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 this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
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I would now like to hand, the conference over to main at home. So you may begin.
Thank you and welcome to lucid group's second quarter 2023 earnings call.
And 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.
Macroeconomic 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 our forward looking statements on page two.
At 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 Robinson Peter Please go ahead.
And thank you everyone for joining us for our second quarter earnings call.
We should.
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 and grew only thing.
Mission food.
Also have many exciting events and announcements planned in the second half of this year that 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 Tomorrow.
Providing them access to our supplier electric vehicle powertrain technology and data enabled Aston Martin Evs.
Aston Martin chose lucid following a competitive process to ensure that the excess what they felt was not only the best but also the most advanced analytical technology available.
Janet.
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 markets, 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 of both the Aston Martin agreements 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 am pleased to say that some of the initiatives with actions are seeing solid progress.
We saw another strong increase in the number of tests <unk> sequentially through Q2, and the third party data shows that our brand awareness in the luxury and premium segment is growing to a 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.
Continues to garner strong accolades and received an affirmative independent the summary of how loose it 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 in 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 notes 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 the battery is smaller this means in terms of the kind of 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.
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 <unk>.
So the vehicle goes down the cost of the battery becomes even more significant because it is the largest single cost of the <unk>.
Nicole.
This is where efficiency becomes most critical.
Now I've been asked many times.
It has an advantage for now.
How long before this go and catch up.
I replied to this is always the same thoughtfulness cat shrinking.
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.
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 that's how I view this type of comp performance delightful 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 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 official opening of our 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 a special 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.
We have a more 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 am very excited about the back half of this year, we plan to start executing on purchase agreements with the government of Saudi Arabia produce and deliver pure Ria will drive produce and deliver sapphire.
Fishery opening a manufacturing facility in Saudi Arabia and of course unveil gravity.
Marquee launch events in November and.
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.
Sectors. This year, we successfully closed the transaction and Jim.
As Peter mentioned, we also announced a landmark technology deal with Aston Martin <unk>.
And Martin will pave lose 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 of the cash payable to loosen.
Following deal closing, which is expected later this year.
Aston Martin will also commit to an effective minimum spend 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 vehicles 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, <unk> knockdown also referred to as S. K D facility is nearly complete and is on track for production in September we expect to scale deliveries from this facility in Q3.
For both consumers as well as various government entities within KSA.
This 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 to 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 .
Aimed 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.
The early reception has been very strong with a three <unk> increase in orders in the first full day in the program as compared to the end of July .
The return on investment that we're now gives.
Gives us more confidence in the next steps of our plan to further improve brand awareness and importantly conversion.
Turning to cost we.
<unk> 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.
And in 2023, we've experienced significant improvements in our logistics costs through more efficient routing component.
Bind 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.
While 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 balance first.
Still carrying high inventory levels, partly due to COVID-19 and partly due to the optimization required a 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 reduction 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 IRA benefits of around a couple of thousand dollars per vehicle, which we do not currently recognized in our results.
Additionally, we have now signed several emission credit deal and expect to recognize revenue starting in Q3.
So 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 up 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 have plan to get these vehicles to Saudi Arabia and out for delivery before the end of 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.
Joe 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 increased 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 built out the global business.
We opened one new Sidoti 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'll 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 over time 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.
Aaron's Donna 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 want 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, yes, we've ramped 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 variables 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 than in cure 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.
Cap Cassidy and capabilities some moderate investment in retail studios and service center capabilities across the globe and other areas supporting growth of listed business.
I'd like 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 error.
More customers hands this quarter in Saudi Arabia, we will deliver.
Sure we are well drive our most affordable air trim in September .
I'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.
Sure.
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.
Through the same technology platform, followed by life analyst questions before I take.
Questions from those 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.
Well I'm delighted that the mid size EV development is on schedule for mid to late.
Decades.
Going to represent a further developments in our technology and really take the efficiency story to the next level Thats really important.
Expect coal we attributes of efficiency the space concept that you see in our current vehicles the charging speed that you experienced.
Lisa.
For that we are developing next generation powertrain and we're already started working on that that needs to be ready.
To sync with the start of 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 <unk>.
Points Amit.
All with the strategy.
Vision of <unk>.
Lucid to start with volume product Christine.
And gravity to develop the world's most advanced technology, and then to use them to deploy it to make electric cars more attainable.
Our center point of that whole thesis is.
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 sized 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 ESL 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 two 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.
The partnership with Apple is still in the works is a company policy. We all account on accounts speak of some potential partnerships with with any with any company clearly.
Say that we were delighted to have rolled out Apple car play and I think that really address a lot of we listen to the voice of the customer, but I think that was a.
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 Aston 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 a such great history, and just an ideal partner for US loose. It started with relatively high end high performance technology that we're seeing in leased today and we will see very soon in Sacramento.
And finally that we have a partner.
Core DNA is as high technology high performance attributes. So there is a perfect synergy.
Jim.
As we progressed as a company income progressively down market into a more accessible place a more affordable or technology powertrain technology will become more affordable.
Wood in terms more mainstream in the future, but all I believe is upon scale today. So I believe the market will come to us.
<unk> known the vast majority of car companies today, just volume powertrain from other companies. We are may be one or maybe two or three to vertically integrate.
We believe that we are about.
So at least three years ahead of the nearest competitor.
As compared to this appropriately in many many years ahead of their closest competitor in terms of co EV technology now I think a lot of the traditional CRO companies are starting to look at this but frankly, they're way behind and.
I think that as we increase the gap.
We're getting to these extraordinary levels of efficiency to $4 74 miles per kilowatt hour. This is.
An indicator that the gap is growing not narrowing only thing a number of these traditional car companies are going to be left behind.
I think that will be a real opportune moment for us as they seek to.
Get onto the electric vehicle bandwagon, which will be a juggernaut by then.
Thanks, Peter now wed like to take questions from the phone lines to Wanda can we queue up the first question. Please.
Sure.
Ladies and gentlemen is on my mind is to ask a question Thats Star one on your telephone to remove yourself from the queue that star one again.
Please standby for our first question.
Our first question comes from the line of John Murphy with Bank of America. Your line is open.
Good evening everybody.
Just a first question Peter I mean, the Aston Martin contract zones.
Great and it seems like it might be the tip of the spear of things to come on selling the powertrain technology or licensing it.
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 secondarily with that.
Can you explain the economics beyond the initial for payments year on shares and cash.
$225 million of powertrain development payment or revenue I'm not sure exactly how you want to characterize that sheri.
Kind of economics does that bring with it and is there something beyond this initial $450 million payment.
Hi, John Taylor here, so yeah, I mean, we're thrilled to have <unk> as a partner.
It's a supply and technology partnership with the elements of the core elements that we are going to supply.
The Bulks battery modules and battery technology part of the bank.
Monitoring system and the tween rear drive units.
Is that in fluids.
So this is top flight technology, which we're enabling Aston Martin really to get it completely ahead of the pack with in terms of their move to electrification and it's a wonderful result for both policies. We're also going to help with the technological implementation and integration such as traction control stability.
Control.
And our braking systems the way that our power unit is integrated into the chassis into the pie is the way to the vehicle to weight distribution of their vehicle and so that sort of leads to the two elements.
<unk> of revenue here.
The pace switches.
Accessing the technology and I'll, let Sherri elaborates on that is in accessing fee and then there's a supply fee, which is based upon the clearly the number of vehicles that will be soon.
Yeah.
We've stated for some time, we've been in dialogue with a number of parties, we're not proactively reaching out to anybody in my priority is to have.
Really centers on our first customer Aston Martin that is my number one priority now is to ensure that they get excellent service and get the full months of our technological prowess behind them.
But.
Im open to <unk>.
Dialogue with any other interested party that may come along but clearly right now the technology. We've got today suits higher end products in a few years' time will be in a situation, where we could consonants partnership for a more mainstream product when we get to mid sized platform technology ready.
Great I'll take the economics part of that question John .
As we said lucid is going to get a technology access fee of $232 million, that's comprised of $100 million in ordinary shares.
And aggregate cash payments of $132 million, that's going to be phased over three years now a portion of the cash $33 million, some engineering fees and the 100 million ordinary shares that is available after deal closing, which we expect later this year that will initially be recorded as deferred revenue.
We'll begin to release into the income statement and prototypes and production parts are shipped to AML.
Second part the minimum spend on powertrain components at $225 million that will be for prototype parts as well as production parts and then there will also be engineering integration fees that will occur over time. So as the parts are shipped the revenue will be <unk>.
Yes.
Just a follow up on that.
Very simple question I mean, do you think those margins will be sort of a very strong supplier margins that would be in the mid teens with return on invested capital in the high Twenty's or is that still TBD.
This is going to be very strong margins for the company okay.
This is John this is a technology company play.
Yes.
I understand okay thats great.
This isn't an automotive supplier type of contract. This is a technology play.
Okay.
Very interesting and then just the second one.
It's also very thoughtfully constructed such at the dollars coming in are anticipated to cover our costs as we go through the development cycle with them.
Yes, no it seems like Theres, a lot of opportunity here and need for this.
Just a second question on your SG&A step up Sherri I mean, you didn't mentioned marketing dollars.
Greasing and as far as that step up but I would imagine that's probably had some impact on the step up in SG&A or am I misinterpreting something because it seems like we're seeing a lot more commercials in there.
There is talk about this I just just curious what that marketing spend was and how much you stepped up our didn't.
So marketing is certainly part of the SG&A, we stayed largely within the bounds that we had budgeted and planned for Q2 and as we had said last quarter. We really took a targeted approach and so we are really thoughtful about where those dollars are spent that we are going to get the largest ROI now that we are.
We're seeing the targeted dollars, providing ROI, we plan to put more dollars into the targeted marketing spend and then additionally, as we said capitalized through the incorporation of <unk> and reinstatement of our original pricing program.
As you go forward. The next couple of quarters I would guide that SG&A will continue to be up.
Somewhat.
Particularly as we are investing in infrastructure. So the company is growing is growing globally and there is important.
G&A and launch costs associated with opening into some of these new markets, particularly marketing that is going to happen I don't expect this to be significant but it could be up 15% 20%.
As you look forward.
Year over year basis, and you look at our year over year basis, they may be up 15% to 20% in SG&A.
That's very helpful. I've got a bunch more but I'll follow up later, thank you very much guys.
Youre welcome.
Thank you please standby for our next question.
Our next question comes from the line of Steven Fox with Fox Advisors. Your line is open.
Hi, Good afternoon, two questions from me also if I could first of all.
When we think about.
The right sizing or slowing down of the manufacturing.
Given this lower deliveries than maybe you would have expected a year ago how much.
Further could you go if say youre growing sales, but maybe not by as much as you think like what are the backstops you have to sort of.
To narrow the gross profit losses, and then I had a follow up.
Okay. So you had a question on manufacturing specifically and then Additionally, you had a question on gross margin.
More generally so in manufacturing specifically, we were able to see some significant efficiencies through the productivity initiatives and 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 and manufacturing labor as we exit.
The year might be a little bit as we transition into our new General Assembly Hall, and we move to the logistics center thats going to be on site.
We are being very thoughtful about the staged.
Turning on of the new equipment with phase two 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 logistics 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 2012 when the gravity comes onboard late in 2024.
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 as we're exiting the year.
Even more that we can do there and bill of materials as I said in my prepared remarks, I think youre going to see more of that action.
Captive in 2024, but I do see additional freight.
Reductions in logistics costs down through the balance of the year. So those are two things on the variable margin I think we'll 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 cost area. There is still a lot to do in manufacturing overhead.
And I already spoke to depreciation so we're really going to be working to get scrap down and to be looking at professional services and the manufacturing overhead area really focused on getting that down. So those are the areas of primary focus for this year.
Great that's helpful detail and obviously it's.
Complex.
Math to figure out.
And then just as a follow up.
You guys were successful in raising capital this past quarter, but you also diluted your shareholders the existing shareholders by 20% to 25% can you sort of talk about your how you plan to move forward on any potential capital raise relative to protecting your shareholder base.
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 is theres a lot of catalysts.
Potentially coming forward here with the bringing on of the real real drive with the scale up of the all wheel drive of the pure with the Sapphire coming out with the gravity unveil later this year all of these things are going to be interim and major milestone points that I would think could be very positive to the valley.
<unk> of the company hence.
As you go further in time, if you add more shares than it might not be as dilutive because you have these major milestone events 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 loan.
And in the Kingdom of Saudi Arabia, as we advance our production there we continue to have that option as well as of course equity option.
Great. That's very helpful. Thank you.
Thank you.
Please standby for our next question.
Our next.
Comes from a lot of I'd tell you Mike Lee with Citi. Your line is open.
Great. Thanks, Hi, everyone.
Just two questions from me Peter you mentioned.
An increase in orders since the recent very recent price adjustments, hoping you can elaborate a bit more on that and particularly in which trims that you see some of the strongest order response, and then secondly Sherry.
Thanks for the color on SG&A going forward is hoping you could also provide some color on how we should think about R&D over the next couple of quarters. Thank you.
Thank you Mark.
We can't give guidance on specific breakdown between trends, but what I would say is that we're already seeing.
Very positive feedback from our recent adjustments.
We are also seeing the value of just growing.
The the awareness of the brand and I think so.
There's another factor here that assume any people packaging their minds that the count was more expensive than it really was in the first place.
When you combine that with the Athens.
The pure Ria will 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 customer awareness of just greater productivity.
We received.
A very significant endorsements just in the last few days indeed from motor trend that voted us the best.
Luxury EV offering available in the U S I'm, putting us above Tesla.
Moshe.
So I think I think we were looking forward to <unk> 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 we're now reaching the important phase in the gravity development, where we'll be doing prototype vehicles.
Also be doing engineering design and testing on the gravity and also early work on the mid size 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 has cash inflows designed to offset it but I would expect maybe up 20% year over year.
Here would be the guidance that IDE.
Look to give on a year over year basis in R&D.
That's all very helpful. Thank you.
Thank you.
Please standby for our next question.
Our next question comes from Andrew Shepherd with Cantor Fitzgerald. Your line is open.
Hi, good afternoon, Thanks for taking my questions and congratulations on the quarter.
A lot of our questions have been asked but by now, but maybe I was hoping is it possible to perhaps a better quantify.
The agreement with Saudi Arabia in terms of deliveries for Q3 and Q4.
Just trying to figure out 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.
Finalize the agreements and this is an agreement and the commitment for at least 50000 vehicles and an option up to an additional 50000, making 100000 vehicles.
<unk> of all models of lucid. This includes calls like lucid and being made in Arizona and also in.
In Arizona.
We successfully shipped from obligated cows.
Saudi Arabia already and that's a real milestone and these were in transit at the end of the quarter and that's where I was shortly after the quarter end.
Hope that the blended and delivered before the.
The Eden some holidays in KSA, but.
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.
Q4, right now I have to say, we're not providing exact numbers, we don't plan to provide a geographic mix today.
Got it okay. Peter Thank you and maybe just a quick follow up.
Just wondering if you can maybe give us a sense of pricing for the gravity.
<unk> I know you haven't disclosed that but are you able to perhaps point us in the right direction as to where you're thinking or what is something that you are targeting there.
Sure sure well, we've indicated for some time now to anticipate our prices are very similar to the sort of price structure that you get with lucid.
Not in a position today to disclose those prices we are planning a major launch event for gravity in November and I hope to be in a position that we can disclose.
And the pricing structure at that juncture.
Got it thanks, very much Peter I'll pass it on thank you.
Thank you. Thank you.
Thank you ladies standby for our next question.
Our next question comes from the line of Ron <unk> with Guggenheim. Your line is open.
Yes, Peter Sherry good evening, and thanks for taking my questions.
Alright.
What's the production guidance being maintained.
Implying a pretty big step up in back half deliveries or at least back half production.
How should we think about your pricing strategy going forward.
Is your goal to price your product lineup lineup to limit inventory increases from the current level.
Would you rather flex pricing or limit production.
Levels.
Well.
I think we want to make.
Competitively priced to make it.
Super compelling proposition, which I think it is now I think it's fun and it's an absolute bargain right now quite frankly.
We need to and move these crews to the visible fleet.
Good.
Advertisement, we can get is elusive and driving to while the more people see the caused the more they get used to them more confidence that <unk> has in our potential customer base and so.
We are seeking to of course drawdown upon existing inventory.
And guest because in customers' terms because our best salespeople are customers. There are best ophthalmic advocates in this case.
True Catholic take effect, that's what we're achieving now of course, we've got two bookends coming we've got the Halo product SAP.
Sapphire Croutons coming imminently going into production in September 1st deliveries in early October and at the same time getting very very similar time, we've got.
Really what will drive version of a pure going into production in Arizona in in September and this will be our most affordable most obtainable there into the car. So I think we need to watch this space.
<unk>.
Willing to adjust.
Two market conditions, I think that's very important to retain that flexibility. The key is to get product out into the wild in customers' hands.
That's the best marketing tool.
Yes that makes perfect sense to me and maybe just a quick one for Sherry Buck.
Impairment charges this quarter.
Does that reflect the latest pricing moves or should we think of what should we think about for.
I'll see you in RV 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 Paul.
Thank you Ron.
Thank you please standby for our next question.
Our next question comes from the line of James to Gorilla with BNP. Your line is open.
Hi, everyone.
Alright.
Gross profit.
Yes, following up on the <unk> impact.
Took another step higher in the second quarter, but without all of the impact this quarter, reflecting noncash.
Curious what might be unpack, there and just how do you foresee.
Trading through the remainder of the year it should gross profit or loss.
Excluding this impact.
Moves through the through the remainder of the year.
Thanks.
Yes, so the LC and RV.
Was impacted by the original pricing program and was also impacted by obsolescence and firm losses on firm commitment.
In terms of the cost of revenue overall, they're worse.
Some write offs with respect to inventory you get things like expired inventory et cetera, those are deemed to be more of a one off nature.
You always have some but we thought it was exceptionally high in Q2 with our opinion.
So as we go forward, we would expect LC and RV to go down the next two quarters that would be our expectation and that's based on.
Really.
The points that I made that theres fewer one off.
We already have quite a bit of inventory on the books and those would 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 or loss.
The gross profit loss per unit improved.
Through the back half.
So we've already contemplated.
Adoption of the original pricing program in the LC and RV.
Okay Alright.
Just one last one on the commentary regarding the Companys correct.
$6 5 billion in liquidity to sustain.
The company or into early 'twenty five.
The implied cash burn rate over the next seven quarters would be roughly $900 million per quarter or even is there any other way to read into that provided timeline I know, we won't get into 2024 guidance right now, but just high level, how should we be thinking about your capex relative to operating losses.
Informing that timeline. Thank you.
Yeah I think.
Youre right. It would go into 2025, we are expecting to go through the launch of the gravity program the cash.
I think your your estimated is a.
A reasonable one.
We have been sharing Capex, all along I did guide down a bit on capex to $1 one 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.
Yeah.
Thank you.
Please standby for our next question.
Our next question comes from the line of Dubai as Beth with Redburn. Your line is open.
Hi, good evening, thanks for taking my questions.
Okay.
I guess, where I'd like to start is on the engineering changes and I think you mentioned a couple of months.
You had mentioned that you've made it staff.
Generic changes.
During this quarter and also in the last quarter, but I was wondering if you could actually give some examples of.
Changes that have been made or incoming to reduce the lucid that lucid as bill of materials and perhaps outside of that what opportunity thought that to be.
Content per vehicle towards CLO, and then I have one follow up.
Yes, I think the most significant points here as it affects the the bill of material cost.
It's not so much a change.
It's a new model, which was planned so there is a difference in the engineering.
But it's not sort of unplanned change it is structured.
Out of our product through loud and that is to rear wheel drive two wheel drive.
We sit at <unk>. This is Scott just one growing initiatives.
And so the other counts are going to drive units one of the funds from one of the way. So you save the cost of the drive units that in itself is very helpful. But we're down to just 88 kilowatt hour battery pack.
Rich the most other companies would remain.
Right.
Unexpectedly small range, but we're achieving 419 miles on the new EPA cycle with Justice.
Kilowatt hour pack, which is unprecedented and because the battery pack is the biggest single.
Cost item in the bill of.
Materials.
<unk>.
A downward pressure on that.
Cost of building I think thats the most significant.
With that I would trace, but we're making implementing a series of changes to the vehicle other than on the software side, because we are able to download over the air.
Significant software changes.
Existing customers, which see the axons become better through the crews.
Sure.
So.
<unk>.
And I also would like to indicate this that because we have this module battery pack.
Means that we can just reduce the number of modules in the pack to downsize the pack for the we will drive for 88 kilowatt pack. So it's not a fundamentally different battery pack, it's just a natural derivative drilling team from the outset.
We've got an actually we use a very similar philosophy on the pack of gravity, it's very similar to the path of.
Using a very high percentage of carryover components to reduce cost and maximize economy of scale as well for us.
Got it alright, that's super helpful. Thank you.
I guess my second question is really to Sheri.
I calculate.
Rich.
Written down approximately $1 $1 billion worth of inventory.
Purchase commitments since starting production.
Third quarter of 2021.
I was wondering when exactly do you expect to benefit from consuming stocks or perhaps see striking down new purchases.
Well over the next few quarters, we're going to continue to use the inventory thats already had LC and RV charges taken against it so that would be over the next few quarters, you can see with the inventory balances on our raw material base. That's work in process as well as finished.
Good yes through the footnotes in the 10-Q and then you can do some rough math essentially to think about the cost.
That would be attributed to the vehicles that are sold and think about the volume in your model in order to do that Bob.
Okay. 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 Tom Amato.
Yeah.
Thank you. This concludes loose in second quarter 2023 earnings conference call. Thank you all for joining US today you may now disconnect.
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