Business context and reporting period
Faraday Future Intelligent Electric Inc. (FF) filed this unaudited Form 10-Q for the three months ended March 31, 2023. The company designs and develops electric vehicles and had not generated revenue from vehicle sales. It announced start of production of its first vehicle, the FF 91 Futurist, on March 29, 2023; its first production vehicle came off the line on April 14, after quarter-end.
Key financial metrics
Amounts below are in millions of dollars unless stated otherwise.
| Metric | Q1 2023 / March 31, 2023 | Comparable period / December 31, 2022 |
|---|---|---|
| Revenue | $0 | $0 in Q1 2022 |
| Operating expenses and operating loss | $83.0 | $149.0 in Q1 2022 |
| Net income (loss) | $6.5 | $(153.1) in Q1 2022 |
| Cash from operating activities | $(103.0) | $(122.4) in Q1 2022 |
| Capital expenditures | $(16.9) | $(44.4) in Q1 2022 |
| Cash and restricted cash | $33.3, including $31.8 unrestricted cash | $18.5 at December 31, 2022 |
| Total assets / total liabilities | $575.3 / $318.9 | $510.3 / $327.5 at December 31, 2022 |
| Current assets / current liabilities | $103.4 / $192.9 | $66.4 / $267.5 at December 31, 2022 |
| Stockholders’ equity | $256.4 | $182.8 at December 31, 2022 |
Profit and margins: Q1 net income was driven by a $94.9 million gain from changes in fair value measurements, principally noncash gains on notes and warrants—not vehicle sales or operating profitability. The company reported an $83.0 million operating loss. Revenue-based margins are not meaningful while revenue remains zero.
Debt and liquidity: Third-party notes payable had $170.2 million of unpaid principal and $97.8 million net carrying value; related-party notes payable totaled $8.6 million. Cash used in operating activities exceeded unrestricted cash at quarter-end. Working capital was negative by approximately $89.5 million. Financing cash flow was $134.4 million, primarily from note proceeds.
Material changes versus the prior comparable period
- Operating expenses fell $66.0 million year over year, mainly because research and development expense declined 60% to $46.2 million as engineering and testing work shifted and cost reductions were implemented. Stock-based compensation increased to $15.1 million from $3.3 million.
- Net results improved from a $153.1 million loss to $6.5 million of income, largely because fair-value gains rose to $94.9 million from $1.2 million. Interest expense increased to $4.7 million from $3.7 million.
- Operating cash outflow improved by $19.4 million year over year, while investing outflow declined by $27.5 million. Financing shifted from an $85.7 million outflow to a $134.4 million inflow, principally reflecting new debt issuance.
- Property and equipment increased to $446.5 million from $417.8 million. At start of production, the company reclassified $301.4 million of construction-in-progress assets to buildings and tooling/equipment.
- Class A shares outstanding rose to 838.9 million at quarter-end from 563.3 million at year-end 2022, reflecting conversions, warrant exercises and other issuances.
Outlook, risks, contingencies and unusual items
- Going concern: Management concluded substantial doubt exists about the company’s ability to continue as a going concern for one year after the financial statements were issued. FF expects significant operating losses and needs substantial additional capital.
- Deliveries and financing: The planned first phase of FF 91 deliveries was expected to begin at the end of May 2023, with the second phase targeted for the end of Q2; timing depends on parts and testing. The company expects additional financing will be needed for broader deliveries and production ramp-up. These are expectations, not guarantees.
- Funding and dilution: The filing describes conditional secured convertible-note commitments and a $200 million equity purchase facility with Yorkville, expandable to $350 million at FF’s option. A May 2023 unsecured convertible-note agreement provides for up to $100 million subject to conditions; $3.3 million gross proceeds had been received by May 10. From April 1 through May 12, holders converted $60.2 million of SPA notes into about 299.6 million Class A shares; additional conversions of $3.3 million of unsecured notes produced about 23.7 million shares. The filing also warns that authorized shares may be insufficient for all outstanding or issuable securities.
- Execution and suppliers: FF cited supplier delays, late-payment concerns and requests for accelerated payments, inflation, supply-chain disruption, production-ramp challenges, and limited manufacturing and delivery experience. Failure to secure funding could delay production, require further cuts, or threaten continued operations.
- Controls and governance: Disclosure controls were ineffective at March 31, 2023 due to material weaknesses in financial reporting controls, staffing, transaction accounting, related-party disclosures and IT controls. Remediation is ongoing and may extend beyond 2023. The filing also describes prior investigation findings involving potentially misleading reservation disclosures and the founder’s role, as well as ongoing SEC and DOJ inquiries.
- Legal and contractual exposures: Accrued legal contingencies were $16.0 million. Securities and derivative actions and other disputes remain unresolved; outcomes and potential exposure are uncertain. Unconditional contractual commitments totaled $422.2 million, including $279.8 million for 2023, of which $245.7 million related to open purchase orders.
- Listing risk: Nasdaq granted an additional period through October 30, 2023 to regain the $1.00 minimum bid-price requirement. The company stated that a closing bid of $0.10 or less for 10 consecutive trading days during the period could trigger delisting procedures; the May 10 closing bid was $0.1979. A reverse split was a possible, not assured, remedy.
- Unusual accounting item: A new stock-compensation forfeiture policy resulted in a $1.8 million cumulative charge in Q1. The company also recorded a $3.7 million loss on disposal of construction-in-progress assets.
Important facts for investors to verify
- Whether deliveries began as planned, whether production can scale, and whether customers convert refundable pre-orders into completed purchases.
- Actual cash burn and remaining liquidity, including the status and conditions of committed financing; the filing reports differing funded-commitment totals in different sections, which should be reconciled.
- The full debt, warrant and conversion overhang, including conversion prices, registration and authorized-share capacity, and resulting dilution.
- Progress in remediating material weaknesses and any developments in SEC, DOJ or private litigation matters.
- Nasdaq bid-price compliance and any decision or need to implement a reverse stock split.