Q3 2023 Lucid Group Inc Earnings Call

November 7, 2023

Speaker 1: awareness. A critical imperative has been very specific and compelling sales and marketing initiatives and actions to enhance awareness and demand.

Speaker 1: Efforts are well underway and showing good results.

Speaker 1: In North America, the majority of orders in the third quarter came in fact from new customers. These are customers whose first contact with Lucid was in the quarter of their order. And we believe that our targeted, data-driven approach to marketing, as well as our compelling offerings, are bearing fruit despite an uneven macro environment.

The volume of lucid air on the road also continues to grow and it's exciting to see all the photos of air sightings in the wild that people are sending out. I believe that our brand awareness can benefit more meaningfully once we hit that critical mass of cars on the road.

So we're pleased with our brand awareness, progress in the US, as well as in the Middle East. We're making progress in Europe with test drive growth, but we're still early on in our journey there, frankly, and expect more significant progress towards growth next year.

We've also been working on improving the customer journey.

From the start of the journey, we have a financial service process all the way through the final delivery process and we've made great progress but we do still have some more work to do.

We're also working on new sales initiatives to accelerate deliveries and to improve the customer experience.

So a lot of things happening behind the scenes that we're really excited by.

I'm also pleased to announce that Lucid customers can gain access to more than 15,000 Tesla superchargers in North America and that we will integrate the North American charging standard into our vehicles in 2025. And of course, all Lucid vehicles with a current CCS charging standard will be able to access that network through an adapter.

Now, this is an important addition to providing our customers expanded access to reliable and convenient charging solutions.

Now turning to software, earlier today we started rolling out our latest over the air software update. This update will enable a new revolutionary feature in vehicle to vehicle charging.

Not only are we solving range anxiety with our industry leading range, but the Lucidair can now also lower anxiety for owners of other EVs with less range. So please stay tuned for more details of this in the very near future.

But let me tell you why this is so significant. This is a shining example of our systems approach to the design of the vehicle. It's the tight integration of our cutting edge software with our state of the art technology. Now this systems approach of integrating hardware and software is what allows us to provide these value added updates and I believe few in the auto industry can do it as well as to the degree that we can.

And with Lucid Air, the longer you own the car, the better it can get. We continue to improve and add functionality as you own the car.

Now, I invite you to watch a video with Mike Bell, our Head of Digital, that you can find on the Tech Talks section of our Lucid website, and which I hope will give you some insight into our software differentiation and a glimpse into what's to come.

I'm also delighted to say that we recently closed after Martin Arrangement. Sherry will go through this in more detail, but I want to highlight that Lucid was chosen as part of a competitive process based upon the merits of our Sapphire technology.

And in fact, since the announcement of the astronauting deal, I'm very pleased to say that we've seen an increase in inbound interest to access our great technology.

As we move forward, I continue to see significant market potential. We will continue to advance our technology and look to further widen the technology gap.

Some in the market are talking about the potential for a reduction in EV investments by other OEMs. Whilst I urge the industry to accelerate the transition to sustainable transportation, nonetheless, if this were to come to bear, I believe that Lucid would be in a prodigious position to benefit through our technology licensing business.

And whilst Lucid is becoming widely recognized as having the best EV technology bar nut.

Some may be led to believe that it's expensive to make, and this is not well understood. Ardis technology was designed from the outset for mass manufacturability.

I cannot close without talking about a product I'm very excited about, the Lucid Gravity.

Our three-row, seven-passenger SUV. And I can't wait to unveil it at our special launch event on November the 16th, next week at the LA Auto Show.

The gravity will significantly expand our market opportunity opening up a total full-crestable market that is nearly three times larger and growing.

More importantly, for our customers and for the planet, the Gravity takes all of the innovations of Lucid Air and builds upon them. The range, the efficiency, the performance, the driving experience, the interior space, just everything that people love about the air and that helped redefine the sedan space. We will now bring to Gravity.

And in turn, we will redefine the SUV in the electric age.

But let me be clear: the gravity CV isn't an air Sudan design that we just converted to an ssev, but gravity has been designed from the groundup to be a creue ssev. Now our doors will revealed too much, but I think you're going to love it and I just CAn't wait to show it to on next week.

And in November 16th will finally, released more details about our gravity SUV at our unveil event at the L. A auto show we can't wait to show you. This incredible SUV, we think youre going to love it.

With that let me turn it back to main are to get to your question. Thanks.

Thanks, Jerry will start the Q&A portion before we get to questions on the phone we're going to pose some questions from our retail investors through the same platform. So I'll start. The first question what is the plan for lucid to expand their operations and start becoming a profitable company.

Well I think we answered the question about our expansion plans already with our discussion at the Amp one phase two expansion in Arizona with the Amp to in Saudi Arabia, as well as the expansion of our studio and service network.

Second part of your question refers to our path to profitability. This is where our cost control program and the efficiencies that we're looking to adapt through every part of our organization is a core part of our company's focus our most important areas of focus continue to be below material cost down initiatives manufacturing labor and overhead.

Cost down initiatives automation of key process and expansion of core system capabilities. All of this has to be coupled with our extensive demand generation activities globally.

We ramped production and with gravity company coming we believe it will start to really show the strength of our business model and of course, we'll have mid size to look forward to as we exit in a decade.

Great second question are there any plans to stop the current slide of stock prices. What are the efforts lucid is doing for us.

Well as you know salt movement as a function of a number of factors.

Some factors are clearly beyond any company's control things like interest rates.

<unk> trade issues and other macro conditions. It can make it extremely challenging for any company to offer the kind of predictability that investors would like to see now.

That said what is within our control is continuing to deliver on our product rollout promises to continue to innovate to invest in <unk>.

To make important progress against our plan.

We will also continue to push the revenue opportunities beyond automobiles, whether in technology.

Mission credits and indeed software so quite simply we have to execute and the announcement today of our old structure changes I believe will help us really really tremendously.

Thanks, Peter the third question I think we answered in our prepared remarks as it relates to any guidance for 2020 for Sherri mentioned the outlook is typically something we give on our Q1 earnings call. So we'll move to the next question what will loosen due to prevent cash burn per vehicle, great well first let me just start with the cash and liquidity.

That we have on hand in my prepared remarks, I think I might have just said 554 billion should have said $5 $4 5 billion. So I just want to get that correct on the on the record, but this particular question Theres a lot out there today that is misleading and frankly misunderstood as it relates to this question first off it can fleet cost with it.

Net and this particular question is specifically asking about our cash burn for vehicle. It's really important to note that there is a number of non cash expenses that are in our P&L things that we've already paid work that are showing up in the P&L. So the largest ones include depreciation this is now.

If our manufacturing and studio service center expansion efforts, but also for all other depreciation related to facilities investment in our new program to us as well.

Additionally, we talk about the impairment we refer to it as the LC and RV, which looks not yet today, but it also includes cost today that are related to future quarters. So its conflating future costs in the current period, which can give a misleading interpretation of the.

Numbers.

So with that as a backdrop there are a number of things that we are doing today at a company level and at a per vehicle level and those are as follows since some of that Mike just talked about Bom cost reduction manufacturing labor and overhead reduction efficiencies across all areas of our business importantly, also enabling the flywheel.

The fact that we expect to naturally occur it's more.

Of our cars are in the market and in People's Driveways, and our fantastic customers have the ability to drive enthusiasm in their neighborhoods and on the streets. So what is important here is that we have a plan and we are working diligently across every area of our business to reduce costs drive enthusiasm for our brand.

And bring profitability to our investors as quickly as possible.

Thanks, Shari, Maggie I would like to turn to the phone lines for questions.

Alright. Thank you very much we will now conduct the audio questions just some I missed as we compile the Q&A. Please.

Our first question comes from John Murphy from Bank of America. Please go ahead.

Good evening, everybody just a first question.

Can you just talk about the <unk> units.

700, plus.

The quarter and I would imagine there'll be some more of that come in the fourth quarter sort of an optimist might say hey, thats. The significant reason you have the guide down on production units.

But sort of a passenger's might say hey, those arent those arent included so I'm just trying to understand where these units are ultimately going to be accounted for and if we think about the 700000 units going to Saudi I would imagine there.

Effectively pre sold I mean, there's no question that there is this orders there so.

I would imagine that the revenue recognition and the sale would occur almost immediate upon.

Final Assembly there. So just how it is being accounted for and how should we think of that relative to the guide down in production for the year.

So first off the SPD units as we said are not showing up in production for this quarter. So we'll be building no without presumably over the next quarter. So those show up in production numbers likely mostly in Q4, okay. So that's the first part of your question.

With respect to be increased sold I cant really speak to the exact transaction dynamics with us in the in the Ministry of Finance.

We really don't speak about the specific transaction elements of any of our customers, but what I can say is that.

Part of these these units will be for the government and part of them will be for retail.

<unk> already begun deliveries to the government as we set up set in the 10-Q.

That was non material for this last quarter, and we expect to increase going forward.

Okay, sorry, maybe just to follow up on that I mean, there will be a reload.

On this in the fourth quarter right. So I mean.

It does seem like you're selling yourself short or being a little bit too humble on what was what was executed this quarter and what might be executed in the fourth quarter would it be fair to assume that these.

<unk> whatever.

Knockdown kits.

We will continue to reload for.

Europe for the foreseeable future until that you don't have to is really.

Really up and running.

Yeah. So we will be establishing a quarterly cadence over time I think that's fair to say and it's going to be important for US also to introduce other product variants into the region. So we'd be producing new product variance that will also be shipped over to Saudi as well some of those will be produced in the quarter. Some of those are going to be in ships at the end.

For the quarter or not yet into production numbers, but yes, I mean, youre going to be sending vehicles over there producing them into finished units and then delivering them and then completing that process each quarter, Yes, I think we'll reach an equilibrium point John.

<unk> seen trends is equal.

Equalize out.

A lot of this is due to the shipping time getting those kits from Arizona run around the world to the Kingdom.

I think that you have to remember that those are incomplete units or they have to be counted.

As work in progress they cannot be counted as factory gated.

That leaves the factory in Arizona, but that doesn't cancer segregated until they're reassembled.

Leaving the factory in Saudi Arabia that swing for accounting purposes, we can count that was produced in.

And in fact, if you look at total inventory you would have noticed that went down by 6% raw material went down about 12 that was due to some of the bedroom material planning, we had talked about as well as inventory management finished goods, they actually went down as well.

Around that same amount, but work in process went up and that went up because of these specific SKT, but again on the whole you're down about 6% on an inventory basis Youre, just going to see a different composition of it now going forward.

That's very helpful. And then just Peter just real quickly the second one.

The idea of licensing powertrain technology, it seems like it should be coming more and more appealing to the industry at large is.

Everybody is struggling to get these evs launched.

It's not just you, but it is literally.

Every everybody.

Has anything changed in the tenor of discussions are.

Is there anything new you can you can say directly on this and maybe you could kind of confirm that you might be having these conversations in Korea, Japan, Europe, and North America, maybe all the major regions in China, obviously too.

There's nothing specific that I can talk to but I will say this we closed successfully deloitte to close.

Our agreements with Aston Martin.

And thats empty the awareness of that is definitely catalyzed a degree of inbound interest now.

Said, the sort of technology, we've got right now suits pretty high incomes like Aston Martin's, but as we transition to our technology, which is appropriate for a mid sized platform. That's when we will be in a position to attract a whole new strata of club.

And how more family chose more affordable echelon altogether, and so really we're looking at how could we accelerate that technology.

For the powertrain to mid size that we could be in a position to capture any inbound interest in that position in the market, yeah, and I want to provide.

Maybe an ecosystem perspective on this as well I mean, we're not going to prognosticate about what other Oems are going to do but if you read a lot of the earnings script that just came out people are starting to look at the portfolio. They have up ice products and EV and you hear some hints as to possible pull back a bit on EV if that worked.

To be the case, we're not saying that it is we do think that us having a technology licensing program puts us in an advantaged position, we can possibly help some of these Oems if a partner I think there's also recognition as well John it's relatively straightforward to do a kind of average okay.

Because you just buy the parts off the shelf, but that is going to be unacceptable is already and I think there is such a recognition that we've got something very special with old technology and others.

We still haven't got the message out just how affordable technologies in its own rights, but when you overlay the.

<unk> power of efficiency that our efficiency of our drive units and a whole system means we can go further with less batteries. This addresses the cost of the battery and I think this goes or grow new wins of this which is our strategic advantage.

Customers can leverage it after moving can leverage this and it conveniently Aston Martin can be lighter with the same rate because it's got less battery and that's an incredibly valuable extra for the Super sports kind of like Alaska.

Very helpful. Thank you guys.

Thank you.

Our next question comes from.

Steve Fox, Steven Fox from Fox Advisors LLC.

Please go ahead.

Hi, good afternoon.

I wanted to ask a question on I think I've asked in the past.

In a different way.

The company is definitely batten down the hatches in terms of costs and done a lot to leverage technology.

The.

White papers start you've had with the production all of that is you should receive a pod for how you've reacted to higher interest rates. However, I mean to me it seems like the company might need to take some more drastic steps in the future.

Given that interest rates look like they're going to stay high or maybe move higher.

To sort of modify their your ambitions.

Would trigger such an event in your mind, Peter I guess it just seems like it's it's a more niche market for a longer time for Ya for for lucid unless you can argue the opposite for say the next 12 months.

I think we're taking a very prudent very nuanced view Sherri is doing a great job in leading the imperative of cost cost optimization. We're looking at all measures looking at efficiency of making the cones leukemia.

Our working capital looking at inventory all aspects of the business.

We're also pushing like crazy to improve.

Our delivery numbers now I think for us.

We're looking at graphic.

Gravity, which is going to be.

<unk> formative product just around a year from now late <unk>.

124, with a considerably greater market market potential than I am.

<unk> market potential in SUV, and I think that's going to have a transformative impact with whom the company. We've always taken a very prudent view for cost control.

Cost effectiveness within the company and all I can say is that.

<unk>.

Continue.

As.

As an absolute core cornerstone of our thinking.

Our very being here at lucid.

And the other thing I would just say about the interest rate environment. I mean, it is known that it is more expensive right now for customers to buy cars, we know that and that is why we are offering some support there, but there is another side to the interest rate environment for lucid in particular, we're sitting on a very large cash balance and we have a lot of this invested so we've actually been experiencing.

Quite a bit of interest income associated with those costs with it with the cash balance as well in the interest rate environment. So there is another side to it as well as it pertains to us in particular.

That's helpful and then if I could just ask maybe a more upbeat question.

<unk> seen the gravity next week, but like.

When you think about ramping.

Revenues from the SUV, how complimentary do you think you can make it to the existing models out there existing.

Stores, so that like the incremental cost of Ram gravity is more on the production side and less on the sales side. Thanks.

Hum.

I think that we've configured on stores to have room for a gravity alongside it.

It's always been.

Positive.

Sort of a cohesive strategy that we've implemented.

We are investing in our retail network, but a lot of that is doable Reggie full gravity and I think we're also shifting quickly very considerable investment we've already made in phase two of our factory in Arizona, We are ready for the gravity I think another point here Steve.

Is just how different products gravity is from when.

When we look at cannibalization of course, we took the decision not to just place gravity opponent platform and therefore result in some kind of like.

Sort of compromise, we really designed gravity is a true SUV with its own new plants. When we made the investments to create two very very distinct product lines between gravity. So I think we can really catch people's imagination.

In two very distinct markets from two very distinctly different products. So as a consequence of that.

And then just from a financial perspective, the way I think about it as much higher asset utilization not just at the start of the service center to the sales staff, but also we're sharing a paint shop, we're sharing powertrain Rochelle sharing general assembly, so theres going be a number of areas, where this is just going to give us more flexibility as a company to really.

Respond to the demand signals that we're seeing in the market absolutely I mean air and gravity will go down the same line. So you'll actually has the same production line that we built in the factory you might see one ahead in a couple of gravities couple of three or four gravities and there'll be tuning life alongside each other and that's the real economies of scale.

Great. That's all very helpful. Thank you.

Thank you.

Thank you just a moment found next question please.

Next we have James Polycot, Laura from BNP Poly Buzz from Exane. Please go ahead.

Hi, guys. This is Jake on for James.

So im just looking here.

Well if.

Your liquidity looks like we're looking at about a $900 million cash burn.

Per quarter in the 120 <unk>.

Five.

First can you confirm if that's accurate and then how much of that is tied to the gravity launch versus just continued run rate on the air.

Sure. So the free cash flow this quarter, it's actually lower than what you just cited by a couple of hundred million dollars and then your second question was about the gravity launch and what was the question related to the gravity launch.

Just how much the cash burn is tied to the gravity launch versus a continued run rate on the air.

Sure so.

Maybe I'll answer that a little bit on the cash.

Capex side.

So youll see that we guided our capex down to 1.0 to $1 1 billion for the balance of the year now, we're not giving guidance, but you can do the math you can see that we started the year with a capital capex guidance of around one five to $1 75 billion, but we were able to.

Tactically do is we were able to move.

Roughly $500 million of that Capex from 2023 into 2024. So when you get into 2024, we do expect to have about $500 million of capex spend to finish the launch and the facilities as well as the machinery tooling and equipment.

And associated with that gravity Onboarding and so we did recognize some savings.

That's why it's not as high as $1 75.

In totality, but that will be related to the gravity will also have some vendor tooling.

We move into next year, probably spent about a third of the vendor tooling in 2023, we're about two thirds of that yet in 2024.

The air.

The majority of the spend has already occurred of course, you have people that continue to be on carryover product continuing to make advancements and improved the product, but the spend on an engineering level and an R&D level, it's really shifting into gravity and then also the mid size as well.

Perfect. That's very helpful. Thank you.

And then loss it looks like Asps in the third quarter took a pretty big step down.

<unk>.

It's pure mix ramped up.

How should we expect that to trend in the fourth quarter as we see more solid shipments and.

So far.

Thank you.

Yes, you are right. So we went from Q2 to Q3, we had an ASP drop that was partly expected as I guided last quarter I talked about how we were going to be introducing the pure and larger numbers in the U S and that we were also going to be ramping shipments and.

And deliveries in the Europe in KSA, but that's small on a comparison on a percentage basis as it relates to the U S deliveries in Q3, so as we move to Q4, we continue to see the U S as being the dominant market, we do see KSA and Europe.

Increasing but I would guide that it's going to be relatively flat I think it'll be a similar mix Fisher youre seen.

In Q3, as you'll see in Q4.

Perfect. Thank you.

Thank you.

I would now like to pass back to.

Manav for.

Closing remarks, thank you.

Thank you. So this concludes <unk> third quarter 2023 earnings conference call. Thanks, everyone for joining us today and you may now disconnect.

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Q3 2023 Lucid Group Inc Earnings Call

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