Q2 2023 Lucid Group Inc Earnings Call
[music].
Hello, and thank you for standing by welcome to most of the group's second quarter 2023 earnings conference call at.
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Thank you and welcome to lucid groups second quarter 2023 earnings call. Joining me today are Peter Robinson, our CEO and CTO and Sherry House, our CFO before handing the call over to Peter and let me remind you that some of the statements on this call include forward looking statements under Federal Securities Law. These include without limitation statements regarding the.
Future financial performance of the company production and delivery volumes financial and operating outlook and guidance.
Economic and industry trends company initiatives and other future events. These statements are based on our predictions and expectations as of today and actual events or results may differ due to a number of risks and uncertainties. We refer you to the cautionary language in the risk factors in our most recent filings with the SEC and the forward looking statements on page two of our.
Investor deck available on the Investor Relations section of our website at IR Dot Lucid Motors Dot Com. In addition management will make reference to non-GAAP financial measures. During this call a discussion of why we use non-GAAP financial measures and information regarding reconciliation of our GAAP versus non-GAAP results is available in our earnings press release issued.
Earlier this afternoon as well as in the investor deck with that I'd like to turn the call over to loosen CEO and CTO Peter all of a sudden Peter. Please go ahead. Thank you.
And thank you everyone for joining us for our second quarter earnings call.
We have several major milestones in Q2, none of which could have been accomplished without the incredible commitment of our employees. Thank you Seleucid team for your passion and dedication in drilling.
Mission food.
Also have many exciting events and announcements planned in the second half of this year, but I'm very eager to share with you, but before I do let me start with a major Q2 milestones and provide an update on our progress of our initiatives.
In June we announced a landmark agreement with us the most and providing them access to our supplier electric vehicle powertrain technology.
Sapphire enabled Aston Martin Evs.
Aston Martin shows lucid following a competitive process to ensure that the excess what they felt was not only the best but also the most advanced and suitable technology available on the <unk>.
Got it.
This agreement represents the advent of a core pillar of lucid group, namely on technology supply and licensing.
In so doing reaffirms the commercial value of our patented technologies.
We believe this could represent a harbinger of future opportunities not only in applications for automotive market, but also in markets such as commercial transportation and even aviation.
Also in the second quarter, we raised $3 billion in capital to fund the forward business, removing financial concerns and demonstrating the strength of our partnership with our core partner the public investment fund.
Shelby will go into greater financial detail, a both not an agreement and the capital raise later in her prepared remarks.
In Q2, we produced 6173 vehicles and delivered 1404.
In addition, we had a significant number of vehicles that were in transit to Saudi Arabia.
Costs, which were produced but not yet delivered which we have started delivering to customers in Q3, and Sherri will further elaborate upon this as well.
Over the last two quarters I spoke about the company's two strategic priorities.
Growing brand awareness and cost efficiencies.
Now, whilst we still have work to do I'm pleased to say that some of the initiatives. We've actions are seeing solid progress.
We saw another strong increase in the number of tests relates sequentially through Q2, and the third party data shows that our brand awareness in the luxury and premium segment is growing so much stronger place.
And as our fleet size grows so does the number of lucid sightings.
We believe that there is a marketing and demand benefits when we achieve a critical mass of vehicles on the road and we are making headway here.
<unk> continues to garner strong accolades and received an affirmative independent a summary of how lucid stacks up against the competition with motor trend. Most recently naming elucidate the best electric luxury vehicle you can buy in 2023.
It's also important to highlight that lucid is being asked with increasing frequency.
Government and non government organization partners to showcase our talents and technology, that's a growing number of events in the U S and Europe .
Our name recognition and positive brand associations.
<unk> significantly and the government trade associations and non government organization space.
We'll also be launching a customer referral program, which we think will get a loyal customers excited about the opportunities for both physical and experiential redemptions.
Our customers are some of our most.
Advocates and we want to reward them for their further.
With our brand awareness is moving in the right direction, we're now putting more energy behind it to capitalize upon the interest including the recent reinstatement of lucid original pricing.
And Sherri, we'll talk more about this in her prepared remarks.
So looking into the second half of the year, we have many exciting events and announcements coming we're on track to execute on deliveries under the purchase agreement with the government of Saudi Arabia, and thus far I am pleased with consumer and government demand in the region.
In September we expect to start producing lucid Ed pure rear wheel drive now the pure rear wheel drive will be able to achieve 419 miles on an EPA cycle with just 88 kilowatt hour battery pack and let me.
Do the quick math for you this equates to an efficiency of approximately 4.74 miles per kilowatt hour.
Indeed.
74 miles per kilowatt hour.
Single mode Lucid at pure tops every other EV on the U S market.
What is the efficiency means for customers is the ability to go further with less battery.
And the cost of entry is smaller this means in turn that weighs less is more agile and more importantly can cost less.
Then a vehicle a similar range, which needs a larger battery pack.
To get greater distance smaller battery lower materials cost lower running cost lower total cost of ownership immense interior space.
And much better for the environment.
And what really excites me is this technology that enables this $4 74 miles per kilowatt hour.
We will in turn enable more affordable products in the future.
In fact as the.
Price of the vehicle goes down.
So the battery becomes even more significant because it is the largest single cost of the vehicle. This is where efficiency becomes most critical.
Now I've been asked many times lucid have an advantage for now, but how long before they go and catch up.
My reply to this is always the same.
From this cash shrinking we're working assiduously to grow that gap because it's critical to the planet that we achieved higher efficiency evs, achieving the full 74 miles per kilowatt hour is testament to that.
And we will start pushing the envelope on our technology work is being well underway on our next generation power technology from mid sized platform.
Now also in September we plan to commence production of Sapphire Preproduction has in fact already begun and we've held a number of viewings for media and early customers already.
So that's how I will boast a note to 60 time.
1.89 seconds.
100 miles an hour time of 3.84 seconds, and our standing quarter mile time of 8.95 seconds.
But most of all I think the power and the performance is impressive.
Only begin to tell you how immensely delightful and responsive Sapphire is just to drive normally even when he chooses to exploit EMEA a fraction of the performance. This to me is one of its most surprising engaging even enduring attributes.
So I'll talk to you this type of comp performance demand for handling the track to Bill Lipsey concerning response of took victory with everyday usable.
Precedented combination.
Then in October we will be hosting a special launch events as well as making the first customer deliveries.
Now outside of North America, we are whole continuing to expand our footprint. We plan to open our dusseldorf studio in late September and I'm, particularly excited about the prospects for this market.
We took the lucid dream performance to the Autobahn, where it's been.
Best in class drug carefree front range and high speed stability to many heads on some of the most iconic roads in Europe .
Now also in September we plan to have the opening ceremony for our manufacturing facility in Saudi Arabia, we are incredibly excited about this.
The opening of a second lucid factory and our first manufacturing facility outside of the United States.
And finally, the announcement everyone has hardly been anticipating we plan to formally unveil the lucid.
Lucid gravity to the world in November at the <unk>.
We will launch events that will be live screen for everyone to watch.
Turning to software in the second quarter, we pushed seven over the air software updates with some major enhancements.
Can't emphasize enough the significance of our ability to enhance almost every part of the vehicle with software updates.
And we have our most significant vision for our software strategy.
One that we think very very few in the industry can match and Im really excited about the long term potential here. Please stay tuned.
So to sum up despite an uncertain macro environment I'm very excited about the back half of this year, we plan to start executing on purchase agreements with the government of Saudi Arabia.
<unk> and deliver pure Ria will drive produce and deliver sapphire officially opening a manufacturing facility in Saudi Arabia and of course unveil gravity.
Marquee launch events in November .
And more to come but we're not quite ready to announce yet.
Really cannot wait for you to experience these amazing calls and with that let me turn it over to Sherry for an update on our financials Sherry.
Thank you Peter and thank you for taking the time to join US today before sharing our Q2 results I'd also like to extend my sincere gratitude.
Yeah.
Sectors. This year, we successfully closed the transaction and Jim.
As Peter mentioned, we also announced a landmark technology deal with Aston Martin.
Aston Martin will paint booth today technology access fee of $232 million, comprising 100 million in ordinary shares of Aston Martin and aggregate cash payments of 132 million phased over a period of three years with the ordinary shares and $33 million cash payable to boost that.
Following deal closing, which is expected later this year.
Aston Martin will also connect to an effective minimum spat with listed on powertrain component of $225 million. In addition to engineering integration fees.
Monetizing loose its award winning technology is a key part of our forward strategy and worked at Washington take immense with new arm of our business with our partner as well respected as Aston Martin.
Concurrent with our earnings release, we announced the Finalization of our milestone agreement with the government of Saudi Arabia with an initial commitment to purchase 50000 vehicle and an option to purchase up to an additional 50000 over a 10 year period, it's a powerful affirmation of our products and a testament to our strategic relationship with.
The country.
On the manufacturing front, our Saudi Arabia semi knockdown also referred to as S. K D facility is nearly complete and is on track for production in September we expect to scale delivery from this facility in Q3.
For both consumers as well as various government entities within KSA.
This S. KD facility will be capable of up to 5000 units per year and as part of our larger amp to campus, which had full scale is expected to produce up to 155000 units per year.
Before I turn to our second quarter financial results, Let me briefly touch on the reinstated pricing at the beginning of this year, we spoke about our two strategic priorities brand awareness and cost initiatives.
The targeted actions, we took to invigorate our marketing programs in the luxury and premium segment is resulting in greater brand awareness.
A few moments ago, Peter spoke to the third party validation of our stronger brand position. We started seeing evidence of this with our order volumes increasing towards the end of July .
We aim to capitalize on this brand awareness momentum by taking action to improve vehicle affordability for customers.
Hence we have reinstated pricing levels to those which we contemplated in our original business plan.
Early reception has been very strong with a three <unk> increase in orders in the first full day of the program as compared to the end of July .
The return on investment that we're now seeing.
<unk> gives us more confidence in the next steps of our plan to further improve brand awareness and importantly conversion.
Turning to costs.
We have realized cost improvements in a number of areas, but we've also had some offset.
In 2022, we realized cost reductions in our bill of materials.
In 2023, we've experienced significant improvements in our logistics costs through more efficient routing combined.
Combined with declining rates globally.
Our manufacturing labor costs have also come down in our manufacturing efficiency has gone up as a result of our workforce reduction in productivity initiatives implemented earlier this year.
However, we still see tremendous opportunity across the organization for cost downs that have been identified as part of a five part cost control program that we implemented in the first half of this year.
We believe that some of the largest opportunities exist in bill of material costs.
Manufacturing overhead scrap reduction and professional services spend.
Well some of these cost reductions can be realized this year, we expect much more will be realized in 2024.
Some context, many of the bill of material cost reductions take time to implement and validate. Additionally, realization of these savings requires us to work through our existing inventory balanced first we're still carrying high inventory levels, partly due to COVID-19 and partly due to the optimization required material planning as we bring on new vehicle variant.
As a result, both cost downs as well as other savings in areas such as commodity price reductions won't be realized until we work through the existing inventory, which we expect will meaningfully occur in 2024.
It's important to note that we also see other forms of income in the next few quarters, we estimate IRI benefits of around a couple of thousand dollars per vehicle, which we do not currently recognized in our results. Additionally.
Additionally, we've now signed several emission credit deal and expect to recognize revenue starting in Q3.
Although the total amount is not material yet we are seeing further interest and opportunity here.
Now turning to our 2023 second quarter financial results.
We produced 2173 vehicles.
213% year over year and delivered one 404 vehicles up approximately 107% year over year.
<unk> sequential relative to our expectations for units to be up quarter on quarter.
In addition, we had a significant number of vehicles that were in transit to Saudi Arabia, We had planned to get these vehicles to Saudi Arabia and out for delivery before the summer holidays. So they were delayed due to supplier issues. Those issues are now largely resolved and we expect deliveries to customers and the government of Saudi Arabia to ramp this quarter and in <unk>.
Q4.
Turning to the P&L in <unk>.
Q2, we recorded revenue of $150 9 million, which represented a year over year increase of 55%.
Cost of revenue was $555 8 million for the second quarter, our gross margin was down on a quarter over quarter basis. The reduction in gross margin was driven by impairment charges of approximately $295 million in Q2 related to lower of cost or net realizable value that we also.
<unk> referred to as LC, and RV, which was largely due to reinstatement of the original pricing program obsolescence and losses from firm purchase commitments.
Other sources of the cost of revenue increase this quarter include a component scrap and onetime costs related to special campaigns to repair or replace under warranties.
Now moving to operating expenses.
R&D expense totaled approximately <unk> <unk>.
$233 5 million up 2% sequentially with the largest factor attributable to higher stock based compensation expense due to our annual equity refresh taking place within the quarter.
SG&A expense was approximately $197 7 million up 17% sequentially. The sequential increase was attributable to higher payroll related expenses and higher stock based compensation expense as well as E. N G E G&A investments as we build out the global business.
We opened one is Jody studio in Q2, bringing our total studios in service centers at the end of the quarter to 41. This excludes our temporary and satellite service centers.
The number of studio openings can vary quarter to quarter, but will continue to be strategic and judicious with our site expansion and we will also leverage cost effective pop up studios, which have been highly effective and complementing our studios for brand awareness.
On the service side, we ended Q2 with 43 mobile ban in the fleet and 74 nationwide approved body shops, we expect to increase the number of satellite service centers, which will cost effectively provide additional locations for at least the customers.
Our stock based compensation in the quarter was $71 4 million.
We also recorded a noncash benefit of $42 1 million related to the change in fair value of our common stock warrant liability as a reminder, this noncash impact can be influenced quarter to quarter by a number of factors with one of the larger factors being listed share price at the end of the quarter.
In Q2, we achieved an adjusted EBITDA loss of $710 3 million.
Moving to the balance sheet, we ended the quarter with approximately $5 5 billion in cash cash equivalents and investments with total liquidity of approximately 625 billion, we've been able to consistently sustain a strong balance sheet overtime and as we've done for the last two years will.
<unk> to be opportunistic and exploring and diversifying access to financing sources.
Turning to inventory.
Inventory decreased 16, 5% sequentially due to the reduction in raw materials and inventory write down.
Presuming that supply chain pressures continue to stabilize we see a pathway to a significant reduction in raw material days of inventory on hand, as we work towards greater predictability in the transportation channel and refine our inventory management processes and systems.
Capital expenditures were $203 7 million down 15, 7% versus Q1.
Moving to the outlook, we are reiterating our production outlook for more than 10000 vehicles. In 2023. We've noted in the past that production is not a bottleneck, but we're being prudent and managing vehicle inventory for those of you updating your models I want to point out that the SKT vehicles that are partially assembled.
In Arizona and completed in KSA will not be counted as a production unit until they are finished in KSA. So an increasing amount of our production volume will be coming from KSA as we finish out the year.
Although we typically don't provide delivery or gross margin guidance. We wanted to provide some direction to help you with your modeling.
We expect deliveries to be up the back half of the year and we expect Q4 to be our largest quarter of the year as we ramp sales to customers and the government of Saudi Arabia ramp here, all wheel drive and introduce our most affordable variant peer rear wheel drive in September .
There are many controllable and uncontrollable variable that can affect gross margin, but let me provide a little color on our expectations based on what we know today.
We expect gross margin to improve through the back half of the year.
We expect the improvement to be driven by higher volume as well as lower LC and RV and an expectation for fewer one off expenses then incur occurred in Q2 of this year.
With regard to our liquidity position, we ended the quarter with total liquidity of approximately 625 billion. We expect this will give us runway through the start of production of gravity and into 2025 move.
Moving to Capex, we expect capital expenditures for 2023 to be between $1 1 billion and $1 3 billion, reflecting some efficiencies which were identified over the last quarter in deferrals and our capital outlay Capex will support our continued growth objective as we strategically invest in manufacturer.
<unk> Cassidy and capabilities some moderate investment in retail studios and service center capabilities across the globe in other areas supporting growth of this business.
To close by saying that we recognize the uncertainties in the macro environment and we're being thoughtful about how we navigate through this but we're pleased so far with the progress we're seeing across some of our targeted initiatives and the momentum in our brand awareness and orders were also excited by what's coming in the remainder of the year, we're getting the air into more.
Customers hands this quarter in Saudi Arabia, we will deliver.
Your rear wheel drive our most affordable air trim in September we'll start deliveries of the SaaS layer in October and in November we'll have our big gravity unveil a lot to be excited about in the two quarters ahead with that let me turn it back to me to get to your question Maynard.
Thanks, Jerry will now start the Q&A portion of the call today's Q&A will feature questions from some of our retail investors, which is an important constituency of our shareholder base.
To the CA technologies platform, followed by life analyst questions before I take questions.
The question is with us on the phone, let's move to the same questions here. The first question. What is the current status of your mid size EV development are you still planning on building it or alternatively, providing licensing your platform to another OEM similar to Aston Martin recent deal are you still aiming for a mid decade release.
We will on July two.
The mid size EV development is on schedule for mid to late <unk>.
Okay.
To represent a further developments in our technology and really take the efficiency story to the next level that's really important.
We expect all the attributes of efficiency the space concept that you see in our current vehicles the charging speed that you experienced.
For that we are developing next generation powertrain and we're already started working on that that needs to be ready.
I think with the.
Started production of the platform, we're looking at all opportunities.
Because it's going to be a global vehicle, we're going to make it much more expansible in terms of its.
Price points.
All with the strategy the vision of.
Lucid to start with volume product Christine.
And gravity to develop the world's most advanced technology, and then to use that to deploy it to make electric cars more attainable.
Our center point of that whole thesis is how far can we go with how little battery.
Efficient can we make to come that's going to ultimately the LPG is all about that's what our technology is all about and we're going to really that's going to manifest itself fully in the mid size platform.
Great we'll move to the next question could you provide an update regarding the development of energy storage system. What is the current status of your <unk> pilot program testing and when should we expect it to go into production phase.
Thanks Maynard, Yes. In addition to the vehicle development and licensing businesses, we have envision that energy storage systems could be another monetization option for us. This could be ESI is the vehicle itself or residential storage systems. As an example, while we have completed some early pilot work, it's not a strategic focus.
For US right now in light of macroeconomic uncertainty and highest higher interest rates. We think it's important at this time to stay focused on our Q highest priorities, which is our vehicle sales business and our tech licensing business.
Thanks, Terry the next one we addressed in terms of the delivery numbers in the back half so I'll move to the question after.
It's a partnership with Apple is still in the works is the company policy Raleigh count on accounts speak from potential partnerships with any with any company clearly I would say that we were delighted to have rolled out Apple car play and I think that really address a lot of we listened to.
The voice of the customer I think that was.
A big win for so many people.
We have developed now are really fantastic user experience with our software, but it is important to give our customers choices they want and so let them choose.
<unk> partnerships that makes sense.
Including Fabs.
Thanks, Peter the next question, we already addressed in terms of our increasing brand awareness. So let me move to the next question, how often what we see ventures, where lucid is licensing or allowing companies like ask Martin to use lucid technology in the next five to 10 years, well first of all I'm really thrilled to be partnering with Aston Martin.
Such a storied company with such as such Great history, and just an ideal partner for us.
Yeah.
We progressed as a company income progressively die marquez into a more accessible place a more affordable technology powertrain technology will become more affordable and then that would in turn see more mainstream problems in the future, but all I believe it's a time scale to this I believe the market will come to us I mean, it it's little.
And the vast majority of car companies today are just buying the powertrain from other companies. We may be one of maybe two or three to the vertically integrated we believe that we're about.
At least three years ahead of the nearest competitor and that numerous compared to this properly and many many years ahead of their closest competitor in terms of go EV technology now I think a lot of the traditional companies are starting to look at this but frankly, they're way behind.
And you know.
I think that as we increase the gap.
The very fact, we're getting to these extraordinary levels of efficiency. The four point 74 miles per kilowatt now this is.
And indicated that the gap is growing not narrowing only think that a number of these traditional card companies are going to be left behind and then I think that will be a real opportune moment for us.
They seek to.
Get onto the electric vehicle bandwagon, which will be a juggernaut by then.
Thanks, Peter now I'd like to take questions from the phone lines to one that can we queue up the first question. Please.
Sure.
Ladies and gentlemen is on my mind to ask the questions that start one line on your telephone to remove yourself from the queue that start one one again.
Please stand by for our first question.
Our first question comes from the lineup John Murphy with Bank of America. Your line is open.
Good evening, everybody just the first question Peter I mean, the Aston Martin contract sounds great.
Great and it it seems like it might be the tip of the spear of things to come on selling the powertrain technology or or licensing. It I was just curious if you can confirm that there are other talks going on or that is part of the game plan. I know you can't talk about specific companies and then maybe you sort of secondarily with that you know explain the economics beyond.
The initial for a payment to your own shares in cash that $225 million, a powertrain development payment or or revenue.
Revenue I'm not sure exactly how you want to characterize that Sherry, what kind of economics does that bring with it and is there something beyond this initial 450 million dollar payment.
Hi to all day to him so.
We're thrilled to have Aston Martin as a partner, it's it's a supply and technology partnership with the elements. The core elements that we're going to supply one day.
<unk> battery modules and battery technology part of the battery monitoring system.
And the twin rear drive units.
Is that influence Sapphire. So this is top flight technology, which we're enabling astronaut and really to get completely ahead of the pack with in terms of them move to electrification and it's a wonderful result of both policies. We're also going to help with the technological implementation and integration such.
Traction control stability control.
And I'm breaking systems.
Way, that's our power unit is integrated into the chassis and today is the way to the vehicle the weight distribution of that vehicle and so that sort of leads to the two elements of of revenue here there's.
As a piece, which is accessing the technology and I'd, let sherri elaborates on that it's in accessing fee and then there's a supply fee, which is based upon a clearly the number of vehicles that will be settled.
With this state it for some time, we've been in dialogue with the number of the coffees, we not proactively reaching out to anybody and my priority is to have a.
Really satisfy offers customer Aston Martin that is my number one priority now is to ensure that they get excellent service and get the full mind to that of technological prowess behind them.
But I'm I'm I'm open to.
Along with any other interested party that may come along but clearly white now the technology. We got today sits higher end products in a few years' time will be in a situation, where we could countenance a partnership for a more mainstream product when we get mid sized platform technology ready.
Great I'll take the economics part of that question Shaun So athlete Sadly said, it's gonna get a technology access <unk> $32 million, that's comprised of $100 million, an ordinary shares and aggregate cash payment of $132 million, that's going to be faced over three years now.
Portion of the cash 33 million, some engineering fees and 100 million ordinary shares status available after deal closing, which makes back later this year that will initially be recorded as deferred revenue, which will begin to release ended the income statement as prototypes and our production pirates.
Shipped and now.
Second part the minimum then I'm powertrain components that 225 million that won't be for prototype parts as well as production Pirates and then there will also be engineering integration fees that will occur over time. So add the parts are shipped the revenue will be dude.
[laughter].
Okay, just to follow up on that I mean, a very simple question. I mean do you think those margins will be sort of very strong supplier margins that would be in the mid teens with return on invested capital in the high twenties or is that still TBD.
This is going to be very strong margin for the company.
This is this is this is John this is a technology company plan yeah.
Yeah, Yeah, Yeah, Yeah, no I.
I understand okay.
Essentially.
This isn't an automotive supplier type of contract. This is a technology client.
Okay. That's that's very interesting and then just just like an ordinary.
It's also very thoughtfully constructed such at the dollar is coming in alright anticipated to cover our costs. If we go through the development cycle with them.
Yeah, no. It seems like there's a lot of opportunity here in need for this just a second question on in yesterday and a step up show. Your I mean, he didn't mentioned marketing dollars increasing in as far as that step up but I would imagine those probably had some impact on the step up and SG&A or my misinterpreting something cause it just seems like we're seeing a lot more commercials and there there's there's talk of.
Out this I just just curious what that marketing spend was and how much you stepped up or didn't.
Yeah. So my opinion is certainly part of the SG&A. Yeah. We stayed largely within the balance that we had budgeted and planned for Q Q and ask me upset last quarter, we really took a targeted approach and so we are really thoughtful about where those salaries percent that we're gonna get the largest <unk> now that we're.
Seeing the targeted dollars, providing our ally we plan to put more dollars into the targeted marketing spend and then additionally, as we said capitalize that through the incorporation of and reinstatement of our original pricing program. As you go forward. The next couple of quarters.
I would guided SG&A will continue to be up somewhat particularly as we are investing in infrastructure. So the company is growing it's growing globally and there is important I T G&A and launch costs associated with opening into some of these new mark.
Cats seem particularly marketing that is going to happen I don't expect us to be significant but it could be up 15, 20%.
As you look forward to it.
And a year over year basis, and what kind of year over year basis, say, maybe up 15% to 20% and SG&A.
That's very helpful. I got a bunch more but I'll follow up later, thank you very much guys.
Personal you're welcome.
Thank you please stand by for our next question.
Our next question comes from a line of Stephen Fox with box advisers. Your line is open.
Hi, Good afternoon, two questions for me also if I could first of all.
When we think about the right sizing or swelling down to the manufacturing given this lower deliveries and maybe you would have expected a year ago. How much further could you go if say you're growing sales, but maybe not by as much as you think like what what are the backstop. So you have to sort of continue to.
To narrow the gross profit losses, and then I had a follow up.
Okay. So you had a question on manufacturing specifically.
Additionally, you had a question on gross margin more.
More generally so in manufacturing specifically, we were able to see some significant efficiencies to the productivity initiatives in the workforce reduction that we did earlier in the year. So we're sitting in a good position relative to that we don't see a lot of creep up in manufacturing labor <unk>.
The ear might be a little bit as we transition into our new General Assembly Hall, and we moved to the logistics center, that's going to be on site. So we are being very thoughtful about the staged.
Turning on of the new equipment with faith too. So as we are in 2023 at this point, we're really only expecting that we'd be turning on depreciation expense associated with the New General Assembly Hall, and the warehouse, which would be essentially the internal legit.
Six center. So as you look through the course of the year that will come on board, but that's only going to be an increase in depreciation expense of say, 10% to 20%. The rest of that we're going to move to 2024.
More so when the 2000 when the gravity comes on board late in 2024 <unk>.
Gross margin lots of activities that are going on there we're sitting in a good position with respect to our contribution margin also known as variable margin is for exiting the ear, but there's even more that we can do there bill of materials as I said in my prepared remarks, I think you're gonna see more of that action be effective.
In 2024, but I do see additional freight <unk>.
Reductions in logistics costs down through the balance of the year. So those are two things on the variable margin I think will be working on through the balance of the year I referenced our five point cost control program and part of that is focused in the manufacturing costs area, there's still a lot to do and manufacturing overhead.
Ed.
I already spoke to depreciation so we're really going to work can you get scrapped down and if you're looking at professional services in the manufacturing overhead area really focused on getting that down. So those are the areas of primary focus for this year.
Great. That's that's helpful detail and obviously, it's a complex.
May I have to figure out and then just as a follow up you guys were successful in raising a capital this past quarter, but you also diluted your shareholders, but the existing shareholders by 20 to 25 per cent can you sort of talk about your how do you plan to move forward on any potential capital raise relative to for.
Checking your shareholder base. Thanks.
Well first of all as we said, there's not an immediate need to raise cash we will continue to be opportunistic what I'm excited about if there's a lot of catalyst potentially coming forward here with the spring on of the railroad drive with a scale up the all wheel drive.
The pier with a sapphire are coming out with the gravity unveiled later this year all of these things are going to be in her and major milestone points that I would think could be very positive to the valuation of the company. Hence as you go further in time, if you add more shares then it might not be.
Dilutive because you have these major milestone offence and progress points in your business will continue to look at all types of of liquidity for the business. We have available to us. The ABL, we have available to us alone and in the Kingdom of Saudi Arabia as we advanced.
Production there uhm, we continue to have get options as well as of course equity option.
Great. That's very helpful. Thank you.
Thank you.
Stand by for our next question.
Our next question comes from a lot of I'll tell Ya, Michael Lee, which city <unk>.
<unk>.
Great. Thanks, how everyone. Just two questions for me <unk> you mentioned an increase in the orders since the recent very recent price adjustment, hoping you can elaborate a bit more.
And particularly in which trims that you see some of the strongest order response, Luckily Sheri uhm. Thanks for the tip of color and SG&A going forward is hoping that you could also provide some color and how would you think about R&D over the next couple of quarters. Thank you.
Okay.
Yeah, we don't give guidance on specific breakdown between trains, but would I would just wanna use.
We're already seeing.
Very positive feedback from a recent address ma'am.
We've also seeing the value of his greeting.
The the awareness of the brand.
<unk> <unk>, so many people who had it in their minds of the call was more expensive than it really was in the first place. So when you combine that with the essence of the Pew Railroad drive which is scheduled for production starts in September . So I think this puts us.
In a very positive position now it's all about growing awareness Ah customer awareness of just how great. The product is we received very significant endorsements and just the last few days indeed from motor trend.
To be the best.
That luxury EV offering available in the U S I'm, putting us above Tesla.
Sure.
I am from the cities. So I think I think we were looking forward to pre future now.
And I can cover up on the R&D question that you had over the next couple of quarters. So we've been able to hold R&D pretty flat. The last couple of quarters, but I do expect it to pick up over the next two and the reason for that is for now reaching the important faith in the gravity development, where we'll be doing prototype vehicle will <unk>.
Be doing engineering design and testing on the gravity and also early work on the mid sized with continued work on advancements in powertrain. We also talked about the fact that we would have Aston Martin coming on but that's really have cash inflow designed to offset it but I would expect maybe up 20% year over year.
<unk> would be the guidance that I'd I'd look to give on a year over year basis and are handy.
That's that's all very helpful. Thank you.
Thank you.
Please stand by for our next question.
Our next question.
<unk> comes from a lump Andrew a shepherd with Cantor Fitzgerald. Your line is open.
Hi, good afternoon, Thanks for taking my questions and congratulations on the quarter one of our questions have been asked but by now, but maybe I was hoping it is it possible to perhaps a better quantify the the agreement with Saudi Arabia in terms of deliveries.
Two three Q for.
Just trying to figure out how how best to model. It I know you said, maybe not material in Q3, but just seeing if perhaps we get a little more color there. Thank you.
Well. Thank you, yes, we are able to announce today that we have signed the finalize.
Finalize the agreement and this is in agreement.
<unk> at least 50000 vehicles.
And up to an additional 50000, making 100000 vehicles.
Hulu models.
Models of lucid. This includes cause like lusitanian being made in Arizona and also in in Ah, Arizona, and we successfully shifts from Oleg attitude cause I have a scale to Saudi Arabia already and that's a real milestone in these grueling trends at the end of the quarter and that's alive.
Shortly after the call and we hope that the blended into the little before the the Eden some holidays and KSA, but that we encountered a couple of issues there which have now been resolved. So we're looking forward to beginning ramping deliveries to customers both in Q3.
Q for right now I have to say, we're not providing exact numbers.
<unk> provided geographic mix today.
Got it okay. Peter Thank you and maybe just a quick follow up.
Just wondering if you could maybe give us a sense of of pricing for the gravity. The SUV I know you haven't disclosed that but are you able to perhaps point us in the right direction as to what are you thinking what is something that you're targeting sure sure sure sure well we've indicated for some time now to anticipate.
Prices are very similar to the sort of price structure that you get listed.
Not in a position today to disclose those prices we are planning a major launch than food gravity in November and I hope to be in a position that we can disclose buddies at the pricing structure.
Sure.
Got it thanks, very much Peter I'll pass it on thank you.
Thank you. Thank you.
Thank you please stand by for our next question.
Our next question comes from a line <unk> to cycle with Guggenheim. Your line is open.
Peter Sherry good evening, and thanks for taking my questions.
Alright.
What's the production guidance being maintained.
Implying a pretty big step.
And back half deliveries, oh or at least Rebecca production.
How should we think about your pricing strategy going forward.
Is your goal to the price of your product lineup lineup to limit the inventory increases from the current level and would you rather flex pricing or limit production.
Current levels.
Well.
I think we want to make.
Competitively priced to make it a a super compelling proposition, which I think it is now I think it's it's an absolute vulgar and right now quite frankly.
We need to add a movie cruise to the visible fleet.
Road.
Absolutely we can get is elusive androids in the wild.
All people see because the move I get used to them.
Confidence that they have potential.
Potential customer base and so you know.
We're seeking to of course drawdown upon existing inventory.
And guess because in customers terms, because our best salespeople customers their best Optimist advocates on this cruise.
True Catholic.
That's what we're achieving now of course, we've got two bookends coming we've got the Halo product.
Sapphire <unk> coming eminently going into production in September 1st deliveries in early October and at the same time during very very similar time, we've got the rear.
Railroad drive version of a pure breed production in Arizona in in September and this will be our most affordable most obtainable they're into the car. So I think we need to watch this space.
I'm willing.
Willing to adjust to.
<unk> market conditions, I think that's very important to retain their flexibility B T is to get product out into the wild and customers.
The best marketing tools.
Yeah that that makes perfect sense to me and maybe just a quick one for for Sherry, but on the impairment charges. This quarter does that reflect the latest pricing moves or should be what should we think about for.
Healthy NRG charges out of the third quarter.
It does already contemplate the reinstatement of the original pricing program for the balance of the year.
Perfect. Thank you both.
Thank you. Thank you.
Thank you please stand by for our next question.
Our next question comes from a line or change the gorilla with B N T. Your line is open.
Hi, everyone, Alright, I'll just start gross profit.
Following up on the LC interview in fact it.
It took another step higher in the second quarter, but without all of the impact this quarter, reflecting non-cash.
So can you curious what might be.
Back there and just how do you perceive.
Training for the remainder of the year and should gross profit for loss, excluding this impact improves.
The remainder of the year.
Yeah. So the I'll see in our fee was impacted by the original pricing program with also impacted by obsolescence and firm losses on firm commitments.
In in terms of the cost of revenue overall there were some.
Some write offs with respect to inventory you get things like expired inventory et cetera, those our team to be more of a one off nature.
Always have some but we thought it was exceptionally high in queue to with our opinion. So as we go forward. We would expect <unk> to go down the next two quarters that would be our expectation and that's based on really.
The points that I made that there's fewer one off that we already have quite a bit of inventory on the books.
And also be the major drivers.
I mean, I know, it's tough to say, but.
Given the the pricing announcements that you've recently made sure the gross profit per loss.
Gross profit loss per unit improve.
Rebecca.
So we already contemplated in.
The adoption of the original pricing program and the <unk>.
Okay, Alright, and then just one last one on the commentary regarding the company's correct.
6.25 billion in liquidity to sustain.
The company or into early 25.
The the applied cash burn rate over the next seven quarters from being roughly 900 million quarterly even is there any other way to to read into that provided timeline and I know, we won't get into 2024 guidance right now, but it just you know high level, how should we be thinking about your capex relative to operating losses.
Just informing that timeline. Thank you.
Yeah, I think that you're right. It would go into 2025, we are expecting to go through the launch of the gravity program. The cash Uhm I think your you know your estimated is a reasonable one.
We have been sharing Capex, all along I did guide down a bit on cutbacks to one 1% to $1.3 billion for the balance of the year. So that gives you a little bit of runway into thinking about the next two quarters as we get closer to the end of the year I'll probably guide for 2024 on Capex.
Thanks.
Thank you.
Oh, you're standby for our next question.
Our next question comes from the lineup device that with Red Burn Your line is open.
Hi, good evening, Thanks for taking my questions I I have to.
Okay, I guess, what I'd like to sources on engineering changes and I I think you mentioned a couple of.
You mentioned that you made a sauce engineering changes.
During this quarter and also in the last quarter, but that's what I was wondering if you could actually get some examples of changes that have been made or incoming to reduce the lucid lucid add Philip materials, and perhaps outside of that what opportunities all of that to the contents vehicles reduces D. O S. And then I have one.
Hello.
Yeah.
The most significant point here is that affects the the ability to will cost.
It's not someone should change, but it's it's a new model, which was planned so does it does the difference in the engineering.
It's not the sort of unplanned change it is a structured.
<unk> and that is to rear wheel drive two wheeled alive <unk>. This has got just one <unk> and so the other kinds of go to drive units one of the funds from one of the way. So you save it comes to the drawing of units.
It's very helpful, but we're down to just and 88 kilowatt hour battery pack, which.
Which the most other companies would remain.
But I'm inexpensively small range, but we are achieving 419 miles on the new <unk> with Justice 88.
Which is unprecedented and because the battery pack is the biggest single cost.
Materials Cigna.
Significant.
Wood pressure the cost of building.
I think that's the most significant change that we might agree I will pray that will make you implement a.
A series of changes to the vehicle other than on the software side, because we're able to download over the <unk>.
Significant.
Sanchez uhm to existing customers, which see that sounds become better through the cruise.
Sure. So you know.
And I also would like to indicate this that because we have this module.
Three pack.
Means that we can just reduce the number of modules in the pack to downsize the pack for the we will drive.
<unk>, so it's not a fundamentally different battery pack, it's just a natural derivative <unk> from the outset.
We've got actually we use a very similar philosophy on the panic of gravity is very similar to the pack of.
Using a very high percentage of carryover components to reduce cost and maximize economies of scale as well for us.
Got it alright that is super helpful. Thank you Okay uhm.
My second question is really fit Sherri and I calculate.
Written down approximately $1.1 billion worth of inventory.
Purchase commitments since starting production in the third quarter of 2021.
And I was wondering when exactly did you expect the benefits from <unk> or perhaps see striking down new purchases.
Well over the next few quarters, we're gonna continue to use the inventory that it's already had LCN RFE charges taken against it so that would be over the next few quarters you can see what the inventory balances at a raw material basis work in process is wallets finish.
Good yeah through the footnotes in the 10-Q and then you can do some rough math essentially to think about the the cost it would be attributed to the vehicle that are sold and think about the volumes and your model in order to do that Bath.
Perfect. Okay that is helpful. Thank you both.
Sure. Thank you.
Thank you.
At this time I would like to turn the call back over to them.
The pro Max.
Thank you. This concludes loose in the second quarter of 2002 23 earnings Conference call. Thank you all for joining US today you may now disconnect.
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