Why Lock When Production Is Delayed

@bayoubob

Personally, I think it's because of this...

We provided full year forecasts to our suppliers, securing long-lead parts and expect to receive parts for the first 300 cars during March. We are diligently working with suppliers for final SQA processes, ramp up planning and deep diving into volumes for Q2 ramp.

@seancallahan hoping you are right. Will at least feel a bit better about the color if it is all in service of trying to keep Q2 on schedule

@bayoubob The only thing I know for certain is that it is not a revenue boost.  They can not recognize any income until the vehicles are delivered to customers.

@ttrinchi  I think ASC606 disagrees with you. 

https://www.elliottdavis.com/new-revenue-recognition-manufacturers-need-know-about-asc-606/

ASC 606 provides a five-step framework for organizations to determine the amount and timing of revenue recognition:

1. Identify the contract(s) with the customer.
2. Identify the performance obligations in the contract.
3. Determine the transaction price.
4. Allocate the transaction price to the performance obligations.
5. Recognize revenue when (or as) the entity satisfies a performance obligation.

Posted by: @bayoubob

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@ttrinchi  I think ASC606 disagrees with you. 

https://www.elliottdavis.com/new-revenue-recognition-manufacturers-need-know-about-asc-606/

ASC 606 provides a five-step framework for organizations to determine the amount and timing of revenue recognition:

1. Identify the contract(s) with the customer.
2. Identify the performance obligations in the contract.
3. Determine the transaction price.
4. Allocate the transaction price to the performance obligations.
5. Recognize revenue when (or as) the entity satisfies a performance obligation.

I think ASC606 agrees with me...

In my opinion, it may have to do with the fact that they do not control production, it depends on Magna. Their contract with Magna may state that a formal PO needs to be issued "X" days in advance to hold a production slot. If Fisker doesn't provide that, Magna can assign the slot to other manufactures and avoid sitting idle while incurring costs. So, Fisker is getting all the PO's ready to go, hoping and waiting for homologation. 

In case, things get delayed a lot, they may then be in a position to consider giving other colors as an option, since the orders are not yet sent to Magna.

@ttrinchi My 2 cents... Based on my understanding of ASC606, don't think Fisker can recognize revenue until we get hold of the cars.

@ttrinchi no point in speculating further, 1Q results will tell the tale. 

I recently worked with a portfolio company whose business is much like Fisker’s and they recognized revenue on partial completion. Fisker designs, markets, sells, and services the product but does not make it. This company did same but with machined parts. As the engineered valve (for example) was released to their manufacturing partner, it was partially recognized, when it shipped to US an additional portion was recognized, and at final invoice it was fully recognized. Before  606 they did it the old way with revenue recognized upon delivery. Because their business was divided into discrete performance obligations, and the client was obligated to pay upon completion of those performance obligations, the revenue was divided. 

In any case no big deal. I am happy to be right or wrong on my speculation. 

@bayoubob Interesting.  I think the biggest difference is they engineered the part for a specific client (it seems very similar customized widget example on the website).  Our agreement with Fisker is just a purchase order, there are no progress payments.  Even though it is "non-refundable", the $5,000 is still just a deposit and not a progress payment.  Other than delivery of the vehicle, there are no "performance obligations" to be able to allocate the transaction price to the performance obligations and recognize revenue when (or as) the entity satisfies a performance obligation.  (I would love to be proven wrong though.)

However, this does seem to apply to what Tesla is doing with FSD.  As FSD was not available when they sold the product, they were not able to identify the sales and the funds were considered deferred revenue.  As Tesla released features which were part of FSD, they were able to recognize portions of the deferred revenue (including a large chunk in Q4 that may be in jeopardy due to the FSD recall).

@ttrinchi - I am grumbling about several issues but the core item for me is, who is servicing my vehicle (in the US) if/when something goes wrong. Fisker won't be booking revenue from me until there is some confirmation that repairs can be addressed with alacrity. Fortunately, I am not up against a wall, Extreme vs One owner. 

I know there was an announcement by Fisker, however, since then there has been silence and more importantly, no confirming statements from the vendor that they are ramping up to train staff how to diagnose and repair EV (and/or Fisker) products. Anyone who is taking delivery in the upcoming weeks should be demanding clarification on this issue. 

@craig-newbauer Delivery will be months away at best.