Q4 2023 Lucid Group Inc Earnings Call

February 21, 2024

It will be a question and answer session and instructions will follow them.

Please be advised that today's conference is being recorded.

I would now like to hand, the conference over to senior director of Investor Relations you may begin.

Thank you and welcome to lucid group's fourth quarter 2023 earnings call. Joining me today are Peter Robinson, our CEO and CTO and Goggans Indra, our interim CFO and principal accounting officer before handing the call over to Peter Let me, let me remind you that some of the statements on this call include forward looking statements under Federal Securities Law.

Okay.

[music].

These include without limitations 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 predictions and expectations as of today and actual events or results may differ due to a <unk>.

Okay.

Hello, and thank you for standing by welcome to loosen fourth quarter 'twenty to 'twenty three earnings conference call.

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.

At this time all participants are in a listen only mode.

After the Speakers' presentation there.

A question and answer session and instructions will follow that.

Please be advised that today's conference is being recorded.

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 our investor deck.

I would now like to hand, the conference over to Maynard Senior director of Investor Relations you may begin.

Thank you and welcome to lucid group's fourth quarter 2023 earnings call. Joining me today are Peter <unk>, our CEO and CTO and Gogo Zimbra, our interim CFO and principal accounting officer before handing the call over to Peter Let me, let me remind you that some of the statements on this call include forward looking statements under federal secure.

With that I'd like to turn the call over to <unk>, CEO and CTO Peter Robinson Peter Please go ahead.

Thank you.

And thank you everyone for joining us from fourth quarter earnings call.

These laws. 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 predictions and expectations as of today and actual events or results may differ.

During the first three years of production of the lucid Air we've garnered significant industry accolades, including cotton drawing the 10 best list for 2024.

The 2023 rules luxury car of the year and the 2022 motor trend car of the year.

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 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.

I can't think of any other company with has gotten this far this fast.

Superior technology design and performance has repeatedly been recognized.

We've proved our technology progress with lucid and not only did we pioneered the concept of efficient range through our technology. We also grew our lead with 274 miles of range per kilowatt hour for the air Pure Ria will drive.

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 our investor deck with that I'd like to turn the call over to lucid CEO and CTO Peter Robinson.

The technology gap between lucid and others is growing not shrinking.

Peter Please go ahead.

Thank you.

We also launched the elusive as Sapphire before Supersports EV sedan as a halo product to showcase the potency of our technology.

And thank you everyone for joining us for our fourth quarter earnings call.

During the first three years of production of the lucid.

We garnered significant industry accolades, including Cotton drive 10 best list for 2024.

Not just the most powerful production sedan ever. It has also been recognized as a great all round grinding call with exceptional handling and driving dynamics. It's exceptional full 120 miles of EEP estimated range and fast charging truly complete.

The 2023 rules luxury cars, a year and the 2022 motor trend car of the year.

I can't think of any other company that has gotten this far this fast.

The package.

Superior technology design and performance has repeatedly been recognized.

And now we are embarking upon a next and most transformational phase of our developments with the expansion of our vehicle lineup.

We proved our technology progress with lucid and not only did we pioneered the concept of efficient range through our technology. We also grew our lead with.

The expansion of loose its total addressable market starts right now with the air pure able drive grows with gravity and broadens with the forthcoming mid size platform.

274 miles of range per kilowatt hour for the air Pure Ria will drive the technology gap between lucid and others is growing not shrinking.

We unveiled the Lucy gravity at the La Auto show in November to tremendous early reviews.

We also launched the elusive as Sapphire, the first Supersports EV sedan as the Halo product to showcase the potency of our technology.

I am confident that the lucid gravity will redefine the electric SUV segments with incredible range superior efficiency fast charging speed and interior space you have to see to believe it will be unlike anything in its class and it will be massive for lucid.

Not just the most powerful production sedan ever. It has also been recognized as a great all around driving car with exceptional handling and driving dynamics. It's exceptional 427 miles of EEP estimated range and fast charging truly complete.

And for those who might be in Geneva, Switzerland next week, we will continue to come and see us at the Geneva International Motor show, where we will introduce the gravity to the European markets.

<unk> the package.

And now we are embarking upon a next and most transformational phase of our development with expansion of our vehicle lineup.

Now turning to sales and marketing in 2023, we increased our brand awareness and greater significance our awareness among easy purchasing tenders increased substantially from the beginning of the year and this gives us confidence that our sales and marketing initiatives.

The expansion of loose its total addressable market starts right now with the air pure able drive grows with gravity and broadens with the forthcoming mid size platform.

We are making solid progress.

And we will continue to take a science based data driven analytical approach drove marketing, but are also adding new initiatives for.

We unveiled the lucid gravity at La <unk>.

Show in November to tremendous early reviews, I am confident that the lucid gravity will redefine the electric SUV segments with incredible range superior efficiency fast charging speed and interior space you have to see to believe it will be unlike.

For example, a reasonable Saks fifth Avenue partnership will allow us to leverage Saks luxury brand in ecosystem to generate awareness leads and sales.

Next locations will have test drive vehicles further expanding our reach in locations, which are not currently present with the studio.

Anything in its class and it will be massive for lucid.

And for those who might be in Geneva, Switzerland next week, we will continue to come and see us at the Geneva International Motor show, where we will introduce the gravity to the European market.

Of particular significance has been a recent are pure stealth initiative launched just last week.

We have now realized the starting price point for the lucid a range of $69900.

Yes, that's right the finest production EV in the World now starts at under $70000.

This effectively extends the scope of the lucid air range into a new total addressable market segment.

<unk> are making solid progress.

And we will continue to take a science based data driven analytical approach drove marketing, but are also adding new initiatives.

In fact, we're already seeing extremely promising results from this. Moreover, this is commensurate with our long term strategy to make progress simply more affordable vehicles.

For example, a reasonable Saks fifth Avenue partnership will allow us to leverage Saks luxury brand in ecosystem to generate awareness leads and sales.

This remarkable value proposition has in large part been made possible by our world leading technology.

Locations will have test drive vehicles further expanding our reach in locations, which are not currently present with the studio.

Because our tech enabled on calls to go further with less batteries. They are pure renewables life is able to achieve an EPA estimated range of 419 models.

Of particular significance has been a reason to air pure stealth initiative launched just last week.

<unk> further than the competition.

We have now realized the starting price point for the lucid air range of $69900.

But more significantly it achieved this with a battery pack size of just 88 kilowatt analysts.

And since the cost of an EV is dominated by the cost of the battery pack.

Yes, that's right the finest production EV in the World now starts at under $70000.

This technical advantage translates directly to a profound commercial advantage.

This effectively extends the scope of the lucid air range into a new total addressable market segment.

Now I believe it's important that the full impact of this is fully comprehended.

The EPA testing procedure has recently been revised and it's become more stringent.

In fact, we're already seeing extremely promising results from this. Moreover, this is commensurate with our long term strategy to make progressively more affordable vehicles.

And pure able drive is able to achieve a landmark who 74 miles of range per kilowatt hour of battery capacity and thats when the new EEP a ratings.

This remarkable value proposition has in large part been made possible by our world leading technology.

So whilst we are currently witnessing other EV brands registering reductions in their respective range ratings.

The cost of our tech enabled us on calls to go further with less factories. They are pure rebuilds life is able to achieve an EPA estimated range of 419 models.

Lucid is forging ahead growing and building upon our technology advantage and with its I believe our future commercial advantage.

Self further than the competition.

But more significantly it achieved this with a battery pack size of just 88 kilowatt analysts.

But I wanted to be clear I'm also critically focused upon cost.

And since the cost of an EV is dominated by the cost of the battery pack.

It's not well understood that we designed and developed pump technology for true mass manufacture ability at scale.

This technical advantage translates directly to a profound commercial advantage.

And we have more coming we have significant advancements that I believe can drive cost down further.

Now I believe it's important that the full impact of this is fully comprehended.

Technology is not only about creating incredible products. It's also about innovation to improve costs.

The EPA testing procedure has recently been revised and it's become more stringent.

And I've never been more pumped about what's coming.

So and pure rate will drive is able to achieve a landmark who'll 74 miles of range per kilowatt hour of battery capacity and thats with the new EP a ratings.

What's yet to come from our technology roadmap.

We are resolutely focused upon cost while continuing to prudently invest for the future.

So whilst we are currently witnessing other EV brands registering reductions in their respective range ratings lucid is forging ahead growing and building upon our technology advantage and with its I believe our future commercial advantage.

Through 2023, we dramatically expanded our advanced manufacturing plant in Arizona, which we call <unk> and that was in preparation for gravity.

We built a state of the art of General Assembly line that is capable of assembling both gravity and are on the same line.

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We will continue to vertically integrate where it makes the most sense in areas of stamping bodies like the gravity.

But I wanted to be clear I'm also critically focused upon cost.

It's not well understood that we designed and developed pump technology.

Shop expansion and the new power train facility.

One.

We built the first ever come manufacturing plant in Saudi Arabia for semi knockdown kits and more recently this year. We also broke ground for the manufacturing of the completely built up cause there.

These are critical long term investments that are reflected in our cost of goods sold.

Now the imagery and our earnings presentation I Hope gives you some sense of the scope and scale of what we're doing when you see it in person and the different shops in the factory you truly start to understand how we are building a state of the art factory for the future.

In fact in January of this year, we have more than 100 guests representing over 60 strategic suppliers for gravity.

And for potentially mid size come through our factory.

Feedback and support from our suppliers was extraordinary.

Highlighted a best in class and advanced technology and continued investment in our production facilities, which provide a material signal of our long term commitments.

My key message to them was one of growth.

Critical need for obsessed partners focused upon excellence and the importance of driving this journey together.

So I want to express my heartfelt gratitude to all of them.

Now on the R&D side, we continue to invest for future supremacy.

I'm incredibly excited about our roadmap both from an innovation and from a cost perspective.

In 2023, we also raised $3 billion, including unparalleled support of $1 8 billion in equity funding from our largest shareholder the P F.

Megan will talk about liquidity in further detail.

We formed our technology licensing and access business through our first such deal with Este Mountain and <unk>.

We actively exploring additional and even broader technology and supply agreements.

We also have sales to rental car company and we're very pleased with early results looses range and efficiency are perfectly suited for fleets and in fact, we saw new incremental orders from the rental car company due to demand.

And the importance of driving this journey together.

So I want to express my heartfelt gratitude to all of them.

Of course, we haven't yet scale. This business, we're taking a methodological approach, which is prudent and now we're pleased with what we're seeing thus far.

Now on the R&D side, we continue to invest for future supremacy and I'm incredibly excited about our roadmap both from an innovation and from a cost perspective.

This is yet another tool to help grow our brand awareness and allow potential customers experienced the call.

In 2023, we also raised $3 billion, including unparalleled support of $1 billion in equity funding from our largest shareholder the P. F. Now gagan will talk about liquidity in further detail.

2023 was also a year, where we made significant progress with our in house software capabilities.

Software is more than just the user interface, we have some of the best software engineers in the world working on everything from user interface to new features to powertrain to infrastructure.

We formed a technology licensing and access business through our first such deal with Este Mountain and <unk>.

And Frank we developed and have been transitioning to our own in house over the air software infrastructure.

Actively exploring additional and even broader technology and supply agreements.

We also had sales to rental car company and we're very pleased with early results looses range and efficiency are perfectly suited for fleets and in fact, we saw new incremental orders from rental car company due to demand.

This not only helps OTI functionality, but it's also a source of cost savings.

Now building an OTA is software as a service platform is no small feat wonderful I believe most other companies would simply not be able to do.

Of course, we haven't yet scale. This business, we're taking our methodology approach, which is prudent and we're pleased with what we're seeing thus far this is yet another tool to help grow our brand awareness and allow potential customers experienced the call.

And it's another example of technology aiding costs and of course. This is a platform that we could potentially monetize in the future.

Now I want to be transparent as well. We also had some challenges firstly, the macroeconomic and higher interest rate environment impacted mainly in the small case.

2023 was also a year, where we made significant progress with our in house software capabilities.

In the new market to us there's been some learning.

Software is more than just the user interface, we have some of the best software engineers in the world working on everything from user interface to new features to powertrain to infrastructure.

For example, in Saudi Arabia, we learned that there are different market dynamics and intricacies unique to that market.

So we have to scale that business differently for growth, but we've addressed the prime pain points with scaling up and expect good growth in the region. This year.

And Frank we developed and have been transitioning to our own in house over the air software infrastructure.

Now we've also faced some technical challenges with commencing production of the rear wheel drive pure in the fourth quarter.

This not only helps our OTI functionality, but it's also a source of cost savings.

Now building, an OTA software as a service platform is no small feat wonderful I believe most other companies would simply not be able to do.

This is normal when doing something solid advanced and efficient as I said, a landmark achievements with a $4 74 miles of range per kilowatt hour. This is our most successful car and we have challenge reached ramping it up but I am delighted to say we've now overcome these <unk>.

And it's another example of technology aiding costs and of course. This is a platform that we could potentially monetize in the future.

<unk> and are now fully ramped in pure production.

Now I want to be transparent as well. We also had some challenges firstly, the macroeconomic and higher interest rate environment impacted mainly in the small case.

So as we start 2024, I'm very excited about the year ahead and beyond.

We made focus improvements to further enhance our customer journey.

And in new markets to us there's been some learning.

For example, in Saudi Arabia, we learned that there are different market dynamics and intricacies unique to that market and so we have to scale that business differently for growth, but we've addressed the prime pain points with scaling up and expect good growth in the region. This year.

For example, the lucid financial services team has been working to enhance and simplify the customer financing experience significantly reducing the customer cycle time to finance vehicles and we're also in the midst of implementing a new technology platform.

Now we've also faced some technical challenges with commencing production of the rear wheel drive pure in the fourth quarter.

Combined with the rollout of our accelerated delivery pilots, we were able to significantly improve the cycle times from order to delivery.

Customer satisfaction and in some cases increased orders.

In one instance, we were able to get a customer through their purchase journey from a timely places the order to the time they completed delivery work outs in only just about three hours.

<unk> and are now fully ramped in pure production.

This new prices has been live for select market since Q4 and for new loans and is expected to go live for all lease and other loan markets by the end of Q1 of this year.

So as we start 2024, I'm very excited about the year ahead and beyond.

We made focus improvements to further enhance our customer journey.

You will see us roll these out to more locations throughout 2024.

So our total addressable market trickles believe doing what we always intended to do.

<unk> progressively more affordable and now starting at under $70000.

Combined with the rollout of our accelerated delivery pilots, we were able to significantly improve the cycle times from order to delivery.

A technical achievement and getting an 88 kilowatt hour battery pack in the appeal allows us to contact battery costs, but still provide an EPA estimated range of 419 miles even based upon the new and more stringent.

Improved customer satisfaction and in some cases increased orders.

In one instance, we were able to get a customer through their purchase journey from the timely places the order to the time they completed delivery work out in only just about three hours now this new prices has been live for select market since Q4 and for new loans and is expected to go live.

<unk> testing.

And gravity will further expand our total addressable market from 2023 by more than six times.

The gravity is scheduled for start of production late this year and numerous approach types are already driving around in fact, we just built more than 40 prototypes to date.

All lease and other loan markets by the end of Q1 of this year.

You just have to see to believe at the interior space and the sheer practicality is what every family has been craving made only possible by our technology and design.

You'll see us roll these out to more locations throughout 2024.

So our total addressable market trickles believe doing what we always intended to do may keenly progressively more affordable and now starting at under $70000.

And I am exceptionally encouraged by the early feedback and interest we saw more than twofold increase in daily gravity interest sign ups following the la auto show unveil.

A technical achievement in getting an 88 kilowatt hour battery pack in the appeal.

And start of production for our more affordable only volume mid sized car is schedule for late 2026.

That was us to Qatar battery costs, but still provide an EPA estimated range of 419 miles even based upon the new and more stringent.

We'll continue to push the boundaries of what's possible with the mid sized platform and the Nextgen powertrain technology.

A testing.

And gravity will further expand our total addressable market from 2023 by more than six times the.

And this will expand our market opportunity from 2023 to nearly 20 times.

The gravity is scheduled for start of production late this year and numerous approach types are already driving around in fact, we just built more than 40 prototypes to date.

As I mentioned earlier, we will continue to invest in our future with further vertical integration with sampling with body in white for gravity with paint shop expansion and powertrain. It won an important part of our longer term cost and quality strength.

You just have to see to believe at the interior space and the sheer practicality is what every family has been craving made only possible by our technology and design.

I want also to touch on the broader market landscape and what seems to be a shift in emphasis from evs.

And I am exceptionally encouraged by the early feedback and interest we sold more than two fold increase in daily gravity interest sign ups following the la auto show unveil.

We have the utmost confidence in the future growth of the market.

Environmental sustainability energy storage improvements regulatory forces and share performance superiority over internal combustion engine vehicles will drive the eventual March two and easy dominated automotive market.

And start of production for our more affordable only volume mid sized car is schedule for late 2026.

We'll continue to push the boundaries of what's possible with the mid sized platform and the Nextgen powertrain technology.

Emission standards are getting more stringent.

And this will expand our market opportunity from 2023 to nearly 20 times.

And you've heard me say this many times this truly is.

Technology rights.

As I mentioned earlier, we will continue to invest in our future with further vertical integration with sampling with body in white for gravity with paint shop expansion and powertrain won an important part of our longer term cost and quality strike.

But.

During world, leading EV technology is not easy.

And not everyone can do it.

And I believe that is becoming better understood now.

Others are pulling back on Evs, we are here ready to help with talks about our willingness to work with other Oems and we signed our first technology access deal with Esther mounting.

<unk>.

I want also to touch on the broader market landscape and what seems to be a shift in emphasis from evs.

And we continue to receive incremental interest from larger Oems and others in the automotive space as well as in adjacent markets for our advanced technology.

We have the utmost confidence in the future growth of the market.

In the automotive of scope. This is not only for electric vehicles, but we're also seeing interest in our technology for use in hybrid electric vehicles.

Nothing to announce yet today in terms of the deal, but we're really encouraged by the level of interest.

Emission standards are getting more stringent.

And you've heard me say this many times this truly is.

Our open say it because we think it's critically important for the planet.

Technology rights.

Sustainability is at the core of who we are.

But during world, leading EV technology is.

It is ingrained in our purpose and our products.

And we are a technology innovation company.

Easy.

And not everyone can do it.

And I believe that is becoming better understood now.

These are just the start but we also believe in the importance of accountability and transparency, which is why I am so proud to say that we've published our very first sustainability report just last week.

And as others are pulling back on Evs, we are here ready to help.

With talks about our willingness to work with other Oems and we signed our first technology access deal with us to launching.

We have more to come in 2024 with the expansion of our total addressable market opportunity with air Purion gravity.

And we continue to receive incremental interest from larger Oems and others in the automotive space as well as in adjacent markets for our advanced technology.

Software enhancements and significant announcements the opening of gravity orders the starts of gravity test rides.

In the automotive of scope. This is not only for electric vehicles, but we're also seeing interest in our technology for use in hybrid electric vehicles.

And of course start of production of gravity later this year.

Now we've come a long way and we're here to do much more we are here to stay.

Nothing to announce yet today in terms of the deal, but we're really encouraged by the level of interest.

We have a clear and determined strategy for growth, while having a laser focus upon costs.

Our open say it because we think it's critically important for the planet sustainability is at the core of who we are.

So I'd like to close by saying, Thank you to our suppliers to our partners and to our most important asset our employees, we've overcome significant challenges and I can't think of any other people I would rather be with MS journey from the people here at listed U.

Engrained in our purpose and our products.

And we are a technology innovation company.

Evs are just the start but we also believe in the importance of accountability and transparency, which is why I am so proud to say that we published our very first sustainability report just last week.

Cool.

Accesses.

And we are embarking upon our next transformational phase of the lucid story.

We have more to come in 2024 with the expansion of our total addressable market opportunity with air Purion gravity.

And so I've never been more excited about the future.

And with that I'd.

Software enhancements and significant announcements the opening of gravity orders the starts of gravity test drives.

I'd like to introduce Ken Ken Zinger, who has stepped into the role of our interim CFO.

Decade, please provide an update on our financials.

Of course start of production of gravity later this year.

Thank you Peter.

And thank you to those who are taking the time to join us today.

Now we've come a long way and we're here to do much more we are here to stay we have a clear and determined strategy for growth, while having a laser focus upon costs.

Before I get to my prepared remarks.

Our also like to start by thanking the entire loss of team.

Over the past few months I have spent even more time working closely with all the different parts of the organization.

I am incredibly impressed by your perseverance resourcefulness and team work.

The successes, we have been able to achieve is in no small part due to all of you.

Turning to the business.

Call of <unk>.

In 2023, we've made headway with our cost optimization programs.

Yes.

And we are embarking upon our next transformational phase of the lucid story.

The key strategic priority for the company.

We found success in areas, including freight.

So I've never been more excited about the future.

Our fixed overhead and bill of materials.

And with that I.

I'd like to introduce Ken Ken Zinger, who has stepped into the role of our interim CFO.

For example.

We activated logistics as a part of the phase II build out of our Arizona factory.

Decade, please provide an update on our financials.

One, allowing us to bring the vast majority of vehicle components under the same roof General Assembly.

Thank you Peter.

Thank you for those who are taking the time to join us today.

This enabled us to realize savings from the reduction in overhead transportation and complexity as well as better efficiency.

Before I get into my prepared remarks.

Our also like to start by thanking the entire <unk> team.

Over the past few months I have spent even more time working closely with all the different parts of the organization.

From an inventory perspective, we do down raw material inventory levels by high teens percent from the start of Q4 true material planning and inventory management improvements.

I am incredibly impressed by your perseverance resourcefulness and team work.

Improvements in forecast accuracy in particular allowed us to reduce inventory resulted in savings related to logistics and material handling label, it kopek rentals and storage costs.

The successes, we have been able to achieve is in no small part due to all of you.

Turning to the business.

In 2023, we've made headway with our cost optimization programs.

We also experienced a significant reduction in freight from more efficient transportation and storage planning.

The key strategic priority for the company.

Our success in areas, including freight.

For Brickell direct costs, we implemented a number of initiatives that resulted in sustained bill of materials cost savings.

Our fixed overhead and bill of materials.

For example.

We activated logistics as a part of the phase II build out of our Arizona factory.

Some of which are directly related to our commitment to reduce our carbon footprint.

One, allowing us to bring the vast majority of Waco components under the same roof General Assembly.

We have identified additional opportunities in cost of goods sold as well as operating expenses that we will look to operationalize over the course of 2024.

This enabled us to realize savings from the reduction in overhead transportation and complexity as well as better efficiency.

Turning to our 2023 and fourth quarter financial results.

We produced 8428 vehicles in 2023.

From an inventory perspective, we do down raw material inventory levels by high teens percent from the start of Q4 through material planning and inventory management improvements.

Up 17% year over year and at the higher end of the 8000 to 8500 guidance, we provided on our third quarter earnings call.

Improvements in forecast accuracy in particular allowed us to reduce inventory resulted in savings related to logistics and material handling label.

During the fourth quarter, we produced.

391 vehicles up 54% sequentially.

Hey, kopek rentals and storage costs.

And cogeco between we delivered $6 one vehicles.

We also experienced a significant reduction in freight from more efficient transportation and storage planning.

37% year over year and in the fourth quarter delivered 1734 vehicles.

For broker direct costs, we implemented a number of initiatives that resulted in sustained bill of materials cost savings some of which is directly related to our commitment to reduce our carbon footprint.

Up 19% sequentially.

We expected to deliver more vehicles in Saudi Arabia, and the fourth quarter.

As we mentioned last quarter, the ramp up was taking longer than we expected.

We have identified additional opportunities in cost of goods sold as well as operating expenses that we will look to operationalize over the course of 2024.

However, we believe we now have the right infrastructure and processes built out.

Turning to the P&L.

For Q4 revenue was $157 2 million or 14% sequentially, driven primarily by higher deliveries.

Turning to our 2023 and fourth quarter financial results.

We produced 8428 vehicles in 2023.

Cost of our new in Q4 was $410 million.

Up 17% year over year and at the higher end of the 8000 to 8500 guidance, we provided on our third quarter earnings call.

I want to make sure this is well understood.

Cannot take this line item and divide it by the number of cars delivered to get the integral cost on making each vehicle.

During the fourth quarter, we produced.

This is because our lower of cost or less.

391 vehicles up 54% sequentially.

Illegible value, our LC and RV also takes into account losses on raw materials and pumped budget commitments.

And cogeco between we delivered six one vehicles.

37% year over year and in the fourth quarter delivered 1734 vehicles.

LCM adjustments.

Which fried down certain inventory value to the amount, we anticipate receiving upon retail sale.

Up 19% sequentially.

Considering the future cost necessary to get the inventory ready for the ultimate sale.

We expected to deliver more vehicles in Saudi Arabia, and the fourth quarter.

And we also recorded losses on firm purchase commitments.

As we mentioned last quarter, the ramp up was taking longer than we expected.

In addition, as we ramp up production.

However, we believe we now have the right infrastructure and processes built out.

Expect the order per vehicle to improve.

Our gross margin improved on a quarter over quarter basis.

Turning to the P&L.

For Q4 revenue was $157 2 million or 14% sequentially, driven primarily by higher deliveries.

Primarily due to lower impairment charges in Q4 related to LC and RV.

This amount was approximately $174 1 million a 24, 6% reduction from Q3.

Cost of our new in Q4 was $410 million.

I want to make sure this is well understood.

Although there are many controllable and uncontrollable variables that can affect gross margin. So we don't typically provide specific gross margin guidance.

Cannot take this line item and divide it by the number of cars delivered to get the individual cost of making each vehicle.

This is because our lower of cost or less.

Illegible value, our LC and RV also takes into account losses on raw materials and pump purchase commitments.

Wanted to provide some directional color.

In your modeling.

Looking forward to the first quarter of 2024.

LCM adjustments.

We anticipate improvements to gross margin despite the price adjustments in the quarter for pure and tooling.

Which fried down certain inventory value to the amount, we anticipate receiving upon retail sale.

The improvements are expected to be driven primarily by projected reductions in impairments.

Considering the future cost necessary to get the inventory ready for the ultimate sale.

As we move into the back half of the year.

And we also recorded losses on firm purchase commitments.

Expect to build inventory of gravity components ahead of startup production and expect an increase in LC and RV impairments from an accounting standpoint that will affect gross margin.

In addition, as we ramp up production.

Expect the order per vehicle to improve.

Our gross margin improved on a quarter over quarter basis.

As I noted earlier.

Primarily due to lower impairment charges in Q4 related to LTE and RV.

<unk> identified additional opportunities in cost of goods sold and will continue to focus on implementation and further areas for cost out.

This amount was approximately $174 1 million a 24, 6% reduction from Q3.

Now moving to operating expenses.

R&D expense in Q4 totaled approximately $243 million.

Although there are many controllable and uncontrollable variables that can affect gross margin. So we don't typically provide specific gross margin guidance.

Five 3% sequentially due largely to higher personal related expenses.

We believe our R&D investment into technology gardeners.

Wanted to provide some directional color.

In your modeling.

I'll return at the technology is not only used in our own vehicles, but can also be leveraged.

Looking forward to the first quarter of 2024.

We anticipate improvements to gross margin despite the price adjustments in the quarter for pure and tooling.

Additional revenue stream through strategic technology deals such as the one with Aston Martin.

The improvements are expected to be driven primarily by projected reductions in impairments.

SG&A expense in Q4 was approximately $241 million.

As we move into the back half of the year.

$189 7 million in Q3 the.

Expect to build inventory of gravity components ahead of start of production and so expect an increase in LC and RV impairments from an accounting standpoint that will affect gross margin.

The sequential increase was primarily related to an increase in sales and marketing spend which is consistent with what we talked about in prior quarters related to putting more energy behind our science based data driven sales and marketing initiatives.

As I noted earlier.

<unk> identified additional opportunities in cost of goods sold and will continue to focus on implementation and further areas for cost out.

Professional services.

In personal related expenses related to largely geographic expansion.

Now moving to operating expenses.

We ended the fourth quarter with 45 studio in service centers.

R&D expense in Q4 totaled approximately $243 million.

Excluding our temporary and satellite service centers flat from Q3.

Five 3% sequentially due largely to higher personal related expenses.

On the service side, we ended Q4 with 47 mobile events in the fleet and 79 nationwide body shops.

We believe our R&D investment into technology gardeners.

I'll return at the technology is not only used in our own vehicles, but can also be leveraged.

We plan to continue to strategically expand our studio and service center footprint.

Additional revenue stream through strategic technology deals such as the one with Aston Martin.

Israel satellite service centers, which will cost effectively provide additional locations for lucid customers.

SG&A expense in Q4 was approximately $241 million.

Although we don't provide specific guidance on operating expenses.

$189 7 million in Q3.

I didn't want to provide some broader directional correct.

Looking into 2024, we expect operating expenses to be up year over year on an absolute basis.

But expect it to decrease as a percentage of revenue.

Our stock based compensation in the quarter was $63 9 million.

Professional services.

In personal related expenses related to largely geographic expansion.

Total other income was.

$83 1 million down from $122 3 million in Q3.

We ended the fourth quarter with 45 studio and service centers.

The decrease was largely attributable to a lower noncash benefit of.

Excluding our temporary and satellite service centers flat from Q3.

$5 $3 million related to the change in fair value of our common stock warrant liability down.

On the service side, we ended Q4 with 47 mobile rents in the fleet and 79 nationwide <unk> shops.

And down from $60 3 million in Q3.

We plan to continue to strategically expand our studio and service center footprint as well as satellite service centers.

As a reminder, this noncash impact can be influenced quarter to quarter by a number of factors.

One of the larger factors being lucid share price at the end of the quarter.

It will cost effectively provide additional locations for lucid customers.

We also recognized $6 million in unrealized gains related to the Aston Martin stock. We received in Q4 as a part of our strategic technology management.

Although we don't provide specific guidance on operating expenses.

I didn't want to bore some broader directional color.

Looking into 2024, we expect operating expenses to be up year over year on an absolute basis.

In Q4, we achieved an adjusted EBIT loss of $604 6 million a slight improvement.

I expect it to decrease as a percentage of revenue.

From $624 1 million in Q3.

Moving to the balance sheet.

Our stock based compensation in the quarter was $63 9 million.

We ended the quarter with approximately $4 $3 billion in cash cash equivalents and investments.

Total other income was.

$83 $1 million down.

With total liquidity or approximately $4 78 billion.

Down from $122 3 million in Q3.

Note. This excludes the $81 5 million in value of the Aston Martin shares as of December 31.

The decrease was largely attributable to a lower noncash benefit of 20.

$5 3 million.

We have been able to consistently sustained its strong balance sheet over time and as we have done for the last couple of years.

Related to the change in fair value of our common stock warrant liability down.

And down from $63 million in Q3.

As a reminder, this noncash impact can be influenced quarter to quarter by a number of factors.

We will continue to be opportunistic in exploring and diversify excess to financing sources.

Accounts receivable increased to $51 8 million in the fourth quarter.

One of the larger factors being lucid share price at the end of the quarter.

We also recognized $6 million in unrealized gains related to the Aston Martin stock. We received in Q4 as a part of our strategic technology management.

Up sequentially from $23 4 million in the third quarter.

The increase was primarily due to weaker sales related to <unk> agreements with the government of Saudi Arabia, and you can expect that this mix could result in fluctuations on a quarter to quarter basis.

In Q4, we achieved an adjusted EBIT loss of $604 6 million a.

Turning to inventory.

A slight improvement from $624 1 million in Q3.

Total inventory decreased 12, 9% sequentially, primarily due to raw material drawdown.

Moving to the balance sheet.

We ended the quarter with approximately $4 $3 billion in cash cash equivalents and investments.

We continue to see a box to a significant reduction in raw material days of inventory on hand, as we work toward greater predictability in the transportation channel and refine our inventory management processes and systems.

With total liquidity of approximately $4 78 billion.

Note. This excludes the $81 5 million in value of the Aston Martin shares as of December 31.

Capital expenditures for 2023 was $910 6 million slightly below the 1 billion to $1 $1 billion range regarding to what our third quarter earnings conference call.

We have been able to consistently sustained its strong balance sheet over time and as we have done for the last couple of years.

The lower Capex was primary related to deferral of projects into 'twenty 'twenty four capex.

We will continue to be opportunistic in exploring and diversifying excess to financing sources.

Capex in the fourth quarter was $272 6 million.

Accounts receivable increased to $51 8 million in the fourth quarter.

From $192 5 million in Q3.

Moving to the outlook for 2024.

Up sequentially from $23 4 million in the third quarter.

We forecast production of approximately 9000 vehicles in 2024.

And we continue to prudently manage and adjust our production to meet our sales and delivery needs.

Although we don't typically provide quarterly forecast I would remind you that the north American market is typically down sequentially in the first quarter.

Turning to inventory.

Total inventory decreased 12, 9% sequentially, primarily due to raw material drawdown.

However, we expect to deliver vehicles in Saudi Arabia that we were not able to deliver in the fourth quarter of 2023.

With regard to our liquidity position, we ended the quarter with total liquidity of approximately $4 78 billion.

We expect this will give us runway through the start of production of gravity and Atlas into country quantified.

Capital expenditures for 2023 was $910 6 million.

Slightly below the 1 billion to $1 $1 billion range regarding to what our third quarter earnings conference call.

Moving to Capex.

Our focus is increasing investments in our future growth initiatives and we expect capital expenditures for 2024.

The lower Capex was primary related to deferral of projects into 2024.

Approximately $1 5 billion.

Capex in the fourth quarter was $272 6 million.

Reflecting sustained efforts and our capital outlay.

Up from $192 5 million in Q3.

<unk> expansion from a completely built a unit, where we broke ground last month.

Moving to the outlook for 2024.

We forecast production of approximately 9000 vehicles in 2024.

The completion of the <unk> phase II expansion for stamping paint shop powertrain on premise and clarity body in white.

And we will continue to prudently manage and adjust our production to meet our sales and delivery needs.

On a product perspective, we are scheduled for gravity startup production in late 2024 and started production of our high volume makes US platform is scheduled for late <unk> 'twenty six.

Although we don't typically provide quarterly forecast I would remind you that the north American market is typically down sequentially in the first quarter.

However, we expect to deliver vehicles in Saudi Arabia that we were not able to deliver in the fourth quarter of 2023.

In closing I would like to Echo Peter's excitement.

Entered the next transformational phase of the <unk> story.

With regard to our liquidity position, we ended the quarter with total liquidity of approximately $4 78 billion.

We gained market share in 2023 and outpaced our overall addressable market. Despite the challenging macro environment and I am excited about the significant expansion of our total addressable market opportunity.

We expect this will give us runway through the start of production of gravity and at least into country quantified.

Sure.

Moving to Capex.

<unk> and the upcoming <unk> platform.

Our focus is increasing investments in our future growth initiatives and we expect capital expenditures for 2024.

We are confident in the growth of the EV market and that we have the right technology people and product lineup to succeed.

With that let me turn it back to manner to get to your questions.

Approximately $1 5 billion.

Reflecting sustained efforts and our capital outlay.

Thanks, Skagen will now start the Q&A portion of the call as we typically do we'll start with the say retail questions.

<unk> expansion from completely buildup unit, we broke ground last month.

The completion of the <unk> phase II expansion for stamping paint shop powertrain on premise and clarity body in white.

First question is from Ed where are you at on production and delivery of Saudi orders.

Well last year, we made history in Saudi Arabia, with the opening of the country's first ever manufacturing facility.

From a product perspective, we are scheduled for gravity startup production in late 2024 and started production of our high volume makes US platform is scheduled for late 2026.

And its first phase three the factory has a capacity to assemble just 5000 lucid vehicles, a year and operations have been well underway.

In closing I would like to Echo Peter's excitement as we enter the next transformational phase of the <unk> story.

Last month actually we broke ground on the factory for completely build simple CPU Charles and these are critical investments into our future and we're grateful for all the support from our government and from our partners.

We gained market share in 2023 and outpaced our overall addressable market. Despite the challenging macro environment and I'm excited about the significant expansion of our total addressable market opportunity.

With regard to deliveries, we started deliveries to the ministry of Finance last year.

Sure.

Under the terms of the agreement the government has committed to purchase 50000 vehicles with an option to purchase additional 30000 or at any timeframe.

And the upcoming with SAS platform.

We are confident in the growth of the Asian market and that we have the right technology people and product lineup to succeed.

This includes the lucid air as well as future models, such as the gravity and mid sized platform.

With that let me turn it back to manner to get to your questions.

Thanks, Skagen will now start the Q&A portion of the call as we typically do we'll start with the say retail questions.

As I said in the opening remarks, the ramp was taking longer we now have the infrastructure built out and have the right processes. We are scaling and expect good growth in 2024.

First question is from Ed where are you at on production and delivery of Saudi orders.

Our next question is from Paul do you plan to reduce time to market for new products gravity is delayed one year third model has now moved it as mid to late decade, instead of 2025 as shareholders, we're losing value due to failures and delays what happened to the all star team and proven track record.

Well last year, we made history in Saudi Arabia, with the opening of the country's first ever manufacturing facility.

And at first phase three the factory has a capacity to assemble just 5000 lucid vehicles, a year and operations have been well underway.

Good point actually we saw unprecedented external forces that impacted us with COVID-19 and the global supply chain disruption.

Last month actually we broke ground on the factory for complete rebuild simple CPU Charles and these are critical investments into our future and we are grateful for all the support from our government and from our partners.

Impacted many in the industry not just lucid.

But I would say this.

Tesla is the benchmark for engineering speed.

With regard to deliveries, we started deliveries to the ministry of Finance last year.

If you look at the time taken between the start of production of Tesla model S and X. It was just a bit over three years.

Under the terms of the agreement the government has committed to purchase 50000 vehicles with an option to purchase additional 50000 over a 10 year timeframe.

You look at Wink.

Schedule for production for gravity late this year, that's going to be a very similar time period between production and.

This includes the lucid air as well as future models, such as the gravity and mid sized platform.

And gravity and that's despite not being a derivative product a whole new platform. So I think that is a who's leading pace of engineering.

As I said in the opening remarks, the ramp was taking longer we now have the infrastructure built out and have the right processes. We are scaling and expect good growth in 2024.

And for small teams get gravity, our landmark product a completely differentiated products in just over three years now mid size. What we've done is define a schedule for it we're scheduling for late 'twenty six very similar in time scale. It's really I think this is world class execution.

Our next question is from Paul do you plan to reduce time to market for new products gravity is delayed one year third model has now moved it as mid to late that cadence into 2025 as shareholders, we're losing value due to failures and delays what happened to the all star team and proven track record.

Good point actually we saw unprecedented external forces that impacted us with COVID-19 and the global supply chain disruption and that impacted many in the industry not just lucid.

Frankly.

Thanks, Peter will go to questions three are there any updates regarding future partnerships with Apple.

Well as a general corporate policy, we don't talk about any particular companies, particularly as it relates to the future relates to the future, but as I said in my prepared remarks, we have what I believe is the best Tech in the industry. We've seen increased interest from others and we're very open to it because we think it's critically important.

But I would say this.

Tesla is the benchmark for engineering speed. If you look at the time taken between the start of production of Tesla model S and X. It was just a bit over three years, if you look at Wink.

Schedule for production for gravity late this year, that's going to be a very similar time period between production.

The planets.

As I said before it's Super hard to do a good EV, it's relatively easy to make a bad E. Vm's growing realization just how hard it is to do a world class EV.

And gravity and Thats, despite not being a derivative products.

New platform. So I think that is a who's leading pace of engineering.

And for small teams get gravity, our landmark product a completely differentiated products in just over three years now mid size at what we've done is the final schedule for it we're scheduling for late 'twenty six very similarly in time scale.

I think this is world class execution frankly.

Thanks, Peter will go to questions three are there any updates regarding future partnerships with Apple.

Well as a general corporate policy, we don't talk about any particular companies, particularly as it relates to the future relates to the future, but as I said in my prepared remarks, we have what I believe is the best checking the industry. We've seen increased interest from others and we're very open to it because we think it's critically important.

For the planet.

As I said before it's it's super hard to do a good EV, it's relatively easy to make a bad vm's growing realization just how hard it is to do a world class EV.

It is.

So in 2021 I received a one time C E O stop ground and this was solely determined and <unk> approved by the board of directors.

Thanks for the next question is from London.

We will gravity reservations open is there a target date for first deliveries.

And a significant portion of that Vista due to the company achieving certain market capitalization milestones as we publicly disclosed in 2023, so I I I think there's a huge <unk> perception, but this one time gallant was received as a salary.

No.

The target date for first orders Oh, yes, I'm, hoping we'll deliver some gravity vehicles later this year, but naturally you should expect the bigger volume today.

Around 2025, but we know the excitements around gravity is palpable.

Okay, and we'll take our last question from Daniel do you plan to take a salary cut to reduce losses or plan to buy back shares to improve stock health.

And somehow we replicate get as my salary in the future.

In fact in 2023 at my request I did not receive a bonus with 20 twenty-two nor did I receive any for the equity grunts and 22 or 23 and I. Just wanted to show you. My mission of my dedication is still unwavering all you have not sold a single sure of.

Well many may not be aware of money fund pounding ROE in this company as we know it today I joined the company.

11 years ago with a clear goal of making the very best electric vehicle and to drive a resolution tools sustainable transportation, which was going to benefit everyone on the planet around that we would call to Teva and <unk>.

Stock.

All this time over 10 years, except what was absolutely necessary for tax purposes.

I guess, we had around 19 employees.

I'm a company stock I received from the grunt remains in the form of company stock and so I am also directly tied personally tied directly and hugely to the company's performance as a key shareholder.

So in 2021 I received a one time CEO stock ground and this was solely determined and approved by the board of directors.

A significant portion of that vesting due to the company achieving certain market capitalization milestones as we publicly disclosed in 2023.

And so I'm incentivize that way my promise is to continue to work tirelessly day and night to drive brand awareness to deliver more cause.

So I think there is a huge miss perception, but these are one time grant was received as a salary and somehow be replicated as my salary in the future.

To to find more technology licensing and access agreements to drawing down cross and to bring the gravity and mid size platforms to mortgage.

In fact in 2023 at my request I did not receive a bonus for 2022, new did not receive any further equity grants in 'twenty, two or 'twenty three.

We have an incredible team will driving food at all.

I am incredibly excited about off products I'm all over all future.

And I just wanted to show you My mission and my dedication is still unwavering.

Regarding the second part of the question we are interesting in our future like we had grilled company.

We have not sold a single share of stock.

Also in technology company.

In all this time over 10 years, except what was absolutely necessary for tax purposes.

And I believe our investments into areas such as our research and development is an advantage.

And the company stock I receive from the grunt remains in the form of company stock and so I am also directly tied personally tied directly and hugely to the company's performance as a key shareholder.

And give us the approach entity for higher returns than any other automotive company because we are monetizing the intellectual property to <unk> such as the one with Aston Martin.

When we feel we can't increase value from reinvesting back into the business, we would consider returning the cash to shareholders why every purchase program.

And.

So im incentivize that way my promise is to continue to work tirelessly day and night to drive brand awareness to deliver more cars.

But we don't believe this would happen for quite some time.

Okay. Thanks to one that can we turn it over to go to questions on the call. Please.

To find more technology licensing and access agreements to drawing to Amtrust.

[noise] you.

He said gentlemen to ask a question. Please press start one one on your telephone and then wait to hear your name of <unk>.

And to bring the gravity and midsized platforms to mortgage.

Have an incredible team, we are driving food and I'm incredibly excited about us products I'm all over our future.

Withdraw your question. Please press start one one again.

Please stand by while be compelled to and I lost it.

Regarding the second part of the question.

Our first question comes from the lineup John Murphy with Bank of America.

Listing in our future, but we had growth company.

We're also a technology company and I believe our investments into areas such as our research and development is an advantage.

Wilson.

Good morning, everybody get more I'm, good afternoon, or I'm, sorry long day here Peter as you think about the gravity you know, it's really kind of showcasing your technology not just on the power train, but also in in the in the body and structures of the vehicle, meaning just you have maximum tourist.

And give us the opportunity for higher returns than any other automotive company because we are monetizing the intellectual property.

<unk> such as the one with Aston Martin.

When we feel we can't increase value from reinvesting back into the business.

<unk> for the footprint is pretty impressive as we think about the gravity. It seems like it's gonna be a game changer for you in in the market. However, it does seem like the mid sized platform, maybe even more important as we think about the the launch of these two programs late this year and then the the mid size it in 2020.

Would consider returning cash to shareholders via a repurchase program.

But we don't believe this would happen for quite some time.

Okay. Thanks, <unk> can we turn it over to go to questions on the call. Please.

Six.

In relative importance, which is more important for Lucy at four four made to long term success and how do you kind of gauge that relative size of importance to the company.

Ladies and gentlemen to ask a question. Please press star one on your telephone and then wait to hear your name will now so.

To withdraw your question. Please press star one again please.

Please standby, while we compile the Q&A roster.

Thank you John I mean, if you ask the question a year or two ago people would question not technology today, it's given the rules <unk> technology, what we haven't got a scale and an economy of scale.

Our first question comes from the line of John Murphy with Bank of America. Your line is open.

And that is going to take place in three critical steps and the first step happened last week, we launched a pure stealth initiative lucid areas now available at $69 from $69900. The best <unk> on the planet at that price that puts us into <unk>.

Good morning, everybody.

Good afternoon, I'm, sorry long debt here.

Peter as you think about the gravity.

It's really kind of showcasing your technology not just on the powertrain, but also in the in the body and structures of the vehicle, meaning just you have maximum interior space for the footprint is pretty impressive.

Three times the time, the total addressable monkeys, because now we go into <unk> territory, rather than S. Plus so step one pure from 69903 times, the total aggressive or mortgage and then schedule for production late this year, we have gravity the SUV we're.

As we think about the gravity it seems like it's going to be a game changer for you.

In the market. However, it does seem like the mid sized platform may be even more important as we think about the launch of these two programs late this year and then the mid size in 2026.

Talking about six times, the time with gravity and then schedule for production late 26, the third step on this journey mid size 20 times <unk>. It's all about scale. We've got the Tech was tech is designed to the scale, it's about achieving scale and with.

Relative importance, which is more important.

For lucid for mid to long term success, and how do you kind of gauge that relative size and importance to the company.

Thank you John I mean, if you ask the question a year or two ago people would question our technology today, its given who ruled moves we've got the very best technology, but we haven't got is scale and an economy of scale.

That will get the economies of scale in the margins and profitability.

So is the ultimate pitch to how to interpret dad I mean, we're we're fighting to the position of getting to that even greater scale with a mid size and that probably is the sort of the the fulcrum point and where you'll get to escape velocity on profitability and casually is that alright totally.

And that is going to take place in three critical steps in the first step happened last week, we launched our pure stealth initiative.

Lucid areas now I'll tell you about $60 million from $69900. The best Eva on the planet at that price that puts us into three times. The Tam the total addressable market because now we go into <unk> territory, rather than S class. So step one pure from 16.

Today, we're competing with the scientists and pull shot with mixed size, we can paint directly with Tesla model line model free that's the best uncountable.

And then just one follow up you mentioned the potential for hybrid.

<unk> thousand 903 times, the total addressable markets and then schedule for production late this year, we have gravity. The SUV, we're talking about six times, the Tam with gravity and then schedule for production late 2006, the third step on this this journey mid size.

Technology or or joining obviously and I and I <unk> <unk>, you're part of a hybrid powertrain.

I mean, what kind of discussions are going on there and to you know what I mean, you don't want in Layman's terms you know there's all these positions an electric motor can be put or placed in.

In the ice powertrain from P zero, all the way back to P. Four and your various positions in the middle Uhm as you kind of envision <unk>.

<unk> tons. The Tam it's all about scale, we've got the tank with Tech is designed to scale, it's about achieving.

<unk> scale and with that we will get the economies of scale and the margins and the profitability.

What you can bring to the table and a potential positioning or integration within with an ice engine to make a presumably pretty efficient <unk> power trained for a hybrid.

So ultimately.

John I interpret that I mean, we're fighting to the position of getting to that even greater scale with the mid sized and that probably is the sort of the default green point.

Where would you land in that in that positioning and have even thought of that at this point. So if you just talk about discussions are going on and then sort of your your thought process about how you integrate into an ice engine.

Where you'll get to escape velocity on profitability and cash flow is that totally.

We're completing with Mercedes and Porsche with mixed size, we compete directly with Tesla model Y and model three.

Yes, so we always envisaged a key pillar amount business being the technology licensing and supply when we've got the best technology and that's recognized.

Best selling Cornwall.

And then just one follow up you mentioned the potential for hybrid.

An hour arrangement with Astromancy Laska has triggered an increase in interest.

Technology or joining obviously.

In our technology.

Engine to be.

You're part of a hybrid powertrain.

Oh, sorry, a growing up one internal team so that will be able to not just be receiving passively inquiries, but actually become a little bit more proactive in the future actually the the the application for hybrid has come as I as an external inquiry because if you look at the core capability.

What kind of discussions are going on there and two.

In layman's terms.

There is all these positions and electric motor to be put or placed in the ice.

Powertrain from Pes zero, all the way back to <unk>.

Various positions.

He's about powertrain the unique selling price.

In the middle.

As you kind of envision what you could bring to the table and a potential positioning or integration within a with an ice engine to make a presumably a pretty efficient.

Proposition of it is it's efficiency, while that applies equally to say a hydrogen fuel cell vehicle <unk> Oh.

<unk> gasoline.

Powertrain for a hybrid.

Sure.

Electric hybrid and also it's <unk> power and light is very relevant to the hybrid because in a hybrid you gotta stuffing, a gasoline engine and exhaust and all that stuff and that person I I am the electric motors and that tree and it's really becomes <unk>.

Where would you land in that in that positioning and have even thought of that at this point. So can you just talk about discussions that are going on and then sort of your thought process about how you would integrate into an ice engine.

Yes, so we always envisaged a key pillar of our business being a technology licensing and supply when we've got the best technology and that's recognized.

Ah packaging puzzle and plus and because we've got the most <unk> technology that ideally lends itself to that now Lucy is not gonna do hybrids, we're ready to battery electric we believe <unk> is the solution, but certainly the hybrid opportunity opens up a whole new.

Sure.

Our arrangement with us announcing last year has triggered an increase in interest.

And in our technology.

We're also growing our own internal team so that we'll be able to not just be receiving passively inquiries, but actually become a little bit more proactive in the future.

Markets Arena technology.

Okay. That's very helpful. Thank you very much.

Actually the application for hybrid as commerce.

Thank you.

Please stand by for our next question.

External inquiry, because if you look at the core capabilities of our powertrain the unique selling price proposition.

Our next question comes from the line of <unk>.

<unk> with ethical ISI your line is open.

Proposition of it is its efficiency will that apply equally to let's say a hydrogen fuel cell vehicles.

Hey, Peter So you mentioned a few manufacturing advancements coming to further drive down costs. In 2024, Yeah. I was just curious if you can quantify those or give us a couple of examples on initiatives that you have in progress right now to help on that cause side of the business.

<unk>.

Gasoline.

Electric hybrid and all sorts compartments switch power and that is very relevant to the hybrid because in a hybrid you can stuffing a gasoline engine and exhaust and all that stuff and that paraphernalia Island electric motors and that free and it's really becomes.

Right. So we're really looking at further vertical integration, particularly in a factory in Arizona were brings tempting in house and that is going to be right alongside the new body shop for gravity. So we will reduce the operational costs will reduce all.

Our packaging puzzle.

Plus and because we've got the most compact technology ideally lends itself to that now lucid is not going to do hybrids. We are ready to battery electric we believe <unk> is the solution, but certainly the hybrid opportunity opens up a whole new market arena.

<unk> will reduce inbound logistics costs, we will actually reduce scrap as well and there's an internal efficiency as well by having an integrated states of the odds hydraulic transfer stamping line with laser blanking facility fully integrated then we're actually.

Technology.

Okay. That's very helpful. Thank you very much.

Thank you.

Please standby for our next question.

Moving our Nowack frame, which is already vertically integrated a little <unk> Inverters drive units all in house at the moment, but that's in a separate back trip Rhodes, who will save those logistics goes by actually putting it under the same roof as main factory in Arizona. So we will.

Our next question comes from the line of Doug.

Jetson with Evercore ISI your line is open.

Hi, Peter So you mentioned a few manufacturing advancements coming to further drive down costs in 2024, and I was just curious if you can quantify those or give us a couple of examples on initiatives you have in progress right now to help on that cost side of the business.

Save <unk> and will be efficiencies. The other thing we're integrating into that factory is logistics and we've been able to go down some of the crosstalk. So I think all of <unk> now virtually have been drawn down upon so we've got the inbound logistics cost savings and then the other thing. We're doing is we've re I really <unk>.

So we're really looking at further vertical integration, particularly in our factory in Arizona, We're bringing is tempting in house and that is going to be right alongside the new body shop for gravity. So we will reduce the operational cost will reduce.

<unk> the organization as <unk> quality reports directly into me, we're really do only thing down man hours <unk> vehicles, perhaps gunk and you could provide color on some of the initiatives you driving.

Opex will reduce inbound logistics costs, we will actually reduce scrap as well and there is an internal efficiency as well by having an integrated state of yards hydraulic transfer stamping line with laser blanking facility fully integrated them we're actually.

Leading to drive down costs, yes. Thank you Peter So we have identified <unk> any shadows, one scaled scale little help us improve our margin this is technology and volume race.

Moving our powertrain, which is already vertically integrated our world Class Motors Inverters drive units all in house Super moment.

<unk>, we took some initiative in 2023, and we have seen the results, but more importantly, we have identified additional approaching it is that will look to operationalize inputted 24.

That's in a separate backdrop Rhodes, who will save those logistics costs by actually putting them under the same roof as our main factory in Arizona. So we will save operational efficiencies. The other thing we are integrating into that factory is logistics and we've been able to draw down some of the cross docks I think all in cross docks now.

On operational efficiency with just number three and as Peter mentioned, we're looking multiple areas. One freight we made significant improvements in quantity and looking more info to 24 <unk>.

Virtually have been drawn down upon so we've got the inbound logistics cost savings and then the other thing. We're doing is we've really revised the organization. So that quality report directly into me, we're really driving down man hours.

The logistics, specifically as we moved from our it let's see warehouse to <unk> General Assembly. This has really helped us in reducing the cost.

This is a <unk> exercise and we are looking very carefully. This is my number one goal having the cost optimization, but again it is not easy if it <unk>. If we're looking at consistently and also we have initiated it team underneath.

Vehicle, but perhaps you could provide color on some of the initiatives you driving.

Leading to drive down cost, yes. Thank you Peter So we have identified three initiatives.

Specifically looking each area very carefully looking at each dollar and bring the efficiencies, but asked me grow as we scale it will bring us efficiencies technology and volume race.

<unk> scaled scale little help us improve our margins this is technology and volume risk.

<unk>, we took some initiatives in <unk> III and we are seeing the results, but more importantly, we have identified additional opportunities that we'll look to operationalize in particularly for.

Yeah, Skylights particular interest.

<unk> got that fixed cost components, and it's the amortization of your fixed costs and overhead depreciation.

On operational efficiency, which is number three and as Peter mentioned.

We're looking multiple areas.

<unk>. So this is well this is the you know the the initiative to stop in $69000 is three step hating our total addressable market the scale will drive down the that the costs.

One freight we made significant improvements in quantity and looking more in particularly for.

Logistics, specifically as we moved from our <unk> warehouse to ample and faced with General Assembly.

Excellent I appreciate all the detail there. That's that's really helpful. Just one quick one for me then on gravity you know starting price of $80000, obviously, not a ton of deliveries in 2024, but will that'd be similar to the strategy with the air where you're starting with the higher trims, and then moving downstream it the right way to think about price.

This has really helped us in reducing the cost.

Sure.

This is a consistent exercise and we are looking very carefully this is.

My number one goal having the cost optimization.

Again, it is not easy.

We're looking at consistently and also we have initiated a team underneath specifically looking each area very carefully looking at each dollar and bring the efficiencies, but as we grow as we scale. It will bring US efficiencies. This is a technology and volume risk.

<unk> and the bottle, you know ending 24 and going into 25.

Yeah, we we haven't fully we haven't disclosed that yet I do think it's reasonable to assume gravity is gonna be in.

In a similar competitive sense as.

It's gonna be competing mowing the Mercedes.

Arena will have to wait for for mid size to come which is scheduled for production late 26 to have it for Tesla model Y model free competitor I mean, the key thing with gravity is gonna hate it's about six times. The time, that's gonna help us hugely with his economies of scale.

Yes scale is critical because.

To draw it down on the Cogs, you've got that fixed cost component and the amortization of your fixed costs and overhead depreciation.

Vehicle. So this is this is the initiatives to start at $69000 is three step.

Hitting our total addressable market the scale will drive down the costs.

Excellent. Thank you.

Thank you.

Where do you stand by for our next question.

Excellent I appreciate all the detail there that's really helpful. Just one quick one for me then on gravity.

Our next question comes from a line of Stephen Fox Fox advisers, LFC you're Linus.

Starting price of $80000.

Hi, Good afternoon I was just wondering if you could talk a little bit more about your expectations for the KSA market. This year, you mentioned first of all.

Obviously, not a ton of deliveries in 2024, but well that'd be similar to the strategy with the air where youre, starting with the higher trims, and then moving downstream at that the right way to think about pricing in the model.

That there was some unexpected nuances and ramping and I guess production too during twenty-three so how do we think about.

<unk> 24 and going into 'twenty five.

Yes.

You know, how how you benefited from that market and the.

Haven't fully we haven't disclosed that yet I do think it's reasonable to assume gravity is going to be.

Growth during the year. Thanks.

In a similar competitive St.

Yep. Thank you Steven we are limited to what we can say in general and we do not specifically talk about any specific customer, but what we can say and most of you are already aware that the government of Saudi Arabia.

It's going to be completing more than the societies.

Arena will have to wait for for mid size to come which is scheduled for production late 'twenty six to have a true Tesla model Y model III competitor I mean, the key thing with gravity is going to hit about six times. The Tam that's going to help us hugely with these economies of scale.

Have an initial commitment to purchase 50000 vehicles with an option to purchase additional 50000 vehicles.

And as I said in the opening remarks, the ramp or taking longer than we expected.

Excellent. Thank you.

Thank you.

And we now have the right infrastructure and processes spell it out they were significant administrative challenges.

Please standby for our next question.

Our next question comes from the line of Steven Fox with Fox Advisors LLC. Your line is open.

We have addressed most of the pinpoint.

Scaling and expect good <unk> and also load this government with Saudi Arabia also includes.

Hi, Good afternoon I was just wondering if you could talk a little bit more about your expectations for the KSA market. This year, you mentioned first of all.

<unk> gravity and which size.

That there was some unexpected nuances and ramping and I guess production too during 'twenty three so how do we think about.

That's helpful. And then just one Claire clarification, you mentioned, a lotta cost initiatives that are underway for 24, and 23 is there a way to quantify how.

How how you benefited from that market and the.

Growth during the year.

Bill of materials came down or.

Thank you Steven.

Just or actually what it did versus 22. Thanks, Yes, we don't specifically guide, but what I can save that our gross margin in two four.

We are limited to what we can say in general and we do not specifically talk about any specific customer, but what we can say and most of you are already aware that the government of Saudi Arabia.

Improved compared to Q3.

And also we don't provide guidance, but I expect.

The initial commitment to purchase 50000 vehicles with an option to purchase additional 50000 vehicles.

Gross margin will improve sequentially in Q1 next year.

And as I said in the opening remarks, the ramp was taking longer than we expected.

Having said that purchase of gravity components.

<unk> startup production may have some impact on <unk> as we progress, but as I said the cough is critical component, we're looking at very carefully.

And we now have the right infrastructure and processes built out there was significant administrative challenges.

We have addressed most of the pain points.

And we are very proud of what team has accomplished specifically related to the engineering team and supply chain team. They have been tremendous job finding savings even through technology. So.

We are scaling and expect good growth this year and also note. This.

Government with Saudi Arabia also includes.

Air gravity and merchandise.

That's helpful. And then just one clarification you mentioned a lot of cost initiatives that are underway for 'twenty four and 'twenty three is there a way to quantify how the bill.

We have identified a couple of areas and we are looking very aggressively and this is our number one goal looking at the cost of observation and.

The bill of materials came down or well.

I think the other thing is that I I know keep bringing on this point does is critical critical differentiate the reverse because we can go further with less batteries. We can hit the biggest single constantly Oh, <unk>, which is the cost of the battery. Some people who are looking at these so called advances in technology.

Just directionally, what it did versus 22.

Yes, we don't specifically guide, but what I can say that our gross margin in Q4 improved compared to Q3 and.

And also we don't provide guidance, but I expect our gross margin improved sequentially in Q1 next year.

Manufacturing you might save 100 Bucks on a vehicle you can save thousands of bucks potentially with having the ability to go further with less factories and we're seeing that plan that pulling out now with the <unk> with anyone else in that sector and we'd just 88 kilowatt out of that.

Having said that.

Sales of gravity components.

The startup production may have some impact on <unk> as we progress, but as I said the cost is critical component, we're looking at very carefully.

<unk> small pack.

We are very proud of what the team has accomplished.

<unk> 12 kilowatt hours, a pack is potentially thousands of bucks on your <unk>.

Specifically related to the engineering team and supply chain team they have done tremendous job finding say.

Understood. Thank you very much.

Thank you.

Savings even through technology so.

Please stand by for our next question.

We have identified a couple of areas and we're looking very aggressively and this is our number one goal looking at the cost optimization.

Our next question comes on the line up to bias <unk> Atlantic Your line is open.

Hi, good evening, Thanks for taking my question.

I think the other thing is that.

Hi to and.

I'm going to keep bringing on this point. This is critical as a critical differentiator of us.

Maybe it will start with my questions <unk>.

If I excuse the inventory right down that's $172 million <unk> in the fourth quarter. It looks like unit Cogs improved by about 20 percentage points sequentially. I was wondering what what was it that drove the improvement was it the receipt of Z 98 million dollar a government grant or.

Of course, we can go further with less batteries, we can hit the biggest single constraints.

On an EEV, which is the constant but battery some people looking at Liza So called advances in technology manufacturing you might save a 100 bucks.

You can save thousands of bucks potentially with having the ability to go further with less factories and we're seeing that plant that play out now with the <unk> will drive more range than anyone else in that sector and with just 88 kilowatt hour battery pack smaller pack.

This accounted for hostler.

Yeah. That's a good question. So first of all Greg doesn't play April.

In the course as of today.

What you don't as I was highlighted with a couple of initiatives in 2023, <unk> like very important we made significant savings.

Slide 12 kilowatt hours of pack as potentially thousands of books on the bill of material.

Understood. Thank you very much.

But also more importantly, our forecast accuracy of raw materials.

Thank you.

Please standby for our next question.

Because to date the cost of goods sold is not only related to how may detach herself.

Our next question comes from the line up to bias that with Great. Brian Atlantic. Your line is now open.

Is also related to what parameters and renting we have and how we utilize that so the focus accuracy the freight.

Hi, good evening, Thanks for taking my question.

Hi.

Maybe it will start with my questions.

If I exclude the inventory write down.

As in ball.

Really helped us out improve our crossed margin in Q4.

$172 million from our Cogs in the fourth quarter. It looks like unit Cogs improves by about 20 percentage points sequentially I was wondering.

Sure. Okay. That's helpful. Thank you.

My second question relates to the iron the gravity if I <unk>.

What was it that drove the improvements.

The receipt of the $98 million government grant or is this accounted for elsewhere.

Put aside the differences in the interior and exterior of the vehicles are you able to share roughly what proportion of thoughts componentry, a shirt I guess, the fact that these vehicles using different platforms.

Yes, that's a good question. So first of all Greg doesn't play a role.

In the course as of today.

Named packs a variable call status options that was previously communicate <unk>.

What as I.

I was highlighted with the couple of initiatives in 2023.

Pickles with leverage leap.

Okay. Let me, let me come to that if you look at the battery pack, which is the cool cool part of the Bill of materials are both vehicles. It is about 95%. The same it's the both got the same number of modules. The same <unk> sells them made exactly on the same line. It's just the two of the top modules or.

Great.

All important we made significant savings.

But also more importantly, our forecast accuracy of raw materials, because today the cost of goods sold is not only related to how many class itself.

It is also related to what raw material inventory, we have and how we utilize that so the forecast accuracy the freight opportunities in bomb.

Different location, we move them from underneath the <unk> to underneath the front seat and gravity.

<unk> effect upon the nature of the vehicle, which.

<unk> really helped us out improve our gross margin in Q4.

<unk> leads to much bigger <unk>, we can only capture that <unk> by having a degree of differentiation now if you look at the cool powertrain the droid units and the uhm influences. They are very very high proportion <unk> slightly different gear ratios because the wheels the bigger.

Sure. Okay. That's helpful. Thank you.

My second question relates to the iron the gravity.

If I put aside the distances and the interior and exterior of the vehicles are you able to share roughly what proportion of that cost component.

And you need more <unk> ability shift slightly <unk> gear ratios now the rest of the platform is very similar which is saved on R&D costs, because we've got a learning and the process knowledge of how we <unk> glue the sheets stampings, the castings and the extrusion to.

I guess, the fact that these vehicles are using different platforms.

The impacts of variable cost that assumption.

Obviously communicate.

Vehicles with leverage leap.

Okay. Let me let me cover that if you look at the battery pack, which is the cool pool pump of the bill of materials of both vehicles. It is about 95% of the same.

<unk>.

But there is a degree of difference in that platform, which I think makes a whole bunch of sense because it makes the gravity of true S. U V not some sort of.

Both got the same number of modules the same room with cells. Then made exactly on the same line. It's just the two of the top module to a different location, we move them from underneath the rear seats.

Soft C U V derivative and that means we go into a whole new Tam six times, we would not be able to capture that tan and all sorry.

Underneath from Satan gravity this has a.

Immaterial effect upon the nature of the vehicle, which in turn leads to a much bigger Tam we can only capture that cam Tam by having a degree of differentiation now if you look at the core powertrain the drive units and the <unk>.

Two double the tools anyway because of the extra volume. So then we look at this the upper body shell of the <unk>, they're always going to be different anyway. So we're talking about a very <unk> <unk>.

Kris in tooling costs, but in in return for that we truly into a massively biggest time six times and this is all about economy of scale with golf. The technology. It's designed to scale, we just having a cheap that scale, yet and soothing for it's not showing up you know.

<unk>.

Very very high proportion carryover slightly different gear ratios because the wheels are bigger and you need more <unk> you have slightly lower gear ratios now the rest of the platform is very similar which is saved on R&D costs, because we've got a learning and the process knowledge of how we.

Makes sense, alright, and if I could squeeze one last one and three quarters ago I asked about the steps required to move from basic prototyping of the gravity, which is that it just started to.

Richardson glue, the sheets stampings castings and the extrusion together.

But there is a degree of difference in that platform, which I think makes a whole bunch of sense because it makes the gravity of true SUV not some sort of.

Mhm production I was wondering if you could provide an update on.

On the poorest today so.

We're right in the thick of beta prototypes in fact about between <unk> more than 40 prototypes built many of which you're running round right now.

Soft <unk> derivatives and that means we go into a whole new Tam six times, we would not be able to capture that Tam and also you'd be you'd need to double the tools anyway because of the extra volume. So then we look at the upper body shell of a car, they're always going to be different anyway.

The <unk> will be finishing a run all beta prototypes over as as we move now into the spring and the next step will be to do a release candidates that sound pre production run through the summer in the factory in Arizona, which will lead to Ah schedule stone.

So we're talking about a very slight impact.

Kris in tooling costs, but.

In return for that we truly into a massively bigger Tam six times and this is all about economies scale. We've got the technology. It is designed for scale, we just haven't achieved that scale, yet and Susan.

Production late this year.

Greg that's helpful. Thanks.

Thank you.

Thank you for speaking soon.

Thank you, yes indeed.

Thank you.

Go to the interest of time now like to turn the call back over to <unk> for closing remarks.

Thank you. This concludes Loosest fourth quarter 20 twenty-three earnings conference call. Thank you all for joining US today and you may now disconnect.

Q4 2023 Lucid Group Inc Earnings Call

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