Faraday Future Intelligent Electric Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Financial statements are unaudited; amounts below are in U.S. dollars unless noted.
Business context
Faraday Future designs and engineers electric vehicles and operates primarily through its Hanford, California manufacturing facility. It began production of its first vehicle, the FF 91 Futurist, in March 2023, but had recognized no vehicle revenue through June 30. The company remains pre-revenue and depends on external financing to fund operations and production.
Key financial metrics
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Cost of revenue | $6.6m | $0 | $6.6m | $0 |
| Operating loss | $56.0m | $137.5m | $151.8m | $286.5m |
| Net loss | $124.9m | $141.7m | $269.9m | $294.8m |
| Net loss per share | $0.10 | $0.44 | $0.28 | $0.91 |
There was no revenue against which to assess a conventional gross margin; the company recorded a $6.6m gross loss in both the quarter and first half of 2023. Q2 operating expenses were $49.4m, including $25.3m research and development, $7.7m sales and marketing, and $17.1m general and administrative.
- Cash and liquidity: June 30 cash was $17.9m and restricted cash $1.5m. Current assets of $105.6m were below current liabilities of $187.6m, a working-capital deficit of $82.0m.
- Cash flow, six months: $160.7m used in operations and $25.9m used in investing; $181.8m provided by financing. Cash and restricted cash ended at $19.4m.
- Debt: June 30 balance-sheet carrying amounts included $74.6m of third-party notes payable and $16.6m of related-party notes payable. The notes’ disclosed aggregate principal amounts were higher; the filing reports $107.8m third-party principal and separately gives varying related-party principal totals.
- Balance sheet: Total assets were $567.5m, total liabilities $289.8m, and stockholders’ equity $277.7m. Accumulated deficit was $3.80bn.
Changes versus prior comparable periods
- Q2 net loss narrowed by $16.8m year over year; first-half net loss narrowed by $24.9m. Operating losses also declined substantially, largely reflecting lower R&D and general and administrative spending.
- R&D expense fell 74% in Q2 and 61% in the first half, reflecting reduced engineering and testing activity, lower headcount and professional services, and some costs moving to production or inventory.
- General and administrative expense fell 49% in Q2 and 29% in the first half, partly due to lower headcount and professional fees after the Special Committee investigation. Sales and marketing expense rose 24% in Q2.
- Despite lower operating losses, first-half results included $183.5m of losses on settlement of notes payable and a $72.5m gain from fair-value changes in notes and warrants. These financing-related, non-operating items materially affected reported net loss.
- Class A shares outstanding rose to approximately 1.424bn at June 30 from 563.3m at December 31, 2022, primarily reflecting debt conversions and other equity activity.
Outlook, risks 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 issuance of the financial statements, citing recurring losses, operating cash outflows and limited cash. It expects significant losses to continue.
- Funding and production: The company says substantial additional financing is needed, including to reach the full FF 91 delivery phase. Financing commitments are conditional and may be delayed or unavailable; delays could reduce or defer production and deliveries. Management reported cost reductions, headcount measures and extended payment cycles to preserve cash.
- Delivery plan: The first phase began in May 2023; the second phase began in August. The company reported its first FF 91 delivery after quarter-end. Further production, deliveries and future models remain subject to funding, supplier performance and manufacturing execution. No formal quantified financial guidance is provided.
- Financing terms and dilution: Convertible notes generally carry 10%–15% interest, conversion features and anti-dilution protections. Six-month note conversions and related share issuance contributed to significant dilution. The August 2023 stockholder meeting approved a potential 1-for-2 to 1-for-90 reverse split; implementation was anticipated but remained at the board’s discretion.
- Defaults and obligations: Secured SPA note defaults as of June 30 were subsequently waived. The company disclosed a breach of a related-party loan agreement involving approximately $4.5m principal, with the interest rate increased to 18% while the default remained applicable.
- Legal and regulatory matters: A securities class action reached a settlement in principle, subject to court approval. Palantir initiated arbitration asserting $41.5m in controversy. The company also disclosed ongoing SEC and DOJ inquiries, multiple derivative and stockholder suits, and $16.9m accrued for legal contingencies.
- Controls and reporting: Disclosure controls were deemed ineffective as of June 30 because of material weaknesses in financial reporting controls, including staffing, complex transactions, related-party disclosures, information sharing and IT controls. Management said remediation was ongoing and could extend beyond year-end 2023. Prior-period financial statements had been restated.
- Other notable items: Q2 cost of revenue was recognized before any revenue, including production costs that could not be capitalized. The company recorded $91.9m of Q2 settlement losses on third-party and related-party notes and a $24.7m gain from fair-value changes in notes and warrants.
Important facts for investors to verify
- Cash runway, near-term cash requirements, and whether conditional financing commitments actually fund on the stated terms and timing.
- FF 91 customer deliveries, production volumes, supplier readiness, and whether the company can generate material revenue and improve unit economics.
- Fully diluted share count and potential dilution from convertible notes, warrants, anti-dilution provisions and any reverse stock split.
- Status of debt defaults, registration statements, required share reserves and other financing closing conditions.
- Resolution and potential financial exposure from litigation, the Palantir arbitration, and SEC/DOJ inquiries.
- Progress in remediating material weaknesses and the reliability of future financial reporting.