Fisker Inc. (NYSE:FSR) Deutsche Bank Global Auto Industry Conference 2022 June 14, 2022 11:00 AM ET
Company Participants
Henrik Fisker – Chairman and CEO
Conference Call Participants
Emmanuel Rosner – Deutsche Bank
Emmanuel Rosner
All right. Good morning, everybody. And thank you so much for joining us for this session with Fisker as part of Deutsche Bank’s Global Automotive Conference. My name is Emmanuel Rosner, and I’m the lead U.S. Autos and Auto Technology Analyst at Deutsche Bank.
Fisker is building a technology-enabled asset-light electric vehicle business it is. It currently has two models in the launch pipeline, including the Ocean SUV planned for later this year, and then the Fisker Pear after that. Fisker currently disclosed more than 50,000 reservations for the Ocean and is looking to grow that to, I believe, 80,000, at least by the end of this year.
So we’re extremely pleased to have representing the company with us this morning, Henrik Fisker, who is the Chairman and CEO of Fisker, as well as Frank Boroch, who is the VP of Treasury, as well as Investor Relations. Gentlemen, thank you so much for being with us.
Henrik Fisker
Good.
Question-and-Answer Session
Q – Emmanuel Rosner
So, thank you. The format for the session this morning will be a fireside chat around some of my prepared questions, but also topics from all of you on the call. If you have a topic you’d like us to address, just submit it in the by clicking the top right hand corner of your screen, , send it to me, in written form, and I will try to incorporate as part of the conversation.
So with that, thanks, again for being with us. And then let’s dive right into the conversation. So what is your latest timeline for startups production and delivery of the Ocean SUV? And just as importantly, what still needs to happen between now and then, before the launch?
Henrik Fisker
We have already stated at the beginning of last year that we are planning to have our startup production November 17 this year. And that plan has not changed. And it’s a very firm plan. And that’s because of the type of business model we have where we are working with the world’s fourth largest auto supplier, which is Magna. And Magna have a contract manufacturing facility in Europe, in Austria, where we are starting production in November this year.
And at this point, I think we have been very lucky that we haven’t had any delay in that startup production. And I think partially it’s because we are seeing sort of the end of some of the supply chain crisis, partly is because our vehicle really was entering into the final design phase last year, where we were able to make some changes, to make sure that we didn’t have any delays by designing certain parts in a certain way, using chips that wasn’t in — that wasn’t in short supply.
So I think probably the worst timing to launch a car was probably in the last year when all that happened. But I think we’re sort of just passing that wave. And of course, it’s also because we are working with such a large automotive supplier like Magna, which have multiple companies where we are getting parts from it could be mirrors, or whatever it might be.
And of course, they have much larger, I would say purchasing power than any EV startup. And therefore, we have been able to really get these parts that we need. We even see it now as we are building multiple — dozens of prototypes right now. We are already getting these parts, because if we wouldn’t get the parts, we couldn’t build the prototypes. So we actually getting all these parts.
And because we have also a taskforce team, both within Fisker, with about 50 people working in our supply chain, together with Magna. And that allows us to really keep track of every single supplier.
And it hasn’t been easy. But like I mentioned, because we are starting in November this year, all the suppliers now geared up and they’re ready. So I don’t think we get a lot of credit in the stock market for this at this point in time. But it actually looks really good and I’m very proud of what the team has done.
Emmanuel Rosner
So in your latest updates, which I think is from last week about more than 50,000 reservations for the Ocean. What are you saying about your customer base? What kind of customers do you see in your order book and then based on the latest — based on reservation trends, are you still comfortable expecting more than 80,000 units in reservations by year-end?
Henrik Fisker
So first of all — yeah, I mean, the reservations are just keeping increasing, quite frankly. We announced 50,000, I think only a few days ago and we already have another 1,000 orders that came in. So I think we’re getting a lot of attention globally. We see a great trend in Europe as well, I think we got the right product at the right time for the right price. There’s only so many you know, $100,000 EVs, you can sell. And we’re in, of course, in a completely different market segment.
And I think, in again, I think we’ve been lucky to have a product that is really going to enter the market when we see a huge upswing, and we are getting into a market segment because of our pricing, that has much more potential than obviously selling at maybe 100,000 of EV. So I truly believe that we’re not going to have any problems to reach 70,000 or 80,000 orders this year.
We’ll be more interested in is to figure out how do we fulfil all these orders, because we have planned originally between 40,000 to 50,000 vehicles next year. And we are in ongoing discussions with Magna and our suppliers to figure out how can we — after we — after the first six months of ramp up, which is sort of a normal period, how could we ramp even higher in second half of next year to increase production? So that’s something that we are looking into.
And that’s also why quite frankly, when people ask why aren’t you doing TV commercials or opening centers [ph] maybe contest drive the car and all that, well, we have so many orders that we really don’t want to spend any money on marketing at this point in time, because we don’t need to. We want to spend all this money on setting up the business for success. And that includes setting up the whole service, logistics network.
Of course, we are getting experience centers ready, but we also are getting our center plus ready. And that’s a whole unique business model has never been done before. How you get people the vehicle for very low cost. So all these things are what we’re spending the money on is actually growing the business for success in terms of delivering vehicle to make money on the vehicles.
Emmanuel Rosner
Understood. And I think you touched upon this a little bit earlier. But can you provide us an update on some of these supply chain constraints, you and Magna had observed up until now? It seems like you’re signaling things are getting better sequentially. But I guess what’s the latest status there?
Henrik Fisker
Yeah. Like I mentioned, I think because we don’t — we’re not in full scale production right now. So we haven’t been part of that wave. We saw the wave coming. We definitely saw some suppliers had difficulties getting us parts. We had issues with getting some screens out of Shanghai, for example, Foxconn is making for us during the COVID lockdown some months ago.
However, we have such an agile fast team that even though these screens were a bit delayed, we had some placeholder screens that we used to develop our user interface for example, and just put in the vehicles as placeholders. Now we got the screens, and we’re putting them into vehicles.
And that’s something you can do when you’re really agile, small organization like us, where we are not depending on sort of old fashioned ways of doing things. So again, even though we had a few things where a part was maybe a little late, we have been able to actually catch up. And I’m not seeing any delay for our startup production in November.
And in the meantime, now, we also have worked — for example, we worked with a supplier to redesign a part so we could use a different chip that wasn’t in short supply. And that’s again, something we could do because we moved so fast. And of course, we could still redesign something now, which we couldn’t have done if we were in the middle of a production launch. So I think all these factors has actually been positive for us.
And then of course, finally, when we are not doing the manufacturing that means the entire company, 500 people are fully focused on getting the Ocean ready for launch in terms of working with suppliers, reengineering things if they need to whatever it might be, whereas if we were also at the same time, trying to set up a manufacturing plan, learning how to manufacture a vehicle that would just add to the risk and defocus the team.
So our team is fully focused on the Ocean and we have such an amazing manufacturing partner like Magna, which already manufactures multiple luxury vehicles. So we don’t have to worry about getting quality vehicles, we don’t have to worry about scale up. The worry of the scale up would be if we would have launched the vehicle, I think earlier this year, because then we may not have been able to get access to enough parts. But at this point, I’m not really worried about the scale up.
I think all our suppliers, we’re going out to them by the way, and making sure that they commit to delivering the amount of volumes that we need. So we go out to every single supplier to give a Magna saying, hey, we need X amount of parts for you. And of course, we have a very detailed ramp up plan that goes week by week, so we know exactly what parts we need at what week after we started production in November.
Emmanuel Rosner
I think some of the recent disruption, so we’ve seen obviously a pretty dramatic rise in the cost of battery raw materials. What are your offsetting strategies for this? What kind of conversation do you have with your battery suppliers on a current and future cost of inputs?
Henrik Fisker
Yeah. Again, there’s a couple of factors here, we have to remember. First of all, before COVID, we had seen a steady decline in battery prices. And of course, as COVID hit, and we saw supply chain issues, we have seen a rise again.
However, I think once we move out of this crisis, we will again see the battery prices decline. And of course, we don’t have to lock our pricing in again, today, because we are not in full production. So again, if we would have launched the vehicle in the last year, this year, yes, you would have had dramatic price increases. But as we start really ramping up next year, I believe that the battery pricing again is going to go down.
So I don’t think they’re going to be as affected as some of the other EVs that are being produced right now, quite frankly, which is why we have not — at this point, we have actually announced that we are not raising prices for up to the first 40,000 vehicles because we announced that when we reached 40,000. So we wanted to really commit to our loyal reservation holders that we won’t raise prices.
And there’s two reasons for that. One, I believe that we are going to see battery prices coming down next year. And two, we also have clearly stated that we will start producing the most desired vehicle first, what happens to be the more expensive one. So the way it works, I think for everybody in the car industry, when you sell you’re fully optioned out vehicle, you make more money on that than the base vehicle. So we are not releasing the base vehicle until Q4 next year.
And because of the relative good margin we have, on what we call the Ocean Extreme and the Ocean One, which is our high-end vehicle, fully optioned out. We have enough room in there to actually allow us to have some deviation should there be still some higher prices, we have factored that in. And we don’t see any chance we won’t make money on that vehicle, quite frankly. We are also an extremely lean organization.
Again, that’s our business model. So normally, if you’re an EV startup, you would have to factor in that you have a factory, let’s say, with a capacity of 150,000 vehicles, and you have to pay for that if you own it. And even if you’re ramping up, and you’re only making 2,000-3,000 cars a month, you’re still paying for this giant overhead.
Whereas in our case, we only pay Magna a set fee. We don’t pay for any overcapacity of Magna. So we don’t have that burden. And we also don’t have that burden of an organization where we have to put thousands of dollars on each car because we are running an organization that is burdened by tens of thousands of people big infrastructure, all that. That’s all a whole business model, is first digital car company in the world. And I think is really benefited us because our burn rate is extremely low compared to any of our competitors.
And I think that’s — all these factors is what’s helping us make money on our vehicles without having to raise the prices beginning of next year.
Emmanuel Rosner
And just to put a finer point on this pricing strategy then. So are you willing to until you have to lock in sort of like some of these battery contracts to sort of see if you need to raise prices on the other vehicle beyond sort of like the initial 40,000 vehicles, I guess, what is sort of like the pricing structure of some of these battery contracts? Do you lock in — when would you need to lock those [multiple speakers]
Henrik Fisker
Yeah, we don’t lock them in until we start deliveries, which is end of this year. So — and then we also have in our pricing structure. Of course, there is adjustments according to raw materials. Like I mentioned, I expect that this will go down next year.
Secondly, I think that the real advantages here that we have is that once we launch the base model, we actually have a LFP battery, which doesn’t have cobalt, for example, some of the expensive raw materials. And that was something we chose because it was low on price. And we wanted an entry level vehicle. And I think, again, we have been lucky there, that when we launched this vehicle, I don’t think we’re going to get affected by it.
Now, let’s face it, every carmaker in the world have to raise prices every year, it’s just normal. So I do expect that we will have price increases in 2024, for sure, that is just whether we would have a crisis or not, it will be normal, because you have just an inflation happening every year. And so it’ll be normal to raise prices. And I do expect we will have a price increase in ‘24. Like I mentioned, after the first 40,000 cars, I would expect the price increase. And that will be sometime in the next year.
And then we will have to take a look at what does that need to be? Did we go back to normal? Or is there still more than normal? And do we have to, adjusted differently? I don’t think we need to — we can’t answer that question today. And I don’t think we need to answer it quite frankly, I think the issue is if, again, if you’re launching a car, end of this year, and you immediately have to raise the prices, that will be an issue.
But like I mentioned, we don’t have to do that. We are going to make money. We have our asset light business model where it essentially separates us from all the other startups. We don’t burn billions of dollars in overhead like some of the other EV startups every year. And that’s I think, is a big factor when you have a crisis.
The worst thing is when you have a big cash burn, and you can’t stop it. And your business doesn’t work, if you try to lower costs. And our business works, is running and is running on full speed.
Emmanuel Rosner
And then maybe just finally, in terms of the latest updates. I think you also in your recent press release also spoke about initial traction with a Fisker Pear. What kind of vehicle should we expect there? Where are you in the design and testing phase?
Henrik Fisker
So we are in the middle of the development of that vehicle. It supposed to come out in in 2024, around mid-2024. And this program is going extremely well. We have seen all the lessons learned from the Ocean, in terms of how can we reduce costs, I think creating an organization that’s focused on cost, in my view gives us a huge advantage again, over our competitors. We can always design a luxury car we will have a luxury car. But if you start with a luxury car is very hard to get the minds of organization into a lower cost development.
So our aim with this vehicle is completely revolutionize how you create a lower cost vehicle without making it feel cheap, or ugly or boring. So this will be a super exciting, let’s call it a crossover. But it is sort of not really fitting in any particular vehicle class because it doesn’t have typical proportions that would put it in a certain segment. It is about little over 4.5 meter long.
So it’s fairly compact, smaller than the Ocean that will fit five people. It’ll have an extreme amount of interior space and storage compared to any other vehicle in that size. You’re coming up with some super innovative ideas. It’ll have very advanced technology in the vehicle. We are looking at level three for autonomous features in that vehicle. We are looking at some other very high-tech solutions.
I think that, essentially, it’ll be let’s call it a computer on wheels, a super advanced one, but with a sexy design. But it will also be a vehicle that truly can span beyond just one user case scenario. We see this vehicle can be used for ride hailing. It can be used for delivery, food delivery services, we have a very unique thing in this vehicle that makes an excellent for food delivery services to keep your food hot or cold. We have a type of interior space that will make it really good for other kinds of you use cases.
And that’s kind of how we develop the vehicle. We had our site engineer and design team, look at user scenarios and mega cities, specifically for younger people and the next generation of buyers. And we think we have a really unique product. And it’s in full development. I expect we will have a prototype in the end of the year. We probably won’t fully unveil it until later next year, just for competitive reasons. We don’t want to give it away. We have some so innovative things on this vehicle that we just don’t want to give it to competition to early
Emmanuel Rosner
Understood. So maybe just switching gears towards your manufacturing strategy. Can you remind us of your manufacturing relationship with Magna? What production capacity is allocated to Fisker for production as we start at the end of this year and for next year? What are some of like the midterm targets?
Henrik Fisker
Yeah. So with Magna, of course, we have a firm manufacturing contract. But also remember, Magna owns about 6% of Fisker, so we have a very tight relationship where we really are joined by the hip to get success. And Magna have such a giant facility that we — I don’t –there’s no issue of increasing volume from Magna side. And I’ve already said, we can easily get up to 150,000 vehicles from Magna. But we need to make sure we can ramp up all the other supply chain.
So that’s what we’re working on right now. And, I would imagine that we will get well over 100,000 vehicles going in ‘24, maybe up to 150,000. So I think there’s no constraint there. Then of course, we have our other manufacturing partner, which is Foxconn. And they have just acquired one of the largest factories in the U.S. in Ohio. And there’s also capacity for several 100,000 vehicles there. That’s what we’re going to start with a Pear. And we are already working with Foxconn on the manufacturing layout for our vehicle.
I think we’re going to get a majority of capacity in that factory. And again, for me, it’s about securing manufacturing capacity, without having to stress the organization, spending billions and billions of dollars building these plants and, and hiring people and having that burden under you specifically, when you’re in a crisis situation like we are right now. I am happy to have this low overhead and we don’t have a big burn. And we just concentrate on our launch.
Foxconn is also a supplier to us. And they have been extremely helpful with some of the tech parts that they’re doing for us. So even though there was a lockdown in, for example, Shanghai, but we got some parts. They worked extremely hard on getting us this. There was very little delay. They are obviously a global — the world’s largest manufacturer globally, quite frankly. And I think they will help us innovate with the Pear. Pear really is more of a tech device, or a mobility device versus a normal car.
We’re doing everything different in this vehicle. And I think we will have a huge advantage coming out with very desirable, affordable EV in 2024, where I think there’s still a lot of companies thinking about how to do that. I think we’ve come up with a solution. And I think it’ll give us a real competitive advantage. And Foxconn can start building this vehicle anywhere in the world. And we can scale us faster probably than anybody else. And I think that’s really the differentiator here
Emmanuel Rosner
What can you tell us about the manufacturing agreement in terms of unit economics, quality control, Bill of Materials, I guess what it ultimately means for your return profile in selling the Ocean?
Henrik Fisker
Yeah. Obviously, we don’t want to give any of our competitive secrets away and our business deals with Magna. But the way you have to think about this, and I think what people sometimes misunderstand even maybe a few analysts that, it does — the cost to manufacture a vehicle is not like half of the cost of the car. It’s probably less than 10%.
So, the key here is that the way you actually established the cost of manufacturing is how many hours it takes you to assemble this vehicle. Now, if that doesn’t matter if you’re a chef if you’re a manufacturing guy. If you know what you’re doing, you can cook the perfect meal superfast and knows exactly how old ingredients is are. But if you have come into this kitchen, you’ve never done it before, most likely, you will take a lot longer to cook this meal, and probably won’t taste as good and be the same quality as that three-star Michelin chef.
And I would say Magna is a three-star Michelin chef. So they are giving us a very reasonable, I would say a fee for manufacturing. And it’s a fee where we are not paying Magna for any scale up or inefficiencies that you would have to pay for yourself if it was your factory. You would have to pay for these inefficiencies. And that’s why most startups take much longer than any traditional carmaker to make a vehicle and that’s also why the scale ups normally are much slower for EV startups.
In our case, you know, we are not to scale up, we are giving that over to Magna they’re doing it. That’s what they’re masters of. And that’s why we have such an efficient business model, because we can already calculate out what the cost of manufacturing is. There is no EV startup that truly knows what their cost of manufacturing is, if they’ve never manufactured a car. Their desire may be to do it super quick in whatever, 18 hours or 20 hours. But they probably end up doing it more than twice or three times that which means that they’re going to spend more on manufacturing. So I think that’s again, our key advantage here. We have a business model, where we know our manufacturing costs. They’re super competitive.
Now don’t forget this, is Magna wasn’t competitive. You wouldn’t have other companies like BMW and Mercedes going there to get the cars manufactured. So this clear, they have to be competitive. And I think this — now in this crisis, we haven’t been in sort of this environment we’re in right now we have this huge advances that fortunately, we have partners like this, where we know they’re going to deliver. And they’re showing it because they’re already building cars for us.
Emmanuel Rosner
On financials and gold. So I guess in terms of your midterm financial projections, what are they? What is the path to getting there? Anything you can share in terms of targeted delivery units or margin profile that you’re ultimately targeting?
Henrik Fisker
Well, I think that for us, we have always said, we plan on the Ocean program to be cash flow positive on that program late next year, I think that’s extremely fast for any startup. We obviously are going to have to invest continuously in the company to expand our product portfolio. And this is really our — I would say our strategy is to bring as many new vehicles different models to market before 2025.
The target is four vehicles on the market before ‘25. That’s a huge task. We are working on three of them right now. And why do we want to do that? Why aren’t we just doing the Ocean and then think about doing a second car once we have launched it? Well, because if I did that, I would only have one car to sell for the next two-three years because it takes two and a half years to make a vehicle.
So we took a different approach. We are using our engineering teams in a very strategic way where they move from the Ocean program over to the Pear program. And then they also use some of their time on a third program. And we have created a superfast development process within Fisker. It’s really one of our key, I think, knowledge points and IPs. And it allows us to develop these vehicles very efficiently very fast. And the reason we want to do that is because I believe that the real value here for an EV maker, specifically a startup is how much market share can you take before 2025. After 2025 it’ll be such a tough market because everybody will have an EV. And some of the traditional car companies will have their second generation EVs.
So the real chance is how much market share can you take before 2025? I will say if you make less than 100,000 vehicles as you move into 2025, I don’t think you ever will have a chance to become a major player. So we want to move into 2025, making several 100,000 vehicles and having a full range of electric vehicles where we can keep expanding our market share and be profitable.
Emmanuel Rosner
Stop around [ph] your go-to-market and technology strategy. So I think you’ll be offering this flexible leasing model which is really new for the industry. Can you talk about how the business model works for it? How it will help differentiate Fisker? And do you have any targets mix for that?
Henrik Fisker
Yeah. So, we are set up as really the most extreme case of being a digital car company. You are going to buy our vehicles online or from our app or flexible lease them. We have developed an incredible digital customer experience, where we’re going to include many different services. We’re going to offer over the air packages, also offer subscription models to certain options so people can opt in and out as they please.
And of course, the flexible lease, we see long-term as being a huge strategic advantage for us. Because that means ultimately, that because we own these vehicles, our fleet of vehicles will be extremely high compared to any competitor. And that fleet of vehicles or customers, we can keep making revenue on by offering different services. So it’s a very big part of our long-term strategy.
However, as an EV startup, you also have to think about cash is king. So we are going to be mostly interested to sell to cash buyers, at least in the first half of next year. We do have a lot of interest in a flexible lease. And we will start deploying that in second half of next year. And in certain markets, so we can strategically go out and make sure it gets optimized. But ultimately, I could see the flexible lease being a vast majority of how we deploy our vehicles. I mean, it could probably go beyond 80% or 90%, eventually, but it isn’t going to be already next year, I think we have to roll it out, slowly build it up. And we can always decide when we are ready to give it full speed.
But we are seeing a lot of interest in it. And I think we will surprise a lot of people with our unique business model when it comes to subscription services, option packages, et cetera. Everything is digital.
Emmanuel Rosner
Thinking about ADAS or autonomous vehicle functionality. What is the plan for the offering? Will you be using, LiDAR down the line? What did you tell us about the planned technology?
Henrik Fisker
Yeah, so we are — with the Ocean, we have the world’s first digital imaging radar. And we were able to get that in the vehicle simply because we chose the technology very late, which is kind of our business model. We want our customers to have the newest technology, which is also why the Fisker Ocean have, for example, the longest range in this price class. And we have a lot of other technologies that even nobody else have. Digital Imaging Radar is one example. It probably will come in other vehicles later. But we have a first mover advantages there.
We have an autonomous system we call FI Pilot, Fisker Intelligent Pilot. And we will continue to deliver new interesting features as the vehicle move forward. So it’s really an upgradable system, where we have a lot of innovative features that we want to put into the system. One is to be called, never scratch your wheel, so it’s an active feature, where we will guarantee you can never scratch your wheels when you park, it’s one of my personal favorites because I do it every time, I get a new car. So I think that’ll be as super customer satisfaction feature.
We are really doing some of this development, by the way in-house. But in the end of the day, I think autonomous systems, they are going to become more of a commodity because it’s very expensive to develop these systems. So we are, of course not going to develop our own internal for example, LiDARs or radars or cameras those are things that we buy as packages.
We are looking at LiDAR for the Pear model, for example, and it’s something that we’re in the middle of making those decisions this year. And I think that again, these technologies, it’s about what type of customer features can you offer that is maybe beyond what we know now. And what we know now is the lane change maneuvers and all these things which I think everybody will have it because it’s just part of enhancing the safety. And as these systems become better and better, they’re going to be part of offering from every car manufacturer of course, depending probably on the price level. But then it’s about what other features can you do with these systems. And that’s what we’re working on.
Emmanuel Rosner
Great, very helpful. We’re fresh out of time. So, Henrik, Frank, I really want to thank you so much for making the time to update us on how things are going. We’re definitely looking forward to continue monitoring your progress. I want to thank all the investors on the line for joining us and for participating. Very much look forward to continue interacting with all of you over the next three days at the Global Autos Conference, the rest of today virtually and then obviously, the next two days hopefully in-person in New York.
So again, thank you so much, everyone. And have a great day.
Henrik Fisker
Thank you, Manuel. Great to be here.
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