Q3 2024 Lucid Group Inc Earnings Call
Speaker Change: Ladies and gentlemen, thank you for standing by and welcome to the Lucid Group 3rd Quarter 2024 Earnings Conference Call.
Speaker Change: Please be advised that today's conference is being recorded. Later, we will conduct a question and answer session. If you have a question, please press star, then the number 1 on your touchtone phone. Please record your name and the name of your firm after the tone. Your name is required to ask a question.
Speaker Change: I would now like to turn the conference over to your speaker for today, Maynard Um, Senior Director of Investor Relations. Please go ahead.
Maynard Um: Thank you, and welcome to Lucid Group's third quarter 2024 earnings call. Joining me today are Peter Rawlinson, our CEO and CTO, and Gagan Dhingra, our interim CFO and principal accounting officer.
Maynard Um: Before handing the call over to Peter, let me remind you that some of the statements on this call include forward-looking statements under federal securities laws.
Maynard Um: 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.
Maynard Um: These statements are based on predictions and expectations as of today, and actual events or results may differ due to a number of risks and uncertainties.
Maynard Um: In addition, management will make reference to non-GAAP financial measures during this call. A discussion of why we use non-GAAP financial measures and information regarding reconciliation of our GAAP versus non-GAAP results is available in our earnings press release issued earlier this afternoon, as well as in the investor deck.
Speaker Change: With that, I'd like to turn the call over to Lucid's CEO and CTO Peter Rawlinson. Peter, please go ahead.
Peter Rawlinson: Thank you, Maynard, and thank you everyone for joining us on our third quarter 2024 earnings call.
Peter Rawlinson: Now before I get to the third quarter results, I'd like to start by thanking all our employees, suppliers and partners for their support and hard work.
Peter Rawlinson: This additional capital gives us sufficient financial runway into the ramp of lucid gravity and indeed well into 2026.
Peter Rawlinson: Now the raise is consistent with our strategy. We've said that we'd continue to be opportunistic based upon the markets and we delivered this with strong support from the PIF as well as other institutional investors.
So, turning to third quarter results.
Peter Rawlinson: We deliver 2,781 vehicles, up approximately 91% year-over-year, and up 16% sequentially, outperforming what is typically a seasonally softer period for the industry.
Peter Rawlinson: In September, in the U.S. market, the Lucid Air not only outsold many of the largest and most storied brands in the industry within our competitive set of electric vehicles
Speaker Change: But we also have sold many of the competitive set in the gas market as well. So I think our momentum is quite notable.
Speaker Change: And I believe a part of this is due to Lucid's growing brand awareness, which is reaching an all-time high in the third quarter since we started tracking this metric.
Speaker Change: The number of vehicles on the road continues to grow and I'd like to thank our loyal customers who are our biggest advocates.
Speaker Change: You are a key part of our success and I'd like to extend my sincere gratitude.
Speaker Change: Turning to production, we produced 1,805 vehicles in the third quarter and are on track to produce approximately 9,000 vehicles for the full year 2024.
Speaker Change: I'm delighted with the progress we've made with vehicle inventory and will continue to manage this judiciously. As that said, I would expect an increase in production in the fourth quarter.
Speaker Change: I'm also delighted by the progress in our planned cost optimization programs at the Arizona factory.
Speaker Change: In the third quarter, we transitioned our battery enclosure manufacturing and various sub-assemblies on site, and we're transitioning powertrain manufacturing to be fully on site.
Speaker Change: We expect this will not only have a number of cost benefits, including logistics, but should also help the efficiency of the factory when fully integrated.
Speaker Change: We held our technology and manufacturing day at the Arizona factory on September the 10th to demonstrate our technology leadership, its cost-effectiveness and to show off our lucid gravity SUV.
Speaker Change: The day was purposefully structured to not only highlight our technology advantage, but just as critically, our cost competitiveness.
Speaker Change: referencing data from a widely respected and objective third-party company that specializes in this type of analysis.
Speaker Change: We also demonstrated how our advanced technology translates into vehicle comfort and performance with close course test rides of Lucid Gravity Beta and pre-production vehicles as well as the Lucid Air Sapphire 0-60 launches.
Speaker Change: Now I think those that have had the opportunity to test ride the Lucy Gravity would agree that the drivability is more akin to a sports sedan than a traditional SUV.
Speaker Change: The Lucid Air is the best car I've ever driven, but the Lucid Gravity may well be the first SUV I'm genuinely looking forward to as my daily driver.
Speaker Change: We've also opened an Arizona factory to show Phase 2 to analysts for the first time, highlighting the high levels of automation and significant areas of cost savings that we have and will be able to realize.
Speaker Change: Turning to software, on our last quarter's earnings call, I promised we would release over-the-air software updates substantively enhancing our Advanced Driver Assistance System or ADAS.
Speaker Change: and we delivered with a number of over-the-air updates in the third quarter including a Lucid UX 2.4 package which introduced many enhanced features such as lane change assist
Active Curve Speed Control and Extended Stop and Go.
Speaker Change: UX 2.4 also introduced our new Lucid Assistant, our new in-cabin voice assistant.
As well as user interface upgrades.
Speaker Change: and last week we started deploying via an over-the-air software update Lucid UX 2.5 which adds an innovative curb rash assist feature warning the driver of the lucid air before a wheel scrapes the curb. We also upgraded the performance of our audio system
Speaker Change: Now these are further examples of how we continue to bring tremendous value to the vehicle long after a customer's purchase.
Speaker Change: Watch this space. I believe the roadmap is robust and I think customers are really going to love it.
Speaker Change: I'm also delighted to announce that Lucid Air earned the highest possible overall safety rating of five stars from the National Highway Traffic Safety Administration's New Car Assessment Programme.
Speaker Change: This is the government's premier customer information program for evaluating vehicle safety.
Speaker Change: The Lucid Air Pure, Touring, Grand Touring and Sapphire received the maximum 5 star scores for overall safety in frontal crash, side crash and rollover testing.
Speaker Change: Safety has been a top priority from the outset at Lucid and achieving five stars in NHTSA's new car assessment program should give owners even more confidence in the Lucid Air.
Speaker Change: So we have much to celebrate this quarter and thus far throughout the year. I think our progress through the first three quarters of the year is a testament to our tremendous progress.
Turning to the lucid gravity.
Speaker Change: I'm delighted to announce that we opened orders and pricing today.
Our configurator is now live.
Speaker Change: Customers are telling us they are keen to get behind the wheel of a lucid remedy and we know there's an incredible amount of interest.
Speaker Change: For example, we have lucid gravity road show events in our studios across the country.
Speaker Change: And in most studios, we saw foot traffic increase more than 70% versus the prior 30 days.
Speaker Change: I think certainly the lucid gravity is having a positive effect on the lucid breath and it's also helping to raise awareness of the lucid air.
Speaker Change: The schedule for production is just a number of weeks away, and I think very soon we'll be in a position to announce when we might be able to make the very first deliveries.
Speaker Change: On the technology licensing front, we remain actively engaged in discussions.
Speaker Change: However, to my knowledge, many of the announcements we've seen in the industry
Don't appear to be binding.
Speaker Change: and my philosophy is that announcements should be of greater binding substance because you can lose a significant amount of leverage if you were to announce something well before the details are set.
So all I can say is to watch this space.
Speaker Change: In closing, I'm very encouraged by the progress and momentum that we're having with Ellucid Air. I believe that Ellucid Gravity is coming at an opportune time as the momentum and brand awareness has been building.
Speaker Change: At all the elements that make for lucid error success is coming to the lucid gravity.
Speaker Change: I believe this innovation has the potential to reshape the market for SUVs with meaningful opportunity to scale in a significantly larger addressable market.
Speaker Change: And in technology licensing, I believe our technology is even more relevant today than it has ever been.
Speaker Change: Whether ATLAS drive unit technology for mid-size addresses a significantly larger market.
We're also realizing the benefits
from our cost optimization programs and we've identified further opportunities.
That's cost transformation.
Speaker Change: and we will tactically re-prioritize some benefits into areas of strategic growth like lucid gravity, the Atlas Drive unit and the mid-sized platform.
Speaker Change: So, lastly, I'd like to thank all of our employees, our suppliers, our customers, our strategic partners and our investors for your hard work and your support.
Speaker Change: I look forward to updating you of our progress in the future.
Speaker Change: And so with that, I'd like to send it over to Gagan Dhingra to provide an update on our financials. Gagan.
Gagan Dhingra: Thank you, Peter, and thank you to those who are taking the time to join us today.
Gagan Dhingra: Before I get to my prepared remarks, I would also like to start by thanking the entire Lucid team for their hard work.
Turning to our 2024 third quarter financial results.
Gagan Dhingra: During the third quarter, we produced 1,805 vehicles, and we reaffirmed our guidance to produce approximately 9,000 vehicles this year.
Gagan Dhingra: More importantly, deliveries of 2,781 vehicles were yet again ahead of expectations in the third quarter, up approximately 91% year-over-year and more than 16% sequentially.
Speaker Change: As Peter mentioned, we are pleased with the demand we have been experiencing thus far.
Speaker Change: Deliveries outpace production in the quarter as we further manage to work down weekly inventory.
Speaker Change: We reported revenue of approximately $200 million in the third quarter, up 45.2% year-over-year and flat sequentially.
Speaker Change: Average selling price was down sequentially, primarily due to product mix.
Speaker Change: Cost of revenue in the third quarter was $412.5 million. The LCNRV impavement was $154.9 million.
Speaker Change: Gap gross margin improved by 28 percentage points sequentially and better than directional guidance was provided of being down sequentially.
Speaker Change: Excluding that campaign, our third quarter gross margin still would have improved by approximately 11 percentage points.
Speaker Change: The primary reason for the improved gross margin was a result of continued cost reduction initiatives.
Speaker Change: As we look into the fourth quarter, we expect gross margin to be largely flat.
Speaker Change: As we highlighted at our Technology and Manufacturing Day in Arizona, we believe our technology and increased scale will be key enablers of our gross margin and the forthcoming lucid gravity ramp will be a key driver.
Now moving to operating expenses.
Speaker Change: R&D expense in Q3 totaled $324.4 billion, up 13% sequentially. The increase was primarily due to higher stock risk compensation expense, which we called out on our last quarter's earnings call, as well as the costs related to the lucid gravity and the run-up to start-up production.
Speaker Change: SG&A expense in Q3 was $233.6 million, up 11% from Q2. The sequential increase was primarily due to higher stock risk compensation expense, again as we called out on our last quarter's earnings call.
Speaker Change: As we guided previously, we expect our pull year 2024 operating expense to decrease as a percentage of revenue compared with 2023.
Speaker Change: We ended the third quarter with 55 studio and service centers, excluding our temporary and satellite service locations up from 53 in Q2.
Speaker Change: On the service side, we entered Q3 with 72 mobile vans in the fleet and 118 approved body shops worldwide. We plan to continue to strategically expand our studio and service center footprint as well as satellite service centers, which will cost-effectively provide additional locations as well as ensure high customer satisfaction as we continue to grow.
Speaker Change: Our stock risk compensation expense in the quarter was $88.1 million compared to $58.5 million in Q2.
Speaker Change: In Q3, we recorded a loss of $221.5 million in other expense.
Speaker Change: which mainly included a non-cash loss of approximately $240 million dollars.
Speaker Change: driven by an increase in the fair value of derivative liabilities associated with our redeemable convertible preferred stock.
Speaker Change: The adjusted EBITDA loss was $613.1 million compared with $647.6 million in Q2.
Speaker Change: Gap net loss per share in Q3 was $0.41 and non-gap net loss per share was $0.28.
Speaker Change: The difference was primarily related to the change in fair value of derivative liabilities associated with our redeemable convertible preferred stock.
Moving to the balance sheet.
Speaker Change: We ended the quarter with approximately $4.03 billion in cash, cash equivalents, and investments.
and total liquidity of approximately 5.16 billion dollars.
Speaker Change: As Peter mentioned, in October, we raised a total of approximately $1.75 billion through a public offering of common stock and a corresponding pro-rata investment by an affiliate of the Public Investment Fund.
Speaker Change: I would also like to thank the PIF for their incredible partnership and support.
continue to be opportunistic in exploring financing.
Turning to Inventory.
Speaker Change: Total inventory was essentially flat sequentially as finished goods inventory was offset by the buildup of raw materials we spoke about last quarter.
CapEx in Q3 was $159.7 million.
Moving to the Outlook for 2024.
We reiterate our 2024 production guidance of approximately 9,000 vehicles.
Moving to CapEx.
Speaker Change: This mainly reflects deficits in our capital outlay into 2025 and certain savings as part of our cost reduction initiatives.
Speaker Change: From a product perspective, the Lucid Gravity start-up production is scheduled for late 2024 and start-up production of our high-volume mid-size platform is scheduled for late 2026.
Speaker Change: In closing, I think our performance this quarter demonstrates the significant progress we have made with our cost transformation initiatives and our go-to-market and brand awareness.
Speaker Change: will continue to maintain a disciplined approach to managing cost while strategically investing to fuel growth.
Speaker Change: Thank you to our investors and stakeholders for your continued trust and support.
Speaker Change: Together, we hope to make this next chapter one of our most successful yet. With that, I will turn it back to Maynard to get to your questions.
Maynard Um: Thanks, Gagan. We'll now start the Q&A portion of the call. Before we take questions from those on the phone, I want to post some questions that our retail investors sent in through the Say Technology platform.
The first question comes from Paul C.
Maynard Um: With the share price still hovering near all-time lows, what do you have to say to early investors that believed in the company and path?
Maynard Um: What do you plan to do to improve the share price? As more funding is needed, can you protect shareholder value? And there's another question somewhat related to this from Ryan P. that asks, what does the future of the company look like that is similar that we'll put together?
Speaker Change: Yeah, indeed. Well, to start with, thank you so much for your support and your belief in the company. And we deeply appreciate your commitment. I want to assure you that we're taking significant steps.
Speaker Change: to deliver a long-term shareholder value. That's what it's all about. Now, that said, market conditions have been challenging and a number of factors, some of which were under our control, have undoubtedly impacted our share price.
Speaker Change: However, we remain confident in our strategic direction and the long-term potential of our business. This is a long-term play.
Speaker Change: To improve our financial performance and I think you can see that in our record deliveries and in the progress and Improvement in our gross margins, you're seeing that already
Speaker Change: Now, the Lucid Air is widely recognized as the best car in the world, and that recognition has been growing inexorably over the last few years.
Speaker Change: We've also created what is now widely recognized as the best EV technology in the world.
Speaker Change: And we've shown how this technology becomes a cost down driver in the long term with growing scale.
And that profitability depends largely upon that scale.
Speaker Change: We're growing scale by introducing products which we believe will realize that scale starting with gravity.
Speaker Change: Now even with Lucid Air we're already outselling many of the storied brands in both EVs and gas cars. This is something which is not sufficiently recognized.
Speaker Change: Now today we opened orders for Lucid Gravity and we've entered a market that's about six times larger than our addressable market last year with Lucid Air. Gravity is a revolutionary new class of SUV has been conceived from the ground up without compromise.
Speaker Change: And remember we'll follow this with a high-volume mid-sized platform scheduled for start of production late 26. I really think that's really going to be a huge huge product for us.
Speaker Change: and we I mean we also focused on our technology access and licensing business and the Atlas powertrain which suits mid-sized vehicles that's the new powertrain that I recently announced the work for that is well underway already
Speaker Change: And I see a huge licensing potential in a significantly higher volume market with Atlas.
and collectively these efforts are really designed to enhance
Gagan Dhingra: our competitive position and to deliver a long-term value to our shareholders. I mean, Gagan, have you got anything to add here? Yeah, thanks, Peter. So regarding funding, I think we have been transparent with the market that we would be opportunistic when it comes to capital raising.
Gagan Dhingra: We are committed to maintaining a strong financial position and ensuring that our actions align with the best interests of our shareholders.
We remain dedicated to enhancing shareholder value.
through improved operational efficiency.
Gagan Dhingra: We believe that our strategic initiatives will position us for success.
Speaker Change: and drive long-term value for our shareholders. Indeed. May I add a bit of flavor here? As a major shareholder myself personally, believe me, nobody is more incentivized than me for success.
Speaker Change: And what's less known, I relate to you all because I put so many of my own savings into this company to make it happen.
Speaker Change: I might also add that many of you may not be aware of my founding role in the company as we know it today. I joined this company over 10 years ago.
Speaker Change: And with the goal of making the best electric vehicle and to drive a revolution towards sustainable transportation.
Speaker Change: My mission and my dedication is steadfast. I've not sold a single damn share of this stock except what was necessary for tax purposes.
Speaker Change: And so I am directly tied to the company's performance as a shareholder, more than virtually anyone else.
Speaker Change: So my promise is to continue to work tirelessly day and night to drive that long-term shareholder value and this is a long-term play and it is a tech play.
Speaker Change: Oh man, yeah, well maybe I haven't made this clear enough because this has been on the vision, our mission, our schedule for many years now.
Speaker Change: We're not here to be just a niche player. This is so misunderstood. Lucid exists to have a meaningful impact upon the planet. And to do that, we need scale. And to get that scale, we need to bring our price down.
Speaker Change: So a mid-sized vehicle is scheduled for stock production late 26 the work is well on the way
Speaker Change: And in our Technology and Manufacturing Day presentation we showed in September.
Speaker Change: We already actually gave a sneak peek of one version of this midsize vehicle.
Speaker Change: $48,000 to $50,000. You know, the vision is I'd love to sell a million of these a year. You know, the opportunity is vast.
Speaker Change: Great. Our next question is from Malik H. What are the chances of the Saudis buying out Lucid completely? Will Lucid go private? And what does this mean for the investors? Oh, well, thank you, Malik, for the question. But of course, I mean, it would be out of place for me to speak on behalf of the PIF.
I will say this if I look.
Speaker Change: What really differentiates us as a company, the two things, are world leading technology
and the long-term partnership.
Speaker Change: with the PIF and they continue to be fantastic partners. I'm hugely grateful for their support. They've stood shoulder to shoulder with us.
Speaker Change: Now, we are driven by our mission and our ambition to drive long-term shareholder value through our strategic growth and our cost transformation initiatives. Let's not forget that.
Speaker Change: Okay and our last say question that we'll take is from Paul C. Can you reach positive margin individually on air and gravity? What sales volume would be needed to achieve, would be needed to achieve this for each?
Speaker Change: Yes, we see a pathway to positive margin individually on air and gravity.
Speaker Change: I think you can see that we are making good progress and improvements in gross margin.
Speaker Change: We have a lot of fixed cost in our cost of goods sold related to our factory.
Speaker Change: And in addition to lowering the cost to build a vehicle, we need a level of scale to get above our fixed cost.
Speaker Change: We have been heading in the right direction with air and we expect gravity to drive even further scale.
Speaker Change: From a cost perspective, there is very high reuse of the powertrain technology in gravity that we use in air.
Speaker Change: I mean, maybe I can add a bit of color here. That's completely right, Gagan. On the powertrain side, people need to realize that we've got about 95%
Reuse
Speaker Change: We use the same motor technology, inverter technology, slightly different gear ratio to get the tractability for a true SUV. But we have gone for a different platform architecture from Gravity, and we've done that just in three years. I don't think anyone's really been able to do that.
Speaker Change: And there's a good reason for this, by using a different platform, we're not constrained by the boundaries of a platform designed for a sedan.
Speaker Change: from air to gravity, and that's never been achievable before in an SUV because of our technology. So lucid gravity provides the interior space and practicality of full-size SUV within the exterior footprint of just a mid-size SUV.
Speaker Change: Also, then, on a cost perspective, we take all the learnings from AIR and apply them across the gravity platform.
So, this may sound a little bit counterintuitive.
Speaker Change: But we're able to design a vehicle a greater cost lens than if we were just to simply try to use the entire air platform and by creating that product differentiation We really can expand our total aggressive market
Speaker Change: Great. Now we'd like to take questions from the phone lines. Liz, can we go to the first question please?
Speaker Change: Yes, your first question comes from the line of John Murphy. Please go ahead.
Good evening everybody. Peter, just a first question as you're
Speaker Change: working through sort of the greater proportion of mix being pure and taking some price action on the air you know what lessons are you learning as as to sort of price elasticity of demand and it's really kind of interesting that you might be taking a slightly
Speaker Change: You know more conservative view or favorably from the consumer side on the grand touring
Speaker Change: the on the gravity because it's about $15,000 or less than the the grand touring on on the air so it just seems like you're you're learning some lessons and and and coming a little bit further down in the price point to unlock some demand so just kind of what lessons you're learning there and what could that mean for the the gravity ramp as opposed to what happened with the air
Speaker Change: Yes John, I think the pricing structure of Gravity, Lucid Gravity, I think it's an absolutely super affordable, super value proposition actually, because if you look at the fully loaded
Speaker Change: Gravity Grand Touring on our website now on the configurator. It actually fully loaded comes in at lower than the entry price.
Speaker Change: of a big electric SUV being launched now by one of our competitors in the big three. And so it just shows what a cracking value-for-money proposition that is. And we're able to achieve this because we've got so much carryover content.
Speaker Change: We've got all the learnings from Lucid Air, but there's another special factor at work here.
Speaker Change: And this is what I addressed in our Manufacturing and Technology Day.
Speaker Change: Because we've got the most advanced technology in the world, we're able to achieve over 4440 miles range.
with virtually half the battery size of that competitor.
That can give us a Bill of Materials advantage.
of $14,000, $15,000 potentially.
Speaker Change: and that's how we can carry past that value proposition to our customers and not only that where it'll cost less to run because you use less electricity there'll be less draw on the grid the car is lighter and more agile and more fun to drive
Speaker Change: It occupies the battery pack by being smaller, occupies less interior space, so we have a roomier, more comfortable car. We genuinely have seven seating space for seven adults.
Speaker Change: It's not your normal 5 plus 2 type SUV. We just get the kids in the back. All this, it is because this is a technology play and our technology is now starting to become a cost down enabler.
Speaker Change: and then maybe I could ask a second question and I apologize for skipping over the gravity to some degree and trying to get to the mid the mid-size
Speaker Change: But when you think about the commonality between the air, the gravity, and then whatever the name will be on the mid-size, what are the reuse potential there? And if you think about sort of in general in the organization,
Speaker Change: You know how much of your resources from a human capital perspective and an actual capital dollar capital perspective is now being focused on that midsize
Speaker Change: So I think if you look at some of our core technology all our expertise in battery management system, control logic, traction control, stability control, motor control, all of that is directly transferable. If you look at our infotainment technology suite
A That's
Speaker Change: A lot of that is directly transferable, a lot of our core software expertise, absolutely.
Speaker Change: But, in terms of motor technology, we're taking the very best learning from our Zeus program and transferring that into Atlas. Atlas is well on its way, actually. Atlas is all about an absolute ultra-affordable version of Zeus. And Zeus was affordable because it enabled cost down in batteries.
Speaker Change: So we're going to, you know, take next generation battery tech.
Speaker Change: and a completely new architectural, very advanced architectural look at mid-size and that is going to be really aimed at reducing the bill of materials cost for high volume. So we will use different high volume processes.
Speaker Change: and very much focus upon the factory as the centre of the cost down driver. This is a very different animal. We've proven we've got the best vehicle, you know, the technological tour de force.
Speaker Change: in air and gravity and mid-size is going to be a really different approach. It's going to be cost conscious. Its focus is the machine that builds the machine.
Okay, that's very helpful. Thank you very much
Speaker Change: comes from the line of Andrea Sheppard with Cantor Fitzgerald. Please go ahead.
Speaker Change: Hey everyone, good evening. Congratulations on the quarter and thanks so much for taking our questions.
Maynard Um
Speaker Change: Hey Peter, I'm wondering if, I know it might be a bit early, but
Speaker Change: I'm curious to see if you have a sense or an idea, you know, what kind of unit makes
Speaker Change: Are you anticipating for next year with the gravity ramping up in terms of the air and the gravity?
Speaker Change: What is a better way to think about that for next year? Thank you.
Speaker Change: So what we've done, we've started with a high-end product first, the Gravity, Lithigravity Grand Touring. We think there is a huge like demand for that.
Speaker Change: We've announced that later in 25, at an appropriate moment in time, we'll bring out the lucid gravity touring, which starts at...
Speaker Change: The Grand Touring starting at £94,900, which I think is a cracking price point for the
Gagan Dhingra, Sherry House, Maynard Um
Peter Rawlinson: I've stated before that we're not manufacturing constrained with our bills for air, we've been market constrained. I anticipate that we're going to be manufacturing constrained next year in the build-up of gravity. We need to get the quality right and take a judicious and very prudent approach to meeting customer expectations with the quality as we ramp up.
Peter Rawlinson: Well, I anticipate we will be a manufacturing ramp-up quality mindset constrained in that ramp-up, not constrained by market demand.
Peter Rawlinson: And then we'll transition to the touring at some stage late next year when we deem appropriate.
Speaker Change: Got it that that's super helpful. I appreciate that color and maybe just as a quick follow-up
Speaker Change: I want to touch on the the customer agreement with the government of Saudi Arabia for the up to a hundred thousand vehicles.
Speaker Change: I believe in the past, you had alluded to the fact that, uh, the
Speaker Change: The vast majority of the deliveries for this contract will actually be the the gravity and the mid-sized platform
Speaker Change: So I guess a wanted to confirm that and be wondering if
Speaker Change: In light of you now ramping up the gravity next year, do you foresee a significant ramp-up in deliveries to Saudi Arabia? Thank you.
Speaker Change: Well, thanks for that, Andrews. I mean, what we've said is, look, we anticipate that there will be a natural distribution of those deliveries based upon a price point, although that's not actually being determined.
Speaker Change: So, we actually think that gravity is going to be the perfect car for the Middle East, for Saudi Arabia. You know, it is the tractability that an all-wheel-drive SUV gives you from electric power, new yacht, traction control operating literally at a thousand times a second, with extreme precision in low grip and sandy conditions.
Speaker Change: This is what I believe the Middle East as a broader market really has been waiting for. So I think it's going to be a hoot and you know part of some of the early build is going to be heading straight for KSA early next year.
Speaker Change: Wonderful. Thank you so much again. Congrats on the quarter. I'll pass it on. Thank you, Andres. Thank you.
Speaker Change: Your next question comes from the line of Stephen Gangaro with Stifle. Please go ahead.
Good evening. Thanks for taking the questions.
Speaker Change: Um, so I think two for me, one is sort of following up on the prior question, but
Speaker Change: When we think about the gravity and the production ramping at the gravity,
Speaker Change: and 2025 or over the next several quarters. How should we think about the gross margin impact? I mean I imagine at the beginning it would be it would be a headwind but then you start to get volume. How do we think about just the progression of gross margin as the gravity ramps?
Speaker Change: Yeah, absolutely. You know, you know, as Peter mentioned earlier, that we are already applying our learnings from air to air to gravity. So we are in a better shape where we look at, we are heading in the right direction for the air, but we expect gravity to drive even further scale. And it's
Speaker Change: We feel very confident with our cost reduction and technology efforts that gravity is giving us that skill.
Speaker Change: So today, we are not guiding production or delivery numbers for 2025, which we'll do in Q4, but we are in the right trajectory from a cost perspective for gravity.
Okay, great. Thank you. And the other question.
Speaker Change: just kind of a high level when you think about your capital needs and timing of capital like yeah you know you did the recent the recent capital raise and
Speaker Change: I was just curious about how you chose kind of when to do it versus need, because it felt like you had a longer runway, and I know it creates confidence to have the kid out. I'm just sort of thinking about how you balance that out.
Speaker Change: Well, thank you, Francis. I'm actually glad you asked me that, Stephen, actually. So, to recap, we recently raised nearly $1.75 billion, and that secures the future of the company, and it secures our financial runway well into 2026.
And that takes us way past...
Speaker Change: The, not just the start of production of gravity, but well through its ramp up phase. And you know that means that this year, in 2024, we've raised well over $4 billion.
Speaker Change: , , , , , , , , , , , , , ,
Now, this should have come as no surprise whatsoever.
Speaker Change: Because before we had a financial runway into Q4 2025, you never want to have a runway less than a year. So it makes perfect sense and I've always said I would want to be opportunistic.
and raise capital when the moment is right.
Speaker Change: And not just run things right to the last minute. Why would I run things to the right last minute?
Speaker Change: What we did, I think, was a very prudent move. We took the opportunity. You know, why would I want to run it into the holiday period? I don't want to be running less than a year's financial runway.
Speaker Change: So I think this has been misinterpreted. I think it's super positive news for the company. We've raised capital when others have not been able to. It's had a huge impact.
Speaker Change: step forward in our securing our future and There's another litmus here, which which again should be recognized
Speaker Change: The PIF went pro rata on that one, 0.75 billion, so you've got two factors, you've got independent third party validation of our value, so shall we not just dependent upon the PIF?
Speaker Change: But the PIF go and show shoulder-to-shoulder commitment to Lucid and their support of us again because we are absolutely in this together long-term, but a long-term partnership which transcends a mere financial arrangement because we are...
Speaker Change: cornerstone of the Saudi Arabia's bold vision for 2030 to transition to a sustainable economy and it loses technology which is going to enable that.
Speaker Change: Great. That's good color. Thank you, Peter. Thank you. Thank you, Stephen.
Stephen FOX: Your next question comes from the line of Stephen Fox with Fox Advisors. Please go ahead.
Stephen FOX: Hi, good afternoon. I had two questions as well. I guess first of all just to
Stephen FOX: follow through on all the conversation about cost and the similarities from a technical standpoint with the gravity. What are the working capital implications for next year as you ramp gravity, if there are any? And then secondly,
Stephen FOX: As you think about success for next year and into 26, towards a midsize vehicle, I'm just trying to understand what has to happen in order for that ramp to go ahead, given where the financial position of the company is right now.
Speaker Change: And now with our continued cost reduction and technology initiatives, all things are coming together where we are expecting and we are very proud of that one.
Speaker Change: In terms of, what's the second question? Sorry, I didn't follow completely on that one.
Speaker Change: Yeah, well, before you go on to that, I'm just trying to understand the dollars of working capital that might go out the door next year versus this year as you rate it. Yeah, so for dollars perspective, we'll provide more color during our Q4 guidance for the full year 2025.
Speaker Change: okay and then I'm just trying to understand like what are the thresholds that have to be crossed with with two models out there to the two different types of vehicles out there in order to have confidence in ramping a third type of vehicle or is it just
Speaker Change: You'll do it as long as the funding is there for the third vehicle
Speaker Change: We've already started. It's not like we've, um, you know, we've got to get confidence in order to start.
Speaker Change: midsize. A very large proportion of the engineering team is already working on midsize. A very large proportion of the powertrain team is creating and developing the Atlas powertrain technology to power midsize.
Speaker Change: The factory to build mid-size in in Saudi Arabia, the foundations are laid, the steel's going up, even I think some walls are even on the factory and we're thinking that in readiness for a start of production late 26.
Speaker Change: So we're we're all in on midsize and this is about scale and there are four steps to scale We're selling more as each quarter as brand awareness grows and more people get to realize Our car is far superior to these lame EV offerings out there
Speaker Change: and then we're going for six times the total addressable market with Gravity that's the car all America's been waiting for
Speaker Change: then the next step will be mid-size. That's the big one. That is our really big world platform and then the icing on the cake is technology licensing. Those are the four steps to getting this really serious scale.
Great. That's helpful, Peter. I appreciate that. Thank you.
Speaker Change: Your final question comes from the line of Tobias Bede with Redburn Atlantic, please go ahead.
Tobias Bede: Hi Peter, Gagan, Maynard, it's Tobias. Thanks for taking my question. I have two please, which I'll ask separately.
Um
Firstly, for Gagan, the charge to write down inventory was...
could call it flat sequentially.
and more unfinished inventory was purchased in the period.
Tobias Bede: That chain of logic suggests that the new, or the value of new stock purchase was impaired less.
Speaker Change: i.e. underlying vehicle profitability was better. I was wondering if firstly you can confirm if this is correct and secondly can you expand on the cost efficiency comment in your prepared remarks?
Speaker Change: Absolutely. So, you are, yes, what you said is absolutely correct. As we are getting better on our cost, our impairment on new inventory is getting better. Absolutely correct.
Speaker Change: Now coming to on the cost of the cost efforts if you look at our gross margin itself
Speaker Change: Although gap basis we improved by 28 percentage points, but please note, you know, that last quarter we had some warranty campaign, even if we would have excluded, we still improved by 11 percentage points, apple to apple.
Speaker Change: And that is across the board, whether it is a bomb cause, is a logistics cause, operational efficiency, because sometimes we take actions, but the results come a few months later.
Speaker Change: So this we are now seeing the trend and that's why as I said in my opening remarks, we are very comfortable where we are and where we expect to be in the in the foreseeing period. Very pleased with that.
Okay, and I guess just.
a small follow-up to that.
Speaker Change: This theme of kind of reaping cost savings from logistics, bill of materials, cost damage, it's been said for quite a number of quarters now in fact. I remember when your predecessor Sherry was talking about it.
Speaker Change: and I just wondered whether you could perhaps place me on a timeline
No, how far are we away from?
Speaker Change: all of the cost savings being realized for things like freight and and cost savings and where you need to take I guess some more difficult actions to actually remove costs from from the air And then I have one for Petra if that's okay
That's a great question.
Speaker Change: Our journey is reckoning. We are taking consistent efforts. In fact, you know, we have identified our targets.
Speaker Change: Where we want to be end of this year, where we want to be end of next year, where we want to be middle of next year, and even beyond that. So we are going to make significant efforts on cost reductions. In parallel, what we're doing is technology is helping us bring the cost down, like the battery cost, like the drive unit. But what you see in terms of targets, and when we come to scale.
Speaker Change: is significantly going to turn around it because what we are right now doing with targets bringing the variable cost significantly down and with gravity coming.
Speaker Change: It is going to take us to the next level for scale where all our fixed costs per vehicle will significantly come down.
Speaker Change: so you know you see where we are on the gross margin negative 106 percent it was negative 241 percent last year so if you look at that improvement and we will be next year you know when we provide some directional color in the Q4 earnings about 25 we are on the right track in that journey
Okay.
I think I'm following. Thanks, Kevin.
Speaker Change: Peter, I wondered if you could explain what you mean when you say that the gravity uses a different platform to air.
If I'm correct, both vehicles have nearly identical wheelbases.
Speaker Change: And Leap is a modular platform, which would allow for differentiation via a top hat design. So I just want to kind of understand a little bit what you mean by grammar to use a different platform.
Speaker Change: It's a modular platform where you could do a CUV, you could have done a minivan, you could have done a Cooper, you could have done lots of things like that where you're fairly compromised
Speaker Change: As a product if you look at an example of that is Tesla Model X versus Model S
Speaker Change: X isn't really a proper SUV, it's more CUV-like because it's based upon S-platforms.
Speaker Change: We took the decision to get much more product differentiation to avoid a cannibalization of air with gravity. We wanted to really capture the six times tam of a true SUV market.
Speaker Change: That means more off-road capability, that means more wheel travel, larger wheel diameters, more suspension movement, so you need longer links.
Speaker Change: more durable suspension so you're going to have heavier suspension arms and brakes and and and rated for off-road durability so the thing endures a long life on rugged trails
Speaker Change: Dhingra, Sherry House, Maynard Um, Maynard Um, Maynard Um, Maynard Um, Maynard Um, Maynard
Speaker Change: Sculpted around the people and that's great for a sedan a CUV But for a three-row SUV what you need is a really flat floor
Speaker Change: So we could achieve that with the same battery technology, with the same modules, but we just moved two of them around, from underneath the rear seat to under the front seat. And that makes a different shape battery, but we got 95%...
Speaker Change: Carryover content, but I tell you it's transformative in regards to the product You've got a true SUV, and you've got a true sports sedan
Speaker Change: And we realized we couldn't really do that with a carry-over. A carry-over platform would kill us.
for product differentiation.
Speaker Change: And let me tell you, we've done that now, just, I mean it's only a smidgen over three years from when we launched.
Speaker Change: the market. For a relatively young company, no one's ever done a second platform in three years. There is no precedent for the rate that my engineering team is operating at and we really through this year kept gravity on track.
Speaker Change: Track, admirably, to hit start of production late this year is an incredible achievement for the team and I really applaud them all for doing it.
Okay.
Speaker Change: How do you think this has impacted the costs? So, I guess when I hear things like, you know, that they're not actually...
Speaker Change: Just a different top hat. It scares me a little bit.
Speaker Change: I know but this is the problem that there is a disproportionate value placed upon true platform sharing because you very rarely share the full platform what happens is it's talked about the same platform but it gets modified
Speaker Change: Now, all the superstructure of an STV is going to be different anyway.
Speaker Change: All the seats are going to be different, the driver controls are going to be different, the wheels are going to be different, the suspension is going to be different, the brakes are going to be different in any way. The weight is going to be different, so your crash structure and collapse mechanisms and the way you engineer those have to be different.
So, you know,
Speaker Change: Where the real value proposition and economy of scale goes in, is in the software
Speaker Change: and the powertrain are architectural and componentry. We've got inherently the same motors, state-of-the-art motors, there's a lot of value, the same inverter, the same motor control system, wonder box.
Speaker Change: All the battery modules, 95% of all that value in all the software is carryover.
Speaker Change: You're not going to be able to carry over the doors, the glass, the suspension, the seats and the tailgate anyway.
Speaker Change: So it's just a tiny bit of it, a relatively small part of it.
Speaker Change: to get all that product differentiation. If we didn't do that
Speaker Change: You'd be saying, well, I don't think there's another, a new six times TAM. You'd be saying, well, um, this is a cannibalization situation. Uh, it's not differentiated enough. Maybe you got two times the TAM, not six times the TAM. This is a value proposition. Bit more engineering, bit more cost.
Speaker Change: Thank you, and I will now turn the call back over to Maynard Um for closing remarks.
Thank you everyone for joining. You may now disconnect.
Speaker Change: , , , , , , , , , , , , , ,
[inaudible]
[inaudible]
[inaudible]
[inaudible]
Andres Sheppard, Peter Rawlinson, Steven Fox, James Picariello, Andres Sheppard, Peter Rawlinson, Steven Fox, James Picariello, Steven Fox, James Picariello, Steven Fox, James Picariello,
Andres Sheppard, Peter Rawlinson, Steven Fox, James Picariello Andres Sheppard, Peter Rawlinson, Steven Fox, James Picariello, Steven Fox, James Picariello,