Faraday Future Intelligent Electric Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Unaudited consolidated results. The company designs and manufactures electric vehicles and began production of its FF 91 in March 2023, with customer deliveries starting in August.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $0.6m | None | $0.6m | None |
| Cost of revenue | $16.1m | None | $22.7m | None |
| Gross loss | $15.6m | None | $22.2m | None |
| Operating expenses | $50.9m | $80.0m | $196.1m | $366.4m |
| Loss from operations | $66.4m | $80.0m | $218.3m | $366.4m |
| Net loss | $78.0m | $119.9m | $347.9m | $414.7m |
Q3 revenue reflects initial deliveries; cost of sales substantially exceeded revenue amid low production volumes, early manufacturing inefficiencies, and depreciation of tooling and machinery. Q3 R&D declined 55% to $21.6m; nine-month R&D declined 60% to $104.7m, primarily reflecting completion of FF 91 development work, cost reductions, and capitalization of some production-related costs. Nine-month sales and marketing rose 12% to $18.1m; general and administrative expense fell 24% to $67.6m.
Non-operating results were materially affected by financing transactions and fair-value accounting. Nine-month results included a $90.0m gain from fair-value changes in notes and warrant liabilities, offset in part by $204.9m of losses on settlements of notes and $17.2m on related-party note settlements. These items are not operating cash flows and significantly influenced reported net loss.
Cash, liquidity, and debt
- At September 30, cash was $6.7m and restricted cash was $1.9m. Current assets were $127.3m versus current liabilities of $191.2m. Accumulated deficit was $3.9bn.
- Nine-month operating cash outflow was $240.4m, down from $355.1m in 2022. Investing outflow was $10.8m, versus $112.1m. Financing provided $237.6m, principally from note proceeds. Cash and restricted cash declined by $9.9m to $8.6m.
- Third-party notes payable had $135.1m in aggregate principal outstanding; related-party notes had $12.2m. Reported carrying values differ because of fair-value adjustments, discounts, and warrant allocations. The company also reported $37.0m of operating and finance lease obligations, including interest; about $7.2m was due within 12 months.
- The company stated that recurring losses and operating cash outflows raise substantial doubt about its ability to continue as a going concern for one year from issuance of the financial statements. It expects significant operating losses and says additional financing is needed to continue operations and ramp production.
Material changes and financing
- Convertible-note commitments totaled $513.5m, of which $300.2m had been funded by September 30 ($263.2m net of discounts and transaction costs); $213.3m remained conditional. The company cautioned that funding depends on milestones, closing conditions, registrations, and resolution of disputes.
- Notes and warrants carry full-ratchet anti-dilution provisions. The SPA note conversion and warrant exercise price was reduced to $1.64 as of September 30 following dilutive transactions. The filing reports 89.6m potentially issuable shares upon note conversion and make-whole provisions, excluded from diluted EPS as anti-dilutive.
- Class A shares outstanding increased to 31.8m at September 30, partly through debt conversions. A 1-for-80 reverse split took effect August 25. Subsequent conversions and equity sales increased share count further; see subsequent events below.
- Management reported only three FF 91 deliveries to spire users as of September 30 and 330 non-binding, fully refundable pre-orders. The company needs substantial additional funding to begin its third, broader delivery phase.
Outlook, risks, and unusual items
No quantified earnings or production guidance is provided in the filing. Management expects continued significant losses, is exploring debt, equity, leasing, and other financing, and says delayed or insufficient funding could slow or reduce production. It reported spending reductions, payment-cycle extensions, and other cash-preservation measures; it also expects slower production ramp-up and deferred completion of some factory areas.
- Financing and dilution: Access to committed financing is uncertain; future equity and convertible-debt issuance may materially dilute shareholders. Financing disputes and share-conversion obligations could further pressure liquidity.
- Debt defaults: Secured SPA note defaults were waived by holders for the reported periods. The company disclosed a breach of a related-party loan agreement with $4.5m principal outstanding, carrying an 18% default interest rate.
- Legal and regulatory matters: Accrued legal contingencies were $21.8m. In October 2023, the company agreed in principle to a $7.5m cash settlement of a putative securities class action; preliminary approval followed in November. Palantir sought $41.5m in arbitration over contract payments. The company also disclosed SEC and DOJ inquiries and shareholder, investor, and other litigation; outcomes are uncertain.
- Controls and reporting: Management concluded disclosure controls were ineffective at September 30 because of material weaknesses in financial reporting controls, including staffing, complex transactions, interdepartmental information sharing, close processes, related-party disclosures, and IT controls. Remediation is ongoing and may extend beyond December 31, 2023. Prior financial statements were restated.
- Operations: Supplier delays, supply-chain availability, factory completion, production quality and scale, inflation, and access to capital could delay deliveries or increase costs. Warranty estimates are uncertain given limited delivery history.
- Post-quarter updates: The company disclosed an October factory sale-leaseback with a five-year lease at $0.4m monthly and up to $12m of tenant-improvement allowance. It also reported $1.8m net proceeds from additional note funding and $16.6m gross ($16.1m net) from ATM share sales through the subsequent-events disclosure. Between October 2 and November 9, $9.4m of notes were converted into 10.6m shares.
Key facts investors should verify
- Whether conditional financing commitments can be funded on time and on acceptable terms, and how much cash remains after subsequent financing and spending.
- Actual FF 91 production, deliveries, realized revenue per vehicle, unit economics, and the pace and funding requirements of the next delivery phase.
- Current share count and potential dilution from note conversions, warrants, the ATM, and other equity-linked instruments, including the latest anti-dilution conversion prices.
- Progress on material-weakness remediation, the status of any further restatements, and whether financial reporting controls become effective.
- Developments in the Palantir arbitration, securities settlement, SEC/DOJ inquiries, investor disputes, and recorded or unrecorded legal exposures.