Stock Based Compensation

6 Months Ended

Jun. 30, 2023

Share-Based Payment Arrangement [Abstract]

Stock Based Compensation

Stock Based Compensation The 2020 Equity Incentive Plan (the “Plan”) is a stock-based compensation plan which provides for the grants of options and restricted stock to employees and consultants of the Company. Options granted under the Plan may be either incentive options (“ISO”) or nonqualified stock options (“NSO”). Also, the Company established a 2020 Employee Stock Purchase Plan (the “ESPP”) under which Class A Common Stock may be issued. As of June 30, 2023, no shares have been issued under the ESPP.

Stock-based compensation expense is as follows (in thousands):

	Three Months Ended June 30,
	2023		2022
Selling, general and administrative expense	$	3,610	$	418
Research and development expense	5,416		777
Total	$	9,026	$	1,195

	Six Months Ended June 30,
	2023		2022
Selling, general and administrative expense	$	2,953	$	2,191
Research and development expense	4,431		4,069
Total	7,384		6,260

Stock options

Options under the Plan may be granted at prices as determined by the Board of Directors, provided, however, that (i) the exercise price of an ISO and NSO shall not be less than 100% of the estimated fair value of the shares on the date of grant, and (ii) the exercise price of an ISO granted to a 10% shareholder shall not be less than 110% of the estimated fair value of the shares on the date of grant. The fair value of the shares is determined by the Board of Directors on the date of grants. Stock options generally have a contractual life of 10 years. Upon exercise, the Company issues new shares.

In 2016 and 2017, the Company’s founders were granted an aggregate of 15,882,711 options which are fully vested and are not related to performance. Options granted to other employees and consultants become vested and are exercisable over a range of up to six years from the date of grant.

The Company did not grant any stock options during the three-months ended June 30, 2023.

The following table summarizes option activity under the Plan:

	Options	Weighted Average Exercise Price	Weighted Average Contractual Term (in Years)
Balance as of December 31, 2022	17,679,596	1.51	4.7
Granted	7,000	7.05
Exercised	(58,151)	0.45
Forfeited	(166,157)	13.44
Balance as of June 30, 2023	17,462,288	1.41	4.2

The fair value of each stock option grant under the Plan was estimated on the date of grant using the Black-Scholes option pricing model, with the following range of assumptions:

	Six Months Ended June 30, 2023
Expected term (in years)	6.3
Volatility	74.5% to 75.2%
Dividend yield	0.0%
Risk-free interest rate	3.40% to 4.00%
Common stock price	$6.98 to $7.10

The Black-Scholes option pricing model requires various highly subjective assumptions that represent management’s best estimates of the fair value of the Company’s common stock, volatility, risk-free interest rates, expected term, and dividend yield. As the Company’s shares have actively traded for a short period of time subsequent to the Business Combination, volatility is based on a benchmark of comparable companies within the automotive and energy storage industries.

The expected term represents the weighted-average period that options granted are expected to be outstanding giving consideration to vesting schedules. Since the Company does not have an extended history of actual exercises, the Company has estimated the expected term using a simplified method which calculates the expected term as the average of the time-to-vesting and the contractual life of the awards. The Company has never declared or paid cash dividends and does not plan to pay cash dividends in the foreseeable future; therefore, the Company used an expected dividend yield of zero. The risk-free interest rate is based on U.S. Treasury rates in effect during the expected term of the grant. The expected volatility is based on historical volatility of publicly-traded peer companies.

Restricted stock awards

During the six-months ended June 30, 2022, the Company granted employees, who rendered services during the year ended December 31, 2021 and were employees of the Company on the grant date, a restricted stock unit (“RSU”) award based in proportion to the service period beginning from the employee’s hire date to the end of the year. The restricted stock unit awards vested on the grant date which resulted in the release of 339,340 shares of Class A common stock equal to stock-based compensation expense of $4.0 million recognized in the six-months ended June 30, 2022. The Company’s founders declined to receive an award related to performance in 2021 and 2022. In accordance with the Company’s Outside Director Compensation Policy, each outside Board of Directors member will receive an annual RSU equal to $200,000 granted on the date of the Company’s annual shareholders’ meeting which vests in 25% increments at the end of each calendar quarter. Each Outside Director may elect to convert all or a portion of his or her annual Board of Directors retainer, excluding any annual retainer that an Outside Director may receive for serving as Lead Director and any annual retainers for committee service, into RSUs in lieu of the applicable cash retainer payment (“RSU Election”). The RSU awards granted to Outside Directors vested on the grant date which resulted in stock-based compensation expense of $0.7 million and $0.4 million recognized in the six-months ended June 30, 2023 and 2022, and $0.4 million in each of the three-month periods ended June 30, 2023 and 2022, respectively.

The number of Class A Common Stock granted to Outside Directors annually is based on the 30-day average closing trading price of Class A common stock on the day preceding the grant date (“RSU Value”). When an Outside Director exercises his or her RSU Election, the number of shares of Class A Common Stock equal the amount of cash subject to such RSU Election divided by the applicable RSU Value and are fully vested.

The following table summarizes RSU activity under the Plan:

	RSU Awards	Weighted Average Grant Date Fair Value
Unvested as of December 31, 2022	11,752	$	12.45
Awarded	766,115	5.79
Vested	(61,368)	12.81
Forfeited	(68,929)	11.02
Unvested as of June 30, 2023	647,570	$	9.51

Performance-based restricted stock awards

In the third quarter of 2021, the Company’s compensation committee ratified and approved performance-based restricted stock units (“PRSUs”) to all employees (“Grantee”) the value of which is determined based on the Grantee’s level within the Company (“PRSU Value”). Each PRSU is equal to one underlying share of Class A common stock. The number of shares subject to a Grantee’s PRSU award equals the Grantee’s PRSU Value divided by the closing price per Class A common share on the service inception date, or if the service inception date is not a trading day, the closing price per Share on the closest trading day immediately prior to the service inception date; in each case rounded down to the nearest whole number. Each PRSU award shall vest as to 50% of the PRSU Value upon the Committee’s determination, in its sole discretion, and certification of the occurrence of the Ocean Start of Production and shall vest as to 50% of the PRSUs upon the first anniversary of the Ocean Start of Production, in each case, subject to (i) the Grantee’s continuous

service through the applicable vesting date, (ii) the Grantee’s not committing any action or omission that would constitute Cause for termination through the applicable vesting date, as determined in the sole discretion of the Company, and (iii) the Ocean Start of Production occurring on or before December 31, 2022. The compensation committee has discretion to reduce or eliminate the number of PRSUs that shall vest pursuant to each PRSU award upon the certification of the occurrence of the Ocean Start of Production and/or upon the first anniversary of the Ocean Start of Production, after considering, any factors that it deems relevant, which could include but are not limited to (i) Company performance against key performance indicators, and (ii) departmental performance against goals. The service inception date precedes the grant dates for both performance conditions. The grant date for each of the performance conditions is the date Grantees have a mutual understanding of the key terms and conditions of the PRSU, which will occur when each performance condition is achieved, and the compensation committee has determined whether it will exercise its discretion to adjust the PRSU award. Recognition of stock-based compensation occurs when performance conditions are probable of achievement. Measurement of stock-based compensation attributed to the PRSU awards will be based on the fair value of the underlying Class A Common Stock once the grant date is determined (e.g., variable accounting).

As of June 30, 2023, the Company has approved and authorized PRSUs equal to 2,107,866 shares of Class A Common Stock with an aggregate PRSU value of $11.9 million of which 1,278,465 awards vested on March 24, 2023, the grant and vesting date for the first tranche of the PRSU award. As of December 31, 2022, achievement of the first tranche of the PRSU award was deemed probable resulting in the recognition of cumulative expense of $10.1 million. During the six-month period ended June 30, 2023, the Company measured the cumulative expense to be recognized upon vesting based on the closing stock price on the grant and vesting date, which resulted in cumulative expense of $7.3 million, a reduction of $2.8 million from the Company's measurement of compensation expense as of the end of 2022. There was no cumulative expense impact the during the three-months ended June 30, 2023.

As of June 30, 2023, achievement of the second tranche of the PRSU awards was deemed probable resulting in the recognition of compensation expense of $7.4 million in the three-months ending June 30, 2023. Measurement of PRSU compensation expense is based on the closing price on the last day of the quarter ended June 30, 2023 multiplied by the outstanding approved and authorized PRSUs. The grant date of the PRSUs has not been determined and thus the PRSUs remain subject to variable accounting treatment.