FARADAY FUTURE INTELLIGENT ELECTRIC INC. (FFAI) FY 2024 MD&A

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis is intended to help the reader understand our results of operations and financial condition. This discussion and analysis is provided as a supplement to, and should be read in conjunction with our Consolidated Financial Statements and Notes thereto included elsewhere in this Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-K, including information with respect to our plans and strategy for our business, include forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from management’s expectations as a result of various factors, including but not limited to those discussed in the section titled “Risk Factors” in Item 1A above and “Cautionary Note Regarding Forward Looking Statements” below. The objective of this section is to provide investors an understanding of the financial drivers and levers in our business and describe the financial performance of the business.

Cautionary Note Regarding Forward-Looking Statements

This Form 10-K 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. 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 Form 10-K are based on our current expectations and beliefs concerning future developments and their potential effects on us. Future developments affecting the Company may not be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control), and other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the section titled “Risk Factors” in Item 1A above. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation (and expressly disclaim any obligation) to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. These risks and others described under the section titled “Risk Factors” in Item 1A above may not be exhaustive.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Report. In addition, even if our results or operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements contained in this Form 10-K, those results or developments may not be indicative of results or developments in subsequent periods.

Overview

We are a California-based, global, shared, intelligent mobility ecosystem company founded in 2014 with a vision to disrupt the automotive industry. Our Class A Common Stock and Public Warrants trade on The Nasdaq Capital Market ("Nasdaq") under the ticker symbols “FFAI” and “FFAIW,” respectively.

With headquarters in greater Gardena, California, we design and engineer next-generation intelligent, connected, electric vehicles. We manufacture vehicles at the FF ieFactory California production facility in Hanford, California. We have additional engineering, sales, and operational capabilities in China, and we are exploring opportunities for potential manufacturing capabilities in China through a joint venture or other arrangements. Additionally, we have established an entity in the UAE to manage the assembly and sales support of FF 91 series vehicles, further expanding our market presence in the region.

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Since our founding, we have created major innovations in technology and products, and followed a user-centered business model. We believe these innovations will enable us to set new standards in luxury and performance that will redefine the future of intelligent mobility.

Company Overview & Global Strategy

•Dual-Home Market Strategy: We have implemented a dual-home market strategy, integrating U.S.-based technological innovation and vehicle development with China’s supply chain and production capabilities.

•Third Pole Strategy: We have begun implementing a "third pole" strategy with an operational facility in the UAE, complementing our U.S. and China market approach.

Technology & Innovation

•Our Proprietary VPA: We have designed and developed a breakthrough mobility platform—our proprietary VPA, which enables scalable vehicle development across multiple segments, including the new FX Series.

•Propulsion System: Our propulsion system provides a competitive edge in acceleration and range, enabled by an industry-leading inverter design and a propulsion system integrated with our AI-powered user experience.

•I.A.I Technology: Our advanced I.A.I technology offers high-performance computing, high-speed internet connectivity, OTA updating, an open ecosystem for third-party application integration, and an advanced autonomous driving-ready system.

•Intellectual Property & Supply Chain Development: Since inception, we have developed a portfolio of intellectual property, established its supply chain, and assembled a global team of automotive and technology experts. As of December 31, 2024, FF has been granted approximately 660 patents globally.

Product & Launches

•FF 91 Launch: we believe that the FF 91 Futurist (the "FF 91," "FF 91 Futurist," or "FF 91 2.0 Futurist Alliance") is the first ultra-luxury electric vehicle to offer a highly-personalized, fully-connected user experience for driver and passengers. We started production on the first FF 91 Futurist and delivered the first FF 91 2.0 Futurist Alliance in 2023.

•Vehicle Pipeline: Our planned B2C passenger vehicle pipeline includes the FF 91 series, plus the new FX Series (FX 5, FX 6, and FX Super One).

Manufacturing & Distribution

•FF Series Manufacturing: The FF 91 Series is currently being manufactured in FF ieFactory California.

•FX Series Manufacturing: Certain models of FX Series are planned to be manufactured in FF ieFactory California.

•Global Availability: All of our vehicles are expected to be available for sale in the U.S., China, and the Middle East, with potential expansion to European markets.

Recent Developments

From January 1, 2024, through the filing date, we achieved key operational and financing milestones. Below is a summary of significant events by category.

Product, Market Expansion & Strategic Initiatives

•In February 2024, updated Master Plan 1.1 to strategically position us for growth in 2024. The plan includes next steps for the Company’s operations, product and technology, manufacturing/supply chain, and funding/finance.

•In April 2024, we established a Middle Eastern sales entity in Dubai, U.A.E.

•In July 2024, we unveiled our Automotive Bridge Strategy, reintroducing a two-brand approach to target both luxury and affordable EV markets, expanding our reach through the integration of advanced AI and software technologies.

•In July 2024, we held an interactive investor Community Day at our Gardena headquarters.

•In August 2024, Wei Gao, Head of Global Communication and Community Sales, took delivery of an FF 91 2.0 Futurist Alliance, marking the second delivery in the Start of Delivery Second Phase (“SOD2”).

•In September 2024, we launched our second brand, Faraday X (“FX”), specifically focused on producing affordable electric vehicles priced between $20,000 and $50,000 to capture a broader consumer market.

•In September 2024, we delivered an FF 91 2.0 Futurist Alliance to Born Leaders Entertainment in Hollywood, where Born Leaders also became a Developer Co-Creation Officer for us.

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•In October 2024, we entered into a co-investment agreement with Master Investment Group, led by Sheikh Abdulla Al Qassimi, to establish our future regional headquarters in Ras Al Khaimah, UAE, supporting Faraday’s Middle East expansion strategy. Construction is set to occur in 2025, with operations expected by late 2025 or early 2026. We signed agreements with the Ras Al Khaimah Economic Zone (“RAKEZ”) for both a current business location and a larger operational facility to strengthen its presence in the UAE’s strategic economic hub.

•In October 2024, we entered into a licensing agreement with Grow Fandor, an intellectual property commercialization company. Grow Fandor will act as the exclusive licensee for ecosystem products bearing the FF and FX brands, managing their design, development, sales, and operations.

•In November 2024, the Company’s wholly owned subsidiary, FX, signed definitive agreements with Chinese OEMs to develop two planned products. The product research phase has commenced, with deliveries targeted by the end of 2025.

•In December 2024, fashion model and designer Suede Brooks received delivery of the new FF 91 2.0 Futurist Alliance and participated in a design-related event in Los Angeles with Company representatives.

•In January 2025, we revealed FX’s AI-MPV product strategy and presented camouflaged prototype mules during an event in Las Vegas, Nevada.

•In March 2025, Future AIHER AI Hybrid Extended-Range Electric Powertrain System Inc. was incorporated in the State of Delaware as a subsidiary of the Company. This subsidiary focuses on the design and development of AI hybrid extended-range electric powertrain systems.

Capital Raising & Financing Agreements

•In July 2024, we entered into a Master Lease Agreement with Utica Leaseco, LLC with respect to a collateralized loan arrangement.

•In August 2024, we entered into a Waiver Agreement with certain investors holding secured and unsecured convertible notes, allowing adjustments to the notes’ conversion price under specific conditions to reduce cash obligations, providing noteholders with the option to convert at a lower price while waiving accrued interest, and extending their right to purchase additional notes for one year.

•In September 2024, we entered into a Junior Securities Purchase Agreement (the “Junior Secured SPA Notes”) with institutional investors (the “Junior Secured SPA Investors”) for $30.0 million in commitments, consisting of $22.5 million in cash and $7.5 million converted from a prior loan. Each Junior Secured SPA Investor also received an Incremental Warrant to fund, at the investor’s sole discretion, additional notes pursuant to the Junior Secured SPA Notes for amounts up to the original principal balance the investor funded. On January 28, 2025, we entered into a letter agreement with certain of the Junior Secured SPA Investors. Pursuant to the letter agreement, prior to our receipt of the stockholders’ approval, such investors agreed not to convert any outstanding Junior Secured SPA Notes at a conversion price less than $5.24, the initial conversion price of the Junior Secured SPA Notes, and we agreed to issue, following receipt of such stockholders’ approval, to such investors who convert any Junior Secured SPA Notes at the $5.24 conversion price prior to our receipt of stockholders’ approval, additional shares of Class A Common Stock as a true-up.

•In December 2024, we secured approximately $30.0 million in cash financing commitments (the “2024 Unsecured SPA Notes”). Each investor (the “2024 Unsecured SPA Investors”) also received an Incremental Warrant to fund, at the 2024 Unsecured SPA Investor’s sole discretion, additional notes up to the original principal balance the 2024 Unsecured SPA Investor funded. These funds are intended to support our core business operations and the ongoing ramp-up of the FX strategy. On January 28, 2025, we entered into a letter agreement with certain of the 2024 Unsecured SPA Investors. Pursuant to the letter agreement, prior to our receipt of the stockholders’ approval, such investors agreed not to convert any outstanding 2024 Unsecured SPA Notes at a conversion price less than $1.16, the initial conversion price of the 2024 Unsecured SPA Notes, and we agreed to issue, following receipt of such stockholders’ approval, to such investors who convert any U2024 Unsecured SPA Notes at the $1.16 conversion price prior to our receipt of stockholders’ approval, additional shares of Class A Common Stock as a true-up.

Stock Exchange Compliance & Stockholder and Corporate Actions

•In January 2024, we hosted a Chinese automotive supplier delegation at Faraday Future HQ. There, we discussed strategic cooperation opportunities with the Chinese supply chain.

•In January 2024, we announced the completion of nearly 1,600 OTA upgrades and product enhancements on the FF 91 2.0, including many new features based on user R&D co-creation feedback.

•In February 2024, we effected a reverse stock split of our issued and outstanding Common Stock and a corresponding reduction in the total number of shares of Common Stock we are authorized to issue.

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•In April 2024, we completed voluntary recall of our 2023 FF 91 Futurist vehicles in the United States through an OTA software update.

•In July 2024, at our annual stockholder meeting, our stockholders approved proposals to increase the number of our authorized shares, approve a reverse stock split, reelect directors, and amend the 2021 Plan, increasing the available shares under the 2021 Plan by 88,252,926 (on a pre-split adjusted basis).

•In August 2024, we filed a Certificate of Elimination to eliminate the designation of the Series A Preferred Stock classification, reclassifying it as authorized but unissued, following the automatic redemption of all outstanding Series A Preferred shares.

•In August 2024 after market close, the 1-for-40 reverse stock split became effective. Following the reverse stock split, we have authorized 114,245,313 shares, consisting of two classes of stock: (i) 104,245,313 shares Common Stock, and (ii) 10,000,000 shares of Preferred Stock. Our Common Stock is divided into two series of stock composed of (i) 99,815,625 shares of Class A Common Stock, and (ii) 4,429,688 shares of Class B Common Stock.

•In September 2024, Nasdaq confirmed that we regained compliance with Nasdaq's listing requirements. This followed a series of actions to address deficiencies in timely filing of the Form 10-K and the Q1 2024 10-Q and a minimum bid price deficiency. In June 2024, Nasdaq granted us continued listing, contingent upon meeting filing and minimum bid price requirements by July 31 and August 31, 2024, respectively. In July 2024, we met the periodic reporting compliance requirement by filing our Q1 2024 Form 10-Q. Subsequently, in August 2024, we met the minimum bid price requirements following the August 2024 Reverse Stock Split.

•In January 2025, we filed a filed a Certificate of Designation of Preferences, Rights and Limitations of Series A Preferred Stock (the “Series A Certificate of Designation”) with the Secretary of State of the State of Delaware. The Series A Certificate of Designation designated one share of our Preferred Stock as Series A Preferred Stock, and established and designated the preferences, rights and limitations thereof. The Series A Preferred Stock is not convertible into any other series of stock, but votes at a rate of 3,000,000,000 votes per share.

•In January 2025, we issued one share of Series A Preferred Stock to our Global CEO, Matthias Aydt for the purchase price of $100.00.

Corporate Governance

•In April 2024, we appointed Werner Wilhelm as Executive Launch Director.

•In June 2024, Li Han resigned as a member of the Board for personal reasons. Ms. Han also served as a member of the Nominating and Corporate Governance Committee.

•In August 2024, we appointed Tin Mok as Head of FF UAE, where he will lead business development and strategic financing efforts in the UAE and Middle East.

•We made senior leadership changes, appointing Koti Meka as Chief Financial Officer, effective September 2024 and Aaron Ma as Acting Head of EV R&D, effective August 2024, to advance our dual-brand strategy.

•In November 2024, we appointed Xiao (Max) Ma, a long-time employee, as the Global CEO of Faraday X aiEV Inc.

•In December 2024, Dr. Lei Gu joined as President of the Faraday X aiEV Inc., in charge of the Global EV Research and Development (R&D) Center and Vehicle Line Executive (VLE) for the FX6 program.

Segment Information

On February 26, 2023, after an assessment by the Board of our management structure, the Board approved Mr. Yueting Jia, our founder and Chief Product and User Ecosystem Officer (alongside the then Chief Executive Officer, Mr. Xuefeng Chen) reporting directly to the Board, as well as our product, mobility ecosystem, I.A.I., and advanced research and development (“R&D”) technology departments reporting directly to Mr. Jia. The Board also approved our 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 our management. Based on the changes to his responsibilities, the Board determined that Mr. Jia was an “officer” of within the meaning of Section 16 of the Exchange Act and an “executive officer” of Rule 3b-7 under the Exchange Act.

On September 16, 2023, Mr. Chen notified us of his decision to resign from his position as CEO 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 CEO and as a member of the Board, effective September 29, 2023.

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We operate in one operating segment and one reportable segment. Our Global CEO and Chief Product and User Ecosystem Officer, acting jointly serving as co-Chief Operating Decision Makers (“CODMs”), regularly evaluate our financial performance using consolidated financial information at the total-company level. The CODMs receive regular financial and operational reporting that focuses primarily on the our consolidated loss from operations, overall cash flows, liquidity, and strategic initiatives.

For 2024, we adopted Accounting Standards Update (“ASU”) 2023‑07 Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures Management has identified Loss from operations, as presented in the Company's Consolidated Statements of Operations and Comprehensive Loss, as the primary measure used by the CODMs to evaluate the performance of the business and allocate resources. This measure is critical for a going concern that must carefully manage its cash outflows, particularly given that the timing of its cash inflows is influenced by external investor decisions. We define “significant segment expense” as controllable operating costs that are regularly provided to and reviewed by management, which include the expenses presented in the Consolidated Statements of Operations and Comprehensive Loss as Cost of revenue, Research and development, Sales and marketing, and General and administrative.

Management closely tracks its expenditure on these key expense categories through regular reviews of cash balances, near‑term cash flow projections, monthly management reports, and project management reports. The CODMs, work in close collaboration with the our business leaders to establish critical operational targets, set project timelines, and adjust spending plans. These leaders are responsible for implementing its strategic plans and revising targets and deadlines based on continuous internal communications and review meetings, thereby ensuring that any deviations from target spending or project timelines are promptly addressed. This rigorous oversight supports the our strategic objectives to focus business activities the on the production, sales, and leasing of its FF 91 vehicles, and the planned launch of the FX Series vehicles.

In addition, the Company defines “other segment items” as other operating expense adjustments that arise from lease or other impairments, gains and losses on the sale or disposition of its fixed assets, or other market‑driven factors that impact Loss from operations presented in the Consolidated Statements of Operations and Comprehensive Loss and are not part of the our recurring and controllable operating costs. By segregating these “Other Segment Items” from “loss from operations,” we provide investors with a clear view of the expenses that management can directly influence versus those driven by external factors.

Other potentially reportable items, such as separate automotive sales and leasing revenues (currently immaterial), geographic information, depreciation expense, interest expense, or other segment-specific activities, are not separately reviewed by the CODMs. Accordingly, these detailed segment components do not influence the CODM's decision-making or resource allocation processes and thus are not separately disclosed.

Emerging Growth Company Status

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

We are 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. We expect to continue to take advantage of the benefits of the extended transition period, although we 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.

Components of Our Results of Operations

Key Factors Affecting Operating Results

Our performance and future success depend on several factors that present significant opportunities but also pose risks and challenges including those discussed below and, in the section, titled “Risk Factors” in Item 1A of this Form 10-K.

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Production and Operations

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

Through December 31, 2024, we have sold six and leased ten vehicles. As a result, we will require substantial additional capital to develop products and fund operations for the foreseeable future. Until we can generate sufficient revenue from product sales, we will fund our ongoing operations through a combination of various funding and financing alternatives, including equipment 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 our 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 our ability to generate revenue. For additional discussion of the substantial doubt about our ability to continue as a going concern, see Note 2, Liquidity and Capital Resources and Going Concern in the notes to the Consolidated Financial Statements and for further details on liquidity, please see the “Liquidity and Capital Resources” section below.

Revenue and Cost of Revenue

Automotive Sales Revenue

We began the production of our FF 91 Futurist in March 2023 and started making deliveries to customers in August 2023 and have sold two and leased four vehicles for the year ended December 31, 2024.

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 vehicle transfers. Payments are typically received at the point control transfers or in accordance with payment terms customary to the business and as indicated in the sales contract. OTA software updates are provisioned upon transfer of control 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 obligations related to automotive sales, we estimate the 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. Vehicle contracts do not contain a significant financing component.

Revenue from immaterial promises is combined with the vehicle performance obligation and recognized when the product has been transferred. We accrue costs to transfer these immaterial goods and services regardless of whether they have been transferred.

In certain circumstances, we provide customers with a residual value guarantee which may or may not be exercised in the future. The impact of such residual value guarantees was immaterial to our Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2024.

We have entered and may continue to enter into co-creator consulting agreements with our customers under which customers share feedback, driving data, ideas, experiences with its engineers, social media posts and other promotions in exchange for specified fees. We consider these arrangements to be 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 us 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.

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Automotive Leasing Revenue

Revenue from Operating Leasing Program

We have outstanding leases under our vehicle operating leasing program in the U.S. Qualifying customers are permitted to lease a vehicle for up to 36 months. At the end of the lease term, customers are generally required to return the vehicles to us. We account for these leasing transactions as operating leases. We record leasing revenues as automotive leasing revenue on a straight-line basis over the contractual term, and we record the depreciation of these vehicles as cost of automotive leasing revenue. As of December 31, 2024, deferred lease-related upfront payments which will be recognized on a straight-line basis over the contractual terms of the individual leases were immaterial. Our policy is to exclude taxes collected from a customer from the transaction price of automotive contracts.

Revenue from Sales-Type Leasing Program

We have outstanding leases accounted for as sales-type leases under accounting standards codification (“ASC”) 842, Leases (“ASC 842”). Customers have the right to purchase the vehicle at the end of the lease term, which is usually 36 months. A customer qualifies under this program if the purchase option is reasonably certain to be exercised, and we therefore expect the customer to take title to the vehicle at the end of the lease term after making all contractual payments. We recognize all revenue and costs associated with the sales-type lease as automotive leasing revenue and automotive leasing cost of revenue, respectively, upon delivery of the vehicle to the customer when collectability of lease payments is probable at lease commencement. If collectability of lease payments is not probable at commencement, we recognize the lease payments as deposit liability and do not derecognize the leased vehicle until such point that collectability of lease payments becomes probable.

Customer Deposits and Deferred Revenue

Our 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 $3.0 million and $3.2 million as of December 31, 2024, and 2023, 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 our transfer of the products or services. Such advance payments are considered non-refundable, and we defer revenue related to any products or services that are not yet transferred.

Deferred revenue is equivalent to the total transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied, as of the balance sheet date. Deferred revenue related to products and services was immaterial as of December 31, 2024, and 2023.

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.

Cost of Automotive Leasing Program

Cost of automotive leasing revenue includes the depreciation of operating lease vehicles, cost of goods sold associated with direct sales-type leases and warranty expense related to leased vehicles.

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 that fails 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.

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Operating Expenses

Research and Development

Research and development activities represent a significant part of our business. Our R&D efforts focus on the design and development of our electric vehicles and continuing to prepare our 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 our employees focused on R&D activities, other related costs, depreciation, R&D services provided by co-creators, and an allocation of overhead. We expect R&D expenses to decrease in the near future as we substantially have completed R&D activities related to the FF 91, offset by increases in R&D expenses related to FX Series vehicles.

Sales and Marketing

Sales and marketing expenses consist primarily of personnel-related costs (including salaries, bonuses, benefits, and stock-based compensation) for our 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 our brand, our electric vehicles, and our electric vehicle prototypes to the market. We expect Sales and marketing expenses to continue to increase as we bring our electric vehicles to market and seek to generate additional 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 our 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. We expect our general and administrative expenses to increase as we continue to grow our business.

Loss on Disposal of Property, Plant and Equipment

Loss on disposal on property, plant, 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 our cost reduction program. Charges associated with disposals are recognized within operating expenses in the Consolidated Statements of Operations and Comprehensive Loss.

Change in Fair Value of Earnout Liability

Our shareholders prior to the Business Combination, until its fifth anniversary, are entitled to contingent consideration of up to 2,605 additional shares of Class A Common Stock in the aggregate in two equal tranches upon the occurrence of each earnout triggering event (“Earnout Shares”). We recognized the Earnout Shares at fair value upon the closing of the Business Combination and classified them in Stockholders’ Equity since the Earnout Shares were determined to be indexed to our 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 us 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 we have 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, Warrant Liabilities, and Derivatives Call Options

Change in fair value measurements consists of the losses and gains as a result of fair value measurements of certain notes payable, warrant liabilities, and other instruments which we record at fair value.

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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 our ongoing financing activities and losses incurred on modifications of our notes payable that qualify as an extinguishment pursuant to ASC 470-50, Debt–Modifications and Extinguishments.

Interest Expense (Related Party and Third Party)

Interest expense primarily consists of interest on outstanding notes payable not marked to fair value, capital leases, certain supplier payables, and vendor payables in trust.

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. We expect other expense to fluctuate as we continue to transact internationally.

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Results of Operations

Consolidated Statements of Operations

Revenue

Revenue decreased by $0.2 million for the year ended December 31, 2024, compared to the same period in 2023. Automotive sales revenue was $0.5 million for the year ended December 31, 2024, compared to $0.8 million for the same period in 2023, while automotive leasing revenue increased by an immaterial amount. Additionally, the number of vehicles delivered was six for the year ended December 31, 2024, compared to ten for the same period in 2023. The 2023 sales revenue benefited from the initial delivery of our flagship luxury electric vehicle, the FF 91 Futurist.

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Cost of Revenue

Cost of revenue increased by $41.4 million for the year ended December 31, 2024, compared to the same period in 2023. This increase was primarily driven by higher depreciation expenses as equipment was placed into service to enhance production capabilities, particularly in the paint and body shop. Additionally, the increase reflects greater corporate cost absorption into inventory and cost of revenue, including expenses related to FF ieFactory California lease agreement, which commenced in late 2023, and the Collateralized Loan financing, initiated in 2024.

During the year ended December 31, 2024, we continued expanding our production capabilities to include both luxury and more affordable electric vehicles. This strategic shift, aligned with broader market demand, is expected to increase fixed cost allocations to cost of revenues as new equipment is placed into service. We remain focused on optimizing production efficiencies and preparing the FF ieFactory California facility for planned new product lines.

Research and Development

R&D expense decreased by $106.8 million for the year ended December 31, 2024, compared to the same period in 2023. This reduction was primarily driven by a $53.6 million decrease due to salary and headcount reductions, along with the reassignment of R&D personnel to production roles, and a $35.2 million decrease in engineering, design, and testing costs.

As we transition from an R&D-intensive focus to a greater emphasis on full-scale production resources are being reallocated from R&D to manufacturing to enhance operational efficiency. This shift prioritizes the commercialization of past R&D advancements while enabling continued but more targeted innovation. To sustain progress with lower internal costs, we have also established strategic partnerships with technology providers and industry experts.

Additionally, we are refocusing our R&D efforts on developing more affordable electric vehicle platforms, expanding our technology portfolio to meet broader market demands. This strategic shift ensures continued innovation across both luxury and more accessible segments, aligning with evolving industry trends.

Sales and Marketing

Sales and marketing expense decreased by $13.6 million for the year ended December 31, 2024, compared to the same period in 2023. The reduction was primarily driven by a $7.7 million decrease in compensation expense, a $3.6 million decrease in general expenses (primarily due to lease termination costs in 2023), and a $1.7 million decrease in marketing costs.

Despite a reduction in sales and marketing personnel, we continue to market effectively by leveraging our Co-Creation strategy, which engages industry pioneers and influential personalities. Through this approach, we expand our brand by collaborating with high-profile figures and integrating users in our product development and marketing processes. Additionally, we host VIP events and participate in major industry showcases to offer customers and stakeholders immersive experiences of our flagship vehicles and prototypes, further enhancing customer engagement and brand visibility. These efforts enable us to optimize our marketing reach and increase brand awareness while maintaining lower internal costs.

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General and Administrative

General and administrative expense decreased by $39.7 million for the year ended December 31, 2024, compared to the same period in 2023. This decline was mainly due to a reduction of $23.2 million in professional service fees, a $10.7 million, decrease in insurance—primary related to a reduction of directors and officers’ insurance, and a $7.4 million decrease in general expenses—largely reflecting lower lease termination costs in 2023. Additionally, changes in the overhead allocation of General and administrative expenses are largely offset by the change in depreciation and consumables expenses.

Overhead allocation is the process of redistributing shared corporate costs across various departments or business units. This approach ensures that each piece of the organization bears its fair share of indirect expenses, thereby enhancing cost transparency and enabling more accurate financial analysis and decision-making.

These reductions reflect our ongoing cost-cutting initiatives focused on at optimizing general and administrative expenses. We have implemented measures to streamline operations, including renegotiating vendor agreements, consolidating office space to reduce rent, and restructuring our workforce to minimize wage-related expenses, all while maintaining operational efficiency.

Settlement of Accrued Research and Development expenses

*NM = not meaningful

A $14.9 million gain from the settlement of previously accrued R&D expenses was recognized for the year ended December 31, 2024, with no comparable gain or loss in comparable year of 2023. This gain resulted from a settlement that resolved ongoing disputes over unpaid invoices due to Palantir. As of the date of settlement, we had accrued approximately $19.9 million of R&D expenses. Following arbitration, the parties reached a settlement which we agreed to pay Palantir $5.0 million. During the year ended December 31, 2024, we paid $0.2 million in cash and fulfilled the remaining $4.8 million obligation with the issuance of 1,080,294 shares of Class A Common Stock. We recognized a gain of $14.9 million, reflecting the difference between the accrued expenses and the final settlement amount paid to Palantir.

Lease Impairment, net

NM = not meaningful

During the year ended December 31, 2024, we recorded a $1.8 million impairment loss related to lease right-of-use (“ROU”) assets. This loss resulted from moving out of a leased store facility, a leased research facility, and an administrative facility in China, as we worked with landlords to negotiate the related lease terminations.

We have taken steps to optimize our operational footprint by reducing unnecessary overhead to align with current needs. These initiatives, including lease terminations and renegotiations, have contributed to a more efficient cost structure and helped reduce ongoing lease obligations.

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Loss on disposal of property, plant and equipment

Loss on disposal on property, plant, and equipment decreased by $2.8 million for the year ended December 31, 2024, compared to the same period in 2023. We dispose of equipment when the assets become obsolete, costly to maintain, or are replaced by more efficient technologies.

Change in Fair Value of Earnout Liability

During the year ended December 31, 2024, no earnout shares were re-measured at fair value, as the earnout remained classified in equity (Additional Paid-in Capital) following its reclassification in 2023. As a result, there was no impact on earnings from fair value adjustments.

In contrast, during the year ended December 31, 2023, a $2.0 million decrease in the earnout liability was recorded as a Change in fair value of earnout liability. The earnout was initially recorded as a liability in 2022 and continued to be remeasured at fair value until August 25, 2023, when it was reclassified to equity (Additional paid-in capital) upon obtaining sufficient authorized shares for settlement under ASC 815-40. This reclassification resulted in the earnout no longer meeting the criteria for liability classification, thereby ceasing subsequent fair value remeasurement through earnings.

Change in Fair Value of Notes Payable, Warrant Liabilities, and Derivative Call Options

The Change in fair value of notes payable, warrant liabilities, and derivative call options decreased by $102.4 million for the year ended December 31, 2024, compared to the same period in 2023 resulting in a net loss on the change in fair value of the underlying instruments. This reduction was primarily driven by (i) an increase in the fair value of Junior Secured SPA Notes, which were issued during 2024 (ii) the recognition and remeasurement of a derivative call option which caused a loss on change in fair value of $29.7 million and (iii) a $24.3 million loss upon issuance of the 2024 Unsecured SPA Notes. The fair value of our Junior Secured SPA Notes increased predominantly, driven by improvements in the conversion price of the debt, increases in our stock price, multiple repricing events and a reduced volatility assumption. The 2024 Unsecured SPA Notes generated losses at issuance as the notes and warrants were issued with substantially in the money conversion terms.

In contrast, during 2023 decreasing stock prices reduced the fair value of our outstanding notes payable and warrants as these instruments are remeasured based on stock price and volatility resulting in recognition of gain from Change in fair value of notes payable, warrant liabilities, and derivative call options.

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

The gain from Change in fair value of related party notes payable and related party warrant liabilities decreased during the year ended December 31, 2024, when compared with the same period in 2023 primarily due to decrease in activity associated with related parties notes payable carried at fair value. During 2024 we received from related parties gross cash proceeds of $1.5 million in exchange for the Unsecured Convertible Notes (as defined in Note 7, Notes Payable to the Notes to Consolidated Financial Statements) and converted 2023 Unsecured SPA Notes with an aggregate principal balance of $0.7 million. In contrast, during 2023 we received related parties gross cash proceeds $23.0 million and converted an aggregate principal balance of $22.3 million.

Loss on Settlement of Notes Payable

The decrease in the Loss on settlement of notes payable of $55.3 million during the year ended December 31, 2024 was driven by a 30% decrease in the notes payable conversion activity during the period compared with the same period in 2023. During 2024, noteholders converted $141.0 million of principal balance of notes payable compared to $222.9 million of principal balance in 2023. Additionally, we recorded a loss on extinguishment of debt, stemming from contractual modifications to our SPA Portfolio Notes, of $13.1 million in 2023 but only $2.7 million in 2024, further contributing to the overall decrease. The decrease was partially offset by a higher average loss on settlement per dollar of principal during 2024.

Loss on Settlement of Related Party Notes Payable

During the year ended December 31, 2024 a related party converted 2023 Unsecured SPA Notes. with an aggregate principal balance of $0.7 million in exchange for 33,107 shares. We recognized a $0.2 million 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 In addition, as discussed in Note 8, Related Party Transactions in the notes to the Consolidated Financial Statements, we also recognized a $14.1 million loss on related party notes from the recognition of interest and penalties and the increase of principal due to our breach of the agreement with Chongqing Leshi Small Loan Co., Ltd. (“Chonqing”). There was no comparable related party loss in the comparable prior year period.

During the year ended December 31, 2023, a related party converted 2023 Unsecured SPA Notes with an aggregate principal balance of $22.3 million in exchange for 125,267 shares of Class A Common Stock. We 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

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Interest Expense

Interest expense increased by $5.6 million for the year ended December 31, 2024, compared to the same period in 2023. This increase was primarily due to financial obligations associated with the FF ieFactory California manufacturing facility in Hanford, California. We pursued a sale-leaseback arrangement for this facility to generate liquidity for operational and facility enhancements. However, due to conditions within the sale-leaseback agreement, the transaction was treated as a financing arrangement under U.S. generally accepted accounting principles (“GAAP”), resulting in interest expense rather than lease expense.

Related Party Interest Expense

Related party interest expense increased by $8.0 million for the year ended December 31, 2024, compared to the same period in 2023. The increase was primarily due to our default on the loan with our related party lender Chongqing, in the first quarter of 2024, which triggered an increase in the interest rate as well as additional interest expense and penalties.

Other Expense, net

Other expense, net decreased $1.0 million for the year ended December 31, 2024, compared to the same period in 2023. In 2024, the U.S. dollar's continued strengthening against the Chinese yuan (CNY) resulted in a foreign currency transaction loss within Other expense, net. However, this loss was smaller than the loss recorded in 2023, contributing to the overall reduction in Other expense, net.

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Liquidity and Capital Resources

Going Concern

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

Preparation of Financial statements

The Consolidated Financial Statements do not include any adjustments that might result from the outcome of this uncertainty. Accordingly, the Consolidated Financial Statements have been prepared on a basis that assumes we will continue as a going concern, and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.

Capital Investment, SPA Portfolio Notes, and Future Equity Plans

We have and will continue to devote substantial effort and, to the extent available, capital resources, to strategic planning, engineering, design, and development of its electric vehicle platform, development of vehicle models, finalizing the build out of the FF ieFactory California manufacturing facility, and capital raising. We have incurred cumulative losses from operations, negative cash flows from operating activities, and we have an accumulated deficit of $4,314.3 million, an unrestricted cash balance of $7.2 million and a negative working capital position of $120.9 million as of December 31, 2024. During 2024, we funded our operations and capital needs primarily through the issuance of notes payable and related party notes payable convertible notes (see Note 7, Notes Payable and Note 8, Related Party Transactions), and the sale of Common Stock.

Debt Commitments under SPA Portfolio Notes and Other Notes

SPA Portfolio Notes: We have issued various financing arrangements collectively known as the SPA Portfolio Notes. These are categorized as follows: (i) Secured SPA Notes; (ii) 2023 Unsecured SPA Notes; (iii) Junior Secured SPA Notes; (iv) and 2024 Unsecured SPA Notes. As of December 31, 2024, the SPA Portfolio Notes were in good standing.

Pursuant to the SPA Portfolio Notes commitments (collectively the “SPA Commitments”) (see Note 7, Notes Payable and Note 8, Related Party Transactions), we obtained commitments from several investors. On December 31, 2024, the SPA Commitments totaled $614.5 million, of which $405.3 million was funded, $209.2 million remained to be funded, and $43.2 million in principal was outstanding. On December 31, 2024, optional commitments under the SPA Commitments totaled $426.0 million, of which $50.9 million was funded, $375.1 million remained to be funded, and $3.1 million was outstanding. The remaining amounts to be funded as of December 31, 2024, are subject the achievement of delivery milestones, satisfaction of closing conditions, resolving disputes with investors, and satisfaction or waiver of other conditions, including for a portion of such financing an effective registration statement for the shares underlying the applicable notes.

We may be unable to satisfy the closing conditions under the SPA Commitments or obtain additional incremental convertible senior secured note purchasers under the SPA Commitments or other debt or equity financing in a timely manner, on acceptable terms, or at all.

Other Financing Arrangements and Related Party Notes: Additional financing is provided via convertible debt instruments, equipment financing arrangements, and related party notes that support our operations and capital expenditures. As of December 31, 2024, all notes were in good standing.

Standby Equity Purchase Agreement, At-The-Market Offering, and Equity Issuance Constraints

Standby Equity Purchase Agreement

On November 11, 2022, we entered into the SEPA, which expires in November 2025. Under the terms of the SEPA, we may, at our option, issue and sell from time to time up to $200.0 million (which can be increased up to $350.0 million in the aggregate at our option) of Class A Common Stock to Yorkville, subject to certain limitations. As of December 31, 2024, we had the right to issue and sell up to an additional $192.5 million, or $342.5 million if we exercise our option under the SEPA.

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At-The-Market Offering

In addition, on September 26, 2023, we entered into a sales agreement with Stifel, Nicolaus & Company, Incorporated, B. Riley Securities, Inc., A.G.P./Alliance Global Partners, Wedbush Securities Inc. and Maxim Group LLC, as sales agents, to sell shares of Class A Common Stock, from time to time, with aggregate gross sales proceeds of up to $90.0 million pursuant to the Registration Statement as an “at-the-market” offering under the Securities Act (the “ATM Program”). Under applicable SEC rules and regulations, because we failed to timely file our Form 10-K for the year ended December 31, 2023, as well as our Form 10-Q for the quarter ended March 31, 2024, we will not be eligible to access the ATM Program until August 1, 2025, at the earliest.

Equity Issuance Constraints

Our ability to issue and sell additional shares of Common Stock or warrants to support ongoing capital needs is further constrained by the number of authorized shares. In addition to outstanding shares, we must also consider shares reserved for issuance under convertible debt, warrants or other obligations with equity rights. In addition, equity issuances can potentially trigger various anti-dilution features in our debt and equity instruments that increase the number of shares to be issued and/or reduce the exercise price. This could result in us having inadequate authorized shares to meet its outstanding commitments.

Capital Needs, FX Series Production, and Bankruptcy Risk

We project that we will require substantial additional funds to continue operations and support production of the FF 91, and we also plan to initiate production of our FX Series of vehicles. If additional capital is not secured, we will not have sufficient resources to meet our obligations and continue operations, which could result in bankruptcy protection and asset liquidation, with equity holders receiving little to no recovery. However, the anticipated start of FX Series production is expected to generate new revenue streams and enhance operational performance, thereby partially mitigating near-term cash flow pressures. However, if additional capital is not secured, we will not have sufficient resources to meet our obligations and continue operations, which could result in bankruptcy protection and asset liquidation, with equity holders receiving little to no recovery.

Funding Alternatives and Risks

We continue to explore various funding and financing alternatives to fund our ongoing operations and to ramp up production. The particular funding and financing mechanisms, terms, timing, and amounts depend on our assessment of opportunities available in the marketplace and the circumstances of the business at the relevant time. However, there have been delays in securing additional funding commitments, which have exacerbated supply chain pressures, among other things. If our ongoing capital raising efforts are unsuccessful or significantly delayed, or if we experience prolonged material adverse trends in our business, production will be delayed or decreased, and actual use of cash, production volume and revenue for 2025 will vary from our previously disclosed forecasts, and such variances may be material. While we are actively engaged in negotiations with potential financing sources, we may be unable to raise additional capital on terms acceptable to us or at all. In addition to the risk that our 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. Capital needs to fund development of the our remaining product portfolio will highly depend on the market success and profitability of the FF 91 and the launch of the FX series, and our ability to accurately estimate and control costs. Apart from the FF 91 series and FX series, substantial additional capital will be required to fund operations, research, development, and design efforts for future vehicles.

Going Concern and Future Capital Strategy

Despite our diversified financing structure - including the SPA Portfolio Notes, convertible debt instruments, and equipment financing, and targeted inflows from new debt, and anticipated equity - and our current cash flow projections, our recurring operating losses and continuing negative cash flows from operations continue to raise substantial doubt about our ability to continue as a going concern.

Sources of Liquidity

As of December 31, 2024, our principal source of liquidity was cash on hand totaling $7.1 million, which was held for working capital and general corporate purposes. We also have access to various sources of additional capital, including the SEPA and the SPA Commitments. Our ability to access these sources of capital and further information on amounts available is discussed in Note 2, Liquidity and Capital Resources and Going Concern, of the notes to the Consolidated Financial Statements included in this Form 10-K.

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Significant Related Party Notes Payable and Notes Payable Facilities

We have been significantly funded by notes payable from related parties and third parties. The related parties include employees as well as affiliates of employees and affiliates and other companies controlled or previously controlled by our founder and Chief Product and User Ecosystem Officer. For more information on the outstanding related party notes payable and notes payable as well as the related schedules of maturities, see Note 7, Notes Payable, and Note 8, Related Party Transactions, of the notes to the Consolidated Financial Statements included in this Form 10-K.

We have entered into notes payable agreements with third parties, which consist of the following as of December 31, 2024:

Related party notes payable consists of the following as of December 31, 2024:

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Cash Flow Analysis

Operating Activities

We continue to experience negative operating cash flows as we advance the design and development of our vehicles and expand our infrastructure in both the United States and China. Our operating cash flows are significantly affected by fluctuations in working capital components, including changes in personnel expenses, accounts payable, accrued interest, other current liabilities, deposits, and current assets. For the year ended December 31, 2024, net cash used in operating activities was $70.2 million, compared to $278.2 million for the same period in 2023—an improvement of $208.0 million.

Net Loss: The reduction of $75.9 million in Net loss is an improvement in 2024 compared to the same period in 2023; however, this figure includes various non-cash transactions that are excluded when calculating cash flow from operating activities.

Non-cash adjustments: Non-cash adjustments increased by $62.5 million in 2024 compared to the same period in 2023. This increase was comprised of a $105.6 million increase in fair value adjustments on Change in fair value of notes payable, warrant liabilities, and derivative call options, and a $29.0 million increase in Depreciation and amortization expense. These adjustments were partially offset by a $55.3 million decrease in Loss on settlement of notes payable and a $14.9 million gain from settling previously accrued R&D expenses. As these adjustments do not represent actual cash changes, they are disclosed for reconciliation purposes consistent with the cash flow statement.

Changes in working capital: Changes in working capital increased by $69.6 million in 2024 compared to the same period in 2023. For the year ended December 31, 2024, changes in working capital included favorable shifts in our operating assets and liabilities. Notable contributors to the change were a $36.0 million change in Inventory balances, a $40.9 million change in Accrued expenses and other current and non-current liabilities, and a $19.8 million change in Other current and non-current assets. These were partially offset by a $22.6 million change in Accounts payable, and an $15.0 million change in Deposits. While these figures are detailed in the cash flow statement, they underscore the critical role that effective working capital management has played in reducing our operating cash outflows. The reductions in cash outlays for working capital purposes result from our cost-saving and cash management measures.

Investing Activities

Net cash used in investing activities was $7.4 million and $31.1 million for the years ended December 31, 2024 and 2023, respectively. This change was driven by a significant decrease in the acquisition of fixed assets due to the reduction of liquidity.

Financing Activities

Amid a challenging financing environment, we are actively seeking strategic opportunities to boost our cash reserves and support growth using a mix of convertible loans and non-convertible funding. For the year ended December 31, 2024, financing activities provided a net cash inflow of $80.7 million, compared to a net cash inflow of $291.4 million in 2023—a reduction of $210.7 million which is reflective of the challenging financing environment we continue to experience. In 2024, proceeds from notes payable were $68.1 million, down by $142.3 million from $210.5 million in 2023. Similarly, proceeds from related party notes payable fell to $3.1 million in 2024 from $21.0 million in 2023, a decrease of $17.9 million. Moreover, financing proceeds from other financial obligations transactions fell to $11.8 million in 2024 from $24.9 million in 2023—a reduction of $13.1 million.

Additionally, in 2023 we raised $34.5 million from common stock sales; no similar financing activities occurred in 2024. During 2024 we were largely unable to raise capital through sales of our common stock due to our loss of S-3 eligibility along with the low trading price of our common stock. Sales of our common stock at low trading prices would have triggered the full ratchet anti-dilution price protections embedded in our SPA Portfolio Notes.

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Effect of Exchange Rate Changes on Cash and Restricted Cash

The exchange rates effect on cash and restricted cash was $0.0 million and $3.4 million for the years ended December 31, 2024, and 2023, 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 Yuan. Fluctuations in exchange rates against the U.S. Dollar may positively or negatively affect our operating results.

Off-Balance Sheet Arrangements

We 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, we did not have any off-balance sheet arrangements as of December 31, 2024, and 2023.

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with U.S. GAAP generally accepted accounting principles. The preparation of our 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 our 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 and unpredictable nature, estimates are subject to additional variability and volatility.

For a description of our significant accounting policies, see Note 1, Nature of Business and Organization, Basis of Presentation, and Summary of Significant Accounting Policies of the notes to Consolidated Financial Statements included elsewhere in this Form 10-K. An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the Consolidated Financial Statements. Management believes the following critical accounting policies reflect the more significant estimates and assumptions used in the preparation of the Consolidated Financial Statements.

Impairment of Long-Lived Assets

Description

We assesses our long-lived assets, consisting primarily of property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset groups) may not be recoverable. We perform impairment testing at the asset group level that represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

Judgements and Uncertainties

The recoverability of long-lived assets is determined by comparing the forecasted undiscounted cash flows attributable to such assets, including any cash flows upon their eventual disposition, to the assets carrying values. If the carrying value of the assets exceeds the forecasted undiscounted cash flows, then the assets are written down to their fair value.

These forecasted undiscounted cash flows represent management’s best estimates of the future outcomes. Assumptions that are significant to estimate the cash flows utilized include but are not limited to management’s estimates of future production, sales revenue, lease revenue and all related costs as well as other assumptions such as future capital expenditures, volumetric growth rates and rates of capital funding.

Effect if Actual Results Differ from Assumptions

Increases or decreases in cash flow assumptions could cause corresponding increases to or decreases to the estimates of undiscounted cash flow amounts. Decreases in cash flow assumptions could cause management to conclude that the assets (or asset groups) in question may not be recoverable, and an asset impairment could be required.

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Recognition and disclosure of contingent liabilities, including litigation reserves

Description

We are, from time to time, subject to claims and disputes arising in the normal course of business. In the opinion of management, the outcome of any such claims and disputes cannot be predicted with certainty.

As of December 31, 2024, and 2023, we have accrued legal contingencies of $9.1 million and $21.6 million, respectively, recorded within Accrued expenses and other current liabilities and Accounts payable for potential financial exposure related to ongoing legal matters, primarily related to breach of contracts and employment matters, which are deemed both probable of loss and reasonably estimable.

Judgements and Uncertainties

Contingent liabilities, including litigation reserves involve a significant amount of judgment in determining whether a loss is probable and reasonably estimable due to the uncertainty involved in determining the likelihood of future events and estimating the financial statement impact of such events.

Effect if Actual Results Differ from Assumptions

If further developments or resolutions of a contingent matter are not consistent with our assumptions and judgments, we may need to recognize a significant charge in a future period related to an existing contingent matter.

Fair Value Measurements and Fair Value of Related Party Notes Payable and Notes Payable

Description

The accounting guidance for financial instruments allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date.

We have elected the fair value option for certain related party notes payable and notes payable with embedded derivatives. Specifically, the SPA Portfolio Notes and the Unsecured Convertible Notes, as they contain embedded liquidation premiums with conversion rights that represent embedded derivatives (see Note 7, Notes Payable, Note 8, Related Party Transactions and Note 14, Fair Value of Financial Instruments). The Company used a binomial lattice model and discounted cash flow methodology to value these notes. The significant assumptions used in the models include the volatility of our Class A Common Stock, our expectations around the full ratchet trigger, our debt discount rate based on a CCC rating, annual dividend yield, and the expected life of the instrument.

Judgements and Uncertainties

Fair value measurement applies to financial assets and liabilities as well as other assets and liabilities carried at fair value on a recurring and nonrecurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. When determining the fair value measurements for assets and liabilities required or permitted to be either recorded or disclosed at fair value, we consider the principal or most advantageous market in which we would transact and assumptions that market participants would use when pricing the asset or liability.

The accounting guidance for fair value measurement requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is as follows:

•Level 1 — Valuations for assets and liabilities traded in active exchange markets, or interest in open-end mutual funds that allow a company to sell its ownership interest back at net asset value on a daily basis. Valuations are obtained from readily available pricing sources for market transactions involving identical assets, liabilities, or funds.

•Level 2 — Valuations for assets and liabilities traded in less active dealer, or broker markets, such as quoted prices for similar assets or liabilities or quoted prices in markets that are not active. Level 2 instruments typically include U.S. government and agency debt securities, and corporate obligations. Valuations are usually obtained through market data of the investment itself as well as market transactions involving comparable assets, liabilities or funds.

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•Level 3 — Valuations for assets and liabilities that are derived from other valuation methodologies, such as option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer, or broker-traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

We estimate the fair value of convertible notes using a binomial lattice model where the significant assumptions used include the volatility of our Class A Common Stock, our expectations around the full ratchet trigger, the contractual term of the notes, the risk-free rate, annual dividend yield, and debt discount rate. Fair value measurements associated with the notes represent Level 3 valuations under the fair value hierarchy.

•Expected volatility of Class A Common Stock — We determine our expected volatility by weighing both the historical and implied average volatilities of publicly traded industry peers alongside our own trading history. We intend to continue applying this methodology, using the same or similar public companies, until sufficient historical data on the volatility of our Class A Common Stock becomes available. However, should circumstances change such that the identified companies no longer serve as appropriate comparables, more suitable publicly traded companies will be used in the calculation.

•Expectations around the full ratchet trigger — The notes include a provision to adjust the fixed conversion price if we issue equity at a lower price through certain issuance mechanisms. We estimate the probability of this event based on the current stock price.

•Risk-free interest rate — The risk-free interest rate used to value awards is based on the United States Treasury yield in effect at the time of issuance, corresponding to a period consistent with the expected term of the notes.

•Dividend yield — We have never declared or paid cash dividends and does not currently plan to do so in the foreseeable future.

•Debt discount rate — The debt discount rate was estimated by selecting a yield based on our credit rating, adjusting it for the instrument’s seniority, and applying a discount premium determined by the instrument's terms, its moneyness at issuance, and benchmarked against venture capital rates of return and similar instruments.

Effect if Actual Results Differ from Assumptions

Certain of the related party notes payable and notes payable contain embedded liquidation premiums with conversion rights that represent embedded derivatives whose value is directly related to the fair value of the Common Stock. As the value of the Common Stock increases, the value of these related party notes payable and notes payable increases, and as the value of Common Stock decreases, the value of these related party notes payable and notes payable decrease. Subsequent fluctuations in our stock price that are different from the results of the historical volatility assumptions utilized may result in gains or losses on the settlement of the notes.

Fair Value of Warrants

Description

We measure certain warrants at fair value, mainly related to the Junior Secured SPA Notes and the 2024 Unsecured SPA Notes, as the warrants meet the requirements for liability classification pursuant to ASC 480-10, Distinguishing Liabilities from Equity. The Junior SPA Warrants could require cash settlement upon events that are considered outside of the control of the Company. Upon exercise, any difference between the fair value measurement and the exercise price would be recorded to the statement of operations.

Judgements and Uncertainties

We estimate the fair value of warrants using a Monte Carlo simulation model where the significant assumptions used include the volatility of our Class A Common Stock, our expectations around the full ratchet trigger, the contractual term of the warrant, the risk-free rate and annual dividend yield. Fair value measurements associated with the liability-classified warrants represent Level 3 valuations under the fair value hierarchy.

•Expected volatility of Class A Common Stock — We determine the expected volatility by weighing the historical and implied average volatilities of publicly traded industry peers and our own trading history. We intend to continue to consistently apply this methodology using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our Class A Common Stock price becomes available, unless circumstances change such that the identified companies are no longer similar to FF, in which case more suitable companies whose stock prices are publicly available would be utilized in the calculation.

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•Expectations around the full ratchet trigger — The warrants contain a provision to adjust the strike price if we issue equity, under certain equity issuance mechanisms, at a lower price. Management estimates the probability of this based on the current stock price.

•Risk-free interest rate — The risk-free interest rate used to value awards is based on the United States Treasury yield in effect at the time of grant for a period consistent with the expected term of the award.

•Dividend yield — We have never declared or paid any cash dividends and does not presently plan to pay cash dividends for the foreseeable future.

Effect if Actual Results Differ from Assumptions

These estimates involve inherent uncertainties and the application of management’s judgment. If we had made different assumptions, the fair value of warrants and the effect on the statement of operations could have been different. An increase in the risk-free interest rate will increase the estimated fair value of a stock option grant, while a decrease in these factors will have an opposite effect. Likewise, a decrease in volatility will decrease the estimated fair value of a stock option grant, while an increase in this factor will have the opposite effect.

We do not expect to change the dividend yield assumption in the near future.

Fair Value of Incremental Warrants — Derivative Call Options

Description

The Junior Secured SPA Investors and the 2024 Unsecured SPA Investors were issued incremental warrants to purchase additional Junior Secured SPA Notes and 2024 Unsecured SPA Notes, respectively (the “Incremental Warrants”), up to the amounts originally funded under their commitments. The Incremental Warrants, presented in the Consolidated Balance Sheets as Derivative call options, are exercisable immediately upon issuance and have a one-year term from the date of issuance. They allow the purchase of the respective notes at an exercise price equal to the principal amount of the notes issued to the investor, subject to full ratchet anti-dilution price protection, as adjusted for stock splits, stock dividends, stock combinations, recapitalizations, or similar transactions.

Judgements and Uncertainties

We estimate the fair value of the Incremental Warrants using a Monte Carlo simulation model where the significant assumptions used include the volatility of our Class A Common Stock, our expectations around the full ratchet trigger, the contractual term of the Incremental Warrants, the risk-free rate and annual dividend yield. The underlying convertible notes and the warrants issuable upon the exercise of the incremental warrant were assumed to be exercisable up to the maximum allowable amount. Additionally, the terms of these instruments were presumed to be consistent with those of the convertible notes and warrants issued in connection with the Incremental Warrants. Fair value measurements associated with the liability-classified derivatives represent Level 3 valuations under the fair value hierarchy.

•Expected volatility of Class A Common Stock — We determine the expected volatility by weighing the historical and implied average volatilities of publicly traded industry peers and our own trading history. We intend to continue to consistently apply this methodology using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our Class A Common Stock price becomes available, unless circumstances change such that the identified companies are no longer similar to us, in which case more suitable companies whose stock prices are publicly available would be utilized in the calculation.

•Expectations around the full ratchet trigger — the Incremental Warrants contain a provision to adjust the strike price if we issue equity, under certain equity issuance mechanisms, at a lower price. Management estimates the probability of this based on the current stock price.

•Risk-free interest rate — The risk-free interest rate used to value awards is based on the United States Treasury yield in effect at the time of grant for a period consistent with the expected term of the award.

•Dividend yield — We have never declared or paid any cash dividends and does not presently plan to pay cash dividends for the foreseeable future.

Effect if Actual Results Differ from Assumptions

These estimates involve inherent uncertainties and the application of management’s judgment. If we had made different assumptions, the fair value of the Incremental Warrants could have been different. An increase in the risk-free interest rate will increase the estimated fair value of the underlying notes and warrants, while a decrease in these factors will have an opposite effect. Likewise, a decrease in volatility will decrease the estimated fair value of the underlying notes and warrants, while an increase in this factor will have the opposite effect.

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Recent Accounting Pronouncements

See the sections titled “Recent Accounting Pronouncements” in Note 1, Nature of Business and Organization, Basis of Presentation, and Summary of Significant Accounting Policies in our Consolidated Financial Statements included elsewhere in this Form 10-K for a discussion about our recently adopted accounting pronouncements and the recently issued accounting pronouncements not yet adopted which are determined to be applicable to us.