Fisker Inc. (NYSE:FSR) Q2 2022 Results Conference Call August 3, 2022 5:00 PM ET
Company Participants
Frank Boroch – VP, IR and Treasury
Henrik Fisker – CEO
Dr. Burkhard Huhnke – CTO
Dr. Geeta Gupta-Fisker – CFO and COO
Conference Call Participants
Joseph Spakwith – RBC
James Picariello – BNP Paribas
Adam Jonas – Morgan Stanley
Pavel Molchanov – Raymond
Shreyas Patel – Wolf Research
Operator
Good afternoon. Thank you for attending today’s Fisker Inc. Second Quarter 2022 Earnings Call. My name is Francis, and I’ll be your moderator today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. [Operator Instructions]
I would now like to pass the conference over to our host Frank Boroch with Fisker.
Frank Boroch
Thank you, Francis. Hello everyone, and welcome to Fisker second quarter earnings call. As the operated mentioned, my name is Frank Boroch, VP of Investor Relations and Treasury here at Fisker.
Joining me on the call today as usual, are Henrik Fisker, Chief Executive Officer; Dr. Burkhard Huhnke, Chief Technology Officer; and Dr. Geeta Gupta-Fisker, Chief Financial Officer and Chief Operating Officer.
Before turning it over to Henrik, be advised we will make forward-looking statements within the meaning of the federal securities laws. Forward-looking statements generally relate to future events or future financial or operating performance. Our expectations and beliefs regarding these matters may not materialize. Actual results and financial periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected.
These risks include those set forth in the press release we issued earlier today as well as those more fully described in our filings with the Securities and Exchange Commission. The forward-looking statements in this presentation are based on information available to us as of today. We disclaim any obligation to update any forward-looking statements, except as required by law.
We’ll reference our financial measures that do not conform to Generally Accepted Accounting Principles or GAAP, during today’s call, including non-GAAP operating expenses. This information may be calculated differently than the non-GAAP data presented by other companies. Quantitative reconciliation of our non-GAAP financial information to the directly comparable GAAP financial information appears in today’s earnings release.
With that, I’m happy to turn the call over to Hendrick.
Henrik Fisker
Thank you, Frank, and thank you everyone for joining this call. I first want to actually begin thanking all our teams and our partners for the incredible progress we have made year to-date. I’m really, really excited, actually really excited about this call because we’ve got so many exciting things to announce. Of course the progress has continued at a great pace, and is unscheduled when it comes to the Ocean. And we on track for SOP on November 17th this year, as we have stated previously, and that remains the same. And we have also continued into the next phase of our second program, the PEAR program, and talk a little bit about that later.
We have completed 55 Ocean prototypes, and they’ve of course been built to do all our testing that continues, and we have got some great results and Magna continues to build prototypes throughout the rest of this year on until SOP. We also have had reservation growth that has continued at a rapid pace. We now have over 56,000 reservations including 5,000 pre-orders for the Fisker Ocean One. So we have seen customers responding to the Fisker Ocean class leading and industry first features.
I want to mention that getting thousands of people here in the U.S. to put down 5,000 and non-refundable in a vehicle they haven’t seen yet, they haven’t sat in yet. They haven’t driven really shows for me the commitment, but also the value proposition that we have in the Fisker Ocean, not only in terms of price, but all the things that we offer. And if you go to our website, Fisker Inc, you can see that we have many, many features that you can’t even get on another car. You can’t get such a Big Sur roof as we have. You can’t get a California mode, you can’t get a 17.1 inch rotating screen, and I can go on and on about all the features these fantastic features that we have developed that the Fisker Ocean have, and quite frankly, makes it stand out in this class.
Now we opened the pre-orders in early July for a $5,000 or local equivalent down payment in Europe, and for the exclusive launch edition, which we call the Fisker Ocean One. And I’m happy to say that we are sold out of all the 5,000 Ocean One pre-orders and everybody paid $5,000for that order. And that really represents in my mind a real order. And it’s actually quite a historic moment because I don’t think anybody has ever done that before in such a way. And it really also shows that we now have a potential revenue of $350 million, which are already secured before we start production, which I think is amazing.
Let’s get to the balance sheet and remains solid at over $850 million in cash, and our business continues to scale. The Fisker teams are now over 550 people representing over 60% growth year-to-date, including our new SVP of Global Manufacturing who will focus on a lean manufacturing, and innovative techniques. And what I mean by that is that Fisker have a development process where it’s all about efficiency. So we are bringing manufacturing brain power in early in the development process specifically on the payer program, because we have a very, very tough target to reach in terms of cost for that. And that includes of course, ease of manufacturing. So there’s I’ve given very clear guidelines to the engineering team, reduced parts reduced cost. And we are now in the second phase of that program. And I’ll talk a little bit about that and we are still on target to launch that vehicle for under $30,000.
Now also the organic marketing efforts continuum, UK debut at Goodwood Festival of Speed. And we had a French debut in Paris plus continued progress on our Fisker Lounges, which is what we call our experience centers or showrooms, which we expect will open later this year, both here in U.S. and Europe and also stay tuned for more popup events and our inaugural appearance at the Paris order show in October. So we obviously are starting to get more marketing vehicles in October, and that’s when we’re going to start getting out and showing our car a little more as well. Because I know a lot of people has asked for that, but we are now starting to get these marketing cars in October that we can start showing.
So let me go back to a little more detailed Ocean update. So our number one priority is to launch a high quality Fisker Ocean on time and we remained on track to do so. So, on the prototype update, as I’ve mentioned, we have completed the 55 prototype builds and continued to build vehicles and the testing and validation is well underway. In July, Fisker Ocean prototype arrived in the U.S. for testing. We have five prototype vehicles in Michigan, undergoing eight us testing with Magna and also completing testing for high pressure, water tightness, high and low speed features, powertrain and much more. Our U.S. internal crash testing, which we do in-house by the way, will prototypes achieve five star equivalent ratings, which gives us confident informal ratings when they come out.
Now, we are not in charge of when those formal ratings come out because basically IHS and other rating companies have to buy our vehicles next year and do their own testing, independent testing. But we are very confident that we achieve the five-star equivalent rating what we have done so far because obviously we have done all the testing internal. I personally received my Ocean test vehicle in LA and have been very impressed with the handling and performance. I’m driving around on many different streets in LA, and I’m just so amazed about what we’ve accomplished with this vehicle so far. And this is not even the final vehicle. It still needs fine tuning, but I’ve also driven this vehicle actually in a later stage on the suspension, on the high speed track in Italy. And I can promise anybody this is going to be one of the best handling SUVs in the world, hands down, specifically when you combine the actual cornering and driving ability and performance compared with comfort. It’s easy to make a super sporty car and it’s easy to make a super comfortable car, but combine the two for everyday use is super difficult and we have really achieved this with a Fisker Ocean. I can’t wait for people to get in and drive it.
Now the Ocean demands remain strong. Our marketing and brand building efforts are working most impressive is selling out of all the 5,000 Ocean One, launch editions, pre-orders with customers in all nine launch countries and all 48 continental U.S. states. Our customer outreach was limited to our launch market — in reservation order. Based on our information, this is the largest deposit amount of number of launch units for any premium affordable vehicle. So I think we did really well here. We have a very unique internal data based marketing strategy as well we are using and we are building that skill internally.
The Ocean is a luxurious, fully loaded edition. The Ocean One of the Fisker Ocean, that include rarities and features uniquely only to the Ocean One, including an Ocean One signature batch plaque specific numbering and over $5,000 of included options. People love the Big Sur Blue so far, most popular color selection. We obviously can see what people have ordered and the $5,000 down payment show us that customers are truly committed and allow us to plan the built with their unique colors and specifications months ahead of SOP leading to a more seamless launch and initial deliveries. I mean, that’s another very important point.
The more you can plan your production ramp up the better it is. And we are able to do that because of these firm orders we have got for the Ocean One. And I also think the customers recognize the great value proposition of the vehicle. The many class leading are industry leading features and the confidence in the Fisker and Magna to produce a high quality vehicle. And we truly — we also appreciate customers understanding of the current elevated logistic cost that quite frankly in my view a way too high, but we are just passing over the cost of logistics to our customers. And I will promise if we get to a point where these logistic costs are falling, we will also lower our delivery cost.
This is simply just a factor of the current environment. And I want to remind everybody that we have not raised the prices for the first 40,000 vehicles we’ll deliver, but we do have to pass over certain logistic costs such as delivery costs unfortunately to our customers. But I do think these costs will fluctuate based on logistics rates as we move forward. And then we will adjust them as well. So, reservations generally continue to increase, and we have started the strategic discussions with Magna to add capacity, continued strong growth because Ocean is segment leading has a great design and has many sustainable credentials.
And as we get closer to SOP and continue to be increasingly transparent with respect to our product and what customers are getting, and for what price prospective customers should only get more-and-more excited serving an Ocean. And we think we’re seeing that already as you start comparing our vehicle and the specification with other competitors, I think we’re way ahead. And of course, we are going to show even more detailed about some options and actually equipment that we haven’t announced yet that I think only is going to add to that.
Starting on November 18th, the day after our Fisker started production, we are happy to announce that we will begin taking pre-orders for our customers who are instant in the Ocean Extreme Trim. And this will be followed by pre-orders beginning opening for our Ultra and Sports trims already in Q1, 2023. We are going out in phases, which will help us again plan our production forecast. And we have reserved both, Ocean Ultra and Ocean Sport production for next year. So even if we were to be completely sold out of next year’s production with Extremes, we are promising, we’ll still build some Ocean Ultra and some Ocean Sports, and they will be available from around Q3 next year.
Let’s come to the PEAR update, in early May, Foxconn completes its acquisition of an operational 6.2 million square foot manufacturing facility in Ohio. And that’s where PEAR will be built using the Fisker developed SLV1 platform. That’s a brand new platform that we are developing in house, and again as I mentioned, it’s about reducing parts and cost. So, we can get a super exciting vehicle on the road with high technology without spending it on platform stamping and complicated structures, et cetera.
And we intend to build a minimum of 250,000 PEAR vehicles a year, once the plant ramps up production, and PEAR reservations have now surpassed 4,000. We of course haven’t shown much of the PEAR. There’s a kind of a new image today, a little bit of the front with the super cool round front windscreen that we are working on getting into production. It’s difficult and but will make it. We make things happen at Fisker. We make dreams come true. We don’t give up on innovation. So there’s a lot of innovation features in the PEAR. Something that not only have you never seen in that price class, but I actually think you have never seen it on any car, any production car before.
There’s — I’m super excited about this vehicle. I think this will really be redefining not only how you develop a vehicle, but also the content of the vehicle, the design of the vehicle, and finally what you get for your money, an electric vehicle. And I know a lot of doubters out there that we won’t be able to make this vehicle under 30,000, but we are doing it with the Ocean, and we’ll do it with a PEAR. We have an internal process that is unique. And with us really allows us to get that point. But you can’t get to that point if you try to develop a vehicle like you have developed gasoline vehicles the last hundred years. You completely have to rethink what a mobile device is of the future. And that’s what we have done with the PEAR.
And I think we’re going to excite the market when it comes out in 2024, which is little scheduled for, and as I said starting under $30,000 before any incentives. And I also want to mention, again, we have this vehicle will be built here in the U.S. So now we have manufacturing opportunities in Europe and we have manufacturing opportunities in the US. And I think that’s extremely important that we have been smart enough to hedge, no matter what type of legislation comes in the future. I think we are in a very safe position. We’ve got affordable vehicles. We have hedge our manufacturing strategy. We are bought in, a super manufacturing guy that are looking into even more opportunities. What we need to do for localization of manufacturing. What do we need to do for potential battery manufacturing, uh, here in the U.S. and the future battery JVs. et cetera.
So there is nothing that we’re not looking at. All opportunities are open and because we are so agile and fast, we can actually move and actually do what’s needed to fulfill the market conditions. And in fact, we are already looking at actively offer some presales of the Oceans should a legislation come into place, where we would want to take our customers to take advantages of the $7,500 tax rebate for 2023. So if that becomes necessary, we have already a plan and will announce that if it’s needed. So I’m very comfortable with that as well.
Let’s come to the customer experience strategy, and an update. Fisker brand launches which we previously refer to as experience centers will offer prospective customers the opportunity to see and experience the Company’s vehicles as well as speak with product experts on hand, depending on state loss, some Fisker Lounges showrooms will also offer test drives. There’s a few states where that makes it more difficult. So we will find other ways to make that happen. Don’t worry.
Locations in addition, addition to LA and Munich locations, we expect to open later this year. We expect to announce further locations in the next few months. We are already negotiating on a lot of different real estates, both in the U.S. and Europe. We will also have Fisker center plus locations or center plus locations are really delivery centers and its service centers and where you will go to test drives. And that’s a really unique Fisker strategy that hasn’t been used by any other car company in the world. And we are doing that so we can offer you the customer a much better experience, but also more value for money. We don’t want to charge you for expensive buildings and leather couches and all that stuff.
We want you come and pick up your car, you probably only do once every two or three years, and you would rather go and get a great price for the car than having to go to a super expensive glass palace. And we have to add $2,000 per car. We don’t do that. It’s about getting product to our consumers that are state-of-the-art at the best, service centers will be operated by Fisker. We of course also have partners strategically placed until or even during these service centers operation, where we can also bring vehicles in for service, of course, with our fantastic, and I think class leading warranty, nobody really has to think about service for the first five or six years. In fact, if there’s any warranty issues, obviously it’s Fisker’s obligation and we will come and pick up your vehicle, and we will either do mobile service, or we will take it to one of our center pluses, or we will take it to a partner of us, but we take care of it. You absolutely don’t have to worry about as a customer.
Finally, our advanced sustainability vision, a clean future for all, we are proud that Fisker will produce in Magna’s carbon neutral plant in Austria. The Fisker Ocean will contain over 50 kilos of recycled polymers and bio-based materials more than any other vehicle that we know of currently on the market, highlighting our commitment sustainability. Our vision when we started and we talked about that already two, three years ago was to make the world’s most sustainable cars. And we are coming through that. We have an amazing in-house team. We have a leader of ESG, and we are going to soon announce our ESG impact report later this month. And we are actually doing that ahead of production, which is very unique. And I think this illustrates how integrated ESG is throughout our business, and we also are still very firm on wanting to reach to create a CO2 neutral car by 2027. And most likely we will use the PEAR model as a foundation for that CO2 neutral model. So already a lot of these ideas are flowing into the PEAR program, and we are aiming to lead with the world’s most sustainable vehicles.
I’m very optimistic about Fisker’s future and realizing our vision of a clean future for all. I now want turn it over to Burkhard or Chief Technology Officer. Burkhard?
Dr. Burkhard Huhnke
Yes. Thank you, Henrik. Beginning with Fisker Ocean, engineering testing and validation is progressing well and we remain on schedule to achieve SOP in November. We have super agile teams at Fisker and Magna that efficiently collaborate in the modern way. Fisker and Magna shared reach and experience continue to ensure all our path are sourced delivered, assembled, and tested on schedule. We are closely partnering with our supply chain to protect our November 17th production plans. And from our vantage point, semiconductor chip availability is proving and positions us very well for SOP.
The all 55 of our complete prototypes have been built in performance has been confirmed. These have a production intent design and components, and are used for validation in all attributes, such as safety with the highest end cap ratings, ADAS, NVH climate power chain system, performance, chassis, electrical integration, and complete durability. As we progress through the different performance tests, our agile teams can quickly synthesize the results and rapidly make any final modifications.
Based on extensive testing, including around 40 vehicle level tests, subsystem testing and simulations, the Fisker Ocean is on track to meet global certificating. We’ve recently begun our next build phase. It’s called the PTO build, which is done with bodies built from the series manufacturing line and plain process and is the final build before we enter our serial production. These vehicles are intended to be fully representative of the final series design and will later be built on the series final assembly line. They will be used for final validation and testing of complete vehicle performance, comfort and functions. In addition, these vehicles will be used to start all final certification and home obligation testing.
Henrik, Geeta, and I are going to guard next week to observe and monitor this final build phase. We have been collecting data throughout our build phases and are closing the iteration loop to update the final phase as we approach serial production. The full Ocean program has come nicely together. We brought over several prototypes vehicles to the U.S. for testing of ado, electrical engine entertainment systems and overall function and comfort. We believe this is really important to have data from every region to be custom oriented in every situation.
We have had close collaboration with Bridgestone to ensure top performance. In general, we have done everything to maximize, driving range of all vehicles including optimization, work on efficiency, break work, and more. Integration work on software and electronics is currently underway and all the domains are coming together, including user Interface User Experience we call it UUE. We are simplifying and integrating features for a hundred percent customer reliability and satisfaction.
The customer experience insight in outside of the car is supported by our creation of a highly scalable, secure, multi-cloud infrastructure to support Fisker’s future vehicle fleet. Our state of the art technology provides for B directional connection between the vehicle and the cloud. This enables our vehicles and mobile apps to dynamically interact. The end results, the digitally connected with easy to use functionality that is always available for our customers. Our OTA, over-the-air updateability strategy is unique and is fully driven by Fisker cloud. It allows us to update individual vehicles as well as portions of all of the fleet of vehicles. We believe the revenue and margin potential of our connected strategy will be first of its kind.
Now to briefly touch on PEAR specifically, PEAR engineering is continued to ramp and as Ocean gets closer to SOP, we are transitioning more and more resources from the Ocean program to the PEAR program. We have finalized the concept have begun the sample phase. The PEAR will have a truly revolutionary electrical architecture with the many ECUs and traditional vehicle consolidated down to a few central computer units. Fisker continues to rapidly scale our core technical competence with robust in-house IP creation to both software and hardware engineering. We have much in-house software competence and are focused on the main domains, software cockpit, computer, ADA, battery, and powertrain.
Our San Francisco technology center along with our newly established India headquarters are focused on the design and engineering of software systems to support the Ocean and future vehicle programs. Our technical staff has grown over 50% year to date to approximately 300 strong. The further illustration of our growing technical progress in in-house IP creation is Fisker’s rapidly expanding global patent and patent pending portfolio currently around 70. We’ve built a fantastic team, and continue to invest in internal capabilities that will enable Fiskerto innovate and introduce cutting edge technology into our platforms.
Thank you. I will now turn the call over to Geeta.
Dr. Geeta Gupta-Fisker
Thank you, Burkhard, and welcome everyone with over — just over three months to SOP, our number one priority is ensuring development timelines, remain on track, and that our supply chain is ready for our startup production on November 17th and a subsequent ramp up in 2023. In this current tough environment, it is extremely important that I emphasize our asset light strategy, which we started off with over two years ago. It is a very purposeful strategy designed to support us in all economic cycles. It offers scale benefits without the complexities, risks, and fixed costs of a fully vertically integrated approach.
We continue to staff up with 530 full time employees across nine countries. And of course that does not include over 500 colleagues we have at Magna Steyr in Graz in engineering, purchasing, quality advanced manufacturing engineering, and over a 1,000 colleagues we have who will ultimately build the Fisker Ocean at Magna’s style. Even after this growth, we are still a small fraction of the size of other sector participants. Yet we aim to produce more vehicles in our first full year of operation than any other EV startup has done in history. Our unique model reduces the high operating leverage inherent in this industry and dramatically shortens the development timeframe.
Now let me share some of our recent Ocean program milestones in addition to what Henrik and Burkhard already spoke about. The prototype bill phase is now complete with 55 prototypes deployed globally. Critical testing and validation required for launch is well underway and on track for our November SOP timing. We employ a comprehensive supply chain management approach. I had mentioned last time on our earnings call that we have an executive team, an executive supply chain task force between Fisker and Magna that continues to systematically conduct reviews, meet suppliers, and solve any critical issues we have with suppliers, these include in-person visits to confirm bumper to bumper readiness for tooling, part status, capacity, and production part approval process achievement, also called PPAP.
We continue to update our supply chain with our latest reservation and pre-order numbers and discuss opportunities for subsequent expansion beyond existing capacity targets. Staying on the supply chain topic, commodity pricing has come off the boil since our last call, for example, steel, which is more important for Ocean than aluminum is down 40% from early May, and 55% year-on-year. Key battery components have also moderated a bit. In addition, the strong dollar has mitigated inflationary pressures for us, as well since many of our supplier contracts are Euro denominated. Euro has weakened 10% year-to-date versus the used dollar and is currently bouncing along its lowest level in 20 years, since 2002.
As a reminder, our contracts favor factor in commodity prices, inflation productivity, and foreign exchange, some of these critical elements will be calculated on a quarterly or annual basis as we start to ramp up production next year. As a result, we will have much better visibility of the actual impact of commodity prices to our bomb further into 2023. While we plan to produce between 40,000 and 50,000 Ocean vehicles in 2023, we expect this to be back and loaded, reflecting our deliberate early production strategy to ensure we deliver a high quality vehicle to our early customers.
I want to level set revenue expectations for 2022 with a limited number of working days between November 17 and year end, combined with holiday related factory closure and vehicle transit time to the U.S., this translates to little to no revenue this year. We have clear visibility and locations of our first 5,000 Ocean One customers and are fully focused on establishing a seamless experience as we start delivering these vehicles. This insight provides significant advantages, including optimal customer service and efficient cost management by enabling us to sequence with precision our delivery centers, parts warehouses, last mile, logistics network and local after sale support infrastructure.
Last month, we announced Fisker Finance, a digital financing platform offering seamless and convenient loan purchase options to Fisker customers, retail loan options include vehicle, accessories and home charging equipment financing. We reaffirm the nomination of Chase in the U.S. and Santander Consumer Finance in Europe as a retail financing partners. As a complement to vehicle financing, we also aim to provide our customers with value added services such as trade-ins and competitive insurance on our digital platform.
Before turning into our financial results, I want to make some comments about customer deposits. As Hendrick mentioned, we are very excited to have sold out all 500 pre-orders for our Ocean One launch edition secured by $5,000 or equivalent in local currencies deposits from each customer. From an accounting standpoint, we will not recognize revenue until the underlying vehicles are delivered to customers. Our Ocean One customers hail from all nine launch countries and utilize various payment methods for their down payments. And as a result, depending on the town payment method, the financial intermediary either transfers those deposits to Fisker shortly after pre-ordered or when the vehicle is delivered.
Turning now to our Q2 results balance sheet and 2022 outlook. Our Q2 operating expenses of $88.7 million or $87.5 million X stock compensation expense was consistent with our internal expectations. Capital expenditures of 54.2 million increased from Q1 levels due primarily to the timing of CapEx spelling. Operationally, R&D decreased in Q2 versus Q1, primarily due to lumpier milestone timing in Q1 on Ocean. The slide decrease in SG&A expense quarter over quarter was due to effective cost controls and the non recurrence of major trade show events in Q2. Q1 had CES and mobile world Congress partially offset by team member growth. As a reminder, our equity interest in Allego is reflected in non-operating results. We are working to develop seamless integration of Allego’s vast European charging network onto the Fisker app and HMI. And we will offer 12 months free of charging on the Allego network for activations prior to March, 2024.
During the second quarter, we recognized a 10 million mark to market loss or roughly $0.03 per share on Allego holding in other income, which will obviously fluctuate each quarter based on a Allego share price. A balance sheet remains solid. We have stayed disciplined with us spending finishing two a second quarter with 851.9 million in cash. We have the resources to fully fund the Ocean program launch in November and to stay on track with our other projects in 2022. During the quarter, we also establish a 350 million at the market equity program, which is part of the 2 billion shelves we have.
During second quarter, we tested the plumbing on the ATM facility and we brought in approximately $14 million. We continue to evaluate multiple options across a range of funding channels to efficiently finance our growth beyond Ocean SOP, including our working capital needs brick-and-mortar facilities and future vehicle platforms. In addition to evaluating incremental sources of liquidity, we regularly assess the levels we can pull to adjust spend of wanted. For example, the pacing of our physical infrastructure investments and regional hiring activity and prioritization, we remain nimble and positioned to bolster our balance sheet in support of future growth opportunities as appropriate.
Turning to the outlook, as noted in the press release, our overall non-GAAP OpEx plus CapEx guidance for 2022 remains unchanged at 715 million to 790 million. The bulk of the spend is continued execution of Ocean through launch plus costs of running the business with fair R&D spending — ramping up in the second half of the year. Product related CapEx is Ocean driven, as we don’t expect any significant CapEx on pay this year. I’m very proud of the entire Fisker team’s determination, resilience, and agility, including all our suppliers and partners for navigating through a dynamic environment and maintaining our laser focus on launching an amazing vehicle on time.
We’re now happy to take your questions.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question comes from Joseph Spak with RBC. Please go ahead.
Joseph Spak
Thanks for all the commentary. Geeta, I know, you went through this a little bit about some of the commodities moving and contracts resetting either quarterly and annually depending on — there’s still, I think a lot of investor confusion out there as to who is exactly responsible for the different forms of potential inflationary costs. I mean, I think it’s pretty clear that you pair the cost on some of the batteries, but stuff like steel versus energy costs, for instance, like how does that work with your contract manufacturers?
Dr. Geeta Gupta-Fisker
Yes, sure. So, as I’d mentioned in my commentary, that all our contracts, they actually address any inflation which obviously clearly impacts labor, if there is any commodity prices which are index to London Metal Exchange, which is pretty normal and all these contracts, then there is obviously productivity, generally all contracts, automotive contracts have productivity, because you improve the way you do things means you do things faster. And then there is foreign exchange, and all the contracts they are between Fisker and suppliers. And we adjust them on a quarterly basis. So typically, we are of course, as a customer responsible, but we work with our suppliers to look at all these numbers on a quarterly basis and would adjust for them upwards or downwards.
Henrik Fisker
Maybe just again, just make clear Joseph since we’re not in production, we are not affected by any of these prices at this point in time.
Joseph Spak
Right. Okay. And then the second question, Henrik, it’s great to hear that these prototype vehicles are getting out so you and the team can test them and make additional refinements, but you are about a 100 days away from SOP, I guess, like when do we need to lock down because I’d imagine you want to try to minimize changes on the line once it starts, it’s certainly gotten some other startups in a little bit of trouble? And then related also now that there’s some prototype vehicles, state side, when should we expect drives for third parties like the media or maybe more investors and analysts?
Henrik Fisker
Yes. So first of all, there’s two different type or actually several different type of prototypes. So as I mentioned was that we have already built 55 prototypes that actually use for all the hardcore testing. So the test vehicles we are getting here, which is all nicely painted, not in camouflage. Those are test vehicles, which are for me here and maybe a color of our engineers to drive around and I would say a little bit more as a fine tuning for maybe some — feedback, but there is no real adjustments happening at this point in time as a result of driving around in those. Test vehicles, we have done most of that fine tuning on test tracks, et cetera. So, these vehicles, like I mentioned, we just got now are really like fully painted, nicely done up and all that we are driving around. And so that’s not unusual.
And also remember, I know you refer to other EV startups and then, they I’m sure are doing their own processes, et cetera. But we are following a slightly more traditional OEM process when it comes to testing, because we are working together with Magna. So I don’t think anybody should worry about us making any changes on the line. That’s really not what we are going to do. We have already made the changes we need to do the only thing that usually at this day and age, when we are talking about new technology that is getting improved and adjusted until you launch and actually even get upgraded after launch, which happen in the smartphone world and the computer world, the software. So we will continue improving software even after launch and operating our systems.
And I think there’s already another car maker that has done that. And I think you will see many future car makers doing that because it is constantly evolving. But the hardware itself, there is no more adjustments already to that that has already been frozen and fixed. So I don’t really see any issues there at all. When it comes to — when are we getting people in the vehicles? I would’ve liked to got people in the vehicles a little earlier, but I don’t want to get peoples into a vehicle that is only 90% or 95% there. I wanted to be a hundred percent perfect. So I think it’s going to be closer to beginning of November is my best guesstimate right now. We also have to remember that, every single vehicle that we are making right now is spoken for in terms of being used for something, whatever that might be. So, I think it’s going to be closer to around November timeframe.
Joseph Spakwith
Maybe one more, quick one, the guidance does imply a step up in OpEx in the back half sense, as we approach launch. Just from a cadence perspective though, is it more than third quarter with the launch or is it more balanced because some of that’s spending is happen in advance of launch?
Dr. Geeta Gupta-Fisker
I think it’s more balanced Joe, to be honest. And we’ve been pretty prudent and we took some early measures, also as Hendrick mentioned, we took some decisions on some of the operations where we didn’t go into some of these expensive Fisker Lounges. So some of these numbers, we have the capability to control. And I think there is absolutely zero change in some of the expense we have on Ocean so very balanced.
Operator
Thank you for your question. Our next question comes from James Picariello with BNP Paribas.
James Picariello
Regarding the proposed EV tax credit legislation and the final North America assembly requirement to be eligible for half of the $7,500 credit, if this goes through, I mean could Fisker utilize the Foxconn plan or just some other measure to meet that final assembly threshold so that the Ocean is eligible for at least half of the credit? Just wondering what your initial kind of first blush contingency plan in your thinking there? What that looks like?
Henrik Fisker
Yes. So what I mentioned earlier is that we have just hired Senior Vice President of Manufacturing with a lot of experience here in U.S. manufacturing. And we are putting together a strategy with him, should this legislations again, to effect we would have some counter measures where we would definitely have Ocean U.S. manufacturing. We’re not ready to announce where and how, but that’s something we are actually working on, absolutely.
James Picariello
And the battery supplier alliances that you have in place today. Do those suppliers have U.S. capacity to meet the other half of the tax credit? Just wondering what your thoughts are there?
Henrik Fisker
So first this is a very complicated legislation where we are also talking about materials in the batteries, and I would actually estimate, I mean, I don’t even know if there’s one car today that fulfills all these requirements. It will go get the full tax credit. I don’t, for sure. I don’t even think it’s five cars, so it’s definitely not a good legislation for any consumers don’t want to buy an EV no matter where it’s made, but in terms of battery, but the Ocean, we have a very firm contract with CHL and I can’t speak for them, but I think there has already been some news about that. They’re looking for U.S. production.
For the PEAR, we have not made a final decision on who’s going to supply batteries or whether it’s only going to be one supplier, but one thing’s for sure. It would be a battery supplier that would have eventually U.S. manufacturing and I could see us make a close corporation a joint venture. We are not quite ready to announce that yet, but it’s something that we clearly are planning for with or without that legislation, because making 250,000 vehicles in Ohio, you’re going to need to have battery manufacturing in the U.S.
James Picariello
Yes. Okay. That’s super helpful. And then just on the ATM 350 million ATM equity offering is there expiration to that tranche?
Dr. Geeta Gupta-Fisker
Great question. It’s actually, sorry. Did I hear its 350 million? So there is a three year shelf life.
James Picariello
Okay. And then, my broader question on that point, just how are you thinking about additional liquidity sources out to 2023? If that equity offering comes in light through the rest of this year, it sounds as though you’re comfortable talking about cash on hand, getting you well through this year, but what are the options and your thoughts on liquidity as you…
Dr. Geeta Gupta-Fisker
So again, I want to repeat that we of a very, very proactive last year, we are in a capital in terms of business. We plan to bring four vehicles to market by 2025. So we clearly need capital to fund these programs. We need capital for marketing sales and service. We need capital to support customers. So we clearly need capital, but we also want to be mindful of raising capital at the right time at the right valuation and when it’s opportune. So we already showed that last year when we placed a convertible note 675 million, which had a five year maturity at great terms. It’s a great instrument that we used.
In addition to that in the 2 billion shares of the 350 already allocated to ATM it’s a three year shelf life. And as everybody knows, the mechanics of an ATM, it’s not something you close within a day or so, it’s a long-term instrument. So we have that instrument available as and when we need, and we feel the market is right. Now, in addition to that, there’s obviously clearly an equity market and we have a balance of 1.65 billion left in the shelf. And we can use that shelf to place trade equity, if the market conditions are right, we could place a convertible note. So those — both those instruments obviously go straight to the balance sheet.
And then, finally again, rerate that we are talking to multiple banks to discuss an asset back loan against parts or work in progress against finished vehicles when they leave Magna and I in transit to our customers. And the fact that we completed these 5,000 Ocean One pre-orders is a great Testament to show potential of 350 million revenue to some of our potential lenders who can clearly see that we have imminent revenue coming. So we are looking at understood all these different approaches, including others, which I haven’t talked about, the emission credit sales and all the other options. So, we will absolutely strengthen the balance sheet in the coming month.
Operator
The next question comes from Adam Jonas with Morgan Stanley. Please proceed.
Adam Jonas
So Geeta, I know you’re going to have more visibility when you actually start making cars, but you did say that you have the discussions at least quarterly. So based on that, how much does an Ocean bill of materials cost today in U.S. dollars factoring in the Euro weakness, but then the other puts and takes on the input prices and energy, et cetera? How much more does it cost today versus say one year ago, order of magnitude not going to hold you to a specific dollar amount?
Dr. Geeta Gupta-Fisker
We actually don’t encourage those discussions because they don’t really mean anything. And the reason for that is that, when we talk to suppliers, they only price out when we are ready to put a purchase order for a quarter. So honestly, we clearly have costs that are related to content that are related to our design intent parts currently. And the reason why we never increased prices was because we were very confident with what we are seeing and what we are discussing with our suppliers.
Now I don’t know what Q1, Q2 next year looks like. But again, we are very confident that if there’s upward movement and commodity pricing, we have enough headroom to absorb that. And areas where we feel it’s justified to share with our customers, as Henrik mentioned earlier, is logistic cost. And instead of building it into the price of the vehicle, we instead separated it out for full transparency. So I think, to answer your question we haven’t really done serial pricing right now with suppliers, because we’re not producing cars, but again, I don’t see any surprises next year, but we don’t know.
Adam Jonas
Okay. Thanks, Geeta. And this is a follow up and thanks for the comments and being very open and transparent about the need for capital going forward. But just specifically for the ramp of the Ocean, you said you have enough liquidity for year end and into ‘23 for development work, but is it safe to say that that you would need capital to actually ramp production of the Ocean?
Dr. Geeta Gupta-Fisker
So the ramp needs are obviously cash flow working capital needs, right, where we have certain times from suppliers, and you only realizing, like I said, revenue, when the customer pays and typically the customer pays when you exchange the asset. So obviously as a startup, we’re trying to explore if we can get non-dilutive funding, and if there is a Delta, then absolutely we’re going to have to raise money. And we could supplement that through the ATM. We could supplement that through a convertible loan, depending on the borrower and depending on the market conditions, we could supplement that through another equity raise, and we absolutely are working with banks to identify exactly what that capital need is and how should we structure it.
Adam Jonas
Thanks, Geeta. And just, you’re talking to banks, but is it too soon to think about exploring strategic value for the Company as well? Thank you it’s my final.
Dr. Geeta Gupta-Fisker
We are opportunistic, Adam. We are always thinking about any opportunity that comes our way. So absolutely we are always looking at strategic opportunities as well.
Frank Boroch
We’re going to take a few questions from the retail shareholder poll online. The first one is for you Henrik, when will you be able to share rollout plans, including when reservation holders can expect delivery in their markets?
Henrik Fisker
So we are looking at — we are launching our new interactive configuration on October. And what we just said was we are going to start taking firm reservations on the extreme November 18th, the day after we start production. And at that point in time, we will definitely give a indication of the quarter. You will get deliveries in. And then of course, as we get closer to the actual delivery, we will give a firm probably about six weeks before. So we are working on all these details right now, and we want to be as accurate as possible. And we’ll probably also allow people to somehow track where’s that car in this entire process. But we should be able to give in the end of this year, some pretty clear guidance of when the people will get their car.
Frank Boroch
Thank you, Henrik. Next question with the way the economy is going, is Fisker is going to market to masses or only make vehicles for elite consumers?
Henrik Fisker
Well, I think we already are. I mean, we have already said that we will produce the $37,500 Ocean sport from Q3 next year. We have already announced our PEAR, which will be starting under 30,000. I don’t even think I can count on one hand the amount of EVs that is going to come on market, in 2024, that’s going to be under 30,000. So I think we will have a really unique proposition in super high volume potential for our two vehicles. What was important about the Ocean was that we ultimately are able to get really high volumes out of that vehicle by having a base price of 37,500.
And what’s important about the PEAR is to get it under $30,000, because now you’re talking about potential millions of vehicles so absolutely. I think we will have a large spam. I think we have design, which is timeless, which is done in a way where you can’t really see what the price of our car is. I mean, a lot of people think they can’t afford the Ocean when they see it for the first time and they don’t know the car. I’ve had people saying the federal was $80,000 and of course it’s not.
So, we will definitely continue to offer value all the way from our peer under 30,000 all the way up to our own. And even if we do a $200,000 car, it would offer tremendous value. And I think that’s part of how we develop our vehicles. That’s what we stand for as a brand.
Adam Jonas
And the last retail question. Is there a chance ultra production and we start sooner than Q3 2023?
Henrik Fisker
Not at this point, we have to plan production far ahead and we also have to think about the Company’s financial health. I know we have a lot of investors on the call and I’m sure there’s also a lot of people who has maybe ordered an ultra or even some investors that are audited and ultra, but ultimately, we are a business and what we are seeing right now is a very healthy demand for the extreme and the Ocean One. And right now, we can see that we should be able to fulfill maybe even not all of these orders, all the way to Q3. So normally, if we wouldn’t have committed to start all transport production and Q3, next year, we may have been able to go all next year without producing any alters or any sports, but it was very important for the Company to stand up to what we have promised, which was to deliver a $37,500 car and a $49,900 car in Q3 next year. And we stand by that promise. We have planned it into our production and that’s what we’re going to do.
Operator
Our next question comes from Pavel Molchanov with Raymond.
Pavel Molchanov
You touched on the US tax credit. I wanted to ask about the UK. You were planning to launch a right hand version of the Ocean in the UK market next summer. And then in June, the British government wiped out the plug-in car grant. Does that change your strategy for entering that market?
Henrik Fisker
No. In fact, we saw an incredible uptake in the Ocean One orders from the UK. We had actually allocated a certain amount to the UK, but they went way over. So we didn’t have see any impact on that. I think we’re extremely price competitive with our vehicle already in the UK. So let’s not forget that in the UK, this applies to everyone. It’s not about if your vehicle is manufactured in the UK or stuff like that. So it really has no impact. I think on our competitiveness, if everybody, have to pay a little more than everybody has to pay a little more and we are still competitive. So we haven’t seen any negative feedback on that. And we have not changed our plans. We will start delivering right hand drive vehicles in the UK mid next year.
Pavel Molchanov
Okay. Following up on that, you have the charging partnership with Allego in Europe, of course. Do you have interest in a similar kind of relationship with a charging company in the United States?
Geeta Gupta
Yes. So let me explain a little bit about the charging relationship. So first of all we have a partnership with a group where all the charging infrastructure will be displayed on the HMI, which is obviously critical in all global markets. Then the second level of integration is to then integrate our web app and our HMI with individual charging station providers. So we end the process of doing that. And then the third step is making deals with the charging station companies to be able to provide better pricing or plug in charge. So we’re doing all these three and we obviously with Allego have a deeper relationship, and we are doing the same here in the U.S. as well. We are not ready yet to announce those partners, but we will in the coming days and weeks as we integrate those in the HMI and app, we also have identified our partner for home charging installation that we are also looking forward to announce in the coming weeks.
Operator
Thank you for your question. Our next question comes from Shreyas Patel with Wolf Research. Please go ahead.
Shreyas Patel
I just wanted to follow up first on a question that was brought up earlier. So maybe just to be more specific, your agreement with Magna, how does how do energy costs factor into that? Obviously, I ask only because we’ve seen a surge in energy prices across Europe. So is that something that gets passed on to Fisker or is that responsibility born by Magna?
Geeta Gupta
So, first of all, energy cost for a facility like Magna, is there fixed or variable utility cost, and the agreement we have with fixed with Magna it’s at two levels, the way vehicle contract manufacturing works is you have a fixed element and you have a variable element and typically rent leasing the space, utilities, et cetera. They typically fall in the category where they share those costs amongst various different partners, customers, et cetera, et cetera. Now, specifically what I can talk about in Austria, where there was talk about sort of gas.
Now, in our case, Magna Steyr uses gas for pain shop. All other areas are now being switched to biodiesel hydropower. And in the case of Magna itself, they are hedging and buying around 85% of the gas for next year. They confirm that to us and we’ve released or releasing that in our queue. Now, Austrian government is planning to put automotive as a priority, given the number of jobs. It has an Austria, and they’ve also secured 70% of their gas reserve for 2023. So, I frankly do not see this as any risk and it will be disclosed amongst our risk factors when we release the queue.
Shreyas Patel
And then, you mentioned quite a few potential initiatives around project peer and potentially even forming joint venture relationships with battery manufacturers. And you talked, you mentioned there no peer related spending a CapEx spending in 2022. So, I’m just trying to think about the implications though, as we think about the ramp up of peer spending, especially in 2023 both on the OpEx and CapEx side. I guess maybe how do we think about the needs for that program, especially if you compare it to what you’ve already had to spend on the Ocean. Do you see the potential for leverage against the Ocean level spending or are you going to have to actually spend more?
Henrik Fisker
So this is a great, really great question. I’m happy you asked that because what we are doing now actually is we are doing a lot more in-house development on the pair than we were able to with the Ocean, because we were scaling up a team and working closely with — now, of course. So by taking that work in-house, we are much less capital outlay, and we also moving people already now from the Ocean program over to the PEAR program.
And then finally, there’s also a lot of commonalities on parts and suppliers between Ocean and the PEAR. So it actually, some of these parts will be fully carry over. So we don’t have to necessarily do a whole new design for these parts. And then there is the fact that Foxcon have already acquired the facility in Ohio, and we are working closely with them on how to lay out the factory. So I do see overall this program, at least in the initial phase be much lower capital outlay than the Ocean were initially.
Geeta Gupta-Fisker
Now to answer your specific question on capital needs. So, this year, the main investments on PEAR are ED&D. So concept development ED&D and as the book I mentioned earlier, we have a lot of engineers over 300, including engineers we are hiring in India, who are now transitioning over to the pair program, and we are starting to do supplier selection in the second half of the year. So come August, September timeframe.
And then as we select suppliers, I expect that at some point next year, we need to start getting into tooling. However, in the case of pay program, we are going to do purchasing this time in a slightly different way. Given it’s a US centric program, it’s quite common in the US to develop different commodities parts with suppliers, but it’s also quite common to bid out tools.
It’s uncommon to do that in Europe, but quite common in the US. So we are looking into those strategies and that would require clearly investing capital, and it’s a high volume program. So I expect that some of the tools are probably more expensive than Ocean. We are also — mentioned, looking at a virtual a lot of the hardware will become virtual.
So, we expect a very efficient bomb when it comes to EE, we expect very efficient harnesses, low voltage harnesses. We probably spend a bit more on the computer battery we will have to see where we end up. It’ll probably have a smaller battery than the Ocean given. It’s under 30,000. So I think, it would be definitely below Ocean and I think we will get much more capital efficient on the pair. But we will have to reach capital when we get into — we will have to 100% raise capital to kick off the tooling with suppliers next year.
Shreyas Patel
Okay. That’s really helpful. And then lastly, just can you remind us of your service strategy? It’s something that you talked about back in 2020, but I believe — the strategy is to work with Cox automotive. Correct me if that’s changed, but can you just remind us what the how many — what kind of KPIs are you targeting in terms of footprint on number of mobile vehicles that could provide service, et cetera?
Geeta Gupta
Yes. Great question. So we divide service into multiple areas, obviously collision is by far the biggest and most complicated as you know, and collision also falls outside warranty that involves insurance. So we are working on collision partners in all the nine launch markets, as we speak, and collision is generally partnered. We will also look at certified third party collision center. So we’ll release more information on that towards the end of the year. Then the next area that you look at is road side. you also — we are looking in Europe, eCall is required by law. So we are also bringing in eCall partners in Europe. We are actually going to offer that here in the U.S. as well, even though it’s not required by law.
Then in addition to that, we’ve named for other minor areas bit stone in the U.S. and certain parts of Europe and [Indiscernible] [01:13:21] and Scandinavia for certain other areas of service. And they all have sort of different types of service, whether it’s tire change or certain other minor items that can be repaired. And then in addition to that, we’re looking at specialist areas where we can do the service ourselves, and then finally batteries need to be trained in a unique way. And we are developing our own high voltage training. We are developing — we are working with CATL as well to establish some of these processes and procedures.
Henrik Fisker
Thank you, Operator. That’s all the time we have for today’s Q&A.
Operator
Thank you. I’ll now pass it back over to the management team for any further remarks.
Henrik Fisker
Thank you very much, everyone. I thought there was a super exciting and very good earnings call, and we are exciting to move on and share news over the next couple of weeks and months as you progress to a start of production with the Fisker Ocean.
Thank you very much, everyone
Operator
That concludes the Fisker Inc second quarter 2022 earnings call. Thank you for your participation. You may now disconnect your lines.
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