FARADAY FUTURE INTELLIGENT ELECTRIC INC. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis is intended to help the reader understand FF’s results of operations and financial condition. This discussion and analysis is provided as a supplement to, and should be read in conjunction with FF’s Condensed Consolidated Financial Statements and Notes thereto included elsewhere in this quarterly report on Form 10-Q (this “Report”). Some of the information contained in this discussion and analysis or set forth elsewhere in this Report, including information with respect to FF’s plans and strategy for FF’s business, includes forward-looking statements that involve risks and uncertainties. FF’s actual results may differ materially from management’s expectations as a result of various factors, including but not limited to those discussed in the sections entitled “Risk Factors” in the Company’s Annual Report on Form 10-K/A filed on August 21, 2023 (“Form 10-K/A”), “Risk Factors” in this Report and “Cautionary Note Regarding Forward-Looking Statements” below. The objective of this section is to provide investors an understanding of the financial drivers and levers in FF’s business and describe the financial performance of the business. Cautionary Note Regarding Forward-Looking Statements This Report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements can be identified by the use of forward-looking terminology, including the words “believes,” “estimates,” “anticipates,” “expects,” “intends,” “plans,” “may,” “will,” “potential,” “projects,” “predicts,” “continue,” or “should,” or, in each case, their negative or other variations or comparable terminology. There can be no assurance that actual results will not materially differ from expectations. Such statements include, but are not limited to, any statements relating to our financial and business performance, market acceptance and success of our business model, our ability to expand the scope of our offerings, and our ability to comply with the extensive, complex, and evolving regulatory requirements. These statements are based on management's current expectations, but actual results may differ materially due to various factors. The forward-looking statements contained in this Report are based on our current expectations and beliefs concerning future developments and their potential effects on us. Future developments affecting us may not be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control), and other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the section titled “ Risk Factors ” in the Form 10-K/A, as updated in this Report. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation (and expressly disclaim any obligation) to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. These risks and others described under the section titled “ Risk Factors” in the Form 10-K/A, as updated in this Report, may not be exhaustive. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Report. In addition, even if our results or operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements contained in this Report, those results or developments may not be indicative of results or developments in subsequent periods. Availability of Information We make available through our company website, free of charge, our company filings with the Securities and Exchange Commission (the “SEC”) as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC. The reports we make available include annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, registration statements, and any amendments to those documents. The website link to our SEC filings is investors.ff.com/financial-information/sec-filings. We intend to use press releases, our Investor Relations website, investor.ff.com, and certain social media accounts as a means of disclosing information and observations about the Company and its business which may be of interest or material to our investors, material, non-public information, and for complying with our disclosure obligations under Regulation FD: Instagram, Facebook, X, LinkedIn, Youtube, FF App, WeChat, Weibo, Toutiao, Douyin, and Futu. The information and observations we post through these social media channels may be deemed material. Accordingly, investors should monitor the 43 Investor Relations website and these social media channels, in addition to following our press releases, filings with the SEC, public conference calls, presentations, and webcasts. The social media channels that we intend to use as a means of disclosing the information described above may be updated from time to time. The information contained on, or that may be accessed through, our website or social media channels, is not incorporated by reference into, and is not a part of, this Report or any other report or document filed with the SEC. Any reference to our website in this Report is intended to be an inactive textual reference only. Overview Faraday Future Intelligent Electric, Inc. (together with its consolidated subsidiaries, “FF,” “the Company,” “we,” “us” or “our”) is a California-based, global, shared, intelligent, mobility ecosystem company founded in 2014 with a vision to disrupt the automotive industry. On July 21, 2021, FF (f/k/a Property Solutions Acquisition Corp. (“PSAC”)), a Delaware corporation, consummated the previously announced business combination pursuant to an agreement and plan of merger, dated as of January 27, 2021 (as amended, the “Merger Agreement”), by and among PSAC, PSAC Merger Sub Ltd., an exempted company with limited liability incorporated under the laws of the Cayman Islands and wholly-owned subsidiary of PSAC (“Merger Sub”), and FF Intelligent Mobility Global Holdings Ltd. (“Legacy FF”). Pursuant to the terms of the Merger Agreement, Merger Sub merged with and into Legacy FF, with Legacy FF surviving the merger as a wholly-owned subsidiary of the Company (the “Business Combination”). Upon the consummation of the Business Combination, PSAC changed its name from Property Solutions Acquisition Corp. to Faraday Future Intelligent Electric Inc., and FF’s Class A common stock, par value $0.0001 per share (the Class A Common Stock”) and 287,220 public warrants (the “Public Warrants”) began trading on The Nasdaq Global Market under the ticker symbols “FFIE” and “FFIEW,” respectively. With headquarters in Los Angeles, California, FF designs and engineers next-generation, intelligent, connected, electric vehicles. FF manufactures vehicles at its production facility in Hanford, California (the “FF ieFactory California”), with additional future production capacity needs addressed through a contract manufacturing agreement with Myoung Shin Co., Ltd. (“Myoung Shin”), an automotive manufacturer headquartered in South Korea. FF has additional engineering, sales, and operational capabilities in China and is exploring opportunities for potential manufacturing capabilities in China through a joint venture or other arrangements. Since its founding, FF has created major innovations in technology, products, and a user-centered business model. FF believes these innovations will enable FF to set new standards in luxury and performance that will redefine the future of intelligent mobility. We believe the following combination of capabilities of FF’s products, technology, the recent upgrade to FF Product and Technology Upgrade Generation 2.0 (PT Gen 2.0), team, and business model distinguish FF from its competitors: • FF has designed and developed a breakthrough mobility platform — its proprietary Variable Platform Architecture (“VPA”). • FF’s propulsion system provides a competitive edge in acceleration and range, enabled by an expected industry-leading inverter design, and propulsion system. • FF’s advanced Internet Artificial Intelligence (“I.A.I.”) technology offers high-performance computing, high speed internet connectivity, Over the Air (“OTA”) updating, an open ecosystem for third-party application integration, and a Level 3 autonomous driving-ready system, in addition to several other proprietary innovations that enable FF to build an advanced, highly-personalized user experience. • Since inception, FF has developed a portfolio of intellectual property, established its proposed supply chain, and assembled a global team of automotive and technology experts and innovators to achieve its goal of redefining the future of the automotive industry. As of November 7, 2023, FF has been granted approximately 660 patents globally. • FF’s B2C (business-to-customer) passenger vehicle pipeline over the next five years is planned to include the FF 91 series, the FF 81 series, and the FF 71 series. • FF believes that the FF 91 Futurist ( the “FF 91,” “FF 91 Futurist,” or “FF 91 2.0 Futurist Alliance”) will be the first ultra-luxury electric vehicle to offer a highly-personalized, fully-connected user experience for driver and passengers. FF started production on the first FF 91 futurist and delivered the first FF 91 2.0 Futurist Alliance in the first half of 2023. 44 • Subject to future financing, FF plans to produce and deliver its second passenger vehicle, the FF 81, which will be a premium, mass-market electric vehicle positioned to compete against the Tesla Model S, Tesla Model X, the BMW 5-series, and the Nio ES8. • Subject to future financing, FF plans to develop a mass-market passenger vehicle, the FF 71. FF expects to start production and deliveries of the FF 71 subsequent to production and deliveries of the FF 81. The FF 71 will integrate full connectivity and advanced technology into a smaller vehicle size and is positioned to compete against the Tesla Model 3, Tesla Model Y, and the BMW 3-series. • Subject to future financing, FF plans to develop a Smart Last Mile Delivery (“SLMD”) vehicle to address the high-growth, last-mile delivery opportunity, particularly in Europe, China and the U.S. FF’s modular VPA facilitates entry into the last-mile delivery segment, allowing FF to expand its total addressable market and avenues of growth. All FF vehicles are expected to be available for sale in the U.S. and China, with potential expansion to European markets. Emerging Growth Company Status Section 102(b)(1) of the Jumpstart Our Business Startups Act (the “JOBS Act”) exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can choose not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies. Any such election to not take advantage of the extended transition period is irrevocable. FF is an “emerging growth company” as defined in Section 2(a) of the Securities Act and has elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards. FF expects to continue to take advantage of the benefits of the extended transition period, although it may decide to early adopt such new or revised accounting standards to the extent permitted by such standards. This may make it difficult or impossible to compare our financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used. Segment Information On February 26, 2023, after an assessment by the board of directors of the Company (the “Board”) of the Company’s management structure, the Board approved Mr. Yueting Jia (alongside Mr. Xuefeng Chen) reporting directly to the Board, as well as FF’s product, mobility ecosystem, I.A.I., and advanced research and development (“R&D”) technology departments reporting directly to Mr. Jia. The Board also approved FF’s user ecosystem, capital markets, human resources and administration, corporate strategy and China departments reporting to both Mr. Jia and Mr. Chen, subject to processes and controls to be determined by the Board after consultation with the Company’s management. Based on the changes to his responsibilities within the Company, the Board determined that Mr. Jia is an “officer” of the Company within the meaning of Section 16 of the Exchange Act and an “executive officer” of the Company under Rule 3b-7 under the Exchange Act. Therefore, the Company’s co-CODM's are both its Global Chief Executive Officer (“CEO”) and Founder. The Company has determined that it operates in one operating segment and one reportable segment, as the co-CODM’s review financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance. Substantially all of the Company’s consolidated operating activities, including its long-lived assets, are located within the U.S. Given the Company’s pre-revenue operating stage, it currently has no concentration exposure to products, services or customers. On September 16, 2023, Mr. Chen notified the Company of his decision to resign from his position as Global CEO of the Company and as a member of the Board effective September 29, 2023. On September 21, 2023, the Board appointed Mattias Aydt to succeed Mr. Chen as Global Chief Executive Officer and as a member of the Board, effective September 29, 2023. The change in the Company’s Global CEO has not impacted the Company’s prior determination that its co-CODM's are both its Global CEO and Founder. 45 Recent Developments Recent Governance Developments • On August 4, 2023, the Board appointed Mr. Lev Peker as a member of the Board and as a member and Chair of the Audit Committee of the Board to fill the vacancy on the Board and Audit Committee created by Mr. Adam (Xin) He’s resignation from the Board on July 31, 2023. In connection with Mr. He’s resignation, and to comply with the Nasdaq Stock Market LLC (“Nasdaq”) Listing Rule 5605(c)(4)(B), on August 2, 2023, the Company notified Nasdaq that the Company no longer complied with Nasdaq’s independent director and audit committee requirements as set forth in Listing Rule 5605 as the Board was not comprised of a majority of independent directors as required by Nasdaq Listing Rule 5605(b)(1) and the Audit Committee was not comprised of at least three independent directors as required by Nasdaq Listing Rule 5605(c)(2)(A), which noncompliance was subsequently cured by the appointment of Mr. Peker as a member of the Board and as a member of the Audit Committee. In response to the Company’s notice, Nasdaq issued a letter to the Company on August 4, 2023 indicating that, effective July 31, 2023, the Company no longer complies with Nasdaq’s independent director and audit committee requirements as set forth in Nasdaq Listing Rule 5605. As a result of the appointment of Mr. Peker as a member of the Board and as a member and chair of the Audit Committee, the Company regained compliance with the board independence requirements as set forth in Nasdaq Listing Rule 5605(b)(1) and the audit committee requirements as set forth in Nasdaq Listing Rule 5605(c)(2)(A). • At a special meeting of the Company’s stockholders held on August 16, 2023, the Company’s stockholders approved a proposal authorizing the Board to effect a reverse stock split of the Company’s outstanding common stock, par value $0.0001 per share (the “Common Stock”) at a range between 1-for-2 and 1-for-90, and a proposal stating that if a reverse stock split is implemented at a ratio of 1-for-8 or greater, the Company will amend its Second Amended and Restated Certificate of Incorporation to reduce the number of authorized shares of the Common Stock to a number equal to 12,355,000,000 divided by the reverse stock split ratio determined by the Board. On August 22, 2023, the Board approved a reverse stock split ratio of 1-for-80 of Common Stock (the “Reverse Stock Split”). Accordingly, on August 24, 2023, the Company filed the Third Amended and Restated Certificate of Incorporation of the Company to effect the Reverse Stock Split and to set the number of authorized shares of Common Stock, to 154,437,500 (which is 12,355,000,000 divided by 80, the Reverse Stock Split ratio). As a result, effective August 25, 2023, every 80 shares of the issued and outstanding Common Stock were converted into one share of Common Stock, without any change in par value per share, and the Company’s authorized shares of Common Stock were reduced to 154,437,500, composed of (i) 147,875,000 shares of Class A Common Stock and (ii) 6,562,500 shares of the Company’s Class B Common Stock, par value $0.0001 per share (the “Class B Common Stock”). No fractional shares of common stock were issued as a result of the Reverse Stock Split. Stockholders who would otherwise have received a fractional share were instead issued a full share in lieu of such fractional share. The Class A Common Stock began trading on The Nasdaq Capital Market on a split-adjusted basis at the opening of trading on August 28, 2023 under the symbol “FFIE” with a new CUSIP number (307359 505). The Company’s Public Warrants continue to be traded on the Nasdaq Capital Market under the symbol “FFIEW” and the CUSIP number for the warrants remains unchanged. However, every 80 warrants are now exercisable for one share of Class A Common Stock at an exercise price of $920.00 per share. • On September 16, 2023, Mr. Chen notified the Company of his decision to resign from his position as Global CEO of the Company and as a member of the Board effective September 29, 2023. On September 21, 2023, the Board appointed Mr. Mattias Aydt to succeed Mr. Chen as Global Chief Executive Officer and as a member of the Board, effective September 29, 2023. • On October 10, 2023, Ke Sun, a member of the Board notified the Company of her decision to resign as a director of the Company effective immediately. Components of FF’s Results of Operations Key Factors Affecting Operating Results FF’s performance and future success depend on several factors that present significant opportunities but also pose risks and challenges including those discussed below and, in the section titled “ Risk Factors ” in the Form 10-K/A, as updated in this Report. Production and Operations FF expects to continue to incur significant operating costs that will impact its future profitability, including R&D expenses as it introduces new models and improves existing models; capital expenditures for the expansion of its manufacturing 46 capacities; additional operating costs and expenses for production ramp-up; raw material procurement costs; general and administrative expenses as it scales its operations; interest expense from debt financing activities; and selling and distribution expenses as it builds its brand and markets its vehicles. FF may incur significant costs in connection with its services once it delivers the FF 91 Futurist, including servicing and warranty costs. FF’s ability to become profitable in the future will depend on its ability to successfully market its vehicles and control its costs. As of September 30, 2023, FF has delivered only three vehicles to spire users. As a result, FF will require substantial additional capital to develop products and fund operations for the foreseeable future. Until FF can generate sufficient revenue from product sales, FF will fund its ongoing operations through a combination of various funding and financing alternatives, including equipment leasing and construction financing of the FF ieFactory California, secured syndicated debt financing, convertible notes, working capital loans, and equity offerings, among other options. The particular funding mechanisms, terms, timing, and amounts are dependent on the Company’s assessment of opportunities available in the marketplace and the circumstances of the business at the relevant time. Any delays in the successful completion of its FF ieFactory California will impact FF’s ability to generate revenue. For additional discussion of the substantial doubt about FF’s ability to continue as a going concern, see Note 2, Liquidity and Capital Resources in the notes to the Condensed Consolidated Financial Statements and for further details on liquidity, please see the “Liquidity and Capital Resources” section below. Revenue Recognition Automotive Sales Revenue We began the production of our FF 91 Futurist in March 2023 and started making deliveries to customers in August 2023. Automotive sales revenue includes revenues related to deliveries of new vehicles, and specific other features and services including home charger, charger installation, twenty-four-seven roadside assistance, OTA software updates, internet connectivity and destination fees. We recognize revenue on automotive sales upon delivery to the customer, which is when control of a vehicle transfers. Payments are typically received at the point control transfers or in accordance with payment terms customary to the business indicated in the sales contract. OTA software updates are provisioned upon control transfer of a vehicle and recognized over time on a straight-line basis as we have a stand-ready obligation to deliver such services to the customer. For our obligations related to automotive sales, we estimate standalone selling price by considering costs used to develop and deliver the good or service, third-party pricing of similar options and other information that may be available. The transaction price is allocated among the performance obligations in proportion to the standalone selling price of our performance obligations. Our vehicle contracts do not contain a significant financing component. We have entered into and may continue to enter into co-creator consulting agreements with our customers under which customers share feedback, driving data, ideas, experiences with our engineers, social media posts and other promotions in exchange for specified fees. We consider these arrangements consideration payable to a customer. The consideration paid to the customer relates to marketing and R&D services that are distinct and could be purchased by the Company from a separate third-party. We perform an analysis in which we maximize the use of observable market inputs to ascribe a fair value to these services and record the fair value of these services to sales and marketing expense or R&D expense, as applicable. Any consideration payable to a customer that is above the fair value of the distinct services being provided is treated as a reduction of revenue. Customer Deposits The Company’s customers may reserve a vehicle and preorder certain services by making a customer deposit, which is fully refundable at any time. Refundable deposits, for vehicle reservations and services, received from customers prior to an executed vehicle purchase agreement are recorded as customer deposits (Accrued expenses and other current liabilities). Customer deposits were $3.3 million and $3.4 million as of September 30, 2023 and December 31, 2022, respectively. When vehicle purchase agreements are executed, the consideration for the vehicle and any accompanying products and services must be paid in advance prior to the transfer of products or services by the Company. Such advance payments are considered non-refundable, and the Company defers revenue related to any products or services that are not yet transferred. Warranties We provide a manufacturer’s warranty on all vehicles sold. The warranty covers the rectification of reported defects via repair, replacement, or adjustment of faulty parts or components. The warranty does not cover any item where failure is due to normal wear and tear. This assurance-type warranty does not create a performance obligation separate from the vehicle. Management tracks warranty claims by vehicle ID, owner, and date. As we continue to manufacture and sell more vehicles we will reassess and evaluate our warranty claims for purposes of our warranty accrual. 47 Cost of Automotive Sales Revenue Cost of automotive sales revenue includes direct and indirect materials, labor costs, manufacturing overhead, including depreciation costs of tooling and machinery, shipping and logistic costs, vehicle connectivity costs, and reserves for estimated warranty expenses. Cost of automotive sales revenues also includes adjustments to warranty expense. Operating Expenses Research and Development R&D activities represent a significant part of FF’s business. FF’s R&D efforts focus on the design and development of FF’s electric vehicles and continuing to prepare its prototype electric vehicles to exceed industry standards for compliance, innovation, and performance. R&D expenses consist of personnel-related costs (including salaries, bonuses, benefits, and stock-based compensation) for FF’s employees focused on R&D activities, other related costs, depreciation, R&D services provided by co-creators, and an allocation of overhead. FF expects R&D expenses to decrease in the near future as the Company substantially completed R& D activities related to the FF 91. Sales and Marketing Sales and marketing expenses consist primarily of personnel-related costs (including salaries, bonuses, benefits, and stock-based compensation) for FF’s employees focused on sales and marketing, costs associated with sales and marketing activities, marketing services provided by co-creators, and an allocation of overhead. Marketing activities are those related to introducing FF’s brand and its electric vehicle prototypes to the market. FF expects selling and marketing expenses to continue to increase as FF brings its electric vehicles to market and seeks to generate sales. General and Administrative General and administrative expenses consist primarily of personnel-related costs, (including salaries, bonuses, benefits, and stock-based compensation) for employees associated with administrative services such as legal, human resources, information technology, accounting and finance, other related costs, and legal loss contingency expenses, which are FF’s estimates of future legal settlements. These expenses also include certain third-party consulting services, certain facilities costs, and any corporate overhead costs not allocated to other expense categories. FF expects its general and administrative expenses to increase as FF continues to grow its business. Loss on Disposal of Property and Equipment Loss on disposal of property and equipment relates to the abandonment of certain FF 91 Futurist program construction in progress assets, primarily vendor tooling, machinery, and equipment, due to the redesign of the related FF 91 components and implementation of FF’s cost reduction program. Charges associated with disposals are recognized within operating expenses in the Condensed Consolidated Statements of Operations and Comprehensive Loss. Change in Fair Value of Earnout Liability Legacy FF shareholders, as of the Closing Date of the Business Combination until its fifth anniversary, are entitled to contingent consideration of up to 312,500 additional shares of Class A Common Stock in the aggregate in two equal tranches upon the occurrence of each earnout triggering event (“Earnout Shares”). The Company recognized the Earnout Shares at fair value upon the closing of the Business Combination and classified them in Stockholders’ Equity (Deficit) since the Earnout Shares were determined to be indexed to the Company’s own stock and meet the requirements for equity classification in accordance with ASC 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity . From time to time subsequent to the closing of the Business Combination, the Earnout Shares may be classified as derivative liabilities under ASC 815, Derivatives and Hedging , due to the Company having insufficient authorized shares to fully settle the equity-linked financial instruments in shares. The Earnout Shares reclassified as derivative instruments are recognized at fair value with changes in fair value recognized in earnings until such time as the conditions giving rise to such derivative liability classification were settled or the Company has sufficient authorized, unissued shares to settle such contracts with shares. Non-operating Expenses Change in Fair Value of (Related Party and Third Party) Notes Payable and Warrant Liabilities Change in fair value measurements consists of the losses and gains as a result of fair value measurements of certain notes payable and warrant liabilities which FF records at fair value. 48 Loss on Settlement of (Related Party and Third Party) Notes Payable Loss on settlement of notes payable consists of losses resulting from the settlement of notes payable as part of the Company’s ongoing financing activities and losses incurred on modifications of the Company’s notes payable that qualify as an extinguishment pursuant to ASC 470-50, Debt–Modifications and Extinguishments . Interest Expense Interest expense primarily consists of interest on outstanding notes payable, finance leases, and certain supplier payables. Related Party Interest Expense Related party interest expense consists of interest expense on notes payable with related parties. Other Expense, net Other expense, net consists of foreign currency transaction gains and losses and other expenses such as bank fees and late charges. Foreign currency transaction gains and losses are generated by revaluation of debt and the settlements of invoices denominated in currencies other than the functional currency. FF expects other expense to fluctuate as FF continues to transact internationally. 49 Results of Operations Three Months Ended September 30, (in thousands) 2023 2022 Consolidated Statements of Operations Revenues Auto sales $ 551 $ — Cost of revenues Auto sales 16,131 — Gross loss (15,580) — Operating expenses Research and development 21,593 47,582 Sales and marketing 5,318 3,823 General and administrative 24,023 28,551 Change in fair value of earnout liability (67) — Total operating expenses 50,867 79,956 Loss from operations (66,447) (79,956) Change in fair value of notes payable and warrant liabilities 17,571 (1,764) Change in fair value of related party notes payable and related party warrant liabilities 4,726 — Loss on settlement of notes payable (21,357) (30,454) Loss on settlement of related party notes payable (10,756) — Interest expense (90) (245) Related party interest expense (69) (996) Other expense, net (1,624) (6,457) Loss before income taxes (78,046) (119,872) Income tax provision — — Net loss $ (78,046) $ (119,872) Revenues Three Months Ended September 30, Change (in thousands) 2023 2022 Amount % Auto Sales $ 551 $ — $ 551 NM* *NM = not meaningful. Automotive sales revenue was $0.6 million for the three months ended September 30, 2023. The Company started vehicle delivery to its customers during the three months ended September 30, 2023. Cost of Revenues Three Months Ended September 30, Change (in thousands) 2023 2022 Amount % Cost of revenues $ 16,131 $ — $ 16,131 NM* *NM = not meaningful. Cost of revenues was $16.1 million for the three months ended September 30, 2023. On March 29, 2023, the Company announced the start of production of its first electric vehicle, the FF 91 Futurist and, on April 14, 2023, the Company’s first production FF 91 Futurist vehicle came off the line. The Company started to recognize automotive sales revenue during the three months ended September 30, 2023 and the corresponding cost of revenue. Cost of revenue is primarily driven by higher costs of early-stage cost inefficiencies including lower fixed cost absorption largely due to depreciation of tooling and 50 machinery. To a lesser extent, the Cost of Revenues includes higher initial manufacturing inefficiencies coupled with higher initial cost of parts resulting from lower volume associated with delivery of the FF 91 Futurist vehicles. Research and Development Three Months Ended September 30, Change (in thousands) 2023 2022 Amount % Research and development $ 21,593 $ 47,582 $ (25,989) (55) % The decrease in R&D expense is primarily due to the reduction in engineering, design, and testing (“ED&T”) services of $11.9 million as the Company substantially completed R& D activities related to the FF 91 Futurist vehicle in 2022. Further, as the Company started production in March 2023, certain costs were recognized as cost of revenues and certain materials purchases were capitalized to inventory versus all being recognized as R&D expense. In addition, there was a decrease in personnel and compensation expenses of $10.0 million due to a decrease in headcount as part of cost saving measures implemented by the Company in light of its financial position, as well as the allocation of certain personnel from the R&D department to production, a decrease in stock-based compensati on expense of $2.7 million and a decrease in other miscellaneous expenses of $1.3 million. Sales and Marketing Three Months Ended September 30, Change (in thousands) 2023 2022 Amount % Sales and marketing $ 5,318 $ 3,823 $ 1,495 39 % The increase in sales and marketing expense is due to an increase in compensation expenses of $0.9 million, an increase in professional services expenses of $0.4 million and an increase in marketing expenses of $0.1 million as the Company allocated more resources to sales and marketing due to the achievement of the delivery milestone in August 2023. General and Administrative Three Months Ended September 30, Change (in thousands) 2023 2022 Amount % General and administrative $ 24,023 $ 28,551 $ (4,528) (16) % The decrease in general and administrative expense is primarily due to a decrease in professional services expenses of $6.6 million due to the conclusion of the Special Committee investigation in 2022; partially offset by an increase in compensation related expense of $2.1 million. Change in Fair Value of Earnout Liability Three Months Ended September 30, Change (in thousands) 2023 2022 Amount % Change in fair value of earnout liability $ (67) $ — $ (67) NM* *NM = not meaningful. As of August 25, 2023, the Company reclassified the Earnout Shares from liability classification to equity classification as a result of the Company having sufficient authorized shares to share-settle the earnout, which was determined to be equity classified under ASC 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity . The $0.1 million decrease in the Earnout liability was recognized as a Change in fair value of earnout liability during the three months ended September 30, 2023. Change in Fair Value of Notes Payable and Warrant Liabilities Three Months Ended September 30, Change (in thousands) 2023 2022 Amount % Change in fair value of notes payable and warrant liabilities $ 17,571 $ (1,764) $ 19,335 (1,096) % 51 The Change in the fair value of notes payable and warrant liabilities is primarily due to a significant increase in the volume of outstanding notes payable and warrants accounted for at fair value when compared with the comparative period in 2022. As of September 30, 2022 the Company had $44.5 million of notes payable outstanding, compared with $130.1 million outstanding as of September 30, 2023, excluding the impact of mark to market valuation adjustments. Additionally, during the three months ended September 30, 2022 the Company did not have material liability classified warrants with changes in fair value included in earnings. During the three months ended September 30, 2023, the Company recognized a gain in the Change in fair value of notes payable and warrant liabilities of $21.9 million, specific to the change in fair value of the Company’s warrant liabilities. These gains were offset by an increase in the fair value of the Company’s notes payable during the period, stemming from the impact of the full ratchet price adjustments that were applied to the Company’s SPA Notes. Change in Fair Value of Related Party Notes Payable and Related Party Warrant Liabilities Three Months Ended September 30, Change (in thousands) 2023 2022 Amount % Change in fair value of related party notes payable and related party warrant liabilities $ 4,726 $ — $ 4,726 NM* *NM = not meaningful. The Company did not have any related party notes payable or warrants that were re-measured at fair value during the three months ended September 30, 2022. In May 2023, the Company entered into Unsecured SPA Notes with MHL, who is a related party, and VW. On September 30, 2023, the related party Unsecured SPA Notes and warrant were revalued at a lower fair value than at their issuance due to pricing inputs that use the market price of the Class A Common Stock and debt discount rate which have experienced a decline. Loss on Settlement of Notes Payable Three Months Ended September 30, Change (in thousands) 2023 2022 Amount % Loss on settlement of notes payable $ (21,357) $ (30,454) $ 9,097 (30) % The decrease in the Loss on settlement of notes payable during the three months ended September 30, 2023 is primarily driven by a reduced conversion volume during the period. During the three months ended September 30, 2023 note holders converted $25.8 million of notes payable compared with $67.2 million in the prior period. The impact of the volume difference is offset by a larger loss on settlement per dollar of principal. The increase in the loss on settlement per dollar of principal is driven by the trailing-twelve-month trend of declines in the fair value of the Company’s notes payable driven by the change in the Company’s stock price over the period. Loss on Settlement of Related Party Notes Payable Three Months Ended September 30, Change (in thousands) 2023 2022 Amount % Loss on settlement of related party notes payable $ (10,756) $ — $ (10,756) NM* *NM = not meaningful. The Company did not have any related party notes payable that settled during the three months ended September 30, 2022. In May 2023, the Company entered into Unsecured SPA Notes with MHL,who is a related party, and VW. During the three months ended September 30, 2023, the related party converted Unsecured SPA Notes with principal balances of $6.6 million in exchange for 2,621,940 shares of Class A Common Stock. The Company recognized a Loss on settlement of related party notes payable for the difference between the fair value of the shares issued and the fair value of the debt instrument. 52 Interest Expense Three Months Ended September 30, Change (in thousands) 2023 2022 Amount % Interest expense $ (90) $ (245) $ 155 63 % The decrease in Interest expense was primarily due to the Company’s repayment of $85.0 million of Ares notes payable principal and the conversion of $73.9 million of ATW NPA notes payable principal into the Class A Common Stock in the year ended December 31, 2022. The SPA Notes are carried at fair value and fluctuations in interest expense are included in the Change in fair value of notes payable. Related Party Interest Expense Three Months Ended September 30, Change (in thousands) 2023 2022 Amount % Related party interest expense $ (69) $ (996) $ 927 93 % The decrease in Related party interest expense was due to an agreement, dated December 27, 2022, with Chongqing Leshi Small Loan Co., Ltd, a related party, according to which it was agreed that a portion of principal and all outstanding accrued interest was waived. Other (Expense) Income, Net Three Months Ended September 30, Change (in thousands) 2023 2022 Amount % Other expense, net $ (1,624) $ (6,457) $ 4,833 75 % The change in Other expense, net was primarily due to a decrease in foreign currency transaction losses resulting from the revaluation of transactions denominated in currencies other than U.S. Dollars that are remeasured at the end of each period. 53 Nine Months Ended September 30, (in thousands) 2023 2022 Consolidated Statements of Operations Revenues Auto $ 551 $ — Cost of revenues Auto 22,744 — Gross loss (22,193) — Operating expenses Research and development 104,670 259,741 Sales and marketing 18,082 16,207 General and administrative 67,598 89,069 Loss on disposal of property and equipment 3,698 1,407 Change in fair value earnout liability 2,033 — Total operating expenses 196,081 366,424 Loss from operations (218,274) (366,424) Change in fair value of notes payable and warrant liabilities 90,030 4,580 Change in fair value of related party notes payable and related party warrant liabilities 5,110 — Loss on settlement of notes payable (204,885) (30,454) Loss on settlement of related party notes payable (17,248) — Interest expense (591) (5,119) Related party interest expense (139) (2,931) Other expense, net (1,922) (14,307) Loss before income taxes (347,919) (414,655) Income tax provision (28) (9) Net loss $ (347,947) $ (414,664) Revenues Nine Months Ended September 30, Change (in thousands) 2023 2022 Amount % Auto Sales $ 551 $ — $ 551 NM* *NM = not meaningful. Automotive sales revenue was $0.6 million for the nine months ended September 30, 2023. The Company started vehicle delivery to its customers during the nine months ended September 30, 2023. Cost of Revenues Nine Months Ended September 30, Change (in thousands) 2023 2022 Amount % Cost of revenues $ 22,744 $ — $ 22,744 NM* *NM = not meaningful. Cost of revenue was $22.7 million for the nine months ended September 30, 2023. On March 29, 2023, the Company announced the start of production of its first electric vehicle, the FF 91 Futurist and, on April 14, 2023, the Company’s first production FF 91 Futurist vehicle came off the line. The Company started to recognize automotive sales revenue during the three months ended September 30, 2023 and the corresponding cost of revenue. Cost of revenue is primarily driven by higher costs of early-stage cost inefficiencies including lower fixed cost absorption largely due to depreciation of tooling and 54 machinery. To a lesser extent, the Cost of Revenues includes higher initial manufacturing inefficiencies coupled with higher initial cost of parts resulting from lower volume associated with delivery of the FF 91 Futurist vehicle. Research and Development Nine Months Ended September 30, Change (in thousands) 2023 2022 Amount % Research and development $ 104,670 $ 259,741 $ (155,071) (60) % The decrease in R&D expense is primarily due to the reduction in ED&T services of $118.5 million as the Company substantially completed R& D activities related to the FF 91 Futurist vehicle in 2022. Further, as the Company started production in March 2023, certain costs were recognized as cost of revenues and certain materials purchases were capitalized to inventory versus all being recognized as R&D expense in 2022. In addition, there was a decrease in personnel and compensation expenses of $15.7 million due to a decrease in headcount as part of cost saving measures implemented by the Company in light of its financial position, as well as the allocation of certain personnel from the R&D department to production; a decrease in professional services related expense of $15.3 million as the Company substantially completed R&D activities related to the FF 91 Futurist vehicle in 2022 and a decrease in other miscellaneous expenses of $3.6 million. Sales and Marketing Nine Months Ended September 30, Change (in thousands) 2023 2022 Amount % Sales and marketing $ 18,082 $ 16,207 $ 1,875 12 % The increase in sales and marketing expense is primarily due to the increase in professional services expenses of $1.5 million and an increase in other miscellaneous expenses of $1.8 million due to the allocation of more resources to sales and marketing due to the achievement of the delivery milestone; partially offset by a decrease in personnel and compensation expenses of $0.3 million due to a decrease in headcount as part of cost saving measures implemented by the Company in light of its financial position and a decrease of $0.3 million in stock-based compensation expense. General and Administrative Nine Months Ended September 30, Change (in thousands) 2023 2022 Amount % General and administrative $ 67,598 $ 89,069 $ (21,471) (24) % The decrease in general and administrative expense was primarily due to the decrease in personnel and compensation expens es of $14.3 million due to a decrease in headcount as part of cost saving measures implemented by the Company in light of its financial position and the focus on achieving start of production; a decrease in professional services expenses of $13.7 million due to the conclusion of the Special Committee investigation in 2022; a decrease in information technology related expens es of $0.9 million; partially offset by $4.8 million in increased premiums associated with a new D&O policy entered into in the third quarter of 2022 and an increase in remaining other miscellaneous expenses of $2.6 million. Loss on Disposal of Property and Equipment Nine Months Ended September 30, Change (in thousands) 2023 2022 Amount % Loss on disposal of property and equipment $ 3,698 $ 1,407 $ 2,291 163 % The loss on disposal of property and equipment during the nine months ended September 30, 2023 was primarily due to the write off of $3.7 million of certain construction in process assets that are not expected to be used as part of start of production. 55 Change in Fair Value of Earnout Liability Nine Months Ended September 30, Change (in thousands) 2023 2022 Amount % Change in fair value of earnout liability $ 2,033 $ — $ 2,033 NM* *NM = not meaningful. As of December 31, 2022, the Company reclassified the Earnout Shares from equity classification to liability classification as a result of the Company having insufficient authorized shares to share-settle the earnout, which was previously determined to be equity classified under ASC 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity . As a result of the reclassification, the Company reclassified $2.2 million out of Additional paid-in capital into the Earnout liability. On February 28, 2023, upon shareholder approval to increase the Company’s authorized shares, the Company had sufficient authorized shares to fully settle all outstanding equity-linked financial instruments. Accordingly, the Company reclassified the fair value of the Earnout liability of $5.0 million into Additional paid-in capital. The $2.8 million increase in the Earnout liability from December 31, 2022 to February 28, 2023 was recognized as an expense in the Change in fair value of earnout liability during the three months ended March 31, 2023. As of April 21, 2023, the Company had insufficient authorized shares to fully settle its equity-linked financial instruments in shares primarily due to the issuance of additional convertible notes and warrants between February 28, 2023 and April 21, 2023. As a result, on April 21, 2023, the Company reclassified $2.1 million out of Additional paid-in capital into the Earnout liability. As of August 25, 2023, the Company reclassified the Earnout Shares from liability classification to equity classification as a result of the Company having sufficient authorized shares to share-settle the earnout. The $2.0 million decrease in the Earnout liability from August 25, 2023 to September 30, 2023 was recognized as a Change in fair value of earnout liability during the nine months ended September 30, 2023. Change in Fair Value of Notes Payable and Warrant Liabilities Nine Months Ended September 30, Change (in thousands) 2023 2022 Amount % Change in fair value of notes payable and warrant liabilities $ 90,030 $ 4,580 $ 85,450 1,866 % The change in the fair value of notes payable and warrant liabilities is due to a significant change in the volume of outstanding notes payable and warrants accounted for at fair value when compared with the comparative period in 2022 and the re-valuation of the Company’s notes payable and warrants at predominantly lower fair values due to pricing inputs that use the market price of the Common Stock and debt discount rate, which have experienced a decline. As of September 30, 2022 the Company had $44.5 million of notes payable outstanding, compared with $130.1 million outstanding as of September 30, 2023, excluding the impact of mark to market valuation adjustments. Additionally, during the nine months ended September 30, 2022 the Company did not have material liability classified warrants with changes in fair value included in earnings. During the nine months ended September 30, 2023, the Company recognized a gain in the Change in fair value of notes payable and warrant liabilities of $69.8 million, specific to the change in fair value of the Company’s warrant liabilities. These gains were offset by an increase in the fair value of the Company’s notes payable during the period, stemming from the impact of the full ratchet price adjustments that were applied to the Company’s SPA Notes. Change in Fair Value of Related Party Notes Payable and Related Party Warrant Liabilities Nine Months Ended September 30, Change (in thousands) 2023 2022 Amount % Change in fair value of related party notes payable and related party warrant liabilities $ 5,110 $ — $ 5,110 NM* *NM = not meaningful. The Company did not have any related party notes payable or warrants that were re-measured at fair value during the nine months ended September 30, 2022. In May 2023, the Company issued the Unsecured SPA Notes to MHL, who is a related party, and VW. On September 30, 2023, the related party Unsecured SPA Notes and warrants were revalued at a lower fair 56 value than at their issuance due to pricing inputs that use the market price of the Class A Common Stock and debt discount rate which have experienced a decline. Loss on Settlement of Notes Payable Nine Months Ended September 30, Change (in thousands) 2023 2022 Amount % Loss on settlement of notes payable $ (204,885) $ (30,454) $ (174,431) 573 % The increase in the Loss on settlement of notes payable during the three months ended September 30, 2023 is driven by a substantially higher conversion volume during the period and an increase in the loss on settlement per dollar of principal. During the nine months ended September 30, 2023 note holders converted $187.7 million of notes payable compared to $67.2 million in the prior period. The increase in the loss on settlement per dollar of principal is driven by the trailing-twelve-month trend of declines in the fair value of the Company’s notes payable driven by the change in the Common Stock price over the period. Loss on Settlement of Related Party Notes Payable Nine Months Ended September 30, Change (in thousands) 2023 2022 Amount % Loss on settlement of related party notes payable $ (17,248) $ — $ (17,248) NM* *NM = not meaningful. The Company did not have any related party notes payable that settled during the nine months ended September 30, 2022. In May 2023, the Company entered into Unsecured SPA Notes with MHL,who is a related party, and VW. During the nine months ended September 30, 2023, the related party converted Unsecured SPA Notes with principal balances of $18.7 million in exchange for 72,353,608 shares of Class A Common Stock and the Company recognized a Loss on settlement of related party notes payable for the difference between the fair value of the shares issued and the fair value of the debt instrument. Interest Expense Nine Months Ended September 30, Change (in thousands) 2023 2022 Amount % Interest expense $ (591) $ (5,119) $ 4,528 88 % The decrease in Interest expense was primarily due to the Company’s repayment of $85.0 million of Ares notes payable principal and the conversion of $73.9 million of ATW NPA notes payable principal into Class A Common Stock in the year ended December 31, 2022. The SPA Notes are carried at fair value and fluctuations in interest expense are included in the Change in fair value of notes payable. Related Party Interest Expense Nine Months Ended September 30, Change (in thousands) 2023 2022 Amount % Related party interest expense $ (139) $ (2,931) $ 2,792 (95) % The decrease in Related party interest expense was due to an agreement, dated December 27, 2022, with Chongqing Leshi Small Loan Co., Ltd, a related party, according to which it was agreed that a portion of principal and all outstanding accrued interest was waived. Other (Expense) Income, Net Nine Months Ended September 30, Change (in thousands) 2023 2022 Amount % Other expense, net $ (1,922) $ (14,307) $ 12,385 (87) % The change in Other expense, net was primarily due to a decrease in foreign currency transaction losses resulting from the revaluation of transactions denominated in currencies other than U.S. Dollars that are remeasured at the end of each period. 57 Liquidity and Capital Resources Going Concern The Company has evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the Condensed Consolidated Financial Statements are issued. Based on its recurring losses from operations since inception and continued cash outflows from operating activities (all as described below), the Company has concluded that there is substantial doubt about its ability to continue as a going concern for a period of one year from the date that these Condensed Consolidated Financial Statements were issued. Since its formation, the Company has devoted substantial effort and capital resources to strategic planning, engineering, design, and development of its electric vehicle platform, development of initial electric vehicle models, and capital raising. Since inception, the Company has incurred cumulative losses from operations and negative cash flows from operating activities, and has an accumulated deficit of $3,874.7 million and a cash balance of $6.7 million as of September 30, 2023. The Company expects to continue to generate significant operating losses for the foreseeable future. The Company has funded its operations and capital needs primarily through the net proceeds received from capital contributions, the issuance of related party notes payable and notes payable (see Note 8, Related Party Transactions and Note 7, Notes Payable ), the sale of Common Stock, and the net proceeds received from the Business Combination and a subscription agreement with certain investors (see Note 1, Nature of Business and Organization and Basis of Presentation ). FF announced the start of production of its first electric vehicle, the FF 91 Futurist, on March 29, 2023 and announced the delivery of its first electric vehicle, the Ultimate AI TechLuxury FF 91 2.0 Futurist Alliance, on August 14, 2023. However, FF has recognized an insignificant amount of revenue as of the date hereof. FF’s future business depends in large part on its ability to execute its plans to develop, manufacture, market, and deliver electric vehicles, including the FF 91, FF 81, FF 71 series, and Smart Last Mile Delivery electric vehicle models that appeal to customers. Based on certain management assumptions, including timely completion of certain testing and suppliers meeting our supply chain requirement, FF originally expected deliveries of the FF 91 to users to begin before the end of April 2023. However, certain of FF’s suppliers were unable to meet FF’s timing requirements and, therefore, FF updated the timing for the start of deliveries for its FF 91 vehicle. FF has developed a three-phase delivery plan for the FF 91 (the “Delivery Plan”). The first phase, which began in May 2023, is the “Industry Expert Futurist Product Officer (“FPO”) Co-Creation Delivery.” In this first phase, the Industry Expert FPO(s) are expected to pay in full for an FF 91 vehicle in order to reserve the vehicle and be trained in the use of the vehicle. The second phase, which is the “FPO Co-Creation Delivery,” began in August 2023. In this second phase, FPO(s) are taking possession of the FF 91 vehicle and are also entering into consulting, branding, marketing, and other arrangements with FF in exchange for fees to be paid by the Company to the FPO(s). The third phase is the “Full Co-Creation Delivery,” in which, FF will deliver FF 91 vehicles to all spire users that are expected to have paid in full for an FF 91 vehicle at time of delivery. Further, FF needs substantial additional financing to start the third phase of the Delivery Plan and is in discussions with additional potential investors to obtain such financing. As FF executes the three-phase Delivery Plan, it plans to continue to move vehicles into production and off-the-line with high quality and high product power. There is no assurance FF will be able to timely receive sufficient funding under existing or new financing commitments to produce and deliver the FF 91 Futurist on that timeline or at all. If unable to receive sufficient funding, FF will be required to obtain new financing commitments, which may not be available to it under reasonable commercial terms or at all. Further, there cannot be any assurance that FF will develop the manufacturing capabilities and processes, secure reliable sources of component supply to meet quality, engineering, design or production standards, or to meet the required production volumes to successfully grow into a viable, cash flow positive business. The Company has continued financing discussions with multiple parties, but has experienced delays in securing additional funding commitments, which have exacerbated the supply chain and liquidity pressures on FF’s business. Since August 14, 2022, pursuant to the Secured SPA, Unsecured SPA and Unsecured Streeterville SPA (as defined in Note 7, Notes Payable) , the Company has obtained commitments from several investors totaling $513.5 million in convertible note financing. Additionally, the Company has received commitments totaling $20.0 million through forced warrant exercise proceeds, subject to certain conditions. A total of $300.2 million under these convertible note financing commitments has been funded to date ($263.2 million net of original discount and transaction costs). The remaining balance of $213.3 million is subject to various conditions, including achievement of delivery milestones, satisfaction of closing conditions, resolving disputes with investors, and satisfaction or waiver of certain conditions, including for a portion of such financing an effective registration statement for the shares underlying the applicable notes. In addition to the amounts received pursuant to the above commitments, the Company received additional optional funding - an aggregated gross proceeds of $38.0 million ($32.9 million net of original issuance discount) under the Secured SPA. There can be no assurance that FF will be able to satisfy the closing conditions under the Unsecured SPA or that FF will be able further to successfully obtain additional incremental convertible senior secured note purchasers under the Secured SPA, 58 Unsecured SPA, Unsecured Streeterville SPA or other debt or equity financing in a timely manner or on acceptable terms, if at all. These factors, in addition to the continued rise in inflation increasing the cost of labor and materials and other challenging macroeconomic conditions, have led FF to take steps to preserve its current cash position, including reducing spending, extending payment cycles and implementing other similar measures. If our ongoing capital raising efforts are unsuccessful or significantly delayed, or if we experience prolonged material adverse trends in our business, our production will be delayed or decreased, and our actual use of cash, production volume and revenue for 2023 will vary from our previously disclosed forecasts, and such variances may be material. While FF continues to be actively engaged in negotiations with potential financing sources, there is no guarantee that it will be able to raise additional capital on terms acceptable to it or at all. In addition to the risk that FF’s assumptions and analyses may prove incorrect, the projections may underestimate the professional fees and other costs to be incurred related to the pursuit of various financing options currently being considered and ongoing legal risks. Incremental capital needs beyond 2023 to fund operations and the development of the Company’s remaining product portfolio and to ramp up production will be highly dependent on the market success and profitability of the FF 91 and the Company’s ability to accurately estimate and control costs. Apart from the FF 91 Futurist series, substantial additional capital will be required to fund operations, as well as, research, development, and design efforts for future vehicles. On November 11, 2022, FF entered into a Standby Equity Purchase Agreement (the “SEPA”) with YA II PN, Ltd. (“Yorkville”), which is an affiliate of Yorkville Advisors. Under the terms of the SEPA, FF has the right, but not the obligation, to sell up to $200.0 million (which can be increased up to $350.0 million at FF’s option) of Class A Common Stock to an affiliate of Yorkville Advisors, subject to certain limitations, at the time of the Company’s choosing during the three-year term of the SEPA. During the three and nine months ended September 30, 2023, FF sold 837,500 shares of Class A Common Stock at a price equal to 97% of the average daily volume weighted average price of the Class A Common Stock to Yorkville under the SEPA for $7.3 million. On June 16, 2023, the Company filed the Shelf Registration with the SEC, which was declared effective by the SEC on June 28, 2023. As a result, the Company may from time-to-time issue Class A Common Stock and/or warrants, up to an aggregate amount of $300.0 million in one or more offerings. The Shelf Registration provides an ability for the Company to raise additional capital through Class A Common Stock and/or warrant issuances to both institutional and retail investors as it looks to raise additional financing to support production ramp-up. On September 27, 2023, the Company filed a prospectus supplement to the Shelf Registration regarding the At-the-Market Equity Offering Sales Agreement (the “Sales Agreement”) the Company entered into on September 26, 2023 with Stifel, Nicolaus & Company, Incorporated, B. Riley Securities, Inc., A.G.P./Alliance Global Partners, Wedbush Securities Inc. and Maxim Group LLC (the “Sales Agents”) to offer and sell up to $90.0 million of Class A Common Stock. In accordance with the terms of the Sales Agreement, the Company may offer and sell shares of Class A Common Stock from time to time through or to the Sales Agents as sales agent or principal by any method that is deemed to be an “at the market offering” as defined in Rule 415 under the Securities Act of 1933. The aggregate compensation payable to the Sales Agents shall be up to 3.5% of the gross sales price of the shares sold through the Sales Agents. During the three and nine months ended September 30, 2023, the Company issued 780,000 shares of its Class A Common Stock under the Sales Agreement for gross cash proceeds of $1.3 million less placement agent fees of $0.1 million. Despite the potential access to liquidity resulting from the SEPA, the Shelf Registration and the unfunded commitments from the Secured SPA and the Unsecured SPA, the Company projects that it will require additional funds in order to continue operations and support the ramp-up of production of the FF 91 Futurist to generate revenues to put the Company on a path to cash flow break-even. Incremental capital needs beyond 2023 to fund operations and the development of the Company’s remaining product portfolio and ramp up production will be highly dependent on the market success and profitability of the FF 91 Futurist and the Company’s ability to accurately estimate and control costs. The Company is exploring various funding and financing alternatives to fund its ongoing operations and to ramp up production, including equipment leasing, construction financing of the FF ieFactory California, secured syndicated debt financing, convertible notes, working capital loans, and equity offerings, among other options. The particular funding mechanisms, terms, timing, and amounts are dependent on the Company’s assessment of opportunities available in the marketplace and the circumstances of the business at the relevant time. The timely achievement of the Company’s operating plan as well as its ability to maintain an adequate level of liquidity are subject to various risks associated with the Company’s ability to continue to successfully close additional sources of funding, control and effectively manage its costs, as well as factors outside of the Company’s control, including those related to global supply chain disruptions, the rising prices of materials, and general macroeconomic conditions. There can be no assurance that the Company will be successful in achieving its strategic plans, that the Company’s future funding raises will be sufficient to support its ongoing operations, or that any additional financing will be available in a timely manner or on acceptable terms, if at all or that the Company will be able to satisfy the closing conditions under its financing agreements. If events or circumstances occur such that the Company does not meet its strategic plans, the Company will be 59 required to reduce discretionary spending, alter or scale back vehicle development programs, be unable to develop new or enhanced production methods, or be unable to fund capital expenditures. Any such events would have a material adverse effect on the Company’s financial position, results of operations, cash flows, and ability to achieve its intended business objectives, and the Company will likely not be able to continue as a going concern. As of September 30, 2023, the Company was in default on the Secured SPA Notes; however, the holders of such notes subsequently waived the default. As of April 2023, the Company has been in breach of its debt agreement with Chongqing Leshi Small Loan Co., Ltd., a related party, with an outstanding principal balance of $4.5 million. As a result of the default, the interest rate on the outstanding principal balance has increased to a rate of 18% per annum until the event of default is no longer applicable. There can be no assurance that the Company will be able to maintain sufficient authorized shares to fully settle all outstanding equity-linked financial instruments in shares. Material Cash Requirements The Company's material cash requirements include the following contractual and other obligations: As of September 30, 2023, the Company had outstanding notes payable to related parties, comprised of $3.8 million which is due on demand, $5.1 million is scheduled to become due in December 2023, and $3.3 million due in the year 2029. The related parties include employees as well as affiliates of employees and affiliates and other companies controlled or previously controlled by Mr. Jia, the Company’s founder and Chief Product and User Ecosystem Officer. See Note 8, Related Party Transactions , in the Condensed Consolidated Financial Statements. As of September 30, 2023, the Company had outstanding $135.1 million in aggregate principal amount of notes payable to third parties, of which $4.8 million is due on demand, $41.0 million and the remainder due in year 2029. See Note 7, Notes Payable , in the Condensed Consolidated Financial Statements. As of September 30, 2023, the Company had operating and financing lease obligations (inclusive of interest) of $37.0 million, primarily related to its FF ieFactory California production facility, corporate office, store, equipment, and vehicle lease agreements, of which approximately $7.2 million in payments are scheduled to become due in the succeeding 12 months. We have purchase commitments under legally enforceable agreements for goods and services, including purchases of inventory, tooling, machinery and equipment, and items to be used in research and development activities, with defined terms as to quantity, price and timing of delivery. Sources of Liquidity As of September 30, 2023, the Company’s principal source of liquidity was cash on hand totaling $6.7 million, which was held for working capital and general corporate purposes. The Company also has access to various sources of additional capital, including the SEPA, the Sales Agreement, and the SPA Commitments. The Company’s ability to access these sources of capital and further information on amounts available is discussed in Note 2, Liquidity and Capital Resources . Cash Flow Analysis Presented below is a summary of FF’s cash flows for the periods indicated: Nine Months Ended September 30, 2023 2022 Net cash provided by (used in) Operating activities $ (240,370) $ (355,109) Investing activities (10,846) (112,099) Financing activities 237,565 (40,935) Effect of exchange rate changes on cash and restricted cash 3,704 11,594 Operating Activities FF continues to experience negative cash flows from operations as FF designs and develops its vehicles and builds its infrastructure both in the U.S. and China. FF’s cash flows from operating activities are significantly affected by FF’s cash investments to support the growth of FF’s business in areas such as R&D associated with FF’s electric vehicles, corporate 60 planning, and general and administrative functions. FF’s operating cash flows are also affected by its working capital needs to support growth and fluctuations in personnel-related expenditures, accounts payable, accrued interest, other current liabilities, deposits, and other current assets. Net cash used in operating activities was $240.4 million for the nine months ended September 30, 2023 which were primarily related to ED&T services, compensation and benefits, and other professional services associated with research and development activities performed. The largest components of FF’s cash used by operating activities during the nine months ended September 30, 2023, were $87.5 million for research and development expenses, $82.1 million for wages and compensation related expenses, and $31.1 million for professional services. Net cash used in operating activities was $355.1 million for the nine months ended September 30, 2022. The largest components of FF’s cash used by operating activities during the nine months ended September 30, 2022, were for professional and contracted services totaling $119.5 million, compensation, benefits and related expenses totaling $95.3 million and prepaid insurance totaling $21.7 million. Investing Activities Net cash used in investing activities was $10.8 million and $112.1 million for the nine months ended September 30, 2023 and 2022, respectively, and is related to the acquisition of fixed assets. Financing Activities For the nine months ended September 30, 2023, net cash provided by financing activities was $237.6 million. For the nine months ended September 30, 2022, net cash used in financing activities was $40.9 million. Net cash provided by financing activities during the nine months ended September 30, 2023, primarily consists of $228.4 million in proceeds from notes payable, net of original issue discount, and $4.1 million in proceeds from the exercise of warrants, partially offset by the payment of $2.5 million in debt issuance costs and $1.0 million in payments of finance lease obligations. Net cash used in financing activities during the nine months ended September 30, 2022 primarily consists of $87.3 million in repayment of notes payable, including liquidation premiums, and $1.4 million in payments of finance lease obligations, partially offset by $9.5 million in proceeds from exercise of stock options. Effect of Exchange Rate Changes on Cash and Restricted Cash The exchange rates effect on cash and restricted cash was $3.7 million and $11.6 million for the nine months ended September 30, 2023 and 2022, respectively. The effects of exchange rate changes on cash and restricted cash result from fluctuations on the translation of assets and liabilities denominated in foreign currencies, primarily Chinese Renminbi. Fluctuations in exchange rates against the U.S. Dollar may positively or negatively affect FF’s operating results. Off-Balance Sheet Arrangements The Company did not have any material relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Thus, the Company did not have any off-balance sheet arrangements as of September 30, 2023 and December 31, 2022. Critical Accounting Estimates The preparation of our Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent liabilities, and the reported amounts of expenses during the reporting period. Management has based its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from the estimates made by FF’s management. To the extent that there are material differences between these estimates and actual results, future financial statement presentation, financial condition, results of operations, and cash flows will be affected. Given the global economic climate, estimates are subject to additional volatility. 61 Critical accounting estimates are defined as estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the Company’s financial condition or results of operations. For a description of the Company’s critical accounting estimates, refer to the section titled “Critical Accounting Estimates” in Management’s Discussion and Analysis of Financial Condition and Results of Operations, set forth in Part II, Item 7, of the Form 10-K/A. As of the date of this report, there have been no changes to our critical accounting estimates described in the Form 10-K/A that have had a material impact on our Condensed Consolidated Financial Statements and related footnotes. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Pursuant to Item 305(e) of Regulation S-K, FF is not required to provide the information required by this Item as it is a “smaller reporting company.”