Item 1A. Risk Factors
ITEM 1A. RISK FACTORS
Other than the updates to the first two risk factors listed below and the addition to the third risk factor listed below, there have been no material changes from the risk factors previously described under Item 1A of the Form 10-K).
FF is not currently in compliance with the continued listing requirements for Nasdaq and may be delisted, which could affect the market price and liquidity for FF’s Common Stock and reduce FF’s ability to raise additional capital.
On December 28, 2023, FF received written notice from Nasdaq stating that FF has failed to maintain a minimum bid price of at least $1.00 per share for the prior 30-consecutive-trading-day period from November 9, 2023 to December 27, 2023. Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), FF was initially provided 180 calendar days from receipt of the notice from Nasdaq to regain compliance with the Minimum Bid Price Requirement. On April 18, 2024, FF received a letter from Nasdaq indicating that FF was not in compliance with Nasdaq Listing Rule 5250(c)(1) as FF had not yet filed its Annual Report on Form 10-K for the year ended December 31, 2023. On April 24, 2024, FF received an additional letter from Nasdaq indicating that FF was not in compliance with Nasdaq Listing Rule 5810(c)(3)(A)(iii), as FF’s Class A Common Stock had a closing bid price of $0.10 or less for ten consecutive trading days (the “Low Priced Stocks Rule”). The letter indicated that, as a result of non-compliance with both the Low Priced Stocks Rule and the requirement to file the Form 10-K for the year ended December 31, 2023, the Nasdaq staff had determined to delist FF’s securities from The Nasdaq Capital Market (the “Delisting Determination”). Further, on May 21, 2024, FF received an additional letter from Nasdaq indicating that FF is now delinquent in filing its Form 10-Q for the period ended March 31, 2024, and as such, the delinquency serves as an additional basis for delisting FF’s securities from The Nasdaq Capital Market.
On May 1, 2024, FF requested a hearing to appeal the Delisting Determination, which stayed the suspension of FF’s securities for 15 days. FF also requested an extended stay of the suspension pending such hearing with Nasdaq’s Hearings Panel (the “Panel”), which Nasdaq granted on May 28, 2024. On June 13, 2024, a hearing was held with the Panel at which FF requested an extension of the period to regain compliance with the Minimum Bid Price Requirement to August 30, 2024 and to cure the delinquency in filing the Form 10-Q for the period ended March 31, 2024 (the “Q1 10-Q”) to July 31, 2024. On May 28, 2024, FF filed its Annual Report on Form 10-K for the year ended December 31, 2023 (as amended on May 30, 2024 and June 24, 2024).
On June 26, 2024, the Panel granted FF’s request for extension subject to FF filing this Form 10-Q on or before July 31, 2024, timely filing the Form 10-Q for the period ended on June 30, 2024, and demonstrating compliance with the Minimum Bid Price Requirement on or before August 31, 2024.
FF is taking definitive steps to timely satisfy the conditions set forth by the Panel, including filing a definitive proxy statement with a proposal for stockholders to approve a reverse stock split and [filing this Form 10-Q on or before July 31, 2024]. In addition, FF intends to timely file its second quarter Form 10-Q. However, FF may be unable to timely satisfy the terms of the extension granted by the Panel.
FF will continue to monitor the closing bid price of its Class A Common Stock and seek to regain compliance with all applicable Nasdaq requirements within the allotted compliance periods and may, if appropriate, consider available options, including implementation of a reverse stock split if approved by stockholders, to regain compliance with the Minimum Bid Price Requirement.
If Nasdaq delists FF’s shares from trading on its exchange for failure to meet the applicable listing standards, we and our stockholders could face significant material adverse consequences including:
• a limited availability of market quotations for our securities;
• reduced liquidity for our securities;
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• a determination that our Common Stock is a “penny stock,” which will require brokers trading in our Common Stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for shares of our Common Stock;
• a limited amount of news and analyst coverage; and
• a decreased ability to issue additional securities or obtain additional financing in the future.
Increases in costs, disruption of supply or shortage of materials used to manufacture FF’s vehicles, in particular for lithium-ion cells or electronic components, could harm its business.
FF incurs significant costs related to procuring components and raw materials required to manufacture its vehicles. FF may experience cost increases, supply disruption and/or shortages relating to components and raw materials, which could materially and adversely impact its business, prospects, financial condition and operating results. FF uses various components and raw materials in its business, such as steel, aluminum, and lithium battery cells. The prices for these materials fluctuate, and their available supply may be unstable, depending on market conditions and global demand for these materials, including as a result of increased production of electric vehicles by FF’s competitors, as well as unforeseeable events such as the COVID-19 pandemic.
For instance, FF is exposed to multiple risks relating to lithium battery cells or electronic components, including but not limited to: (i) an increase in the cost, or decrease in the available supply, of materials used in the battery cells, such as lithium, nickel, cobalt and manganese, including as a result of the Biden administration’s May 2024 announcement of significant increases in tariff rates on certain imports from China, including on lithium-ion EV batteries, battery parts, and related minerals; (ii) disruption in the supply of battery cells or electronic components due to quality issues or recalls by battery cell or electronic component manufacturers; and (iii) the inability or unwillingness of FF’s current battery cell or electronic component manufacturers to build or operate battery cell or electronic components manufacturing plants to supply the numbers of lithium cells or electronic components required to support the growth of the electric vehicle industry as demand for such battery cells or electronic components increases.
FF’s business is dependent on the continued supply of battery cells for the battery packs used in its vehicles and other electronic components. While FF believes several sources of the battery cells are available for such battery packs, it has to date fully qualified only one supplier for the battery cells used in such battery packs and has very limited flexibility in changing battery cell suppliers. Any disruption in the supply of battery cells or electronic components from such suppliers could disrupt production of FF’s vehicles until such time as a different supplier is fully qualified. There can be no assurance that FF would be able to successfully retain alternative suppliers on a timely basis, on acceptable terms or at all.
Furthermore, tariffs (such as the increased tariffs on lithium-ion EV batteries described above) or shortages in petroleum and other economic conditions may result in significant increases in freight charges and material costs. In addition, a growth in popularity of electric vehicles without a significant expansion in battery cell production capacity could result in shortages which would result in increased materials costs to FF thereby negatively impacting its business, prospects, financial condition and results of operations. Substantial increases in the prices for FF’s raw materials or components would increase its operating costs, and could reduce margins if FF cannot recoup the increased costs through increased vehicle prices. Any attempts to increase product prices in response to increased material costs could result in a decrease in sales and therefore materially and adversely affect FF’s brand, business, prospects, financial condition and operating results.
Our latest business strategy, which we refer to as the Bridge Strategy, is subject to numerous risks and uncertainties.
FF has developed a new business strategy that we refer to as the Bridge Strategy as described in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations - Overview contained in Part I of this form 10-Q. This strategy may fail for any number of reasons, including that:
• there may be insufficient demand in the United States for a China-based electric vehicle;
• the price range that FF is initially targeting is a highly competitive segment of the electric vehicle market, and additional competitors are expected in the future;
• FF’s competitors are better capitalized, substantially larger, have developed after-sales service and support infrastructures, have existing or upcoming models in the market, and have stronger name recognition;
• FF currently lacks the necessary funding to execute on the Bridge Strategy and has not yet identified any potential funding sources, and it is unclear how much quarterly funding the Bridge Strategy would require in 2024 or 2025;
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• existing tariff policies, including the tariffs on electric vehicles and lithium-ion batteries from China that were announced by the Biden administration in May 2024, and new tariffs could render the Bridge Strategy unfeasible;
• the cost of procuring components and raw materials from countries other than China in order to manage the aforementioned tariffs could render the Bridge Strategy unfeasible;
• FF’s modeling for the Bridge Strategy is preliminary and provides little margin for error in cost modeling;
• the Bridge Strategy could distract management from FF’s other business strategies and operations, including FF’s U.S. and China dual-home strategy, U.S. delivery of the FF 91, FF’s strategy in the Middle East including the United Arab Emirates, delivery of the FF 91 2.0 Futurist aiFalcon Limited Edition for the Middle East market, and the FF 81 and FF 71 pipeline;
• regulatory and compliance costs, as well as obtaining necessary certifications, related to the Bridge Strategy;
• building a new supply chain would be time consuming and costly;
• FF would need to obtain a certificate of occupancy for its Hanford manufacturing facility to allow FF to execute on the Bridge Strategy, and obtaining such a certificate of occupancy would be time consuming and costly;
• FF would need to hire a significant number of employees at its Gardena and Hanford locations to execute on the Bridge Strategy; and
• the Bridge Strategy would require a U.S.-wide after-service and support infrastructure, which would be costly to build.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.