture, because at the end of the day, you decide which ECUs to virtualize, but more importantly, you also start to impact supply chain, and you start to create a more beneficial supply chain, and you also need less complexity in purchasing. So I think that for us this is really critical to get a very, very sophisticated E/E architecture. It does, by the way, impact powertrain, and it impacts pretty much every other module. I just want to see if Burkhard wants to add anything.

Burkhard Huhnke (CTO)

Besides with the reduction of the BOM cost, it increases the performance drastically. That is an interesting trade-off. Although the BOM cost is being reduced, the high-performance compute allows you a future features and functionality, which is even beyond anything you could imagine. That is quite amazing. You have the super powerful computer within a network inside the car, which is even giving us more opportunity for the life cycle management.

Geeta Gupta-Fisker (CFO and COO)

The one item I do want to add, it is if in the future you want to upgrade the vehicle, the more and more that sits on the application layer means you have less cost for modular changes or upgrades because they are software driven rather than hardware driven or black box driven that comes from suppliers.

Itay Michaeli (Senior Equity Research Analyst)

That is very helpful. Thanks for that color. A quick. Just a final question. With cash at over $700 million and the guidance you outlined today, just curious how you're thinking about minimum cash, this year liquidity, and just kind of your overall plans there.

Geeta Gupta-Fisker (CFO and COO)

I think we are self-sustainable, so we have a very good cash position, and as you see, the guidance is $535 million-$610 million. I think year-over-year, we've shown that we are always at the lower end or below guidance. I would let you do your model yourself.

Itay Michaeli (Senior Equity Research Analyst)

Perfect. Well, that's very helpful. Thank you.

Operator (participant)

Ladies and gentlemen, we currently have no further questions. I will now hand back to Henrik Fisker for final remarks. Please go ahead.

Henrik Fisker (Chairman and CEO)

Thank you very much. This was a super exciting earnings call, but I will be jumping in the plane back to Austria to make sure we get full speed in the production. As soon as homologation is there, we're going to start delivering a bunch of cars. I'm super excited. Thanks for joining in and have a fantastic week.

Operator (participant)

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.