Faraday Future Intelligent Electric Inc.: Form 10-Q for the period ended Sep 30, 2023

The following discussion and analysis is intended to help the reader understand FF’s results of operations and financial condition. This discussion and analysis is provided as a supplement to, and should be read in conjunction with FF’s Condensed Consolidated Financial Statements and Notes thereto included elsewhere in this quarterly report on Form 10-Q (this “Report”). Some of the information contained in this discussion and analysis or set forth elsewhere in this Report, including information with respect to FF’s plans and strategy for FF’s business, includes forward-looking statements that involve risks and uncertainties. FF’s actual results may differ materially from management’s expectations as a result of various factors, including but not limited to those discussed in the sections entitled “Risk Factors” in the Company’s Annual Report on Form 10-K/A filed on August 21, 2023 (“Form 10-K/A”), “Risk Factors” in this Report and “Cautionary Note Regarding Forward-Looking Statements” below. The objective of this section is to provide investors an understanding of the financial drivers and levers in FF’s business and describe the financial performance of the business.

Cautionary Note Regarding Forward-Looking Statements

This Report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements can be identified by the use of forward-looking terminology, including the words “believes,” “estimates,” “anticipates,” “expects,” “intends,” “plans,” “may,” “will,” “potential,” “projects,” “predicts,” “continue,” or “should,” or, in each case, their negative or other variations or comparable terminology. There can be no assurance that actual results will not materially differ from expectations. Such statements include, but are not limited to, any statements relating to our financial and business performance, market acceptance and success of our business model, our ability to expand the scope of our offerings, and our ability to comply with the extensive, complex, and evolving regulatory requirements. These statements are based on management's current expectations, but actual results may differ materially due to various factors.

The forward-looking statements contained in this Report are based on our current expectations and beliefs concerning future developments and their potential effects on us. Future developments affecting us may not be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control), and other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the section titled “Risk Factors” in the Form 10-K/A, as updated in this Report. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation (and expressly disclaim any obligation) to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. These risks and others described under the section titled “Risk Factors” in the Form 10-K/A, as updated in this Report, may not be exhaustive.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Report. In addition, even if our results or operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements contained in this Report, those results or developments may not be indicative of results or developments in subsequent periods.

Availability of Information

We make available through our company website, free of charge, our company filings with the Securities and Exchange Commission (the “SEC”) as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC. The reports we make available include annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, registration statements, and any amendments to those documents.

The website link to our SEC filings is investors.ff.com/financial-information/sec-filings.

We intend to use press releases, our Investor Relations website, investor.ff.com, and certain social media accounts as a means of disclosing information and observations about the Company and its business which may be of interest or material to our investors, material, non-public information, and for complying with our disclosure obligations under Regulation FD: Instagram, Facebook, X, LinkedIn, Youtube, FF App, WeChat, Weibo, Toutiao, Douyin, and Futu. The information and observations we post through these social media channels may be deemed material. Accordingly, investors should monitor the

Investor Relations website and these social media channels, in addition to following our press releases, filings with the SEC, public conference calls, presentations, and webcasts. The social media channels that we intend to use as a means of disclosing the information described above may be updated from time to time. The information contained on, or that may be accessed through, our website or social media channels, is not incorporated by reference into, and is not a part of, this Report or any other report or document filed with the SEC. Any reference to our website in this Report is intended to be an inactive textual reference only.

Overview

Faraday Future Intelligent Electric, Inc. (together with its consolidated subsidiaries, “FF,” “the Company,” “we,” “us” or “our”) is a California-based, global, shared, intelligent, mobility ecosystem company founded in 2014 with a vision to disrupt the automotive industry.

On July 21, 2021, FF (f/k/a Property Solutions Acquisition Corp. (“PSAC”)), a Delaware corporation, consummated the previously announced business combination pursuant to an agreement and plan of merger, dated as of January 27, 2021 (as amended, the “Merger Agreement”), by and among PSAC, PSAC Merger Sub Ltd., an exempted company with limited liability incorporated under the laws of the Cayman Islands and wholly-owned subsidiary of PSAC (“Merger Sub”), and FF Intelligent Mobility Global Holdings Ltd. (“Legacy FF”). Pursuant to the terms of the Merger Agreement, Merger Sub merged with and into Legacy FF, with Legacy FF surviving the merger as a wholly-owned subsidiary of the Company (the “Business Combination”).

Upon the consummation of the Business Combination, PSAC changed its name from Property Solutions Acquisition Corp. to Faraday Future Intelligent Electric Inc., and FF’s Class A common stock, par value $0.0001 per share (the Class A Common Stock”) and 287,220 public warrants (the “Public Warrants”) began trading on The Nasdaq Global Market under the ticker symbols “FFIE” and “FFIEW,” respectively.

With headquarters in Los Angeles, California, FF designs and engineers next-generation, intelligent, connected, electric vehicles. FF manufactures vehicles at its production facility in Hanford, California (the “FF ieFactory California”), with additional future production capacity needs addressed through a contract manufacturing agreement with Myoung Shin Co., Ltd. (“Myoung Shin”), an automotive manufacturer headquartered in South Korea. FF has additional engineering, sales, and operational capabilities in China and is exploring opportunities for potential manufacturing capabilities in China through a joint venture or other arrangements.

Since its founding, FF has created major innovations in technology, products, and a user-centered business model. FF believes these innovations will enable FF to set new standards in luxury and performance that will redefine the future of intelligent mobility.

We believe the following combination of capabilities of FF’s products, technology, the recent upgrade to FF Product and Technology Upgrade Generation 2.0 (PT Gen 2.0), team, and business model distinguish FF from its competitors:

• FF has designed and developed a breakthrough mobility platform — its proprietary Variable Platform Architecture (“VPA”).
• FF’s propulsion system provides a competitive edge in acceleration and range, enabled by an expected industry-leading inverter design, and propulsion system.
• FF’s advanced Internet Artificial Intelligence (“I.A.I.”) technology offers high-performance computing, high speed internet connectivity, Over the Air (“OTA”) updating, an open ecosystem for third-party application integration, and a Level 3 autonomous driving-ready system, in addition to several other proprietary innovations that enable FF to build an advanced, highly-personalized user experience.
• Since inception, FF has developed a portfolio of intellectual property, established its proposed supply chain, and assembled a global team of automotive and technology experts and innovators to achieve its goal of redefining the future of the automotive industry. As of November 7, 2023, FF has been granted approximately 660 patents globally.
• FF’s B2C (business-to-customer) passenger vehicle pipeline over the next five years is planned to include the FF 91 series, the FF 81 series, and the FF 71 series.
• FF believes that the FF 91 Futurist ( the “FF 91,” “FF 91 Futurist,” or “FF 91 2.0 Futurist Alliance”) will be the first ultra-luxury electric vehicle to offer a highly-personalized, fully-connected user experience for driver and passengers. FF started production on the first FF 91 futurist and delivered the first FF 91 2.0 Futurist Alliance in the first half of 2023.
• Subject to future financing, FF plans to produce and deliver its second passenger vehicle, the FF 81, which will be a premium, mass-market electric vehicle positioned to compete against the Tesla Model S, Tesla Model X, the BMW 5-series, and the Nio ES8.
• Subject to future financing, FF plans to develop a mass-market passenger vehicle, the FF 71. FF expects to start production and deliveries of the FF 71 subsequent to production and deliveries of the FF 81. The FF 71 will integrate full connectivity and advanced technology into a smaller vehicle size and is positioned to compete against the Tesla Model 3, Tesla Model Y, and the BMW 3-series.
• Subject to future financing, FF plans to develop a Smart Last Mile Delivery (“SLMD”) vehicle to address the high-growth, last-mile delivery opportunity, particularly in Europe, China and the U.S. FF’s modular VPA facilitates entry into the last-mile delivery segment, allowing FF to expand its total addressable market and avenues of growth.

All FF vehicles are expected to be available for sale in the U.S. and China, with potential expansion to European markets.

Emerging Growth Company Status

Section 102(b)(1) of the Jumpstart Our Business Startups Act (the “JOBS Act”) exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can choose not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies. Any such election to not take advantage of the extended transition period is irrevocable.

FF is an “emerging growth company” as defined in Section 2(a) of the Securities Act and has elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards. FF expects to continue to take advantage of the benefits of the extended transition period, although it may decide to early adopt such new or revised accounting standards to the extent permitted by such standards. This may make it difficult or impossible to compare our financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used.

Segment Information

On February 26, 2023, after an assessment by the board of directors of the Company (the “Board”) of the Company’s management structure, the Board approved Mr. Yueting Jia (alongside Mr. Xuefeng Chen) reporting directly to the Board, as well as FF’s product, mobility ecosystem, I.A.I., and advanced research and development (“R&D”) technology departments reporting directly to Mr. Jia. The Board also approved FF’s user ecosystem, capital markets, human resources and administration, corporate strategy and China departments reporting to both Mr. Jia and Mr. Chen, subject to processes and controls to be determined by the Board after consultation with the Company’s management. Based on the changes to his responsibilities within the Company, the Board determined that Mr. Jia is an “officer” of the Company within the meaning of Section 16 of the Exchange Act and an “executive officer” of the Company under Rule 3b-7 under the Exchange Act.

Therefore, the Company’s co-CODM's are both its Global Chief Executive Officer (“CEO”) and Founder. The Company has determined that it operates in one operating segment and one reportable segment, as the co-CODM’s review financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance. Substantially all of the Company’s consolidated operating activities, including its long-lived assets, are located within the U.S. Given the Company’s pre-revenue operating stage, it currently has no concentration exposure to products, services or customers.

On September 16, 2023, Mr. Chen notified the Company of his decision to resign from his position as Global CEO of the Company and as a member of the Board effective September 29, 2023. On September 21, 2023, the Board appointed Mattias Aydt to succeed Mr. Chen as Global Chief Executive Officer and as a member of the Board, effective September 29, 2023. The change in the Company’s Global CEO has not impacted the Company’s prior determination that its co-CODM's are both its Global CEO and Founder.

Recent Developments

Recent Governance Developments

• On August 4, 2023, the Board appointed Mr. Lev Peker as a member of the Board and as a member and Chair of the Audit Committee of the Board to fill the vacancy on the Board and Audit Committee created by Mr. Adam (Xin) He’s resignation from the Board on July 31, 2023. In connection with Mr. He’s resignation, and to comply with the Nasdaq Stock Market LLC (“Nasdaq”) Listing Rule 5605(c)(4)(B), on August 2, 2023, the Company notified Nasdaq that the Company no longer complied with Nasdaq’s independent director and audit committee requirements as set forth in Listing Rule 5605 as the Board was not comprised of a majority of independent directors as required by Nasdaq Listing Rule 5605(b)(1) and the Audit Committee was not comprised of at least three independent directors as required by Nasdaq Listing Rule 5605(c)(2)(A), which noncompliance was subsequently cured by the appointment of Mr. Peker as a member of the Board and as a member of the Audit Committee. In response to the Company’s notice, Nasdaq issued a letter to the Company on August 4, 2023 indicating that, effective July 31, 2023, the Company no longer complies with Nasdaq’s independent director and audit committee requirements as set forth in Nasdaq Listing Rule 5605. As a result of the appointment of Mr. Peker as a member of the Board and as a member and chair of the Audit Committee, the Company regained compliance with the board independence requirements as set forth in Nasdaq Listing Rule 5605(b)(1) and the audit committee requirements as set forth in Nasdaq Listing Rule 5605(c)(2)(A).
• At a special meeting of the Company’s stockholders held on August 16, 2023, the Company’s stockholders approved a proposal authorizing the Board to effect a reverse stock split of the Company’s outstanding common stock, par value $0.0001 per share (the “Common Stock”) at a range between 1-for-2 and 1-for-90, and a proposal stating that if a reverse stock split is implemented at a ratio of 1-for-8 or greater, the Company will amend its Second Amended and Restated Certificate of Incorporation to reduce the number of authorized shares of the Common Stock to a number equal to 12,355,000,000 divided by the reverse stock split ratio determined by the Board. On August 22, 2023, the Board approved a reverse stock split ratio of 1-for-80 of Common Stock (the “Reverse Stock Split”). Accordingly, on August 24, 2023, the Company filed the Third Amended and Restated Certificate of Incorporation of the Company to effect the Reverse Stock Split and to set the number of authorized shares of Common Stock, to 154,437,500 (which is 12,355,000,000 divided by 80, the Reverse Stock Split ratio). As a result, effective August 25, 2023, every 80 shares of the issued and outstanding Common Stock were converted into one share of Common Stock, without any change in par value per share, and the Company’s authorized shares of Common Stock were reduced to 154,437,500, composed of (i) 147,875,000 shares of Class A Common Stock and (ii) 6,562,500 shares of the Company’s Class B Common Stock, par value $0.0001 per share (the “Class B Common Stock”). No fractional shares of common stock were issued as a result of the Reverse Stock Split. Stockholders who would otherwise have received a fractional share were instead issued a full share in lieu of such fractional share.

The Class A Common Stock began trading on The Nasdaq Capital Market on a split-adjusted basis at the opening of trading on August 28, 2023 under the symbol “FFIE” with a new CUSIP number (307359 505). The Company’s Public Warrants continue to be traded on the Nasdaq Capital Market under the symbol “FFIEW” and the CUSIP number for the warrants remains unchanged. However, every 80 warrants are now exercisable for one share of Class A Common Stock at an exercise price of $920.00 per share.

• On September 16, 2023, Mr. Chen notified the Company of his decision to resign from his position as Global CEO of the Company and as a member of the Board effective September 29, 2023. On September 21, 2023, the Board appointed Mr. Mattias Aydt to succeed Mr. Chen as Global Chief Executive Officer and as a member of the Board, effective September 29, 2023.
• On October 10, 2023, Ke Sun, a member of the Board notified the Company of her decision to resign as a director of the Company effective immediately.

Components of FF’s Results of Operations

Key Factors Affecting Operating Results

FF’s performance and future success depend on several factors that present significant opportunities but also pose risks and challenges including those discussed below and, in the section titled “Risk Factors” in the Form 10-K/A, as updated in this Report.

Production and Operations

FF expects to continue to incur significant operating costs that will impact its future profitability, including R&D expenses as it introduces new models and improves existing models; capital expenditures for the expansion of its manufacturing capacities; additional operating costs and expenses for production ramp-up; raw material procurement costs; general and administrative expenses as it scales its operations; interest expense from debt financing activities; and selling and distribution expenses as it builds its brand and markets its vehicles. FF may incur significant costs in connection with its services once it delivers the FF 91 Futurist, including servicing and warranty costs. FF’s ability to become profitable in the future will depend on its ability to successfully market its vehicles and control its costs.

As of September 30, 2023, FF has delivered only three vehicles to spire users. As a result, FF will require substantial additional capital to develop products and fund operations for the foreseeable future. Until FF can generate sufficient revenue from product sales, FF will fund its ongoing operations through a combination of various funding and financing alternatives, including equipment leasing and construction financing of the FF ieFactory California, secured syndicated debt financing, convertible notes, working capital loans, and equity offerings, among other options. The particular funding mechanisms, terms, timing, and amounts are dependent on the Company’s assessment of opportunities available in the marketplace and the circumstances of the business at the relevant time. Any delays in the successful completion of its FF ieFactory California will impact FF’s ability to generate revenue. For additional discussion of the substantial doubt about FF’s ability to continue as a going concern, see Note 2, Liquidity and Capital Resources in the notes to the Condensed Consolidated Financial Statements and for further details on liquidity, please see the “Liquidity and Capital Resources” section below.

Revenue Recognition

Automotive Sales Revenue

We began the production of our FF 91 Futurist in March 2023 and started making deliveries to customers in August 2023.

Automotive sales revenue includes revenues related to deliveries of new vehicles, and specific other features and services including home charger, charger installation, twenty-four-seven roadside assistance, OTA software updates, internet connectivity and destination fees.

We recognize revenue on automotive sales upon delivery to the customer, which is when control of a vehicle transfers. Payments are typically received at the point control transfers or in accordance with payment terms customary to the business indicated in the sales contract. OTA software updates are provisioned upon control transfer of a vehicle and recognized over time on a straight-line basis as we have a stand-ready obligation to deliver such services to the customer. For our obligations related to automotive sales, we estimate standalone selling price by considering costs used to develop and deliver the good or service, third-party pricing of similar options and other information that may be available. The transaction price is allocated among the performance obligations in proportion to the standalone selling price of our performance obligations. Our vehicle contracts do not contain a significant financing component.

We have entered into and may continue to enter into co-creator consulting agreements with our customers under which customers share feedback, driving data, ideas, experiences with our engineers, social media posts and other promotions in exchange for specified fees. We consider these arrangements consideration payable to a customer. The consideration paid to the customer relates to marketing and R&D services that are distinct and could be purchased by the Company from a separate third-party. We perform an analysis in which we maximize the use of observable market inputs to ascribe a fair value to these services and record the fair value of these services to sales and marketing expense or R&D expense, as applicable. Any consideration payable to a customer that is above the fair value of the distinct services being provided is treated as a reduction of revenue.

Customer Deposits

The Company’s customers may reserve a vehicle and preorder certain services by making a customer deposit, which is fully refundable at any time. Refundable deposits, for vehicle reservations and services, received from customers prior to an executed vehicle purchase agreement are recorded as customer deposits (Accrued expenses and other current liabilities). Customer deposits were $3.3 million and $3.4 million as of September 30, 2023 and December 31, 2022, respectively. When vehicle purchase agreements are executed, the consideration for the vehicle and any accompanying products and services must be paid in advance prior to the transfer of products or services by the Company. Such advance payments are considered non-refundable, and the Company defers revenue related to any products or services that are not yet transferred.

Warranties

We provide a manufacturer’s warranty on all vehicles sold. The warranty covers the rectification of reported defects via repair, replacement, or adjustment of faulty parts or components. The warranty does not cover any item where failure is due to normal wear and tear. This assurance-type warranty does not create a performance obligation separate from the vehicle. Management tracks warranty claims by vehicle ID, owner, and date. As we continue to manufacture and sell more vehicles we will reassess and evaluate our warranty claims for purposes of our warranty accrual.

Cost of Automotive Sales Revenue

Cost of automotive sales revenue includes direct and indirect materials, labor costs, manufacturing overhead, including depreciation costs of tooling and machinery, shipping and logistic costs, vehicle connectivity costs, and reserves for estimated warranty expenses. Cost of automotive sales revenues also includes adjustments to warranty expense.

Operating Expenses

Research and Development

R&D activities represent a significant part of FF’s business. FF’s R&D efforts focus on the design and development of FF’s electric vehicles and continuing to prepare its prototype electric vehicles to exceed industry standards for compliance, innovation, and performance. R&D expenses consist of personnel-related costs (including salaries, bonuses, benefits, and stock-based compensation) for FF’s employees focused on R&D activities, other related costs, depreciation, R&D services provided by co-creators, and an allocation of overhead. FF expects R&D expenses to decrease in the near future as the Company substantially completed R&D activities related to the FF 91.

Sales and Marketing

Sales and marketing expenses consist primarily of personnel-related costs (including salaries, bonuses, benefits, and stock-based compensation) for FF’s employees focused on sales and marketing, costs associated with sales and marketing activities, marketing services provided by co-creators, and an allocation of overhead. Marketing activities are those related to introducing FF’s brand and its electric vehicle prototypes to the market. FF expects selling and marketing expenses to continue to increase as FF brings its electric vehicles to market and seeks to generate sales.

General and Administrative

General and administrative expenses consist primarily of personnel-related costs, (including salaries, bonuses, benefits, and stock-based compensation) for employees associated with administrative services such as legal, human resources, information technology, accounting and finance, other related costs, and legal loss contingency expenses, which are FF’s estimates of future legal settlements. These expenses also include certain third-party consulting services, certain facilities costs, and any corporate overhead costs not allocated to other expense categories. FF expects its general and administrative expenses to increase as FF continues to grow its business.

Loss on Disposal of Property and Equipment

Loss on disposal of property and equipment relates to the abandonment of certain FF 91 Futurist program construction in progress assets, primarily vendor tooling, machinery, and equipment, due to the redesign of the related FF 91 components and implementation of FF’s cost reduction program. Charges associated with disposals are recognized within operating expenses in the Condensed Consolidated Statements of Operations and Comprehensive Loss.

Change in Fair Value of Earnout Liability

Legacy FF shareholders, as of the Closing Date of the Business Combination until its fifth anniversary, are entitled to contingent consideration of up to 312,500 additional shares of Class A Common Stock in the aggregate in two equal tranches upon the occurrence of each earnout triggering event (“Earnout Shares”). The Company recognized the Earnout Shares at fair value upon the closing of the Business Combination and classified them in Stockholders’ Equity (Deficit) since the Earnout Shares were determined to be indexed to the Company’s own stock and meet the requirements for equity classification in accordance with ASC 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity. From time to time subsequent to the closing of the Business Combination, the Earnout Shares may be classified as derivative liabilities under ASC 815, Derivatives and Hedging, due to the Company having insufficient authorized shares to fully settle the equity-linked financial instruments in shares. The Earnout Shares reclassified as derivative instruments are recognized at fair value with changes in fair value recognized in earnings until such time as the conditions giving rise to such derivative liability classification were settled or the Company has sufficient authorized, unissued shares to settle such contracts with shares.

Non-operating Expenses

Change in Fair Value of (Related Party and Third Party) Notes Payable and Warrant Liabilities

Change in fair value measurements consists of the losses and gains as a result of fair value measurements of certain notes payable and warrant liabilities which FF records at fair value.

Loss on Settlement of (Related Party and Third Party) Notes Payable

Loss on settlement of notes payable consists of losses resulting from the settlement of notes payable as part of the Company’s ongoing financing activities and losses incurred on modifications of the Company’s notes payable that qualify as an extinguishment pursuant to ASC 470-50, Debt–Modifications and Extinguishments.

Interest Expense

Interest expense primarily consists of interest on outstanding notes payable, finance leases, and certain supplier payables.

Related Party Interest Expense

Related party interest expense consists of interest expense on notes payable with related parties.

Other Expense, net

Other expense, net consists of foreign currency transaction gains and losses and other expenses such as bank fees and late charges. Foreign currency transaction gains and losses are generated by revaluation of debt and the settlements of invoices denominated in currencies other than the functional currency. FF expects other expense to fluctuate as FF continues to transact internationally.

Results of Operations

(in thousands)

Revenues

(in thousands)

*NM = not meaningful.

Automotive sales revenue was $0.6 million for the three months ended September 30, 2023. The Company started vehicle delivery to its customers during the three months ended September 30, 2023.

Cost of Revenues

(in thousands)

*NM = not meaningful.

Cost of revenues was $16.1 million for the three months ended September 30, 2023. On March 29, 2023, the Company announced the start of production of its first electric vehicle, the FF 91 Futurist and, on April 14, 2023, the Company’s first production FF 91 Futurist vehicle came off the line. The Company started to recognize automotive sales revenue during the three months ended September 30, 2023 and the corresponding cost of revenue. Cost of revenue is primarily driven by higher costs of early-stage cost inefficiencies including lower fixed cost absorption largely due to depreciation of tooling and machinery. To a lesser extent, the Cost of Revenues includes higher initial manufacturing inefficiencies coupled with higher initial cost of parts resulting from lower volume associated with delivery of the FF 91 Futurist vehicles.

Research and Development

(in thousands)

The decrease in R&D expense is primarily due to the reduction in engineering, design, and testing (“ED&T”) services of $11.9 million as the Company substantially completed R&D activities related to the FF 91 Futurist vehicle in 2022. Further, as the Company started production in March 2023, certain costs were recognized as cost of revenues and certain materials purchases were capitalized to inventory versus all being recognized as R&D expense. In addition, there was a decrease in personnel and compensation expenses of $10.0 million due to a decrease in headcount as part of cost saving measures implemented by the Company in light of its financial position, as well as the allocation of certain personnel from the R&D department to production, a decrease in stock-based compensation expense of $2.7 million and a decrease in other miscellaneous expenses of $1.3 million.

Sales and Marketing

(in thousands)

The increase in sales and marketing expense is due to an increase in compensation expenses of $0.9 million, an increase in professional services expenses of $0.4 million and an increase in marketing expenses of $0.1 million as the Company allocated more resources to sales and marketing due to the achievement of the delivery milestone in August 2023.

General and Administrative

(in thousands)

The decrease in general and administrative expense is primarily due to a decrease in professional services expenses of $6.6 million due to the conclusion of the Special Committee investigation in 2022; partially offset by an increase in compensation related expense of $2.1 million.

Change in Fair Value of Earnout Liability

(in thousands)

*NM = not meaningful.

As of August 25, 2023, the Company reclassified the Earnout Shares from liability classification to equity classification as a result of the Company having sufficient authorized shares to share-settle the earnout, which was determined to be equity classified under ASC 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity. The $0.1 million decrease in the Earnout liability was recognized as a Change in fair value of earnout liability during the three months ended September 30, 2023.

Change in Fair Value of Notes Payable and Warrant Liabilities

(in thousands)

51

The Change in the fair value of notes payable and warrant liabilities is primarily due to a significant increase in the volume of outstanding notes payable and warrants accounted for at fair value when compared with the comparative period in 2022. As of September 30, 2022 the Company had $44.5 million of notes payable outstanding, compared with $130.1 million outstanding as of September 30, 2023, excluding the impact of mark to market valuation adjustments. Additionally, during the three months ended September 30, 2022 the Company did not have material liability classified warrants with changes in fair value included in earnings. During the three months ended September 30, 2023, the Company recognized a gain in the Change in fair value of notes payable and warrant liabilities of $21.9 million, specific to the change in fair value of the Company’s warrant liabilities. These gains were offset by an increase in the fair value of the Company’s notes payable during the period, stemming from the impact of the full ratchet price adjustments that were applied to the Company’s SPA Notes.

Change in Fair Value of Related Party Notes Payable and Related Party Warrant Liabilities

(in thousands)

*NM = not meaningful.

The Company did not have any related party notes payable or warrants that were re-measured at fair value during the three months ended September 30, 2022. In May 2023, the Company entered into Unsecured SPA Notes with MHL, who is a related party, and VW. On September 30, 2023, the related party Unsecured SPA Notes and warrant were revalued at a lower fair value than at their issuance due to pricing inputs that use the market price of the Class A Common Stock and debt discount rate which have experienced a decline.

Loss on Settlement of Notes Payable

(in thousands)

The decrease in the Loss on settlement of notes payable during the three months ended September 30, 2023 is primarily driven by a reduced conversion volume during the period. During the three months ended September 30, 2023 note holders converted $25.8 million of notes payable compared with $67.2 million in the prior period. The impact of the volume difference is offset by a larger loss on settlement per dollar of principal. The increase in the loss on settlement per dollar of principal is driven by the trailing-twelve-month trend of declines in the fair value of the Company’s notes payable driven by the change in the Company’s stock price over the period.

Loss on Settlement of Related Party Notes Payable

(in thousands)

*NM = not meaningful.

The Company did not have any related party notes payable that settled during the three months ended September 30, 2022. In May 2023, the Company entered into Unsecured SPA Notes with MHL,who is a related party, and VW. During the three months ended September 30, 2023, the related party converted Unsecured SPA Notes with principal balances of $6.6 million in exchange for 2,621,940 shares of Class A Common Stock. The Company recognized a Loss on settlement of related party notes payable for the difference between the fair value of the shares issued and the fair value of the debt instrument.

Interest Expense

(in thousands)

The decrease in Interest expense was primarily due to the Company’s repayment of $85.0 million of Ares notes payable principal and the conversion of $73.9 million of ATW NPA notes payable principal into the Class A Common Stock in the year ended December 31, 2022. The SPA Notes are carried at fair value and fluctuations in interest expense are included in the Change in fair value of notes payable.

Related Party Interest Expense

(in thousands)

The decrease in Related party interest expense was due to an agreement, dated December 27, 2022, with Chongqing Leshi Small Loan Co., Ltd, a related party, according to which it was agreed that a portion of principal and all outstanding accrued interest was waived.

Other (Expense) Income, Net

(in thousands)

The change in Other expense, net was primarily due to a decrease in foreign currency transaction losses resulting from the revaluation of transactions denominated in currencies other than U.S. Dollars that are remeasured at the end of each period.

(in thousands)

Revenues

(in thousands)

*NM = not meaningful.

Automotive sales revenue was $0.6 million for the nine months ended September 30, 2023. The Company started vehicle delivery to its customers during the nine months ended September 30, 2023.

Cost of Revenues

(in thousands)

*NM = not meaningful.

Cost of revenue was $22.7 million for the nine months ended September 30, 2023. On March 29, 2023, the Company announced the start of production of its first electric vehicle, the FF 91 Futurist and, on April 14, 2023, the Company’s first production FF 91 Futurist vehicle came off the line. The Company started to recognize automotive sales revenue during the three months ended September 30, 2023 and the corresponding cost of revenue. Cost of revenue is primarily driven by higher costs of early-stage cost inefficiencies including lower fixed cost absorption largely due to depreciation of tooling and machinery. To a lesser extent, the Cost of Revenues includes higher initial manufacturing inefficiencies coupled with higher initial cost of parts resulting from lower volume associated with delivery of the FF 91 Futurist vehicle.

Research and Development

(in thousands)

The decrease in R&D expense is primarily due to the reduction in ED&T services of $118.5 million as the Company substantially completed R&D activities related to the FF 91 Futurist vehicle in 2022. Further, as the Company started production in March 2023, certain costs were recognized as cost of revenues and certain materials purchases were capitalized to inventory versus all being recognized as R&D expense in 2022. In addition, there was a decrease in personnel and compensation expenses of $15.7 million due to a decrease in headcount as part of cost saving measures implemented by the Company in light of its financial position, as well as the allocation of certain personnel from the R&D department to production; a decrease in professional services related expense of $15.3 million as the Company substantially completed R&D activities related to the FF 91 Futurist vehicle in 2022 and a decrease in other miscellaneous expenses of $3.6 million.

Sales and Marketing

(in thousands)

The increase in sales and marketing expense is primarily due to the increase in professional services expenses of $1.5 million and an increase in other miscellaneous expenses of $1.8 million due to the allocation of more resources to sales and marketing due to the achievement of the delivery milestone; partially offset by a decrease in personnel and compensation expenses of $0.3 million due to a decrease in headcount as part of cost saving measures implemented by the Company in light of its financial position and a decrease of $0.3 million in stock-based compensation expense.

General and Administrative

(in thousands)

The decrease in general and administrative expense was primarily due to the decrease in personnel and compensation expenses of $14.3 million due to a decrease in headcount as part of cost saving measures implemented by the Company in light of its financial position and the focus on achieving start of production; a decrease in professional services expenses of $13.7 million due to the conclusion of the Special Committee investigation in 2022; a decrease in information technology related expenses of $0.9 million; partially offset by $4.8 million in increased premiums associated with a new D&O policy entered into in the third quarter of 2022 and an increase in remaining other miscellaneous expenses of $2.6 million.

Loss on Disposal of Property and Equipment

(in thousands)

The loss on disposal of property and equipment during the nine months ended September 30, 2023 was primarily due to the write off of $3.7 million of certain construction in process assets that are not expected to be used as part of start of production.

Change in Fair Value of Earnout Liability

(in thousands)

*NM = not meaningful.

As of December 31, 2022, the Company reclassified the Earnout Shares from equity classification to liability classification as a result of the Company having insufficient authorized shares to share-settle the earnout, which was previously determined to be equity classified under ASC 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity. As a result of the reclassification, the Company reclassified $2.2 million out of Additional paid-in capital into the Earnout liability. On February 28, 2023, upon shareholder approval to increase the Company’s authorized shares, the Company had sufficient authorized shares to fully settle all outstanding equity-linked financial instruments. Accordingly, the Company reclassified the fair value of the Earnout liability of $5.0 million into Additional paid-in capital. The $2.8 million increase in the Earnout liability from December 31, 2022 to February 28, 2023 was recognized as an expense in the Change in fair value of earnout liability during the three months ended March 31, 2023.

As of April 21, 2023, the Company had insufficient authorized shares to fully settle its equity-linked financial instruments in shares primarily due to the issuance of additional convertible notes and warrants between February 28, 2023 and April 21, 2023. As a result, on April 21, 2023, the Company reclassified $2.1 million out of Additional paid-in capital into the Earnout liability.

As of August 25, 2023, the Company reclassified the Earnout Shares from liability classification to equity classification as a result of the Company having sufficient authorized shares to share-settle the earnout. The $2.0 million decrease in the Earnout liability from August 25, 2023 to September 30, 2023 was recognized as a Change in fair value of earnout liability during the nine months ended September 30, 2023.

Change in Fair Value of Notes Payable and Warrant Liabilities

(in thousands)

The change in the fair value of notes payable and warrant liabilities is due to a significant change in the volume of outstanding notes payable and warrants accounted for at fair value when compared with the comparative period in 2022 and the re-valuation of the Company’s notes payable and warrants at predominantly lower fair values due to pricing inputs that use the market price of the Common Stock and debt discount rate, which have experienced a decline. As of September 30, 2022 the Company had $44.5 million of notes payable outstanding, compared with $130.1 million outstanding as of September 30, 2023, excluding the impact of mark to market valuation adjustments. Additionally, during the nine months ended September 30, 2022 the Company did not have material liability classified warrants with changes in fair value included in earnings. During the nine months ended September 30, 2023, the Company recognized a gain in the Change in fair value of notes payable and warrant liabilities of $69.8 million, specific to the change in fair value of the Company’s warrant liabilities. These gains were offset by an increase in the fair value of the Company’s notes payable during the period, stemming from the impact of the full ratchet price adjustments that were applied to the Company’s SPA Notes.

Change in Fair Value of Related Party Notes Payable and Related Party Warrant Liabilities

(in thousands)

*NM = not meaningful.

The Company did not have any related party notes payable or warrants that were re-measured at fair value during the nine months ended September 30, 2022. In May 2023, the Company issued the Unsecured SPA Notes to MHL, who is a related party, and VW. On September 30, 2023, the related party Unsecured SPA Notes and warrants were revalued at a lower fair value than at their issuance due to pricing inputs that use the market price of the Class A Common Stock and debt discount rate which have experienced a decline.

Loss on Settlement of Notes Payable

(in thousands)

The increase in the Loss on settlement of notes payable during the three months ended September 30, 2023 is driven by a substantially higher conversion volume during the period and an increase in the loss on settlement per dollar of principal. During the nine months ended September 30, 2023 note holders converted $187.7 million of notes payable compared to $67.2 million in the prior period. The increase in the loss on settlement per dollar of principal is driven by the trailing-twelve-month trend of declines in the fair value of the Company’s notes payable driven by the change in the Common Stock price over the period.

Loss on Settlement of Related Party Notes Payable

(in thousands)

*NM = not meaningful.

The Company did not have any related party notes payable that settled during the nine months ended September 30, 2022. In May 2023, the Company entered into Unsecured SPA Notes with MHL,who is a related party, and VW. During the nine months ended September 30, 2023, the related party converted Unsecured SPA Notes with principal balances of $18.7 million in exchange for 72,353,608 shares of Class A Common Stock and the Company recognized a Loss on settlement of related party notes payable for the difference between the fair value of the shares issued and the fair value of the debt instrument.

Interest Expense

(in thousands)

The decrease in Interest expense was primarily due to the Company’s repayment of $85.0 million of Ares notes payable principal and the conversion of $73.9 million of ATW NPA notes payable principal into Class A Common Stock in the year ended December 31, 2022. The SPA Notes are carried at fair value and fluctuations in interest expense are included in the Change in fair value of notes payable.

Related Party Interest Expense

(in thousands)

The decrease in Related party interest expense was due to an agreement, dated December 27, 2022, with Chongqing Leshi Small Loan Co., Ltd, a related party, according to which it was agreed that a portion of principal and all outstanding accrued interest was waived.

Other (Expense) Income, Net

(in thousands)

The change in Other expense, net was primarily due to a decrease in foreign currency transaction losses resulting from the revaluation of transactions denominated in currencies other than U.S. Dollars that are remeasured at the end of each period.

Liquidity and Capital Resources

Going Concern

The Company has evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the Condensed Consolidated Financial Statements are issued. Based on its recurring losses from operations since inception and continued cash outflows from operating activities (all as described below), the Company has concluded that there is substantial doubt about its ability to continue as a going concern for a period of one year from the date that these Condensed Consolidated Financial Statements were issued.

Since its formation, the Company has devoted substantial effort and capital resources to strategic planning, engineering, design, and development of its electric vehicle platform, development of initial electric vehicle models, and capital raising. Since inception, the Company has incurred cumulative losses from operations and negative cash flows from operating activities, and has an accumulated deficit of $3,874.7 million and a cash balance of $6.7 million as of September 30, 2023. The Company expects to continue to generate significant operating losses for the foreseeable future. The Company has funded its operations and capital needs primarily through the net proceeds received from capital contributions, the issuance of related party notes payable and notes payable (see Note 8, Related Party Transactions and Note 7, Notes Payable), the sale of Common Stock, and the net proceeds received from the Business Combination and a subscription agreement with certain investors (see Note 1, Nature of Business and Organization and Basis of Presentation).

FF announced the start of production of its first electric vehicle, the FF 91 Futurist, on March 29, 2023 and announced the delivery of its first electric vehicle, the Ultimate AI TechLuxury FF 91 2.0 Futurist Alliance, on August 14, 2023. However, FF has recognized an insignificant amount of revenue as of the date hereof. FF’s future business depends in large part on its ability to execute its plans to develop, manufacture, market, and deliver electric vehicles, including the FF 91, FF 81, FF 71 series, and Smart Last Mile Delivery electric vehicle models that appeal to customers. Based on certain management assumptions, including timely completion of certain testing and suppliers meeting our supply chain requirement, FF originally expected deliveries of the FF 91 to users to begin before the end of April 2023. However, certain of FF’s suppliers were unable to meet FF’s timing requirements and, therefore, FF updated the timing for the start of deliveries for its FF 91 vehicle. FF has developed a three-phase delivery plan for the FF 91 (the “Delivery Plan”). The first phase, which began in May 2023, is the “Industry Expert Futurist Product Officer (“FPO”) Co-Creation Delivery.” In this first phase, the Industry Expert FPO(s) are expected to pay in full for an FF 91 vehicle in order to reserve the vehicle and be trained in the use of the vehicle. The second phase, which is the “FPO Co-Creation Delivery,” began in August 2023. In this second phase, FPO(s) are taking possession of the FF 91 vehicle and are also entering into consulting, branding, marketing, and other arrangements with FF in exchange for fees to be paid by the Company to the FPO(s). The third phase is the “Full Co-Creation Delivery,” in which, FF will deliver FF 91 vehicles to all spire users that are expected to have paid in full for an FF 91 vehicle at time of delivery.

Further, FF needs substantial additional financing to start the third phase of the Delivery Plan and is in discussions with additional potential investors to obtain such financing. As FF executes the three-phase Delivery Plan, it plans to continue to move vehicles into production and off-the-line with high quality and high product power. There is no assurance FF will be able to timely receive sufficient funding under existing or new financing commitments to produce and deliver the FF 91 Futurist on that timeline or at all. If unable to receive sufficient funding, FF will be required to obtain new financing commitments, which may not be available to it under reasonable commercial terms or at all. Further, there cannot be any assurance that FF will develop the manufacturing capabilities and processes, secure reliable sources of component supply to meet quality, engineering, design or production standards, or to meet the required production volumes to successfully grow into a viable, cash flow positive business.

The Company has continued financing discussions with multiple parties, but has experienced delays in securing additional funding commitments, which have exacerbated the supply chain and liquidity pressures on FF’s business. Since August 14, 2022, pursuant to the Secured SPA, Unsecured SPA and Unsecured Streeterville SPA (as defined in Note 7, Notes Payable), the Company has obtained commitments from several investors totaling $513.5 million in convertible note financing. Additionally, the Company has received commitments totaling $20.0 million through forced warrant exercise proceeds, subject to certain conditions. A total of $300.2 million under these convertible note financing commitments has been funded to date ($263.2 million net of original discount and transaction costs). The remaining balance of $213.3 million is subject to various conditions, including achievement of delivery milestones, satisfaction of closing conditions, resolving disputes with investors, and satisfaction or waiver of certain conditions, including for a portion of such financing an effective registration statement for the shares underlying the applicable notes. In addition to the amounts received pursuant to the above commitments, the Company received additional optional funding - an aggregated gross proceeds of $38.0 million ($32.9 million net of original issuance discount) under the Secured SPA.

There can be no assurance that FF will be able to satisfy the closing conditions under the Unsecured SPA or that FF will be able further to successfully obtain additional incremental convertible senior secured note purchasers under the Secured SPA,

Unsecured SPA, Unsecured Streeterville SPA or other debt or equity financing in a timely manner or on acceptable terms, if at all. These factors, in addition to the continued rise in inflation increasing the cost of labor and materials and other challenging macroeconomic conditions, have led FF to take steps to preserve its current cash position, including reducing spending, extending payment cycles and implementing other similar measures. If our ongoing capital raising efforts are unsuccessful or significantly delayed, or if we experience prolonged material adverse trends in our business, our production will be delayed or decreased, and our actual use of cash, production volume and revenue for 2023 will vary from our previously disclosed forecasts, and such variances may be material. While FF continues to be actively engaged in negotiations with potential financing sources, there is no guarantee that it will be able to raise additional capital on terms acceptable to it or at all. In addition to the risk that FF’s assumptions and analyses may prove incorrect, the projections may underestimate the professional fees and other costs to be incurred related to the pursuit of various financing options currently being considered and ongoing legal risks. Incremental capital needs beyond 2023 to fund operations and the development of the Company’s remaining product portfolio and to ramp up production will be highly dependent on the market success and profitability of the FF 91 and the Company’s ability to accurately estimate and control costs. Apart from the FF 91 Futurist series, substantial additional capital will be required to fund operations, as well as, research, development, and design efforts for future vehicles.

On November 11, 2022, FF entered into a Standby Equity Purchase Agreement (the “SEPA”) with YA II PN, Ltd. (“Yorkville”), which is an affiliate of Yorkville Advisors. Under the terms of the SEPA, FF has the right, but not the obligation, to sell up to $200.0 million (which can be increased up to $350.0 million at FF’s option) of Class A Common Stock to an affiliate of Yorkville Advisors, subject to certain limitations, at the time of the Company’s choosing during the three-year term of the SEPA. During the three and nine months ended September 30, 2023, FF sold 837,500 shares of Class A Common Stock at a price equal to 97% of the average daily volume weighted average price of the Class A Common Stock to Yorkville under the SEPA for $7.3 million.

On June 16, 2023, the Company filed the Shelf Registration with the SEC, which was declared effective by the SEC on June 28, 2023. As a result, the Company may from time-to-time issue Class A Common Stock and/or warrants, up to an aggregate amount of $300.0 million in one or more offerings. The Shelf Registration provides an ability for the Company to raise additional capital through Class A Common Stock and/or warrant issuances to both institutional and retail investors as it looks to raise additional financing to support production ramp-up. On September 27, 2023, the Company filed a prospectus supplement to the Shelf Registration regarding the At-the-Market Equity Offering Sales Agreement (the “Sales Agreement”) the Company entered into on September 26, 2023 with Stifel, Nicolaus & Company, Incorporated, B. Riley Securities, Inc., A.G.P./Alliance Global Partners, Wedbush Securities Inc. and Maxim Group LLC (the “Sales Agents”) to offer and sell up to $90.0 million of Class A Common Stock. In accordance with the terms of the Sales Agreement, the Company may offer and sell shares of Class A Common Stock from time to time through or to the Sales Agents as sales agent or principal by any method that is deemed to be an “at the market offering” as defined in Rule 415 under the Securities Act of 1933. The aggregate compensation payable to the Sales Agents shall be up to 3.5% of the gross sales price of the shares sold through the Sales Agents. During the three and nine months ended September 30, 2023, the Company issued 780,000 shares of its Class A Common Stock under the Sales Agreement for gross cash proceeds of $1.3 million less placement agent fees of $0.1 million.

Despite the potential access to liquidity resulting from the SEPA, the Shelf Registration and the unfunded commitments from the Secured SPA and the Unsecured SPA, the Company projects that it will require additional funds in order to continue operations and support the ramp-up of production of the FF 91 Futurist to generate revenues to put the Company on a path to cash flow break-even. Incremental capital needs beyond 2023 to fund operations and the development of the Company’s remaining product portfolio and ramp up production will be highly dependent on the market success and profitability of the FF 91 Futurist and the Company’s ability to accurately estimate and control costs.

The Company is exploring various funding and financing alternatives to fund its ongoing operations and to ramp up production, including equipment leasing, construction financing of the FF ieFactory California, secured syndicated debt financing, convertible notes, working capital loans, and equity offerings, among other options. The particular funding mechanisms, terms, timing, and amounts are dependent on the Company’s assessment of opportunities available in the marketplace and the circumstances of the business at the relevant time.

The timely achievement of the Company’s operating plan as well as its ability to maintain an adequate level of liquidity are subject to various risks associated with the Company’s ability to continue to successfully close additional sources of funding, control and effectively manage its costs, as well as factors outside of the Company’s control, including those related to global supply chain disruptions, the rising prices of materials, and general macroeconomic conditions.

There can be no assurance that the Company will be successful in achieving its strategic plans, that the Company’s future funding raises will be sufficient to support its ongoing operations, or that any additional financing will be available in a timely manner or on acceptable terms, if at all or that the Company will be able to satisfy the closing conditions under its financing agreements. If events or circumstances occur such that the Company does not meet its strategic plans, the Company will be required to reduce discretionary spending, alter or scale back vehicle development programs, be unable to develop new or enhanced production methods, or be unable to fund capital expenditures. Any such events would have a material adverse effect on the Company’s financial position, results of operations, cash flows, and ability to achieve its intended business objectives, and the Company will likely not be able to continue as a going concern.

As of September 30, 2023, the Company was in default on the Secured SPA Notes; however, the holders of such notes subsequently waived the default. As of April 2023, the Company has been in breach of its debt agreement with Chongqing Leshi Small Loan Co., Ltd., a related party, with an outstanding principal balance of $4.5 million. As a result of the default, the interest rate on the outstanding principal balance has increased to a rate of 18% per annum until the event of default is no longer applicable.

There can be no assurance that the Company will be able to maintain sufficient authorized shares to fully settle all outstanding equity-linked financial instruments in shares.

Material Cash Requirements

The Company's material cash requirements include the following contractual and other obligations:

As of September 30, 2023, the Company had outstanding notes payable to related parties, comprised of $3.8 million which is due on demand, $5.1 million is scheduled to become due in December 2023, and $3.3 million due in the year 2029. The related parties include employees as well as affiliates of employees and affiliates and other companies controlled or previously controlled by Mr. Jia, the Company’s founder and Chief Product and User Ecosystem Officer. See Note 8, Related Party Transactions, in the Condensed Consolidated Financial Statements.

As of September 30, 2023, the Company had outstanding $135.1 million in aggregate principal amount of notes payable to third parties, of which $4.8 million is due on demand, $41.0 million and the remainder due in year 2029. See Note 7, Notes Payable, in the Condensed Consolidated Financial Statements.

As of September 30, 2023, the Company had operating and financing lease obligations (inclusive of interest) of $37.0 million, primarily related to its FF ieFactory California production facility, corporate office, store, equipment, and vehicle lease agreements, of which approximately $7.2 million in payments are scheduled to become due in the succeeding 12 months.

We have purchase commitments under legally enforceable agreements for goods and services, including purchases of inventory, tooling, machinery and equipment, and items to be used in research and development activities, with defined terms as to quantity, price and timing of delivery.

Sources of Liquidity

As of September 30, 2023, the Company’s principal source of liquidity was cash on hand totaling $6.7 million, which was held for working capital and general corporate purposes. The Company also has access to various sources of additional capital, including the SEPA, the Sales Agreement, and the SPA Commitments. The Company’s ability to access these sources of capital and further information on amounts available is discussed in Note 2, Liquidity and Capital Resources.

Cash Flow Analysis

Presented below is a summary of FF’s cash flows for the periods indicated:

Operating Activities

FF continues to experience negative cash flows from operations as FF designs and develops its vehicles and builds its infrastructure both in the U.S. and China. FF’s cash flows from operating activities are significantly affected by FF’s cash investments to support the growth of FF’s business in areas such as R&D associated with FF’s electric vehicles, corporate planning, and general and administrative functions. FF’s operating cash flows are also affected by its working capital needs to support growth and fluctuations in personnel-related expenditures, accounts payable, accrued interest, other current liabilities, deposits, and other current assets.

Net cash used in operating activities was $240.4 million for the nine months ended September 30, 2023 which were primarily related to ED&T services, compensation and benefits, and other professional services associated with research and development activities performed. The largest components of FF’s cash used by operating activities during the nine months ended September 30, 2023, were $87.5 million for research and development expenses, $82.1 million for wages and compensation related expenses, and $31.1 million for professional services.

Net cash used in operating activities was $355.1 million for the nine months ended September 30, 2022. The largest components of FF’s cash used by operating activities during the nine months ended September 30, 2022, were for professional and contracted services totaling $119.5 million, compensation, benefits and related expenses totaling $95.3 million and prepaid insurance totaling $21.7 million.

Investing Activities

Net cash used in investing activities was $10.8 million and $112.1 million for the nine months ended September 30, 2023 and 2022, respectively, and is related to the acquisition of fixed assets.

Financing Activities

For the nine months ended September 30, 2023, net cash provided by financing activities was $237.6 million. For the nine months ended September 30, 2022, net cash used in financing activities was $40.9 million.

Net cash provided by financing activities during the nine months ended September 30, 2023, primarily consists of $228.4 million in proceeds from notes payable, net of original issue discount, and $4.1 million in proceeds from the exercise of warrants, partially offset by the payment of $2.5 million in debt issuance costs and $1.0 million in payments of finance lease obligations.

Net cash used in financing activities during the nine months ended September 30, 2022 primarily consists of $87.3 million in repayment of notes payable, including liquidation premiums, and $1.4 million in payments of finance lease obligations, partially offset by $9.5 million in proceeds from exercise of stock options.

Effect of Exchange Rate Changes on Cash and Restricted Cash

The exchange rates effect on cash and restricted cash was $3.7 million and $11.6 million for the nine months ended September 30, 2023 and 2022, respectively. The effects of exchange rate changes on cash and restricted cash result from fluctuations on the translation of assets and liabilities denominated in foreign currencies, primarily Chinese Renminbi. Fluctuations in exchange rates against the U.S. Dollar may positively or negatively affect FF’s operating results.

Off-Balance Sheet Arrangements

The Company did not have any material relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Thus, the Company did not have any off-balance sheet arrangements as of September 30, 2023 and December 31, 2022.

Critical Accounting Estimates

The preparation of our Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent liabilities, and the reported amounts of expenses during the reporting period. Management has based its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions. Changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from the estimates made by FF’s management. To the extent that there are material differences between these estimates and actual results, future financial statement presentation, financial condition, results of operations, and cash flows will be affected. Given the global economic climate, estimates are subject to additional volatility.

Critical accounting estimates are defined as estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the Company’s financial condition or results of operations. For a description of the Company’s critical accounting estimates, refer to the section titled “Critical Accounting Estimates” in Management’s Discussion and Analysis of Financial Condition and Results of Operations, set forth in Part II, Item 7, of the Form 10-K/A. As of the date of this report, there have been no changes to our critical accounting estimates described in the Form 10-K/A that have had a material impact on our Condensed Consolidated Financial Statements and related footnotes.

Pursuant to Item 305(e) of Regulation S-K, FF is not required to provide the information required by this Item as it is a “smaller reporting company.”

Disclosure Controls and Procedures

FF’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the issuer in the reports that FF files or submits under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including its CEO and Interim CFO, as appropriate to allow timely decisions regarding required disclosure.

Based on an evaluation of FF’s disclosure controls and procedures (as defined in rules 13a-15(e) and 15d-15(e) of the Exchange Act), FF’s Global CEO and Chief Accounting Officer and Interim CFO (its principal executive officer and principal financial and accounting officer, respectively) have concluded that FF’s disclosure controls and procedures were not effective as of September 30, 2023, due to the material weaknesses in our internal control over financial reporting described below.

Material Weaknesses in Internal Control Over Financial Reporting

FF identified material weaknesses in FF’s internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of its annual Condensed Consolidated Financial Statements or interim Condensed Consolidated Financial Statements will not be prevented or detected on a timely basis. The material weaknesses are as follows:

• FF did not design and maintain an effective control environment commensurate with its financial reporting requirements. Specifically, FF lacked a sufficient number of professionals with an appropriate level of accounting knowledge, training, and experience to appropriately analyze, record, and disclose accounting matters timely and accurately. Additionally, management did not establish formal reporting lines in pursuit of its objectives. Further, the lack of a sufficient number of professionals resulted in an inability to consistently establish appropriate authorities and responsibilities in pursuit of its financial reporting objectives, as demonstrated by, among other things, insufficient segregation of duties in its finance and accounting functions.
• FF did not design and maintain effective controls in response to the risks of material misstatement. Specifically, changes to existing controls or the implementation of new controls were not sufficient to respond to changes to the risks of material misstatement to financial reporting due to growth in the business.
• FF did not design and maintain effective controls for communicating and sharing information between the legal, capital markets, and accounting and finance departments. Specifically, the accounting and finance departments were not consistently provided the complete and adequate support, documentation, and information including the nature of relationships with certain counterparties to record transactions within the financial statements timely, completely, and accurately.

These material weaknesses contributed to the following additional material weaknesses:

• FF did not design and maintain effective controls to address the identification of and accounting for certain non-routine, unusual or complex transactions, including the proper application of GAAP to such transactions. Specifically, FF did not design and maintain controls to timely identify and account for convertible notes under the fair value option, warrant liabilities, embedded derivatives related to convertible notes, impute interest on related

party notes payable with interest rates below market rates, account for failed sale leaseback transactions, and account for warrant instruments.

• FF did not design and maintain formal accounting policies, procedures, and controls to achieve complete, accurate, and timely financial accounting, reporting, and disclosures, including controls over the period-end financial reporting process addressing areas including financial statement and footnote presentation and disclosures, account reconciliations and journal entries, including segregation of duties, assessing the reliability of reports and spreadsheets used in controls, and the timely identification and accounting for cut-off of expenditures.

These material weaknesses resulted in adjustments primarily related to expense cut-off and the associated accounts including operating expenses, accounts payable and accruals, property and equipment, convertible notes payable and interest expense and related financial disclosures, which were recorded as of and for the year ended December 31, 2019. These material weaknesses also resulted in adjustments primarily related to the extinguishment of a noncontrolling interest, accounts payable, vendor payables in trust and adjustments to the statement of cash flows which were recorded as of and for the year ended December 31, 2019 as well as disclosure errors related to the anti-dilutive shares excluded from the calculation of diluted net loss per share, deferred tax assets and related valuation allowance, accrued interest for certain notes payable, and the fair value of the Vendor Trust as of December 31, 2019. Refer to Note 3 to FF’s Condensed Consolidated Financial Statements for the year ended December 31, 2020, included in its Registration Statement on Form S-4 (File Number 333-255027), initially filed with the SEC on April 5, 2021 as amended. Additionally, the material weakness related to accounting for warrant instruments resulted in the restatement of the previously issued financial statements as disclosed in Note 2 to PSAC’s Condensed Consolidated Financial Statements for the year ended December 31, 2020 within PSAC’s Annual Report on Form 10-K/A, of the entity acquired as part of the July 21, 2021 Merger Agreement related to warrant liabilities and equity. Finally, these material weaknesses resulted in the restatement of the Company’s previously filed financial statements as of and for the year ended December 31, 2022 and for the quarterly periods ended March 31, 2023 and September 30, 2022.

• FF did not design and maintain effective controls over information technology (“IT”) general controls for information systems that are relevant to the preparation of its financial statements, specifically, with respect to: (i) program change management controls to ensure that IT program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized, and implemented appropriately; (ii) user access controls to ensure appropriate segregation of duties and that adequately restrict user and privileged access to financial applications, programs, and data to appropriate company personnel; and (iii) computer operations controls to ensure that critical batch jobs are monitored and data backups are authorized and monitored. These IT deficiencies did not result in a material misstatement to the consolidated financial statements, however, the deficiencies, when aggregated, could result in material misstatements potentially impacting all financial statement accounts and disclosures.

In connection with the Special Committee investigation, and the completion of additional investigative and remedial work based on Special Committee findings, which were performed under the direction of the newly-appointed Executive Chairperson, reporting to the Audit Committee, additional material weaknesses were identified in FF’s internal control over financial reporting (as disclosed in Note 3 to FF’s Consolidated Financial Statements for the years ended December 31, 2021 and 2020 included in FF’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021). Specifically, in addition to the material weaknesses described above relating to management not establishing formal reporting lines in pursuit of its objectives as well as maintaining effective controls for communicating and sharing information between the legal, capital markets, and accounting and finance departments, the following material weaknesses were identified:

• FF did not maintain an effective control environment or demonstrate a commitment to maintain integrity and ethical values. Specifically, certain members of senior management failed to reinforce the need for an attitude of compliance and internal control awareness with certain of FF’s governance, accounting and finance policies and procedures. This resulted in the inaccurate and incomplete disclosures of certain relationships, arrangements, and transactions.

This material weakness contributed to the following additional material weakness:

• FF did not design and maintain effective controls related to the identification and disclosure of certain arrangements and transactions with related parties.

The material weaknesses identified in connection with the Special Committee investigation resulted in the revision of the Company’s previously filed financial statements as of and for the period ended December 31, 2020 (as disclosed in Note 9 to FF’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021) and for the periods ended March 31, 2021 (as disclosed in Note 1 to FF’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022) and June 30, 2021 (as disclosed in Note 1 to FF’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2022) related to notes payable, related party notes payable, accrued interest, related party accrued interest, interest expense, and related party interest expense.

Additionally, each of the material weaknesses described above could result in a material misstatement to substantially all of our accounts or disclosures.

Remediation Plan for Material Weaknesses in Internal Control Over Financial Reporting

Management is actively engaged and committed to taking the steps necessary to remediate the control deficiencies that constituted the material weaknesses. Since identifying the material weaknesses described above, FF made the following enhancements to our internal control over financial reporting:

• FF added finance and accounting personnel to the organization to strengthen our finance and accounting teams. The additional personnel are expected to provide oversight, structure, reporting lines, and additional review over our disclosures;
• FF implemented certain new accounting policies and procedures, and an IT system relevant to the preparation of our financial statements to improve communication of key areas across the different departments at FF and to provide adequate structure, accountability, and segregation of duties;
• FF appointed Ms. Becky Roof as Interim CFO and engaged an affiliate of AlixPartners LLP to accelerate implementation of Special Committee recommendations including, but not limited to remediation of the material weaknesses in internal control over financial reporting. On October 12, 2022, Ms. Roof resigned from FF upon the successful completion of key milestones in FF’s reporting and fundraising activities, on October 22, 2022, the Company appointed Ms. Yun Han as Chief Accounting Officer and Interim CFO, effective as of October 25, 2022, on July 5, 2023, Ms. Han resigned from her positions as Interim CFO, principal financial officer and principal accounting officer (but will continue in her role as Chief Accounting Officer), and on July 11, 2023, the Board appointed Jonathan Maroko as Interim CFO, principal financial officer and principal accounting officer effective as of July 24, 2023. Mr. Maroko’s responsibilities include, but are not limited to, the remediation of the material weaknesses in internal control over financial reporting;
• FF implemented enhanced controls around FF’s related party transactions, including regular attestations;
• FF removed Mr. Jia, FF’s founder, as an executive officer, although he continued in his position as Chief Product and User Ecosystem Officer of FF, reporting to the Chairperson with his role limited to focusing on (a) product and mobility ecosystem and (b) I.A.I., and advanced R&D technology (however, as of February 26, 2023, this remedial measure is no longer being implemented as further discussed below);
• Functions previously dual-reporting to Mr. Jia and Mr. Breitfeld reported only to Ms. Swenson (but Mr. Jia remained involved in long-term strategy) (and following the resignation of Ms. Swenson on October 3, 2022, all FF management (including Mr. Jia) reported directly or indirectly to the Global CEO of FF (previously Dr. Breitfeld and currently Mr. Aydt) indefinitely while the Board continues to evaluate the appropriate FF management reporting lines) (however, as of February 26, 2023, this remedial measure is no longer being implemented as further discussed below); and
• FF adopted an Insider Investment Reporting Policy to enhance internal reporting of related party transactions.

Our remediation activities are continuing during 2023, although certain of the remedial efforts described above are no longer applicable given recent developments and resignations. There have also been substantial changes to the composition of the Board as a result of the governance settlement entered into between FF and FF Global, as well as substantial turnover in key management personnel, including legal and compliance personnel, which could impact our ability to implement the above described remedial measures.

In addition, as of February 26, 2023, certain departments within the Company report to both Mr. Jia and Mr. Chen, including the Company’s user ecosystem, capital markets, human resources and administration, corporate strategy and China departments, subject to processes and controls to be determined by the Board after consultation with the Company’s management. Further, based on the changes to his responsibilities within FF, the Board determined that Mr. Jia is an “officer” of the Company within the meaning of Section 16 of the Exchange Act, and an “executive officer” of the Company under Rule

3b-7 under the Exchange Act. FF has or is planning to put in place processes and controls to mitigate the risks associated with the changes in Mr. Jia’s responsibilities as well as to enhance oversight and corporate governance, including but not limited to:

• segregating responsibilities and duties in the Company’s user ecosystem, capital markets, human resources and administration, corporate strategy and China departments;
• requiring the Board, or a designated committee of the Board, to approve the signing of financing agreements, the hiring, promoting or terminating vice presidents of the Company and above (including additional Section 16 officers), and the adopting of Company-wide compensation policies;
• hiring of a Compliance Officer with the title of Deputy General Counsel (hired in March 2023), who reports on a dotted line to the Chair of the Audit committee; and
• engaging an external consulting firm in April 2023 to work in the capacity of an internal audit function who will report on a dotted line to the Chair of the Audit Committee.

In addition to the above actions and in view of the governance changes that the Company implemented pursuant to the Heads of Agreement and Amended Shareholder Agreement and otherwise, FF expects to engage in additional activities, including, but not limited to:

• continuing to hire key finance and accounting personnel as FF scales and until FF has sufficient technical accounting resources, combined with engaging external consultants to provide support and to assist us in our evaluation of more complex applications of GAAP and to assist us with documenting and assessing our accounting policies and procedures;
• designing and implementing controls in response to the risks of material misstatement to identify and evaluate changes in our business and the impact on our internal controls;
• designing and implementing controls for communicating and sharing information between legal, capital markets, and accounting to facilitate transactions being recorded timely and accurately;
• designing and implementing formal processes, accounting policies, procedures, and controls supporting certain business processes and our financial close process, including creating standard balance sheet reconciliation templates and journal entry controls assessing the reliability of reports and spreadsheets used in controls; and the timely identification and accounting for cut-off of expenditures;
• designing and implementing controls to address the identification of and accounting for certain non-routine, unusual or complex transactions;
• designing and implementing controls related to the identification and disclosure of certain arrangements and transactions with related parties;
• continuing to implement additional IT systems relevant to the preparation of our financial statements and controls over financial reporting to improve communication of key areas across the different departments at FF and to provide adequate structure, accountability, and segregation of duties; and
• designing and implementing IT general controls, including controls over change management, the review and update of user access controls and controls over critical batch jobs and data backups.

While FF has made progress, the material weaknesses will not be considered remediated until FF completes the design and implementation of the enhanced controls, the controls operate for a sufficient period of time, and FF has concluded, through testing, that these controls are effective. FF believes that our remediation plan will be sufficient to remediate the identified material weakness and strengthen our internal control over financial reporting.

As we continue to evaluate and work to improve our internal control over financial reporting, FF may determine that additional measures or modifications to the remediation plan are necessary.

We are working to remediate the material weaknesses as efficiently and effectively as possible and expect full remediation likely will go beyond December 31, 2023. At this time, we cannot provide an estimate of costs expected to be incurred in connection with implementing this remediation plan; however, these remediation measures will be time consuming, will result in FF incurring significant costs, and will place significant demands on our financial and operational resources.

While FF believes these efforts will remediate the material weaknesses, FF may not be able to complete its evaluation, testing or any required remediation in a timely fashion, or at all. FF cannot assure you that the measures it has taken to date and may take in the future, will be sufficient to remediate the control deficiencies that led to its material weaknesses in internal control over financial reporting or that they will prevent or avoid potential future material weaknesses. The effectiveness of FF’s internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the possibility of human error and the risk of fraud. Further loss and/or turnover in key management personnel, particularly accounting, finance and legal personnel, may negatively impact our ability to implement our remediation plan. If FF is unable to remediate its material weaknesses, FF’s ability to record, process and report financial information accurately, and to prepare financial statements within the time periods specified by the forms of the SEC, could be adversely affected which, in turn, may adversely affect FF’s reputation and business and the market price of the Class A Common Stock. Any such failures could result in litigation or regulatory actions by the SEC or other regulatory authorities, loss of investor confidence, delisting of FF’s securities and harm to FF’s reputation and financial condition, or diversion of financial and management resources from the operation of FF’s business.

Changes in Internal Control Over Financial Reporting

Other than as described in the preceding paragraphs, there have been no changes in internal control over financial reporting during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, FF’s internal control over financial reporting.

Other than the risk factors listed below, there have been no material changes from the risk factors previously described under Item 1A of our Annual Report on Form 10-K/A filed with the SEC on August 21, 2023 (the “Form 10-K/A”).

FF has identified material weaknesses in its internal control over financial reporting. FF’s inability to remediate these material weaknesses, or identification of additional material weaknesses in the future or other failure to maintain effective internal control over financial reporting, has, and could further, result in material misstatements in FF’s consolidated financial statements and FF’s ability to accurately or timely report its financial condition or results of operations, which may adversely affect FF’s business and share price.

FF’s management is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934 as amended. A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As a result of these material weaknesses, FF’s management concluded that its internal control over financial reporting was not effective as of December 31, 2022. FF is actively engaged in remediation efforts designed to address these material weaknesses. As FF continues to evaluate and work to improve its internal control over financial reporting, FF may determine that additional measures or modifications to the remediation plan are necessary. FF is working to remediate the material weaknesses as efficiently and effectively as possible and expect full remediation to potentially go beyond December 31, 2023. At this time, we cannot predict the total costs expected to be incurred; however, the remediation measures have been and will continue to be time consuming, costly, and a significant demand on our financial and operational resources.

While FF believes these efforts will remediate the material weaknesses, it will not be considered remediated until FF completes the design and implementation of the enhanced controls, the controls operate for a sufficient period of time, and FF has concluded, through testing, that these controls are effective. FF may not be able to complete its evaluation, testing or any required remediation in a timely fashion, or at all. FF cannot assure you that the measures it has taken to date and may take in the future, will be sufficient to remediate the control deficiencies that led to its material weaknesses in internal control over financial reporting or that they will prevent or avoid potential future material weaknesses. The effectiveness of FF’s internal control over financial reporting is subject to various inherent limitations, including cost, judgments and assumptions, human error and the risk of fraud. The material weaknesses, or a failure to promptly remediate them, may adversely affect our business, our reputation, our results of operations and the market price of our Class A common stock, par value $0.0001 per share (“Class A Common Stock”). If FF is unable to remediate the material weaknesses in a timely manner, our investors, customers and other business partners may lose confidence in our business or our financial reports, and our access to capital markets may be adversely affected.

In addition, our ability to record, process, and report financial information accurately, and to prepare financial statements within the time periods specified by the rules and regulations of the Securities and Exchange Commission (“SEC”) and other regulatory authorities, could be adversely affected, which may result in violations of applicable securities laws, stock exchange listing requirements and the covenants under our debt and equity agreements. Any such delays or deficiencies could penalize us, including by limiting our ability to obtain financing, either in the public capital markets or from private sources and hurt our reputation and could thereby impede our ability to implement our growth strategy. We could also be exposed to lawsuits, investigations, or other legal actions.

The control deficiencies resulting in the material weaknesses, in the aggregate, has resulted, and may in the future result, in misstatements of accounts or disclosures that would result in a material misstatement of the annual or interim consolidated financial statements. For example, in July 2023, the Company identified errors in its Annual Report on Form 10-K for the year ended December 31, 2022 and Quarterly Report on Form 10-Q for the periods ended March 31, 2023 and September 30, 2022, determined these financial statements should no longer be relied upon, and subsequently restated them.

In addition, we cannot be certain that we will not identify additional control deficiencies or material weaknesses in the future. If we identify future control deficiencies or material weaknesses, these may lead to adverse effects on our business, our reputation, our results of operations, and the market price of our Class A Common Stock. Further, if our remedial measures are insufficient to address the material weaknesses, or if additional material weaknesses or significant deficiencies in our internal control are discovered or occur in the future, our consolidated financial statements may contain material misstatements and we could be required to restate additional financial results.

Further, FF has recently experienced substantial turnover in key management personnel, including legal and compliance personnel, as well as substantial changes to the composition of the Board, and further changes may occur in the future. See “– The composition of FF’s Board has changed, and may further change.” As a result these Board and management changes, there can be no guarantee that the Company’s board of directors (the “Board”) as composed in the future will agree with decisions made by the Board regarding the material weakness and the necessary remedial measures, that they will not identify other areas that require remediation or that they will continue to pursue the remediation measures. Any turnover of personnel, particularly accounting, finance and legal personnel, may also negatively impact FF’s internal controls over financial reporting and other disclosures and our ability to prepare and make timely and accurate public disclosures.

FF needs to raise additional capital to support its operations.

FF operates in a capital-intensive industry which requires significant cash to fund its operations. As of September 30, 2023, FF’s cash position was $8.6 million, including restricted cash of $1.9 million. FF expects its capital expenditures to continue to be significant for the foreseeable future as it continues to develop and grow its business. In response to the delay in obtaining funding commitments and negative macroeconomic trends in the industry in which FF operates, such as supply chain pressures, rising interest rates, and high inflation, FF has identified and implemented certain cost reduction and cash conservation measures, including headcount and temporary salary reductions and supplier payment deferrals. FF expects to defer the completion of construction of certain areas in its manufacturing facility and for the ramp up of production to be slower relative to previous plans.

Despite having 330 non-binding, fully refundable pre-orders as of September 30, 2023, the Company has only recognized $0.6 million in revenue for the three and nine months ended of September 30, 2023. Accordingly, FF relies on capital from investors to support its operations.

Currently, FF has several financing agreements, such as the Secured SPA, Unsecured SPA, the Unsecured Streeterville SPA, the SEPA, FFVV Joinder, and the Senyun Joinder (each as defined in Note 7, Notes Payable, in the Notes to Unaudited Condensed Consolidated Financial Statements in this Report). However, certain investors under FF’s existing financing agreements may not fund their commitments if the volume-weighted average price for the Class A Common Stock is less than $8.00 for the five trading days prior to the closing date for the funding. Furthermore, there can be no assurance that FF would be able to satisfy the closing conditions under certain of the existing financing agreements, or that FF will be able to successfully obtain additional purchasers under the certain of the agreements. Accordingly, the Company needs additional financing agreements to support its operations, including the production and delivery of the FF 91 Futurist.

FF may raise additional funds through the issuance of equity, equity related or debt securities, or through obtaining credit from financial institutions or governmental organizations. The Company has continued financing discussions with multiple parties, but has experienced delays in securing additional funding commitments, which have exacerbated the supply chain pressures on FF’s business. If the Company is unable to obtain additional financing on acceptable terms, in a timely manner, or at all the Company’s business, liquidity and results of operations may be materially adversely affected. Further, any additional financing is expected to dilute FF’s stockholder value, which would affect your investment in FF and/or adversely effect the market for FF’s shares.

If our ongoing capital raising efforts are unsuccessful or significantly delayed, or if we experience prolonged material adverse trends in our business, our production will be delayed or decreased, and our actual use of cash, production volume and revenue for 2023 will vary from our previously disclosed forecasts, and such variances may be material. In addition the Company’s assumptions and analyses relating to its various financing options currently being considered, including professional fees and other cost, and ongoing legal risks related to these financing transactions may prove incorrect. Incremental capital needs beyond the date hereof to fund development of the Company’s remaining product portfolio and ramp up production will be highly dependent on the market success and profitability of the FF 91 Futurist and the Company’s ability to accurately estimate and control costs. Apart from the FF 91 series, substantial additional capital will be required to fund operations, research, development, and design efforts for future vehicles.

FF has significant unfunded commitments from its investors. If FF is unable to satisfy the conditions to funding or if there is a dispute regarding the conversion requirements related to the unfunded commitments, FF may not have enough capital to support its business and could be subject to investor legal claims.

Pursuant to the Secured SPA, Unsecured SPA, the Unsecured Streeterville SPA, FFVV Joinder, and the Senyun Joinder, the Company has obtained commitments from several investors totaling $513.5 million in convertible note financing and $20.0 million in committed forced warrant exercise proceeds, subject to certain conditions. A total of $300.2 under these commitments has been funded as of September 30, 2023 ($263.2 million net of original discount and transaction costs) with the remaining unfunded commitment of $213.3 million. There can be no assurance that FF will be able to successfully satisfy the conditions to receive the additional funding. Further, if FF fails to satisfy these funding conditions to receive the unfunded commitments, the Company may be required to further delay our production and delivery plans for the FF 91 Futurist, reduce headcount, liquidate our assets, file for bankruptcy, reorganize, merge with another entity, and/or cease operations. In addition, during and after the third quarter of 2023, the Company temporarily suspended effecting the conversion requests from its noteholders. While the Company has begun effecting these conversion requests, there can be no assurance that the Company will not again suspend effecting such requests in a manner that could result in an event of default and monetary penalties under the various securities purchase agreements. Further, the Company may be subject to legal claims by the investors, which could have a material and adverse impact on FF’s reputation and financial condition.

FF may also be subject to legal claims arising from disagreement over the terms of its securities. For example, FF previously issued certain convertible notes (the “Senyun Notes”) to Senyun. The Senyun Notes are subject to a restriction that FF will not convert the Senyun Notes, and Senyun will not have the right to convert the Senyun Notes, to the extent that Senyun would own more than 9.99% of the Company’s outstanding common stock, par value $0.0001 per share (the “Common Stock”) of FF after giving effect to the conversion. In May 2023, Senyun requested to convert the Senyun Notes into shares of Common Stock and FF converted a certain amount of the Senyun Notes. FF did not convert the Senyun Notes that would have resulted in Senyun owning more than 9.99% of the Common Stock. However, Senyun believes that the Senyun Notes should have been converted in full in accordance with its interpretation of conversion limitations in the Senyun Notes. The Company disputes this interpretation. In July 2023 and October 2023, Senyun sent the Company a letter outlining its position and reserving its rights under the Secured SPA. Further, pursuant to the Senyun Joinder, Senyun agreed to exercise its option to purchase $15.0 million of Tranche A Notes (as defined in Note 7, Notes Payable, in the Notes to Unaudited Condensed Consolidated Financial Statements in this Report) in accordance with the terms of the Secured SPA, with funding of 75% of such amount within five business days of the date of the Senyun Joinder and the remaining 25% of such amount within three business days thereafter, subject to certain conditions which have been satisfied. As of September 30, 2023, Senyun has funded $11.5 million of its obligation and has not funded the remaining $3.5 million until the disagreement described herein is resolved. The Company is in active discussions to resolve the disagreement. However, it is not possible at this time to predict the outcome of the disagreement with Senyun and if it is not resolved, Senyun may not fund its remaining obligation.

Further, any litigation, proceedings or dispute related to legal claims of the Company’s investors, even those without merit, may divert the Company’s financial and management resources that would otherwise be used to benefit the future performance of the Company’s operations. Any adverse determination against the Company in any potential proceedings may also result in settlements, injunctions or damages that could have a material adverse effect on the Company’s business, financial condition and results of operations and investors or other financing sources may be unwilling to provide additional funding to FF on commercially reasonable terms, or at all, as a result of any legal claims.

If FF has insufficient reserves to cover future warranty claims, its business, prospects, financial condition, results of operations, and cash flows could be materially and adversely affected.

As our vehicles are produced and delivered, we will need to maintain warranty reserves to cover warranty-related claims. If our warranty reserves are inadequate to cover future warranty claims on our vehicles, our business, prospects, financial condition, results of operations, and cash flows could be materially and adversely affected. Additionally, estimating the necessary amount of warranty reserves is inherently uncertain, particularly in light of our limited operating history and limited field data available to us, and changes to such estimates based on real-world observations may cause material changes to our warranty reserves. In the future, we may become subject to significant and unexpected warranty expenses. There can be no assurances that then-existing warranty reserves will be sufficient to cover all claims. In addition, if future laws or regulations impose additional warranty obligations on us that go beyond our manufacturer’s warranty, we may be exposed to materially higher warranty expenses than we expect, and our reserves may be insufficient to cover such expenses.

FF might not obtain and maintain sufficient insurance coverage, which could expose FF to significant costs and business disruption.

FF may be subject to losses resulting from claims such as product liability, accidents, force majeure or other claims brought against the Company, for which it may have no or insufficient insurance coverage. As FF commercializes its vehicles, it may not maintain as much insurance coverage as other OEMs, and in some cases, it may not maintain any at all. Additionally, the policies that FF has may include significant deductibles or exclusions, and FF cannot be certain that its insurance coverage will be sufficient to cover all or any future claims. A loss that is uninsured or exceeds existing policy limits may require FF to pay unexpected and substantial amounts, which could adversely affect FF’s financial condition and results of operations. Further, insurance coverage may not continue to be available to FF or, if available, may be at a significantly higher cost, based on insurance market conditions or a change in FF’s risk profile. This may require a change in FF’s insurance purchasing philosophy and strategy which can result in the assumption of greater risks to offset insurance market fluctuations.

FF is subject to legal proceedings, claims, and disputes arising both in and outside the ordinary course of business.

FF has been, continues to be, and may in the future be involved in legal proceedings and claims arising both in and outside the ordinary course of FF’s business. We could also be subject to claims and litigation by investors based on the decline of the price of our Common Stock. For example, FF has been involved in litigation with contractors and suppliers over past due payments and FF’s subsidiaries in the People’s Republic of China (the “PRC Subsidiaries”) are involved in multiple proceedings or disputes involving lease contracts, third-party suppliers or vendors, or labor disputes. Additionally, FF has in the past been, and may in the future be, party to various disputes with our stockholders, such as the dispute with FF Global Partners LLC (“FF Global”), the California Federal Derivative Action, the Delaware Federal Derivative Actions, the Consolidated Delaware Class Action, and a putative class action (each as defined in Note 9, Commitments and Contingencies). See “Part I, Item 1. Financial Statements – Note 9, Commitments and Contingencies” and “Part II, Item 1. Legal Proceedings” for more information regarding the current proceedings the Company is involved in.

Such litigation and other legal proceedings or disputes are inherently uncertain, divert managements time and attention, and are costly. Any adverse judgments or settlements in some of these legal disputes, or future proceedings or disputes, may result in adverse monetary damages, penalties or injunctive relief against FF, which could negatively impact its financial position, cash flows or results of operations. Additionally, if one or more of those legal matters were resolved against FF in a reporting period for amounts above management’s expectations, FF’s business prospects, financial condition and operating results could be materially adversely affected. Further, any claims or litigation, regardless of outcome or if fully indemnified or insured, could damage FF’s reputation and make it more difficult to compete effectively or to obtain adequate insurance in the future.

Furthermore, while FF maintains insurance for certain potential liabilities, such insurance does not cover all types and amounts of potential liabilities and is subject to various exclusions as well as retentions and caps on amounts recoverable. Even if FF believes a claim is covered by insurance, insurers may dispute its entitlement to recovery for a variety of potential reasons, which may affect the timing and, if the insurers prevail, the amount of FF’s recovery.

In the event that the independent registered public accounting firm operating in China that FF uses as an auditor for its operations in China is not permitted to be subject to inspection by the Public Company Accounting Oversight Board (“PCAOB”), then investors may be deprived of the benefits of such inspection.

Under the Holding Foreign Companies Accountable Act (the “HFCA”), if the SEC determines that a company has filed audit reports by a registered public accounting firm that has not been subject to inspection by the PCAOB for two consecutive years, the SEC shall prohibit such ordinary shares from being traded on a national securities exchange or in the over-the-counter trading market in the U.S. The PCAOB provides a framework to use when determining, as contemplated under the HFCA, whether the PCAOB is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction. Additionally, the SEC has disclosure requirements that apply to registrants that the SEC identifies as having filed an Annual Report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB is unable to inspect or investigate completely because of a position taken by an authority in foreign jurisdictions.

Our current auditor, the independent registered public accounting firm that issued the audit report included the Form 10-K/A, is registered with the PCAOB, and is subject to laws in the U.S. pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. Accordingly, we have not been identified as a “Commission-Identified Issuer” by the PCAOB under the current framework of the HFCA. However, prior to 2022, the auditors of the PRC Subsidiaries were not subject to inspection by the PCAOB and any future determination by the PCAOB that the PRC Subsidiaries’ auditors are not subject to inspection could materially adversely affect the Company.

Our ability to retain an auditor subject to PCAOB inspection and investigation may depend on the relevant positions of U.S. and Chinese regulators. If the PCAOB is unable to inspect or investigate completely the Company’s auditor in China because of a position taken by the Chinese authorities, then such lack of inspection could cause trading in the Company’s securities to be prohibited under the HFCA, and ultimately result in a determination by the SEC to delist the Company’s securities. Such a prohibition would substantially impair an investor’s ability to sell or purchase the Common Stock and negatively impact the price of the Common Stock. Accordingly, the HFCA calls for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially non-U.S. auditors. In addition, PCAOB inspections help improve future audit quality and effectiveness. Without the benefit of PCAOB inspections, existing or potential investors could lose confidence in our reported financial information and the quality of our financial statements with respect to the PRC Subsidiaries.

There can be no assurance that FF will be able to comply with the continued listing standards of Nasdaq.

If the Nasdaq Stock Market LLC (“Nasdaq”) delists FF’s shares from trading on its exchange for failure to meet the applicable listing standards, we and our stockholders could face significant material adverse consequences including:

• a limited availability of market quotations for our securities;
• reduced liquidity for our securities;
• a determination that our Common Stock is a “penny stock” which will require brokers trading in our Common Stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for shares of our Common Stock;
• a limited amount of news and analyst coverage; and
• a decreased ability to issue additional securities or obtain additional financing in the future.

On October 31, 2022, we received written notice from Nasdaq that we were not in compliance with the Nasdaq requirement for the bid price for Class A Common Stock to be at least $1.00 per share (the “Minimum Bid Price Requirement”). In order to comply with the Minimum Bid Price Requirement, in the third quarter of 2023, the Company, after stockholder approval, effected the Reverse Stock Split at a ratio of 1:80 and set the number of authorized shares of Class A Common Stock to 154,437,500. Nasdaq notified the Company that it had regained compliance with the Minimum Bid Price Requirement on September 13, 2023.

In addition, in connection with Mr. He’s resignation, and to comply with Nasdaq Listing Rule 5605(c)(4)(B), on August 2, 2023, the Company notified Nasdaq that the Company no longer complied with Nasdaq’s independent director and audit committee requirements as set forth in Listing Rule 5605 as the Board was not comprised of a majority of independent directors and the Audit Committee of the Board (the “Audit Committee”) was not comprised of at least three independent directors. The non-compliance was subsequently cured by the appointment of Mr. Peker as an independent member of the Board and Audit Committee.

Although, the Company has regained compliance with Nasdaq Listing Rules, there can be no assurance that the Company will remain compliant with such rules or other Listing Rules in the future. In particular, the rights granted to FF Global Partners LLC (“FFGP”) under the Amended Shareholder Agreement or other similar rights granted to other investors in the future may cause FF to fall out of compliance with certain of Nasdaq’s Listing Rules, including Nasdaq Rule 5640, which disallows the voting rights of existing stockholders to be disparately reduced through any corporate action or issuance. Any future non-compliance may be costly, divert management’s time and attention, and could have a material adverse effect on the Company’s business, reputation, financing, and results of operations.

FF may issue additional shares of Common Stock or preferred shares, which would dilute the interest of our stockholders.

FF may, in the future, issue a substantial number of additional shares of Common Stock or preferred stock. The issuance of additional shares of Common Stock or preferred stock:

• may significantly dilute the equity interest of investors;
• may subordinate the rights of holders of Common Stock if preferred stock is issued with rights senior to those afforded our Common Stock;
• could cause a change of control if a substantial number of shares of our Common Stock are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors; and
• may adversely affect prevailing market prices for our Common Stock.

Sales of a substantial number of shares of our Class A Common Stock in the public market, including the resale of the shares of Common Stock held by FF stockholders pursuant to its registrations statements on Form S-3 filed with the SEC or pursuant to Rule 144, could occur at any time. These sales, or the perception in the market that the holders of a large number of shares of Common Stock intend to sell shares, could reduce the market price of the Class A Common Stock. Pursuant to our obligations under the Secured SPA, Unsecured SPA, Unsecured Streeterville SPA, FFVV Joinder and the Senyun Joinder, we have registered 23,671,743 shares of Class A Common Stock issuable upon conversion of the Secured SPA Notes, the Unsecured SPA Notes and the exercise of Warrants (the “August Registration Statement”). Such securities represent approximately 74.5% of the shares of Class A Common Stock outstanding as of September 30, 2023. The August Registration Statement permits the resale of these shares until it is no longer effective. The resale, or expected or potential resale, of a substantial number of shares of our Class A Common Stock in the public market could adversely affect the market price for the Class A Common Stock and make it more difficult for you to sell your holdings at times and prices that you determine are appropriate. Furthermore, because there is a large number of shares registered under the August Registration Statement, we expect the selling Stockholders (as defined in the August Registration Statement and related prospectus) will continue to offer the securities covered thereby pursuant to the August Registration Statement or Rule 144 for a significant period of time, the precise duration of which cannot be predicted. Accordingly, the adverse market and price pressures resulting from an offering pursuant to the August Registration Statement may continue for an extended period of time.

In addition, as of September 30, 2023, the Class A Common Stock is also subject to potential dilution from: (i) the exercise of up to 4,391,895 warrants, (ii) the exercise of up to 428,081 stock options, (iii) the vesting of 177,650 unvested RSUs, (iv) the issuance of up to 312,500 earnout shares pursuant to the triggering events in the Merger Agreement and (v) the issuance of up to 289,001 remaining registered shares of Class A Common Stock that FF may elect, in its sole discretion, to issue and sell to Yorkville pursuant to the SEPA. Additionally, the Class A Common Stock is subject to potential dilution upon the full conversion and exercise of the SPA Notes, Unsecured SPA Notes and SPA Warrants. The Class A Common Stock is also subject to potential dilution due to issuance of Common Stock in connection with future equity and/or convertible debt financings. Sales of substantial numbers of such shares in the public market, including the resale of the shares of Common Stock held by FF stockholders, could adversely affect the market price of the Class A Common Stock, the impact of which is increased as the value of our stock price increases.

FFGP is able to exert substantial influence over FF, including by delaying or preventing a change in control.

Under the Amended Shareholder Agreement, FFGP is entitled to nominate a number of directors based on its voting power with respect to FF’s outstanding Common Stock, currently entitling FFGP to nominate four out of seven directors to the Board of FF. In addition, on September 23, 2022 and January 13, 2023, FF, FF Global and FFGP entered into governance settlements with FFGP, including with respect to the composition of the Board.

As a result, certain of FF’s stockholders particularly FFGP, may have the ability to determine the outcome of corporate actions requiring stockholder approval. This concentration of ownership may have the effect of delaying or preventing a change in control and might adversely affect the market price of our Class A Common Stock.

Additionally, FFGP beneficially owns, directly or indirectly, all of the outstanding shares of the Company’s Class B common stock, par value $0.0001 per share (the “Class B Common Stock”), which accounts for approximately 2.5% of FF’s total outstanding shares of Common Stock (i.e., Class A Common Stock and Class B Common Stock combined) and voting power as of September 30, 2023. Under FF’s Third Amended and Restated Certificate of Incorporation, each share of Class A Common Stock is entitled to one vote per share and each share of Class B Common Stock is entitled to one vote per share, subject to an increase to 10 votes per share if the company reaches a $20.0 billion equity market capitalization. Pursuant to the Amended Shareholder Agreement, FFGP informed FF that it expects FF will submit a proposal to FF stockholders for approval to amend the Third Amended and Restated Certificate of Incorporation to provide that (i) the voting power of the Class B Common Stock will be increased to 10 votes per share (after which the outstanding shares of Class B Common Stock, which FFGP beneficially owns, will account for approximately 19.7% of FF’s voting power) and (ii) the voting power of the Class B

Common Stock will increase from 10 votes per share to 20 votes per share following the Company achieving an equity market capitalization of $3.0 billion (after which the outstanding shares of Class B Common Stock, which FFGP beneficially owns, will account for approximately 32.9% of FF’s voting power). If FFGP obtains such enhanced voting rights, it would have considerable influence over matters such as decisions regarding mergers, consolidations and the sale of all or substantially all of the assets of FF, election of directors and other significant corporate actions. FFGP could take actions that are not in the best interest of FF or its other stockholders. This mechanism may discourage, delay or prevent a change in control, which could have the effect of depriving other stockholders of FF of the opportunity to receive a premium for their shares as part of a sale of FF.

Based on a Schedule 13D/A filed on June 21, 2023, FFGP has beneficial ownership over 1,346,856 shares of Common Stock, which includes: (i) 800,008 shares of Class A Common Stock issuable upon conversion of 800,008 shares of Class B Common Stock held by FFGP and (ii) shares for which FFGP has entered into voting agreements with certain FF stockholders pursuant to which FFGP will vote as a proxy of all of the Class A Common Stock owned by such FF stockholders subject to certain limitations. As a result, FFGP exercises voting power for less than 4.1% of FF’s outstanding Common Stock as of September 30, 2023.

The Company’s ability to produce the FF 91 series on a meaningful scale at its Hanford, California facility may be substantially delayed or result in material unanticipated cost increases, which would have a material adverse impact on the Company’s business, prospects, financial condition, results of operations, and cash flows.

FF plans to continue building out its FF ieFactory in Hanford, California, to support the production of the FF 91 series. The Company may experience delays and other difficulties that could further increase costs and adversely affect FF’s scheduled timeline to manufacture and deliver vehicles at scale. Various risks and uncertainties inherent in new manufacturing processes could result in delays in the production of FF’s vehicles including, for example, those with respect to the Company’s:

• ability to secure funding necessary to complete the build-out of the FF ieFactory California;
• securing permits and certificates required to manufacture FF’s vehicles at scale;
• pace of bringing production equipment and processes online with the capability to manufacture high-quality units at scale;
• compliance with complex and evolving environmental, workplace safety and similar regulations;
• channels to secure necessary equipment, tools and components from suppliers on acceptable terms or at all and in a timely manner;
• the ability to attract, recruit, hire and train skilled employees;
• quality controls;
• facing a health emergency such as the outbreak of the COVID-19 pandemic, difficult economic conditions, and international political tensions; and
• other delays and cost increases and overruns.

If the Company in unable to timely produce the FF 91 series on a meaningful scale at FF ieFactory California or experiences unanticipated cost increases or overruns, it would have a material adverse impact on its business, prospects, financial condition, results of operations, and cash flows.