Faraday Future Intelligent Electric Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2021. The unaudited filing was signed May 6, 2022, after a delay related to a Special Committee investigation. Unless otherwise noted, amounts below are U.S. dollars in millions.
Business context
Faraday Future designs and develops connected electric vehicles and had not generated vehicle revenue as of the reporting period. The July 21, 2021 business combination with Property Solutions Acquisition Corp. and related PIPE financing materially changed the company’s capital structure and cash position. The transaction was accounted for as a reverse recapitalization.
Financial results and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Operating expenses | $185.7 | $17.5 | $232.7 | $48.9 |
| Operating loss | $(185.7) | $(17.5) | $(232.7) | $(48.9) |
| Net loss | $(303.9) | $(33.3) | $(432.2) | $(89.1) |
| Basic and diluted loss per share | $(1.06) | $(0.21) | $(2.12) | $(0.57) |
| Cash used in operating activities | — | $(237.9) | $(27.5) | |
| Cash used in investing activities | — | $(37.3) | Cash provided: $3.0 | |
| Cash provided by financing activities | — | $967.0 | $28.3 |
Margins are not meaningful because the company reported no revenue. Q3 research and development expense was $79.8 million, including a $50.0 million Geely-related platform license; general and administrative expense was $36.7 million. The company recorded a $62.3 million property and equipment disposal loss in Q3 and a $94.7 million net loss on settlements of debt and vendor obligations in connection with the business combination.
At September 30, cash and cash equivalents were $666.1 million and restricted cash was $25.1 million. Current assets were $754.6 million versus current liabilities of $238.2 million. Total liabilities were $377.9 million; notes payable had a carrying value of $203.1 million, in addition to $13.5 million of related-party notes payable and lease obligations. The filing reported a $2,823.3 million accumulated deficit and concluded that substantial doubt existed about the company’s ability to continue as a going concern for one year after the financial statements were issued.
Changes versus prior periods and key transactions
- Nine-month net loss increased to $432.2 million from $89.1 million, and operating cash use rose to $237.9 million from $27.5 million, reflecting increased development and operating activity, noncash valuation effects, and one-time charges.
- Operating expenses included the $50.0 million platform license, higher staffing and employee bonuses, and $63.0 million in nine-month write-offs of FF 91 program assets following redesign and cost-reduction efforts.
- The business combination and PIPE generated approximately $991.0 million of gross proceeds. Financing cash flow also included new borrowing; the company used proceeds to settle liabilities and fund operations.
- Debt and other liabilities were substantially converted, settled, or repaid in connection with the transaction. As of September 30, $103.5 million of notes payable was classified as current; substantial scheduled note maturities fell in 2022.
Outlook, risks, contingencies, and governance
- Management’s plan at the time contemplated FF 91 customer deliveries beginning in Q3 2022, with testing, validation, and certification targeted for that quarter. The company expected significant future operating losses and said continued operations depended on raising additional capital; no assurance of timely or acceptable financing was given.
- Key execution risks included manufacturing readiness, supply-chain disruption, rising material costs, COVID-19 impacts, and the ability to control costs and meet production timelines.
- As of September 30, the company was in default on a $9.3 million related-party note. It later disclosed a January 2022 default on Optional Notes, which holders waived. The company also disclosed subsequent repayment of $96.9 million of Ares notes in February 2022.
- Legal contingencies accrued at September 30 totaled $13.7 million. Subsequent disclosures described securities class-action and derivative lawsuits and an SEC investigation; the company said it could not predict the outcomes or estimate any potential loss from the SEC investigation.
- The Special Committee found, among other matters, that statements about founder YT Jia’s role and the reported 14,000 FF 91 reservations could be misleading; only several hundred reservations were paid. It also identified deficiencies in related-party disclosures and compliance practices. The company described remedial governance and control actions.
- Disclosure controls were not effective at September 30, 2021, due to material weaknesses in financial reporting controls, including staffing, complex transaction accounting, related-party identification, information sharing, and IT controls. Remediation was ongoing; the weaknesses were not yet considered remediated.
Important facts for investors to verify
- Whether FF 91 production, certification, and customer delivery milestones were achieved, and what capital is required to complete them.
- Current unrestricted cash, operating cash burn, debt maturities, financing availability, and whether the going-concern uncertainty has changed.
- Progress and independent testing of internal-control remediation, including complete related-party disclosures and any effects of the SEC investigation or litigation.
- Whether reservation and preorder figures represent paid, binding demand; the filing’s 14,000 historical figure included mostly unpaid indications of interest.