# FARADAY FUTURE INTELLIGENT ELECTRIC INC. (FFAI) FY 2021 MD&A Verbatim Item 7 Management's Discussion and Analysis from FARADAY FUTURE INTELLIGENT ELECTRIC INC.'s 10-K for fiscal year 2021. SEC filing source: https://www.sec.gov/Archives/edgar/data/1805521/000162828022014386/ffie-20211231.htm Accession: 0001628280-22-014386 Filing date: 2022-05-13 Report date: 2021-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture. Confidence: high Company profile: /company/FFAI/ All MD&A years: /company/FFAI/mda/ Next year: /company/FFAI/mda/fy2022/ (FY 2022) Item 7. 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 Consolidated Financial Statements and Notes thereto included elsewhere in this annual report on Form 10-K (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 section entitled “Risk Factors” above 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. Unless context otherwise requires, all references in this section to the “Company,” “FF,” “we,” “us,” “our” and similar terms refer to Faraday Future Intelligent Electric Inc., a Delaware corporation, and its consolidated subsidiaries. References to “PSAC” refer to Property Solutions Acquisition Corp., a Delaware corporation, our predecessor company prior to the consummation of the Business Combination (as defined herein), and “Legacy FF” refers to FF Intelligent Mobility Global Holdings Ltd., an exempted company with limited liability incorporated under the laws of the Cayman Islands, together with its consolidated subsidiaries, prior to the Business Combination. 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 Item 1A above. 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 Item 1A above 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. Overview FF 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 (the “Closing Date”), Faraday Future Intelligent Electric Inc. (f/k/a Property Solutions Acquisition Corp. (“PSAC”)), a Delaware corporation, consummated the previously announced business combination pursuant to that certain Agreement and Plan of Merger, dated as of January 27, 2021 (as amended, the “Merger Agreement”), by and among 67 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 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 (the “Closing”), PSAC changed its name from Property Solutions Acquisition Corp. to Faraday Future Intelligent Electric Inc. (“FF”) and FF’s Class A Common Stock and warrants (“Public Warrants”) originally issued in the initial public offering of PSAC began trading on The Nasdaq Global Select Market (“NASDAQ”) 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 intends to manufacture vehicles at its production facility in Hanford, California, with additional future production capacity needs addressed through a contract manufacturing agreement with Myoung Shin Co., Ltd., an automotive manufacturer headquartered in South Korea. FF has additional engineering, sales, and operational capabilities in China and plans to develop its manufacturing capability in China through a joint venture or other arrangement. 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. FF’s innovations in technology include its proprietary Variable Platform Architecture (“VPA”), propulsion system, and Internet Artificial Intelligence (“I.A.I.”) system. We believe the following combination of capabilities of FF’s products, technology, team, and business model distinguish FF from its competitors: •FF has designed and developed a breakthrough mobility platform — its proprietary VPA. •FF’s propulsion system provides a leading competitive edge in acceleration and range enabled by an industry-leading inverter design and propulsion system. •FF’s advanced 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 March 31, 2022, FF has been granted more than 650 patents globally. •FF’s B2C (business-to-customer) passenger vehicle launch pipeline over the next five years includes the FF 91 series, the FF 81 series, and the FF 71 series. •FF intends to commercially launch the FF 91 in the third quarter of 2022. FF believes that the FF 91 will be the first ultra-luxury EV to offer a highly personalized, fully connected user experience for driver and passengers. •FF plans to commercially launch its second passenger vehicle, the FF 81, in 2024, 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. •FF plans to develop a mass-market passenger vehicle, the FF 71. FF expects to launch the FF 71 in 2025. 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. •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. FF plans to launch the FF SLMD vehicles in 2024. FF has adopted a hybrid manufacturing strategy consisting of its refurbished manufacturing facility in Hanford, California as well as its collaboration with Myoung Shin Co., Ltd. FF has established a framework agreement to explore the possibility of additional manufacturing capacity in China through a joint venture. All passenger vehicles as well as the SLMD vehicle are expected to be available for sale in the U.S., China, and Europe. Emerging Growth Company Status 68 Section 102(b)(1) of 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 of 1933, as amended, and has elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards. FF is an emerging growth company at least through the end of 2021 and 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 FF has determined that FF operates as one reportable segment, which is the design, development, manufacture, engineering, sale, and distribution of electric vehicles and related products in the global market. Impact of COVID-19 on FF’s Business (in thousands) There continues to be worldwide impact from the COVID-19 pandemic. The impact of COVID-19 includes changes in consumer and business behavior, pandemic fears, market downturns, restrictions on business, and individual activities have created significant volatility in the global economy and have led to reduced economic activity. The spread of COVID-19 has also created a disruption in the manufacture, delivery, and overall supply chain of vehicle manufacturers and suppliers and has led to a global decrease in vehicle sales in markets around the world. The pandemic has resulted in government authorities implementing numerous measures to try to contain the virus, such as travel bans, restrictions, quarantines, stay-at-home or shelter-in-place orders, and business shutdowns. For example, FF’s employees based in California have been subject to stay-at-home orders from state and local governments. While the stay-at-home orders were lifted on June 15, 2021, FF continues to operate under various return-to-work protocols and must continue to follow certain safety and COVID-19 protocols. These measures may adversely impact FF’s employees and operations, the operations of FF’s suppliers and business partners, and could negatively impact the construction schedule of FF’s manufacturing facility and the production schedule of the FF 91. In addition, various aspects of FF’s business and manufacturing facility cannot be conducted remotely. These measures by government authorities may remain in place for a significant period of time and could adversely affect FF’s construction and manufacturing plans, sales and marketing activities, and business operations. The extent of the continuing impact of the COVID-19 pandemic on FF’s operational and financial performance is uncertain and will depend on many factors outside FF’s control, including, without limitation, the timing, extent, trajectory and duration of the pandemic; the availability, distribution and effectiveness of vaccines; the imposition of protective public safety measures; and the impact of the pandemic on the global economy, including FF’s supply chain, and on the demand for consumer products. Future measures taken by government authorities in response the COVID-19 pandemic could adversely affect FF’s construction and manufacturing plans, sales and marketing activities, and business operations. In response to the pandemic, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the United States Small Business Administration (“SBA”). In 2020, Legacy FF received a Paycheck Protection Program (“PPP”) loan in the amount of $9,168. The Company was notified by East West Bank that a principal amount of $8,975 as well as accrued interest of $155 relating to the PPP Loan had been forgiven as of December 31, 2021. The Company paid the remaining principal and accrued interest of $195 in the aggregate in April 2022. The COVID-19 vaccine is currently being administered. Any resurgence may slow down FF’s ability to ramp-up FF’s production program on time to satisfy investors and potential customers. Any delay to production will delay FF’s ability to launch the FF 91 and begin generating revenue. The COVID-19 pandemic could limit the ability of FF’s suppliers and business partners to perform, including third party suppliers’ ability to provide components and materials used in the FF 91. FF may also experience an increase in the cost of raw materials. FF does not anticipate any material impairments as a result of COVID-19; however, FF will continue to evaluate conditions on an ongoing basis. Even after the COVID-19 pandemic has subsided, FF may continue to experience an adverse impact to its business as a result of the global economic impact and any lasting effects on the global economy, including any recession that has occurred or may occur in the future. Refer to the section titled “Risk Factors” in Item 1A above for a full discussion of the risks associated with the COVID-19 pandemic. 69 Business Combination On June 24, 2021, the registration statement on Form S-4 (File No. 333-255027), initially filed with the U.S. Securities and Exchange Commission (“SEC”) on April 5, 2021 (as amended, the “Registration Statement”), relating to the Business Combination was declared effective by the SEC, and (ii) PSAC established a record date of June 24, 2021 (the “Record Date”) and a meeting date of July 21, 2021 for its special meeting of stockholders (the “Special Meeting”), where the Business Combination was approved. For purposes of the discussions in this section related to conversion on the Closing Date of all issued and outstanding Legacy FF Ordinary Stock into shares of Common Stock of FF in accordance with the terms and conditions of the Merger Agreement and the settlement of liabilities in conjunction with the closing of the Business Combination, we refer to that parties’ right to receive Class A and Class B Common Stock. Recent Developments FF accomplished the following major milestones during 2021: •Completed its merger with Property Solutions Acquisition Corp. (“PSAC”), a special purpose acquisition company. FF began trading on NASDAQ under ticker "FFIE” beginning on July 22, 2021. •Completed the installation of pilot equipment in the pre-production build area of its Hanford, California facility. The Hanford manufacturing facility is approximately 1.1 million square feet and, once it is built out, is expected to have the capacity to support a production of 10,000 vehicles per year. Based on the current timeline, FF management anticipates production at the Hanford facility will commence in the third quarter of 2022. •Completed a 2,270-mile testing and evaluation journey following the historic Route 66, a highway that crosses numerous U.S. states as it winds its way from Chicago, Illinois to Santa Monica, California. •Announced its plans to partner with Qmerit, a leader in green energy transformation with the largest nationwide network of certified electrical installers for EV charging stations, to support future FF 91 drivers in need of home charging stations and other future energy-related installations. •Hired Matt Tall as Vice President of Manufacturing. Mr. Tall is responsible for leading all facets of FF’s production and manufacturing, focusing on the Hanford, California manufacturing plant, where he oversees the final phases of the plant upgrade, installation of component tooling, hiring, and the production of the FF 91. •Hired Liu Yuchao as Senior Vice President of Supply Chain for FF’s operations in China. Mr. Yuchao will help FF take a solid step forward in promoting the production and delivery of the FF 91. •Added new leadership members to its growing team: including Senior Director of Energy Storage and Charging; Head of Software Engineering, ADAS, and Self Driving; Lead of Vehicle Quality. •Announced plans to increase its employee headcount significantly over the next 12 months following the Business Combination that closed in July 2021. Hiring has been focused on filling positions in the areas of manufacturing, engineering, supply chain, design, marketing, brand, sales, finance and accounting, and other areas, along with the potential of higher-level executive positions. •Announced Eco-O2O Direct Sales Strategy. •Hosted the first annual 919 Futurist Day co-creation festival at Headquarters in Los Angeles, CA. Hundreds of attendees representing FF users, partners, car enthusiasts as well as global FF employees and family members gathered to celebrate FF’s successes, products, technologies, people, innovation, and user-centric philosophy. •Outlined major milestones on the path to production for manufacturing facility in Hanford, CA, and provided periodic milestone and other progress updates including videos and livestreams on various public media channels and the FF app. •Received its final Certificate of Occupancy (“CO”) for a dedicated area for pre-production manufacturing at the facility in Hanford, California. The CO allowed FF to begin crucial construction activities, including the building of additional pre-production vehicles at the facility. •Started foundation construction for all remaining production areas in the Hanford facility, including body, propulsion, warehouse and vehicle assembly. Interior foundation work in the production area is now essentially complete, and major mechanical systems, including electrical and plumbing, are being installed. 70 •Announced Phase I updates to the FF 91 Product and Technology Gen 2.0 Project. The project updates key features of the vehicle and includes upgrades in the major subsystems such as the e-motor, powertrain, ADAS, LIDAR, cameras, and displays. •Announced program with Munro & Associates, which will serve as FF’s co-creation consultant and will assist with the production-readiness process of the FF 91 through comparative analysis and quality assessment. •Held a Community Day and Job Fair at the Hanford Civic Auditorium on November 3, 2021, and November 10, 2021, respectively. •Announced HSL Italia as Exterior Lighting Supplier. HSL Italia will work with the Company throughout the production process to ensure a premium and innovative exterior lighting display Subsequent to December 31, 2021, FF accomplished the following major milestones: •Announced that Myoung Shin Co., Ltd., an automotive manufacturer headquartered in South Korea, has been contracted to manufacture Faraday Future’s second vehicle, the FF 81, with Start of Production (“SOP”) scheduled for 2024. •Unveiled the first production-intent FF 91 ultra-luxury EV. This marks Faraday Future’s manufacturing Milestone #4, pre-production builds for final engineering validation and certification, now referred to as production-intent vehicles. •Received dealer and distributor license from the State of California facilitating direct sales in the State of California and online sales nationally. •Signed the lease for FF’s flagship store in Beverly Hills, California and confirmed the design firm for the store. The initial term of the lease shall be 126 months, with two five-year tenant extension options. Further, FF announced the active search for a second flagship store for the U.S. •Appointed Susan Swenson as Executive Chairperson and Jordan Vogel as Lead Independent Director of the Board of Directors. FF’s Board of Directors consists of nine directors, five of whom are independent under applicable rules. •Announced that Mathias Hofmann became the new Head of Global Supply Chain after the retirement of Benedikt Hartmann effective February 25, 2022. Mathias comes to FF after a nearly 30-year career with BMW, where he served as a Vice President with global responsibilities in purchasing and plant management. He has worked on four continents, including China, and was most recently Plant Director in Brazil. He has extensive experience in both plant operations and direct and indirect purchasing. •Appointed Becky Roof as Interim Chief Financial Officer (CFO) and engaged an affiliate of AlixPartners to accelerate implementation of Special Committee recommendations including, but not limited to financial controls and material weakness remediation. Ms. Roof is a seasoned financial executive who has served in an interim CFO capacity at numerous public and private companies. •Announced 401 preorders as of March 31, 2022. Preorders are fully refundable, non-binding, paid deposits for the FF 91 Futurist Alliance Edition and/or the FF 91 Futurist vehicles available initially for sale to customers in the U.S. and China. FF 91 Futurist Alliance Edition preorders require a $5,000 deposit for customers in the U.S. and an CNY 50,000 deposit for customers in China. FF 91 Futurist preorders require a $1,500 deposit for customers in the U.S. and an CNY 20,000 deposit for customers in China. •Marked Production Milestone #5 at FF’s Hanford, California manufacturing facility, with the start of installation of all mechanical, electrical and plumbing systems to support equipment installation. Special Committee Investigation As previously disclosed on November 15, 2021, the Company’s Board of Directors (the “Board”) established a special committee of independent directors (“Special Committee”) to investigate allegations of inaccurate Company disclosures, including those made in an October 2021 short seller report and whistleblower allegations, which resulted in the Company 71 being unable to timely file its third quarter 2021 Quarterly Report on Form 10-Q, Annual Report on Form 10-K for the year ended December 31, 2021 and amended Registration Statement on Form S-1 (File No. 333-258993). The Special Committee engaged outside independent legal counsel and a forensic accounting firm to assist with its review. On February 1, 2022, the Company announced that the Special Committee completed its review. On April 14, 2022, the Company announced the completion of additional investigative work based on the Special Committee’s findings, which were performed under the direction of the Executive Chairperson, reporting to the Audit Committee. In connection with the Special Committee’s review and subsequent investigative work, the following findings were made: •In connection with the Business Combination, statements made by certain Company employees to certain investors describing the role of Yueting (“YT”) Jia, the Company’s founder and former CEO, within the Company were inaccurate, and his involvement in the management of the Company post-Business Combination was more significant than what had been represented to certain investors. •The Company’s statements leading up to the Business Combination that it had received more than 14,000 reservations for the FF 91 vehicle were potentially misleading because only several hundred of those reservations were paid, while the others (totaling 14,000) were unpaid indications of interest. •Consistent with the Company’s previous public disclosures regarding identified material weaknesses in its internal control over financial reporting, the Company’s internal control over financial reporting requires an upgrade in personnel and systems. •The Company’s corporate culture failed to sufficiently prioritize compliance. •Mr. Jia’s role as an intermediary in leasing certain properties which were subsequently leased to the Company was not disclosed in the Company’s corporate housing disclosures. •In preparing the Company’s related party transaction disclosures, the Company failed to investigate and identify the sources of loans received from individuals and entities associated with Company employees. In addition, certain individuals failed to fully disclose to individuals involved in the preparation of the Company’s SEC filings their relationships with certain related parties and affiliated entities in connection with, and following, the Business Combination, and failed to fully disclose relevant information, including but not limited to, information in connection with related parties and corporate governance to the Company’s independent registered public accounting firm PricewaterhouseCoopers LLP. Further, certain individuals failed to cooperate and withheld potentially relevant information in connection with the Special Committee investigation. Based on the results of the investigation, the Special Committee concluded that, except as described above, other substantive allegations of inaccurate FF disclosures that it evaluated, were not supported by the evidence reviewed. Based on the results of the Special Committee investigation and subsequent investigative work described above, the Board approved the following remedial actions: •certain remedial actions designed to enhance oversight and corporate governance of the Company, namely the following: •the appointment of Susan Swenson, a member of the Board, to the newly created position of Executive Chairperson of FF; •Carsten Breitfeld, FF’s Chief Executive Officer, reporting directly to Ms. Swenson and receiving a 25% annual base salary reduction; •the removal of Mr. Jia as an executive officer, although continuing in his position as Chief Product & User Ecosystem Officer of the Company, and reporting directly to Ms. Swenson, receiving a 25% annual base salary reduction, and his role limited to focusing on (a) Product and Mobility Ecosystem and (b) Internet, Artificial Intelligence, and Advanced R&D technology; •Matthias Aydt, Senior Vice President, Business Development and Product Definition and a director of the Company, being placed on probation as an executive officer for a six-month period, during which period he will remain as a non-independent member of the Board; •the appointment of Jordan Vogel as Lead Independent Director; certain changes to the composition of Board committees, including Brian Krolicki stepping down from his role as Chairman of the Board and Chair of the 72 Nominating and Corporate Governance Committee and becoming a member of the Audit and Compensation Committees of the Board; Jordan Vogel stepping down from the Nominating and Corporate Governance Committee; and Scott Vogel becoming the Chair of the Audit Committee and the Nominating and Corporate Governance Committee of the Board; and •the suspension without pay of Jiawei (“Jerry”) Wang, the Company’s former Vice President, Global Capital Markets, who subsequently notified the Board of his decision to resign from FF on April 10, 2022; •the assessment and enhancement of FF’s policies and procedures regarding financial accounting and reporting and the upgrading of FF’s internal control over financial accounting and reporting, including by hiring additional financial reporting and accounting support, in each case at the direction of the Audit Committee; •the implementation of enhanced controls around FF’s contracting and related party transactions, including regular attestations by FF’s employees with authority to bind FF to contracts and related party transactions, for purposes of enabling FF to make complete and accurate disclosures regarding related party transactions; •the hiring of a Chief Compliance Officer, who reports on a dotted line to the Chair of the Audit Committee, and assessing and enhancing FF’s compliance policies and procedures; •the implementation of a comprehensive training program for all directors and officers regarding, among other things, internal FF policies; •the separation of Jarret Johnson, FF’s Vice President, General Counsel and Secretary; and •certain other disciplinary actions and terminations of employment with respect to other FF employees (none of whom is an executive officer). Subsequent to the Company announcing the completion of the Special Committee investigation on February 1, 2022, the Company, certain members of the management team and employees of the Company received a notice of preservation and subpoena from the staff of the SEC stating that the SEC had commenced a formal investigation relating to the matters that were the subject of the Special Committee investigation. The Company, which had previously voluntarily contacted the SEC in connection with the Special Committee investigation in October 2021, is cooperating fully with the SEC’s investigation. The outcome of such an investigation is difficult to predict. FF has incurred, and may continue to incur, significant expenses related to legal and other professional services in connection with the SEC investigation. At this stage, FF is unable to assess whether any material loss or adverse effect is reasonably possible as a result of the SEC’s investigation or estimate the range of any potential loss. Components of FF’s Results of Operations Key Factors Affecting Operating Results (in thousands) 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 Item 1A of this Annual Report on Form 10-K. Faraday Future Vehicle Launch FF expects to derive revenue from the sale of the FF 91, which FF anticipates to launch during the third quarter of 2022. FF plans to manufacture the FF 91 in its own manufacturing facility in Hanford, California. The FF 81, FF 71, and SLMD electric vehicle models are in various stages of development and are planned to be released after the FF 91. Production and Operations FF expects to incur significant operating costs that will impact its future profitability, including research and development expenses as it introduces new models and improves existing models; capital expenditures for the expansion of its manufacturing 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, 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. 73 To date, FF has not yet sold any electric vehicles. 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, construction financing of the Hanford, California manufacturing facility, 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 manufacturing facilities 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 and Going Concern in the notes to the Consolidated Financial Statements and for further details on liquidity, please see the “Liquidity and Capital Resources” section below. Revenues FF is a development stage company and has not generated any revenue to date. FF’s anticipated introduction of the FF 91, its first vehicle launch, is expected to generate the majority of FF’s future revenue while other vehicles are in development. Operating Expenses Research and Development Research and development activities represent a significant part of FF’s business. FF’s research and development 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. Research and development expenses consist of personnel-related costs (including salaries, bonuses, benefits, and stock-based compensation) for FF’s employees focused on research and development activities, other related costs, depreciation, and an allocation of overhead. FF expects research and development expenses to increase as FF continues to develop its vehicles. FF anticipates an increase in activities in the U.S. and China, where FF’s research and development operations are primarily located. 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, 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. FF also anticipates that it will incur additional costs for employees and third-party consulting services now that it operates as a public company. Loss on Disposal of Property and Equipment During the year ended December 31, 2021, the Company wrote off $64,191 relating to the abandonment of certain FF 91 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 Consolidated Statements of Operations and Comprehensive Loss. Change in Fair Value Measurements Change in Fair Value Measurements consists of the losses and gains as a result of fair value measurements of certain financial instruments which FF records at fair value. Changes in fair value measurement of related party notes payable and notes payable have decreased following the Business Combination as the majority of the liabilities converted to equity or were paid in cash. 74 Interest Expense Interest expense primarily consists of interest on outstanding notes payable, capital leases, certain supplier payables, and vendor payables in trust. Interest expense decreased relative to prior periods as the majority of notes payable and vendor payables in trust were either paid in cash or converted to equity upon completion of the Business Combination. Related Party Interest Expense Related party interest expense consists of interest expense on notes payable with related parties. Related party interest expense has decreased relative to prior periods, as the majority of related party notes payable were either paid in cash or converted to equity upon completion of the Business Combination. Other Expense, net Other expense, net consists of foreign currency transaction gains and losses and other expenses. 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. (Loss) Gain at Settlement of Related Party Notes Payable, Notes Payable, and Vendor Payables in Trust, Net (Loss) gain at settlement of related party notes payable, notes payable, and vendor payables in trust, net consists of losses resulting from the settlement of related party notes payable, notes payable, and vendor payables in trust in connection with the Business Combination. Gain on extinguishment of related party notes payable, notes payable, and vendor payables in trust consists of gains resulting from extinguishment of related party notes payable and notes payable in connection with a debt modification that was accounted for as extinguishment for the year ended December 31, 2020. FF expects these amounts to decrease significantly following the completion of the Business Combination. Results of Operations (amounts in thousands, except share and per share data) To date, FF has not generated any revenue from the design, development, manufacturing, engineering, sale or distribution of its electric vehicles. Please refer to Part I, Item 1A. Risk Factors for a full discussion on the risks and uncertainties related to costs. Comparison of the Years Ended December 31, 2021 and 2020 [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["","2021","","2020"],["Consolidated Statements of Operations"],["Operating expenses"],["Research and development","$","174,935","","","$","20,186"],["Sales and marketing","17,118","","","3,672"],["General and administrative","97,905","","","41,071"],["Loss on disposal of property and equipment","64,191","","","10"],["Total operating expenses","354,149","","","64,939"],["Loss from operations","(354,149)","","","(64,939)"],["Change in fair value measurements","(22,700)","","","(5,076)"],["Interest expense","(30,181)","","","(32,173)"],["Related party interest expense","(16,663)","","","(41,546)"],["Other expense, net","(5,668)","","","(5,455)"],["(Loss) gain at settlement of related party notes payable, notes payable, and vendor payables in trust, net","(86,904)","","","2,107"],["Loss before income taxes","(516,265)","","","(147,082)"],["Income tax provision","(240)","","","(3)"],["Net loss","$","(516,505)","","","$","(147,085)"]] [[/GREPCENT_TABLE]] 75 Research and Development [[GREPCENT_TABLE]] [["","Year Ended December 31,","","Change"],["","2021","","2020","","Amount","","%"],["Research and development","$","174,935","","","$","20,186","","","$","154,749","","","766.6","%"]] [[/GREPCENT_TABLE]] The increase in research and development expense for the year ended December 31, 2021 was primarily due to an increase in engineering, design, and testing (“ED&T”) services expense of $51,950 as the Company re-engaged suppliers and made significant purchases for ED&T services to progress the development of the FF 91; an amount paid for a non-exclusive, perpetual, irrevocable, and sublicensable license to use a platform owned by Liankong, a subsidiary of Geely Holding (“Geely Payment”) of $50,000; increase in personnel and compensation related expense of $31,067 and employee benefits of $2,885 due to increases in headcount, including the addition of key senior management personnel; increase in payroll expense of $7,914 related to bonuses for employees; increase in professional services expense of $4,585 due to increase in consulting services and increase in overhead cost allocations; and increase in information technology expense of $2,643 due to increases in business activities and headcount. Sales and Marketing [[GREPCENT_TABLE]] [["","Year Ended December 31,","","Change"],["","2021","","2020","","Amount","","%"],["Sales and marketing","$","17,118","","","$","3,672","","","$","13,446","","","366.2","%"]] [[/GREPCENT_TABLE]] The increase in sales and marketing expense for the year ended December 31, 2021 was primarily due to an increase in personnel and compensation related expense of $5,950 and employee benefits of $728 due to increases in headcount, including the addition of key senior management personnel; increase in sales and marketing expense of $2,579 due to increased marketing efforts; increase in payroll expense of $2,256 related to bonuses for employees; increase in information technology expense of $662 due to increases in business activities and headcount; and increase in travel expenses of $320 due to increased travel in connection with the restart of the FF 91 program. General and Administrative [[GREPCENT_TABLE]] [["","Year Ended December 31,","","Change"],["","2021","","2020","","Amount","","%"],["General and administrative","$","97,905","","","$","41,071","","","$","56,834","","","138.4","%"]] [[/GREPCENT_TABLE]] The increase in general and administrative expense for the year ended December 31, 2021 was primarily due to an increase in professional services expense of $10,850 due to an increase in spending for consulting services and the special committee investigation; increase in legal expense of $21,337 related to additional accruals for contingent legal liabilities; increase in payroll expense of $8,447 related to bonuses for employees; increase in personnel and compensation related expense of $5,507 and employee benefits of $1,484 due to increases in headcount, including the addition of key senior management personnel; increase in insurance expense of $3,591 due to the Company’s new directors and officers insurance policies; and an increase in information technology expense of $3,226 due to increases in business activities and headcount. Loss on Disposal of Property and Equipment [[GREPCENT_TABLE]] [["","Year Ended December 31,","","Change"],["","2021","","2020","","Amount","","%"],["Loss on disposal of property and equipment","$","64,191","","","$","10","","","$","64,181","","","NM"]] [[/GREPCENT_TABLE]] For the year ended December 31, 2021, the Company recorded a loss of $64,191 related to the abandonment of certain construction in progress FF 91 program assets, primarily vendor tooling, machinery, and equipment, due to the redesign of the related FF 91 components and implementation of FF’s cost reduction program. 76 Change in Fair Value Measurements [[GREPCENT_TABLE]] [["","Year Ended December 31,","","Change"],["","2021","","2020","","Amount","","%"],["Change in fair value measurements","$","(22,700)","","","$","(5,076)","","","$","(17,624)","","","347.2","%"]] [[/GREPCENT_TABLE]] The change in fair value measurements of $17,624 for the year ended December 31, 2021 was primarily due to $43,030 fair value measurement expense in the year ended December 31, 2021 from conversion premiums included in notes payable and related party notes payable borrowings, as well as changes related to the original issue discounts and the fair value of warrants issued on select borrowings. The increase in the fair value of the liabilities is primarily due to tightening of the credit spreads of the Company due to the increased probability of the close of the Business Combination. This increase in fair value was partially offset by decrease in fair value of the liabilities during the fourth quarter of 2021 as the yield increased due to an increase in the overall risk profile of the Company. During 2020, the Company experienced liquidity difficulties when compared to 2021, which delayed the execution of its strategic plans, causing the credit spread to widen which led to a decrease in the liability in that period. The fair value of The9 obligation reflected an expense of $1,735 in the year ended December 31, 2021 as compared to gain of $3,872 in the year ended December 31, 2020. These increases in expenses were partially reduced by a $20,265 gain as a result of adjusting the Company’s obligation to issue registered shares of Class A Common Stock in connection with services provided as part of the Business Combination and $1,800 gain from a decrease in the value of the Private Warrants during the year ended December 31, 2021. Interest Expense [[GREPCENT_TABLE]] [["","Year Ended December 31,","","Change"],["","2021","","2020","","Amount","","%"],["Interest expense","$","(30,181)","","","$","(32,173)","","","$","1,992","","","(6.2)","%"]] [[/GREPCENT_TABLE]] The decrease in interest expense for the year ended December 31, 2021 was primarily due to the Company’s settlement of $85,202 principal of notes payable upon Closing of the Business Combination with no further interest accrued on those notes payable from July 21, 2021 to December 31, 2021. Related Party Interest Expense [[GREPCENT_TABLE]] [["","Year Ended December 31,","","Change"],["","2021","","2020","","Amount","","%"],["Related party interest expense","$","(16,663)","","","$","(41,546)","","","$","24,883","","","(59.9","%)"]] [[/GREPCENT_TABLE]] The decrease in related party interest expense for the year ended December 31, 2021 as compared to 2020 was primarily due to certain related party notes payable ceasing to accrue interest on May 13, 2021 as related party notes payable of $90,869 and related party accrued interest of $43,490 converted to shares of Legacy FF; and the Company’s settlement of $91,420 principal of related party notes payable upon closing of the Business Combination in July 2021. No further interest accrued on those settled related party notes payable from July 21, 2021 to December 31, 2021. Other Expense, net [[GREPCENT_TABLE]] [["","Year Ended December 31,","","Change"],["","2021","","2020","","Amount","","%"],["Other expense, net","$","(5,668)","","","$","(5,455)","","","$","(213)","","","3.9","%"]] [[/GREPCENT_TABLE]] The increase in other expense, net for the year ended December 31, 2021 as compared to 2020 was primarily due to increase in write off of non-customer related note receivables of $2,055 and late fees and penalties of $1,918, partially offset by an increase in foreign exchange gain of $3,634 related to a note payable held in Chinese Renminbi (CNY) that is remeasured at the end of each period and property and other taxes of $180. 77 (Loss) Gain at Settlement of Related Party Notes Payable, Notes Payable, and Vendor Payables in Trust, Net [[GREPCENT_TABLE]] [["","Year Ended December 31,","","Change"],["","2021","","2020","","Amount","","%"],["(Loss) gain at settlement of related party notes payable, notes payable and vendor payables in trust, net","$","(86,904)","","","$","2,107","","","$","(89,011)","","","NM"]] [[/GREPCENT_TABLE]] The loss at settlement of related party notes payable, notes payable, and vendor payables in trust, net for the year ended December 31, 2021 was due to the settlement of certain related party notes payable, notes payable, and vendor payables in trust with the commitment to issue of 24,464,889 shares of Class A Common Stock at the Closing of the Business Combination at a price below the fair value on the date of settlement. This expense was partially offset by forgiveness of the Company’s Payroll Protection Loan principal of $8,975 and accrued interest of $155. Liquidity and Capital Resources (in thousands) As described in the “Overview” section of this MD&A, the COVID-19 pandemic impacted FF’s ability to raise funds and may have a material adverse impact on future periods as FF prepares to bring its vehicles to market, including its cash flows from financing activities, which fund its operations. The extent of COVID-19’s impact on FF’s liquidity will depend upon, among other things, the duration and severity of the outbreak or subsequent outbreaks and related government responses such as required physical distancing, restrictions on business operations and travel, the pace of recovery of economic activity and the impact to consumers, all of which are uncertain and difficult to predict. Refer to Part I, Item 1A. Risk Factors for a full discussion of the risks associated with the COVID-19 pandemic. As of December 31, 2021, the Company’s principal sources of liquidity was cash totaling $505,091, which was held for working capital and general corporate purposes. The Company’s business plan contemplates that it will launch the FF 91 for delivery to customers beginning in Q3 2022, with testing, validation, and certification complete in Q3 2022. The Company has evaluated whether there are certain conditions and events, when 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 Consolidated Financial Statements were issued. Based on its recurring losses from operations since inception and continued cash outflows from operating activities, 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 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, negative cash flows from operating activities, and has an accumulated deficit of $2,907,644 as of December 31, 2021. After the closing of the Business Combination and the PIPE Financing on July 21, 2021, the Company received gross proceeds aggregating $990,983, which it used to pay $84,278 in transaction costs and $139,557 to settle certain liabilities. The Company expects to use the remaining net proceeds of $767,148 from the Business Combination, as well as $172,031 in net proceeds received from the issuance of notes payable during 2021, to finance the ongoing operations of the business. 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 9, Related Party Notes Payable and Note 10, Notes Payable), the sale of Preferred and Common Stock (see Note 13, Stockholders' Equity (Deficit)) and the net proceeds received from the Business Combination and the PIPE Financing (see Note 3, Business Combination). The Company’s ongoing liquidity needs will depend on the extent to which the Company’s actual costs vary from the Company’s estimates and the Company’s ability to control these costs, as well as the Company’s ability to raise additional funds. The Company is exploring various funding and financing alternatives to fund its ongoing operations, including equipment leasing, construction financing of the Hanford, California manufacturing facility, 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 78 global supply chain disruptions, the rising prices of materials and potential impact of the COVID-19 pandemic. Refer to Part I, Item 1A. Risk Factors for a full discussion of the risks associated with the COVID-19 pandemic. The Company’s forecasts and projections of working capital reflect significant judgment and estimates for which there are inherent risks and uncertainties. The Company expects to continue to generate significant operating losses for the foreseeable future. The plans are dependent on the Company being able to continue to raise significant amounts of capital through the issuance of additional notes payable and equity securities. 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. If events or circumstances occur such that the Company does not meet its strategic plans, the Company will be 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. Financing activities during the year ended December 31, 2021, include the proceeds from the PIPE Financing of $761,400 and proceeds from the Business Combination of $229,583. The Company used those proceeds to pay $84,278 in transaction costs and $139,557 to settle certain liabilities. The Company expects to use the remaining net proceeds of $767,148 from the Business Combination, as well as $172,031 in net proceeds received from the issuance of notes payable during 2021, to finance the ongoing operations of the business. As of December 31, 2021, the Company had $505,091 of unrestricted cash. For additional discussion around financing transactions, see Note 3, Business Combination, and Note 10, Notes Payable, of the notes to the Consolidated Financial Statements. 79 Significant Related Party Notes Payable and Notes Payable Facilities The Company has been significantly funded by notes payable from related parties and third-parties. The related parties include employees as well as affiliates of employees and affiliates and other companies controlled or previously controlled by the Company’s founder and former CEO. The following tables summarize the outstanding related party notes payable and notes payable as well as the related schedules of maturities of the related party notes payable and notes payable. See Note 9, Related Party Notes Payable, and Note 10, Notes Payable, in FF’s Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for a discussion about the related party notes payable and notes payable. Related party notes payable consists of the following as of December 31, 2021 and 2020: [[GREPCENT_TABLE]] [["","","December 31, 2021"],["Note Name","","Contractual Maturity Date","","Contractual Interest Rates","","Unpaid Balance","","","","Net Carrying Value at 12/31/21"],["Related party notes - China","","Due on Demand","","18.00%","","$","9,411","","","","","$","9,411"],["Related party notes - China various other","","Due on Demand","","0.00%","","4,244","","","","","4,244"],["Total related party notes payable","","","","","","$","13,655","","","","","$","13,655"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","","December 31, 2020"],["Note Name","","Contractual Maturity Date","","Contractual Interest Rates","","Unpaid Balance","","Fair Value Measurement Adjustments","","0%CouponDiscount","","Loss (Gain) on Extinguishment","","Net Carrying Value at 12/31/2020"],["Related party note","","June 30, 2021","","12.00%","","$","240,543","","","$","\u2014","","","$","(861)","","","$","204","","","$","239,886"],["Related party note","","Due on Demand","","15.00%*","","10,000","","","\u2014","","","\u2014","","","\u2014","","","10,000"],["Related party notes \u2013 NPA tranche","","October 6, 2021","","10.00%","","27,593","","","5,356","","","\u2014","","","\u2014","","","32,949"],["Related party notes \u2013 China","","Due on Demand","","18.00%*","","9,196","","","\u2014","","","\u2014","","","\u2014","","","9,196"],["Related party notes \u2013 China various other","","Due on Demand","","0% coupon, 10.00% imputed","","6,548","","","\u2014","","","(190)","","","(22)","","","6,336"],["Related party notes \u2013 China various other","","Due on Demand","","8.99%","","1,410","","","\u2014","","","\u2014","","","(3)","","","1,407"],["Related party notes \u2013 Other","","Due on Demand","","0.00%","","424","","","\u2014","","","\u2014","","","\u2014","","","424"],["Related party notes \u2013 Other","","June 30, 2021","","6.99%","","4,160","","","\u2014","","","\u2014","","","(50)","","","4,110"],["Related party notes \u2013 Other","","June 30, 2021","","8.00%","","6,452","","","\u2014","","","\u2014","","","(35)","","","6,417"],["Related party notes \u2013 Other","","June 30, 2021","","1.52%,8.99%, 8.00%,2.86%","","8,440","","","\u2014","","","\u2014","","","(137)","","","8,303"],["Related party notes \u2013 Other","","Due on Demand, June 30, 2021","","8.99%, 6.99%","","1,760","","","\u2014","","","\u2014","","","(11)","","","1,749"],["Related party notes payable(10)","","June 30, 2021","","8.00%","","11,635","","","\u2014","","","\u2014","","","(57)","","","11,578"],["Total related party notes payable","","","","","","$","328,161","","","$","5,356","","","$","(1,051)","","","$","(111)","","","$","332,355"]] [[/GREPCENT_TABLE]] Schedule of Principal Maturities of Related Party Notes Payable The future scheduled principal maturities of related party notes payable as of December 31, 2021 were as follows: [[GREPCENT_TABLE]] [["Years ended December 31,"],["Due on demand","","$","13,655"]] [[/GREPCENT_TABLE]] 80 Notes payable consists of the following as of December 31, 2021 and 2020: [[GREPCENT_TABLE]] [["","","December 31, 2021"],["Note Name","","Contractual Maturity Date","","Contractual Interest Rates","","Unpaid Balance","","Fair Value Measurement Adjustments","","Original issue discount and proceeds allocated to warrants","","Net Carrying Value"],["March 1, 2021 Notes","","March 1, 2022","","14.00","%","","$","55,000","","","$","7,692","","","$","(5,997)","","","$","56,695"],["August 26, 2021 Notes","","March 1, 2022","","14.00","%","","30,000","","","1,011","","","(87)","","","30,924"],["June 9, 2021 Note 1 and Note 2","","December 9, 2022","","\u2014","%","","40,000","","","8,503","","","(9,522)","","","38,981"],["August 10, 2021 Optional Notes","","February 10, 2023","","15.00","%","","33,917","","","12,283","","","(11,518)","","","34,682"],["Notes payable - China various other","","Due on demand","","\u2014","%","","5,458","","","\u2014","","","\u2014","","","5,458"],["Notes payable","","April 17, 2022","","1.00","%","","193","","","\u2014","","","\u2014","","","193"],["Auto loans","","Various","","Various","","121","","","\u2014","","","\u2014","","","121"],["Total notes payable","","","","","","$","164,689","","","$","29,489","","","$","(27,124)","","","$","167,054"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","","December 31, 2020"],["Note Name","","Contractual Maturity Date","","Contractual Interest Rates","","Unpaid Balance","","Fair Value Measurement Adjustments","","Loss (Gain) on Extinguish-ment","","Net Carrying Value"],["Note payable","","Contingent","","12.00","%","","$","57,293","","","$","\u2014","","","$","\u2014","","","$","57,293"],["Notes payable \u2013 NPA tranche","","October 6, 2021","","10.00","%","","17,637","","","3,422","","","\u2014","","","21,059"],["Notes payable","","June 30, 2021","","12.00","%","","19,100","","","\u2014","","","\u2014","","","19,100"],["Notes payable \u2013 China various other","","Due on Demand","","9.00","%","","3,677","","","\u2014","","","(18)","","","3,659"],["Notes payable \u2013 China various other","","Various Dates 2021","","6.00","%","","4,869","","","\u2014","","","(62)","","","4,807"],["Notes payable \u2013 China various other","","Due on Demand","","\u2014","%","","4,597","","","\u2014","","","\u2014","","","4,597"],["Notes payable","","March 9, 2021","","\u2014","%","","15,000","","","2,712","","","\u2014","","","17,712"],["Notes payable","","October 6, 2021","","12.75","%","","15,000","","","5,972","","","\u2014","","","20,972"],["Notes payable","","April 17, 2022","","1.00","%","","9,168","","","\u2014","","","\u2014","","","9,168"],["Total notes payable","","","","","","$","146,341","","","$","12,106","","","$","(80)","","","$","158,367"]] [[/GREPCENT_TABLE]] Schedule of Principal Maturities of Notes Payable The future scheduled principal maturities of notes payable as of December 31, 2021 are as follows: [[GREPCENT_TABLE]] [["Years ended December 31,"],["2022","130,772"],["2023","33,917"],["","$","164,689"]] [[/GREPCENT_TABLE]] Cash Flow Analysis Presented below is a summary of FF’s cash flows for the periods indicated: [[GREPCENT_TABLE]] [["","","For the Year Ended December 31,"],["(in thousands)","","2021","","2020"],["Net cash provided by (used in)"],["Operating activities","","$","(339,765)","","","$","(41,165)"],["Investing activities","","(95,681)","","","2,993"],["Financing activities","","966,569","","","36,831"],["Effect of exchange rate changes on cash and restricted cash","","(2,473)","","","(186)"]] [[/GREPCENT_TABLE]] 81 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 United States 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 research and development associated with FF’s electric vehicles, corporate 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 $339,765 and $41,165 for the years ended December 31, 2021 and 2020, respectively. The largest components of FF’s cash used by operating activities during the year ended December 31, 2021 were $89,646 for wages and compensation related expenses; $50,000 for a non-exclusive, perpetual, irrevocable, and sublicensable license to use a platform, the Geely License, owned by Liankong, a subsidiary of Geely Holding; $28,356 for professional services and for prepayment of software hosting costs. Other movements were related to changes in working capital. Net cash used by operating activities was $41,165 for the year ended December 31, 2020. The largest component of FF’s cash used during the year was $38,785 for wages, compensation related expenses and professional services. Cash outflows of $3,137 was related to interest paid to lenders. Other movements were related to changes in working capital. Investing Activities Net cash (used in) provided by investing activities was ($95,681) and $2,993 for the year ended December 31, 2021 and 2020, respectively. Cash used for investing activities for the year ended December 31, 2021, include $95,681 for the acquisition of property and equipment. Net cash provided by investing activities for the year ended December 31, 2020, consists of $3,600 in proceeds from notes receivable, offset by $607 in payments for the acquisition of property and equipment. Financing Activities Net cash provided by financing activities for the year ended December 31, 2021 and 2020 was $966,569 and 36,831, respectively. Cash provided from financing activities during the year ended December 31, 2021 primarily consists of $229,583 in cash proceeds from the issuance of Class A Common Stock, net of $206 redemptions of as a result of the Business Combination, $761,400 in cash proceeds from the PIPE Financing, $172,031 in proceeds from the issuance of notes payable net of original issuance discounts, and $10,587 from the exercise of stock options. These were partially offset by cash payments of $61,130 for PIPE Financing transaction costs, $48,210 for settling notes payable and accrued interest, $38,217 for settling related party notes payable and accrued interest, $27,722 for settling vendor payables in trust, $23,148 for Business Combination transaction costs, $3,355 for debt transaction costs, and $3,212 for capital lease obligations. Net cash provided by financing activities during the year ended December 31, 2020, primarily consists of proceeds from the issuance of notes payable of $40,595 and proceeds from issuance of related party notes payable of $10,556. These proceeds were partially offset by payments of vendor payables in trust of $4,500, payments for notes payable obligations of $3,621, payments of notes payable issuance costs of $4,562, and payments of capital leases obligations of $1,926. Effect of Exchange Rate Changes on Cash and Restricted Cash The exchange rates effect on Cash and Restricted Cash was negative for the years ended December 31, 2021 and 2020. 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 Yuan. Fluctuations in exchange rates against the U.S. dollar may positively or negatively affect FF’s operating results. The effect of exchange rate change was an unfavorable $2,473 and $186 for the years ended December 31, 2021 and 2020, respectively. 82 Contractual Obligations and Commitments The following table sets forth, as of December 31, 2021, certain significant cash obligations that will affect FF’s future liquidity: [[GREPCENT_TABLE]] [["","","Payments Due by Period"],["","","Total","","Less than 1 year","","1 to 3 years","","3 to 5 years","","After 5 years"],["","","","","","","(in thousands)"],["Operating lease obligations(1)","","$","14,648","","","$","2,384","","","$","5,470","","","$","5,803","","","$","991"],["Capital lease obligations(1)","","11,993","","","2,574","","","3,923","","","3,632","","","1,864"],["Related party notes payable(2)","","13,655","","","13,655","","","\u2014","","","\u2014","","","\u2014"],["Related party accrued interest(4)","","11,231","","","11,231","","","\u2014","","","\u2014","","","\u2014"],["Notes payable(3)","","164,689","","","130,772","","","33,917","","","\u2014","","","\u2014"],["Accrued interest(4)","","8,263","","","8,263","","","\u2014","","","\u2014","","","\u2014"],["Palantir license(5)","","41,667","","","2,667","","","19,500","","","19,500","","","\u2014"],["Total contractual obligations","","$","266,146","","","$","171,546","","","$","62,810","","","$","28,935","","","$","2,855"]] [[/GREPCENT_TABLE]] _____________ (1)The Company has several noncancellable operating leases, primarily for office space, with various expiration dates through April 2027. These leases generally contain renewal options for periods ranging from three to five years and require the Company to pay all executory costs such as maintenance and insurance. The Company has three capital leases, one in Hanford, California for its main production facility, and two equipment leases. (2)Related party notes payable include multiple due on demand notes to related party lenders. Interest rates range from 0% – 18%. (3)Notes payable includes multiple term notes to third-party lenders. Interest rates range from 0% – 15%. (4)Accrued interest related to the actual amount accrued as of December 31, 2021 related to notes payable. (5)In July 2021, the Company and Palantir Technologies Inc. (“Palantir”), entered into a master subscription agreement that sets forth the terms of the Palantir Foundry platform hosting arrangement. In February 2022, the Company signed a Retail Lease Agreement with B. H. Triangle Associates, L.P., a California limited partnership (“Landlord”) for an approximately 13,000 square feet property in Beverly Hills, California for its first flagship store. The lease will commence on the earlier of the substantial completion of the Company’s leasehold improvements and June 1, 2022, and will continue for a period of 126 months thereafter. According to the agreement, rent fees will escalate over the lease term, starting from $1,534 during the first 12 months of the lease and increasing by 3% each 12 months thereafter. The commitment amounts in the table above are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts. The table does not include obligations under agreements that FF can cancel without a significant penalty. 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 December 31, 2021 and 2020. Critical Accounting Estimates Our consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of 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 83 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. Accounting estimates and assumptions are evaluated on an ongoing basis. 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 and unpredictable nature and unknown duration of the COVID-19 pandemic, estimates are subject to additional volatility. Actual results may differ materially from those estimates. For a description of FF’s significant accounting policies, see Note 1, Nature of Business and Organization, and Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K. An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the Consolidated Financial Statements. Management believes the following critical accounting policies reflect the more significant estimates and assumptions used in the preparation of FF’s Consolidated Financial Statements. 84 [[GREPCENT_TABLE]] [["Description","Judgements and Uncertainties","Effect if Actual Results Differ from Assumptions"],["Stock-Based Compensation"],["The Company\u2019s stock-based compensation awards consist of options granted to employees, directors and non-employees for the purchase of common stock. The Company recognizes stock-based compensation expense in accordance with the provisions of ASC 718, Compensation \u2014 Stock Compensation (\u201cASC 718\u201d). ASC 718 requires the measurement and recognition of compensation expense for all stock-based compensation awards based on the grant date fair values of the awards.The Company estimates the fair value of stock options using the Black-Scholes option pricing model. For options with service conditions, the value of the award is recognized as expense over the requisite service period on a straight-line basis. For performance-based awards, stock-based compensation expense is recognized over the expected performance achievement period of individual performance milestones when the achievement of each individual performance milestone becomes probable. Fair value of common stock \u2014 Prior to the close of the Business Combination, there was no public market for Legacy FF\u2019s Class A Ordinary Stock. Therefore, Legacy FF\u2019s Board of Directors determined the fair value of Legacy FF\u2019s Class A Ordinary Stock at the time of the grant of stock options by considering a number of objective and subjective factors. The fair value of the stock was determined in accordance with applicable elements of the practice aid issued by the American Institute of Certified Public Accountants titled, \u201cValuation of Privately Held Company Equity Securities Issued as Compensation\u201d. Legacy FF\u2019s Board of Directors granted stock options with exercise prices equal to the fair value of Legacy FF\u2019s Class A Ordinary Stock on the date of grant. After the close of the Business Combination, the closing price of FF\u2019s Class A Common Stock on the NASDAQ as reported will be used.","FF estimates the fair value of stock options using the Black-Scholes option-pricing model. Determining the fair value of stock-based compensation awards under this model requires highly subjective assumptions, including the fair value of the underlying common share (when there is no public market for the share), the risk-free interest rate, the expected term of the award, the expected volatility of the price of FF\u2019s common shares, and the expected dividend yield of FF\u2019s common share. Expected term \u2014 The estimate of the expected term of awards was determined in accordance with the simplified method, which estimates the term based on an averaging of the vesting period and contractual term of the option grant for employee awards and the contractual term of the stock option award agreement for non-employees. Expected volatility \u2014 The Company determines the expected volatility based on the historical average volatilities of publicly traded industry peers. FF intends to continue to consistently apply this methodology using the same or similar public companies until a sufficient amount of historical information regarding the volatility of FF\u2019s own Class A Common Stock price becomes available, unless circumstances change such that the identified companies are no longer similar to FF, in which case more suitable companies whose stock prices are publicly available would be utilized in the calculation.Risk-free interest rate \u2014 The risk-free interest rate used to value awards is based on the United States Treasury yield in effect at the time of grant for a period consistent with the expected term of the award.Dividend yield \u2014 The Company has never declared or paid any cash dividends and does not presently plan to pay cash dividends for the foreseeable future.Forfeiture rate \u2014 Stock-based compensation expense is reduced for forfeitures, which the Company estimates based on an analysis of actual forfeitures. The Company will continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover, and other factors. Changes in the estimated forfeiture rate can have a significant impact on the Company\u2019s stock-based compensation expense as the cumulative effect of adjusting the rate is recognized in the period the estimated forfeiture rate is changed.","These estimates involve inherent uncertainties and the application of management\u2019s judgment. If FF had made different assumptions, FF\u2019s stock-based compensation expense and its net loss could have been materially different. An increase in risk-free interest rate will reduce the estimated fair value of a stock option grant, while decrease in these factors will have an opposite effect. Likewise, a decrease in volatility and expected term will decrease the estimated fair value of a stock option grant, while an increase in these factors will have an opposite effect. The Company does not expect to change the dividend yield assumption in the near future."]] [[/GREPCENT_TABLE]] 85 [[GREPCENT_TABLE]] [["Description","Judgements and Uncertainties","Effect if Actual Results Differ from Assumptions"],["Fair Value of Ordinary Shares"],["Prior to the Business Combination, FF was required to estimate the fair value of the ordinary shares underlying FF\u2019s stock-based awards. The fair value of the ordinary shares underlying FF\u2019s stock-based awards had been determined in each case by FF\u2019s Board of Directors, with input from management and contemporaneous third-party valuation expert. FF believes that its Board of Directors has the relevant experience and expertise to determine the fair value of FF\u2019s ordinary shares. FF\u2019s Board of Directors intends all stock options granted to be exercisable at a price per share not less than the fair value per share of the ordinary share underlying those stock options on the date of grant.In the absence of a public market for FF\u2019s ordinary shares, the valuation of FF\u2019s ordinary shares had been determined using a hybrid method, which incorporated a scenario-based method and an option pricing method. The valuation was performed in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately Held Company Equity Securities Issued as Compensation.","FF considered various objective and subjective factors to determine the fair value of FF\u2019s ordinary shares as of each grant date, including:\u2022Contemporaneous valuations performed by unrelated third-party experts;\u2022The progress of FF\u2019s research and development;\u2022FF\u2019s stage of development and commercialization and FF\u2019s business strategy;\u2022Industry information, such as external market conditions affecting the electric car industry and trends within the electric car industry;\u2022Lack of marketability of FF\u2019s ordinary shares;\u2022Likelihood of achieving a liquidity event, such as an initial public offering, SPAC merger, or strategic sale given prevailing market conditions and the nature and history of FF\u2019s business;\u2022Prices, privileges, powers, preferences, and rights of our convertible preferred stock relative to those of FF\u2019s ordinary shares;\u2022Forecasted cash flow projections for FF\u2019s business; \u2022Illiquidity of stock-based awards involving securities in a private company; and\u2022Macroeconomic conditions.The assumptions underlying these valuations represented management\u2019s best estimate, which involved inherent uncertainties and the application of management\u2019s judgment. The probability of a liquidity event and the derived discount rate are significant assumptions used to estimate the fair value of FF\u2019s ordinary shares. If FF had used different assumptions or estimates, the fair value of FF\u2019s ordinary shares and FF\u2019s stock-based compensation expense could have been materially different.","During 2020 and 2021 (prior to the Closing of the Business Combination), FF\u2019s estimated fair value of its Class A Ordinary Shares remained relatively consistent, fluctuating between $2.449 per share as of March 31, 2020 (\u201cMarch 2020 valuation\u201d) and $2.767 per share as of January 20, 2021 (\u201cJanuary 2021 valuation\u201d). As of April 20, 2021, FF\u2019s estimated fair value of its Class A Ordinary Shares was $7.948 (\u201cApril 2021 valuation\u201d).In order to estimate the fair value of FF\u2019s Class A Ordinary Stock, FF utilized more than one valuation approach. The March 2020 valuation was completed prior to the contemplation of the Business Combination. As such, income and market approaches were utilized in estimating the fair value. The January 2021 valuation and April 2021 valuation used a Hybrid Method, applying a probability-weighted expected return method (\u201cPWERM\u201d) to weight the indicated equity value determined under the option pricing model, income, and market approaches for the scenario in which the Business Combination does not close, and the equity value implied by the planned Business Combination.During 2020, FF experienced financial hardship and was unable to satisfy its liabilities, including payables in vendor trust, notes payable, and related party notes payable. Further, given these financial hardships, FF was unable to successfully achieve its strategic plans, including completing its manufacturing facility in Hanford or generating revenues from the sale of FF 91. Please refer to Key Factors Affecting Operating Results and Liquidity and Capital Resources and Going Concern within FF\u2019s Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations for further details on FF\u2019s operations, capital resources, and going concern.The increase in value between the January 2021 valuation and the April 20, 2021 was due to FF\u2019s progress towards the Business Combination. During the latter half of 2020, FF started contemplating a SPAC merger and began taking the necessary steps to prepare for the Business Combination with PSAC. The necessary steps undertaken to prepare for the Business Combination included meeting with PSAC and investment bankers, discussing timing expectations, and negotiating the preliminary letter of intent between PSAC and FF. As FF\u2019s ongoing negotiations related to the Business Combination reflected an increased likelihood of a near-term exit transaction and/or liquidity event, the valuation of FF\u2019s equity as of the January 2021 valuation and April 2021 valuation took into consideration the indicated equity value implied by the negotiations as well as the uncertainty inherent in the future key milestones including execution of the Merger Agreement and PSAC\u2019s shareholder vote."]] [[/GREPCENT_TABLE]] 86 [[GREPCENT_TABLE]] [["Description","Judgements and Uncertainties","Effect if Actual Results Differ from Assumptions"],["Fair Value Measurements and Fair Value of Related Party Notes Payable and Notes Payable"],["The accounting guidance for financial instruments allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date.FF has elected the fair value option for certain related party notes payable and notes payable with embedded derivatives. The fair value of certain related party notes payable and notes payable was determined using a yield method, probability weighted for the likelihood of a liquidity event prior to maturity that would result in the conversion of the notes payable into ordinary shares. The probability of a liquidity event and the derived discount rate are assumptions used to estimate the fair value of FF\u2019s notes payable carried at fair value. For further discussion see Note 8, Fair Value of Financial Instruments in the Notes to Consolidated Financial Statements.","Fair value measurement applies to financial assets and liabilities as well as other assets and liabilities carried at fair value on a recurring and nonrecurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the standard establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows:Valuations for assets and liabilities traded in active exchange markets, or interest in open-end mutual funds that allow a company to sell its ownership interest back at net asset value on a daily basis. Level 1 valuations are obtained from readily available pricing sources for market transactions involving identical assets, liabilities, or funds.Valuations for assets and liabilities traded in less active dealer, or broker markets, such as quoted prices for similar assets or liabilities or quoted prices in markets that are not active. Level 2 instruments typically include U.S. government and agency debt securities, and corporate obligations. Level 2 valuations are usually obtained through market data of the investment itself as well as market transactions involving comparable assets, liabilities or funds.Valuations for assets and liabilities that are derived from other valuation methodologies, such as option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer, or broker-traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.","Certain of the related party notes payable and notes payable contain embedded liquidation premiums with conversion rights that represent embedded derivatives whose value is directly related to the fair value of the Company\u2019s common stock. As the value of Company\u2019s common stock increases, the value of these related party notes payable and notes payable increases, and as the value of Company\u2019s common stock decreases, the value of these related party notes payable and notes payable decrease."]] [[/GREPCENT_TABLE]] 87 [[GREPCENT_TABLE]] [["Description","Judgements and Uncertainties","Effect if Actual Results Differ from Assumptions"],["Income Taxes"],["FF recognizes deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the Consolidated Statements of Operations and Comprehensive Loss in the period that includes the enactment date. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized.","In evaluating the need for a valuation allowance, management considers the weighting of all available positive and negative evidence, which includes, among other things, the nature, frequency and severity of current and cumulative taxable income or losses, future projections of profitability, and the duration of statutory carryforward periods.FF recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in FF\u2019s Consolidated Financial Statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized. FF recognizes interest and penalties accrued with respect to uncertain tax positions, if any, in its provision for income taxes in the Consolidated Statements of Operations and Comprehensive Loss.","The Company has recognized a full valuation allowance as of December 31, 2021 and 2020 since, in the judgment of management given the Company\u2019s history of losses, the realization of these assets was not considered more likely than not. The valuation allowance was $256,413 and $148,546 as of December 31, 2021 and 2020, respectively. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which the temporary timing differences become deductible."]] [[/GREPCENT_TABLE]] Recent Accounting Pronouncements See Note 1 in the sections titled Recently adopted accounting pronouncements and Recently issued accounting pronouncements not yet adopted as referred to in FF’s Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for a discussion about accounting pronouncements recently adopted and recently issued, but not yet adopted.