Faraday Future Intelligent Electric Inc. — Q1 2022 Form 10-Q
Business context and period. This unaudited report covers the three months ended March 31, 2022, with comparisons to Q1 2021 and the December 31, 2021 balance sheet. Faraday Future designs and develops electric vehicles and had not generated revenue from vehicle sales. Its business plan centered on launching the FF 91, with customer deliveries planned to begin in Q3 2022.
Key financial metrics
Amounts below are in U.S. dollars; figures are rounded to millions where shown.
| Metric | Q1 2022 / March 31, 2022 | Comparable figure |
|---|---|---|
| Revenue | None | None in Q1 2021 |
| Operating expenses | $149.0 million | $19.4 million in Q1 2021 |
| Operating loss | $149.0 million | $19.4 million in Q1 2021 |
| Net loss | $153.1 million | $75.5 million in Q1 2021 |
| Net loss per share | $0.48 | $0.48 in Q1 2021 |
| Cash and restricted cash | $277.4 million | $530.5 million at December 31, 2021 |
| Current assets / current liabilities | $341.6 million / $242.8 million | $607.3 million / $293.8 million at December 31, 2021 |
| Total assets / total liabilities | $706.1 million / $270.8 million | $907.4 million / $339.8 million at December 31, 2021 |
| Accumulated deficit | $3,077.6 million | $2,907.6 million at December 31, 2021 |
Cash flow and debt. Net cash used in operating activities was $122.4 million, versus $20.3 million in Q1 2021. Investing activities used $44.4 million, primarily for property and equipment, while financing activities used $85.7 million, principally to repay notes. Cash and restricted cash declined by $253.1 million during the quarter. At quarter-end, notes payable had $79.7 million of unpaid principal and a $78.9 million net carrying value; related-party notes payable were $13.6 million. Finance and operating lease liabilities totaled $28.7 million. The company also reported $193.1 million of contractual obligations, including leases, debt, accrued interest, and a Palantir license commitment.
Margins are not meaningful because the company had no revenue. The filing reports no positive operating profit or cash flow.
Material changes versus Q1 2021 and year-end 2021
- Net loss roughly doubled year over year, while operating expenses rose to $149.0 million from $19.4 million. Research and development increased to $114.9 million from $6.7 million, mainly reflecting engineering, design and testing services, higher headcount, and related costs.
- General and administrative expense rose to $27.9 million from $11.0 million, including $14.9 million of increased professional services primarily related to the Special Committee investigation. Sales and marketing expense increased to $6.2 million from $1.7 million.
- Cash and restricted cash fell from $530.5 million at year-end to $277.4 million. The company repaid $87.1 million of notes in Q1, including a $2.1 million payment premium.
- Property and equipment increased to $338.9 million from $293.1 million, largely reflecting construction in progress. Total current liabilities declined to $242.8 million from $293.8 million.
- Reported Q1 2021 interest expense classifications were revised by $0.7 million between interest expense and related-party interest expense; the company said the correction did not affect statement subtotals or totals.
Outlook, risks, contingencies and unusual items
- Funding and going concern: Management concluded substantial doubt existed about the company’s ability to continue as a going concern for one year after issuance of the statements. It expected significant future operating losses and said continued operations depended on additional financing. Potential funding sources included debt, convertible notes, equipment or construction financing, working-capital loans, and equity offerings; availability and terms were uncertain.
- Vehicle plans: Management planned to complete FF 91 testing, validation and certification and begin customer deliveries in Q3 2022. It reported 401 FF 91 preorders as of March 31, described as refundable, non-binding paid deposits. The FF 81 was planned for 2024, with contract manufacturing in South Korea; later vehicle programs were also described as plans, not assured outcomes.
- Debt default: The company disclosed that a related-party note with $9.5 million principal was in default at March 31. Holders of separate Optional Notes had waived a January 2022 default.
- Investigations and governance: A Special Committee found that certain investor statements about founder YT Jia’s role were inaccurate; prior statements of more than 14,000 FF 91 reservations were potentially misleading because only several hundred had been paid; and related-party, housing and compliance disclosures had deficiencies. The company reported remedial governance and control actions. The SEC had opened a formal investigation, and the company said it was cooperating but could not estimate any potential loss.
- Litigation: The filing described securities class and derivative lawsuits, whose outcomes were not predictable. Accrued legal contingencies were $13.6 million at quarter-end. A lease dispute was settled for $6.4 million, with specified payments and conditions.
- Controls: Management concluded disclosure controls were not effective at March 31, 2022 because of material weaknesses in financial reporting, including staffing and segregation of duties, complex transaction accounting, related-party disclosures, information sharing, and IT controls. Remediation was underway but not complete.
- Operating risks: The filing highlighted supply-chain disruption, rising material costs, COVID-19 effects, manufacturing and production delays, and the risk that financing or cost-control plans would not be achieved.
Most important facts for investors to verify
- Whether the company secured sufficient financing to fund operations, debt obligations, and vehicle production after quarter-end.
- Whether FF 91 testing, certification, production readiness, and customer deliveries met the stated Q3 2022 plan.
- Whether cash use, capital spending, and supplier commitments remained within available liquidity.
- Progress and outcomes of the SEC investigation, litigation, and related-party disclosure and governance remediation.
- Whether material weaknesses were remediated and controls were tested and found effective.
- The status of the defaulted related-party note and remaining debt maturities and contractual commitments.