Lucid Group, Inc. (LCID) CEO Peter Rawlinson on Q2 2022 Results – Earnings Call Transcript

Lucid Group, Inc. (NASDAQ:LCID) Q2 2022 Earnings Conference Call August 3, 2022 5:30 PM ET Company Participants Maynard Um – Senior Director of Investor Relations Peter Rawlinson – Chief Executive Officer & Chief Technology Officer Sherry House – Chief Financial Officer Conference Call Participants John Murphy – Bank of America Itay Michaeli – Citi Charles Coldicott – Redburn Operator Good day and thanks for standing by. Welcome to the Lucid Group Second Quarter 2022 Earnings Conference Call. At this time, all individuals are in a pay attention-solely mode. After the audio system’ presentation, there will probably be a query-and-reply session. [Operator Instructions] I’d now like at hand the convention over to your speaker for immediately. Maynard Um, you could start. Maynard Um Thank you, and welcome to Lucid Group’s second quarter 2022 earnings name. Joining me immediately are Peter Rawlinson, our CEO and CTO; and Sherry House, our CFO. Before handing the decision over to Peter, let me remind you that a number of the statements on this name, notably these concerning the long run monetary efficiency of the corporate, manufacturing and supply volumes, macroeconomic and business traits, firm initiatives and different future occasions, are primarily based on the data that we’ve got as of immediately and embody ahead-wanting statements inside the which means of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are topic to quite a few dangers, uncertainties and different elements that might trigger precise outcomes to vary from expectations, and we refer you to the cautionary language and the chance elements in our quarterly report on Form 10-Q for the quarter ended June 30, 2022, in addition to different paperwork filed or to be filed with the SEC for a full dialogue of such dangers, uncertainties and different elements. Forward-looking statements made throughout immediately’s name converse solely as of the time they’re made, and we’re underneath no obligation and expressly disclaim any obligation to replace, alter or in any other case revise any ahead-wanting statements, whether or not because of new info, future occasions or in any other case besides as required by legislation. You are cautioned to not place undue reliance on these ahead-wanting statements. In addition, administration will make reference to non-GAAP monetary measures throughout this name. A dialogue of why we use non-GAAP monetary measures and data concerning reconciliation of our GAAP versus non-GAAP outcomes is accessible in our earnings press launch issued earlier this afternoon, in addition to within the investor deck obtainable on the Investor Relations part of our web site at With that, I’d like to show the decision over to Lucid’s CEO and CTO, Peter Rawlinson. Peter, please go forward. Peter Rawlinson Thank you, Maynard. In Q2, we continued to see sturdy buyer demand for our autos, with over 37,000 buyer reservations as of immediately. That’s a rise of greater than 7,000 within the quarter, up from 30,000 reservations as we reported final quarter. Now this 37,000 determine doesn’t embody our settlement with the Government of Saudi Arabia to buy as much as 100,000 autos, which is completely incremental, nor certainly does it embody potential reservations for our forthcoming SUV, the Project Gravity, nor even potential reservation for Lucid Air in markets exterior of North America, Middle East and Europe. As such, we’re very happy with the response from prospects and pleasure surrounding Lucid Air. And we imagine that as we get extra of our autos into our prospects’ arms and broaden our check drive program that our momentum will simply proceed to construct. We’re additionally happy to report that Lucid Air continues to garner many business accolades vesting some very properly-established luxurious automobile manufacturers. Now for instance, we debuted the 1,050 horsepower Lucid Air grand touring efficiency in June on the Goodwood Festival of Speed within the UK, which options a number of the world’s quickest autos. Although Lucid Air grand touring efficiency recorded a Goodwood Hill time climb of fifty.79 seconds within the shoot-out, and that is the quickest time of any manufacturing highway automobile on the occasion and the twelfth quickest time total, which included many racing vehicles. Now to be clear, solely racing vehicles have been sooner on the occasion and most of the racing vehicles weren’t as quick. Now this demonstrable efficiency benefit lies in Lucid’s in-home EV powertrain expertise. Lucid designs, develops and manufactures all our core EV physique in-home. This vertical integration differentiates Lucid from nearly each different automobile producer immediately. However, with all that optimistic momentum, I do need to say that this quarter has confirmed to be a really difficult interval. And while we’ve got skilled provide chain and logistics challenges together with all the business, the constraints of our logistics system have compounded the problem. And though we proceed to face provide chain constraints, the decision of some earlier gating part provide points allowed us to push in direction of growing the manufacturing fee. And as we tried to push ahead the speed, we discovered that our logistics constraints stop us from scaling meaningfully this previous quarter. For instance, our skill to hurry the right half by way of align on the appropriate time and cadence. Our every automobile is constructed with hundreds of components and do that while sustaining a excessive Lucid high quality construct requirements. So with that, let me stroll you thru our first half and Q2 manufacturing and supply figures to offer a bit context. In the primary half of 2022, we produced 1,405 autos. These have been manufacturing facility-dated autos, and which means that they’re accomplished and prepared for supply to prospects. But in Q2, we additionally made a big variety of autos that we didn’t manufacturing facility gate as a substitute electing to carry them again in an effort to be certain that these vehicles met the very best commonplace of high quality. Remember, high quality should take a precedence over quantity as a luxurious model, and I’ll contact on high quality a bit bit later. Now from a manufacturing standpoint, we’ve got each deliberate and unplanned pauses within the quarter that resulted in roughly 2.5 weeks the place we’ve got no each day manufacturing on the manufacturing facility. In addition to causes of a extra transient nature associated to provide chain and logistics points. A manufacturing pause attributable to set up of physique shell meeting tools and robotics with the Lucid Air Pure was preplanned. The tools has been efficiently put in, and we’re on monitor for the beginning of Pure earlier than the top of the yr, which we count on to be massively important for us as an organization. At the identical time, we did additionally expertise some unplanned manufacturing pauses, primarily in an effort to enhance our logistics processes, which, as I acknowledged earlier, grew to become extra obvious as we began to scale. So because of this, we’re decreasing our 2022 manufacturing steering to a spread of 6,000 to 7,000 autos. Our revised outlook steering for the yr displays the logistic challenges I described as we start scaling, which uncovered the immaturity of our logistics processes. But I do imagine that we have recognized the first bottlenecks and have already taken steps to start to treatment the state of affairs. We have made a big resolution to deliver our logistics operations in-home. We’ve made key hires to the chief group, and we have restructured our logistics and manufacturing organizations accordingly. We accelerated entry to our logistics middle as a part of our Phase 2 enlargement in Arizona. And inside a few months, we count on to have our logistics middle on website at AMP-1, which ought to assist mitigate and start to get rid of the logistics bottlenecks in addition to cut back prices of the transport and dealing with of components. Furthermore, we’re overhauling our logistics processes and introducing a sequence of enhancements to simplify the system and but make it extra environment friendly and strong. I’m happy to announce that Steven David has joined Lucid as Senior Vice President of Operations. Steven will report back to me and will probably be primarily based in Arizona on the middle of our important manufacturing and logistics operations. In this newly created position, Steven will lead world operations, together with oversight for the enlargement of AMP-1, in addition to future operational facilities. The enterprise leaders of provide chain, logistics, manufacturing high quality will now report on to Steven, guaranteeing we’re executing tight alignment throughout these enterprise items. Steven’s wealth of expertise in manufacturing and operations will probably be an amazing asset to Lucid. Most lately, he was Head of Components Operations at Stellantis, answerable for enterprise operations, together with P&L for 2 corporations inside the group. And earlier than that, Steven has served in a wide range of management positions at Fiat Chrysler Automobiles, together with Vice President of Manufacturing and Engineering Manufacturing for Asia Pacific. Steven has in depth and in-depth expertise within the automotive area. I’m additionally delighted to welcome Walter Ludwig, Vice President of Global Logistics to our govt group, who will probably be reporting to Steven. Walter brings over 28 years of automotive expertise and joins us from Mercedes-Benz the place he held varied roles, together with Head of Operations, Head of Quality and most lately, Head of Central Logistics. For the final 20 years, his fundamental administration focus has been ramping up and stabilizing the manufacturing vegetation in Germany, China, Russia, Argentina and the United States. Walter gives operational management in growing and implementing finest practices in automotive logistics and components administration, materials planning in addition to different areas. Now shifting on to the deliveries. Last quarter, I highlighted that we delivered properly over 300 autos within the month of April. In Q2, we delivered 679 autos to prospects. Our resolution to prioritize high quality had an impact on our deliveries and high quality is an organizational precedence. I’ve been working with the group to ensure that nothing leaves our home with out assembly our excessive requirements. Now in reality, I’m becoming a member of immediately’s Q2 earnings convention name instantly from our AMP-1 manufacturing facility proper right here in Arizona. I’m proper right here on the entrance line, and I’ve been spending a overwhelming majority of my time right here, proper right here on the store ground. As I imagine it is my duty because the CEO to be right here resolving points and serving to to onboard the brand new executives. Indeed, I really feel explicit dwelling on and across the manufacturing line, the place I’m personally and instantly engaged in serving to clear up issues. It is correct right here that I witnessed the eagerness and the camaraderie of the Lucid workers within the manufacturing facility first hand and notably a a lot valued associates who’re so engaged on this course of. And that is very actual. They are so engaged as a result of identical to me, they actually need to construct the world’s finest vehicles, and identical to me, we need to do this in quantity. And imagine me, we’re working tirelessly to make that occur. And so I’d prefer to personally thank all of our workers for his or her sheer dedication for working alongside me shoulder to shoulder proper right here within the manufacturing facility. Now we have additionally made enhancements to our high quality processes which might be yielding enhancements. The high quality of the vehicles that we’re manufacturing facility gating now are glorious, and we’re working to ensure that this excellence in high quality is constant at scale off the road. Again, high quality merely should take precedence over quantity as we set up our model fame. In the quarter, we aligned manufacturing high quality and discipline high quality underneath Nick Minbiole our Vice President of Global Quality and that’s already yielding enhancements. We additionally introduced in Sun Hei Moon [ph] as Global Head of provider high quality. Sun Heijoins us from LG Electronics car part options firm, the place she was the Vice President of Field Quality and of buyer assist, answerable for main all elements of discipline high quality efficiency, buyer assist and aftermarket for merchandise. Prior to LG, Sun Hei served as Powertrain Quality Director for General Motors, International Operations in Asia. They, together with the group, have already recognized areas for additional enchancment and implementation has been underway. And these, mixed with current deliberate course of enhancements, give me confidence in our skill to ramp important manufacturing volumes. On a optimistic be aware, our skill to supply vehicles has not been restricted by our skill to fabricate our electrical powertrain. And this superior expertise, which actually differentiates us is manufactured in-home by attendantly superior processes. And these are largely all going fairly properly. And when you think about simply how superior these methods are, this a part of the story is admittedly fairly an achievement. And from a product perspective, as I famous earlier, we already began deliveries of the 1,050 horsepower grand touring efficiency. And we’re on monitor for added model of Lucid Air for later this yr, adopted by the beginning of Project Gravity SUV manufacturing within the first half of 2024. We additionally count on to ship the very first Lucid Air into Europe and Saudi Arabia by yr-finish. So we see a variety of alternative forward of us. Now I additionally need to present an replace on our Formula E relationship. As we strategy the completion of 4 profitable seasons, supplying the usual battery pack to the sequence, I’m proud to say that we’ve got had a 100% security file thus far with simply two races remaining on this the ultimate sequence season for the Generation 2 race vehicles. With the appearance of the all new Generation 3 Formula E race vehicles for subsequent season, Lucid is proud to announce that we would be the sole supplier of entrance drive items for the sequence. This model new Lucid entrance drive unit has been customized developed to offer extremely-excessive efficiency with gravimetric and volumetric energy density. These drive items are able to 469 horsepower, but remarkably are roughly half the load of the Lucid Air drive items. Their place within the nostril of the electrical race sort entrance of the motive force’s ft would drive shelf connecting outlet to the entrance wheels. Make no mistake, that is spectacular subsequent-degree expertise. And simply as our learnings from our racing battery program supplied technological switch into our highway to Lucid Air, I believe that this model new Lucid excessive-tech racing drive unit might be a very good pointer to a doubtlessly smaller, but highly effective highway automobile drive unit in our future. As far as I’m conscious, we’re one in all solely two OEMs or automobile corporations which might be vertically built-in by way of the design, growth and manufacturing of our personal expertise. And I’m assured that as this expertise race performs out, Lucid will proceed to face out. And we proceed to garner sturdy business accolades pushed our expertise and our design. In Q2, we gained the 2022 Wards 10 Best Interiors and UX. This award validates one of many founding rules of Lucid Air, which is the Lucid Space Concept. In reality, I lately filmed our Lucid Tech Talk on the Space Concept, while Chief Engineer, Eric Bach offered our newest Tech Talk on the Wunderbox bi-directional charger, which you could find on our Investor Relations web site. The software program group continues to work onerous with 19 over-the-air replace delivered because the starting of the yr. We added a lot of options, together with an enhancement to Lucid Air’s skill to establish site visitors indicators and inform the motive force of pace restrict adjustments and different essential drive info, a serious improve to navigation in addition to different buyer-requested options, and we’ve got a serious software program improve coming later this yr. Now though I’m delighted by the power of demand we see for our vehicles and the [indiscernible] are acquired, I’m conspicuously conscious that the true worth of getting what’s now widely known as a very distinctive automobile can solely be achieved by producing it in a significant quantity and that’s the reason my laser focus and certainly that our Lucid group is correct right here in Arizona, unlocking the trail to our quantity ramp-up. Make no mistake, though irritating, it is a section of our development as an organization that we’ll energy by way of. And that one, we are going to energy by way of with a steely dedication. We have a product. We’ve augmented our workforce, and we’re bettering our processes to allow this to occur. Now moreover, as we improve the variety of autos on the highway, I imagine we are going to see additional demand development as the notice of Lucid Air and of the Lucid model proliferates. I’m additionally excited concerning the potential reservation demand for undertaking gravity SUV, which we at the moment are contemplating simply tips on how to debut and when exactly to open reservations. Longer time period, in an effort to have a extra significant influence on the local weather, we acknowledge that we must be within the extra inexpensive, larger quantity segments of the market, and we will probably be doing simply that with our midsized car platform round mid-decade, which I imagine will additional reveal the worth of our effectivity by way of our in-home EV expertise. In quick, I stay very enthusiastic about our future and the broad highway map forward. Whilst proper now, we’re taking steps to resolve our present constraints on the similar time, we’re driving ahead with a way of urgency to get our unimaginable autos to market. And certainly on that be aware, I’m very hopeful you will note the fruits of those labors within the coming months and quarters. And with that, let me flip it over to Sherry for an replace on our financials and an extra perspective on our enterprise. Sherry? Sherry House Thank you, Peter, and thanks, all these for taking the time to affix us immediately. I need to echo Peter’s pleasure about our future product and expertise highway map and buyer demand. We stay extremely excited to deliver new variations of the Lucid Air to prospects this yr. And it put the reservation variety of over 37,000 in context, this represents potential future income of roughly $3.5 billion, and that is earlier than together with the as much as 100,000 car cope with Saudi Arabia and the long run reservations for the Gravity since we have not but opened the order guide for our upcoming SUV. Our future reservations taken along with our rising buyer base, model consciousness and variety of business accolades provides us the conviction to proceed to spend money on the speedy enlargement of our enterprise. Turning to our second quarter monetary outcomes. Our second quarter income was $97.3 million, which represented 1 / 4-over-quarter improve of 69%. This included $96.1 million in automotive income from the supply of 679 autos. We additionally recorded different income of roughly $1.2 million, which incorporates gross sales to Formula E. As Peter talked about, the Formula E drivetrain settlement is the pure subsequent step in our relationship, and it is a true testomony to our superior expertise differentiation. Cost of income was $292.3 million. Similar to final quarter, this anticipated improve was primarily associated to personnel and overhead prices as we ramp up manufacturing offset by decrease freight prices quarter-over-quarter attributable to our skill to ship the overwhelming majority of our worldwide shipments from air to ocean freight. We recorded an impairment cost of $81.7 million within the second quarter, primarily because of these elevated prices being capitalized into stock. This is pretty typical in preliminary manufacturing ramps. And simply as we noticed a decline from Q1 to Q2 on this impairment cost, we count on that the influence ought to reduce over time as we ramp up manufacturing volumes towards our deliberate manufacturing capability. Moving to working bills. We’re nonetheless within the development levels of our firm and investing behind our strategic priorities, however I need to be clear that we’re doing this in a prudent and methodical method. We’re instilling a tradition of price consciousness, and we’re working with our gifted group members throughout the corporate to establish and execute on price effectivity alternatives. To illustrate this level, I’d like so as to add on to Peter’s earlier feedback across the significance of high quality. Getting high quality proper and getting it proper early on within the manufacturing facility helps to cut back downstream prices and enhance throughput. So along with constructing the model and buyer loyalty, there’s additionally tangible monetary advantages to our high quality-first strategy. Now turning to analysis and growth. R&D expense totaled $200.4 million. The 7.7% improve sequentially was primarily associated to prototype materials, engineering, design and testing providers, offset partially by decrease inventory-primarily based compensation expense. SG&A expense was $163.8 million, down 26.6% from the primary quarter, primarily attributable to decrease inventory-primarily based compensation expense. In Q2, we added 5 new studios for a complete of 29 studios and repair facilities throughout the US, Canada and Europe. We’re proud to have added new studio areas in Boston, Massachusetts; Manhasset, New York; Denver, Colorado; Seattle, Washington and our first European studio in Munich, Germany. And we’ll proceed to strategically open new areas globally as we scale the enterprise and develop our presence. We’re additionally growing our fleet of cell vans and have a complete of 29 in North America as of quarter finish. Our cell service vans can carry out over 80% of the service procedures that may be executed in a service middle, and it is an essential factor in guaranteeing excessive buyer satisfaction and a decrease-price strategy to offering service because the fleet of unfastened autos grows. Stock-based compensation within the quarter was $94.4 million, $10.4 million was in price of income, $39.2 million was in analysis and growth and $44.8 million was in SG&A. In different revenue, we acknowledged a non-money acquire of roughly $335 million associated to the mark-to-market worth of personal warrants. The worth of the warrants might be influenced quarter-to-quarter by a lot of elements, together with Lucid Group’s finish of quarter share worth. Now shifting to the stability sheet. We ended the quarter with $4.6 billion in money, money equivalents and investments, which we count on will fund us properly into 2023. During the quarter, we additionally introduced a brand new ABL asset-primarily based mortgage credit score facility with preliminary dedicated capital of as much as $1 billion and the provision relies on the worth of sure eligible property. The phrases additionally present for incremental revolving commitments of as much as an extra $500 million topic to acquiring vendor commitments. We had no excellent borrowings underneath the ABL credit score facility in Q2. The significance of the services that it gives Lucid with incremental liquidity and demonstrates the vote of confidence from a world-class syndicated world banks, a lot of which have been by way of — with us by way of a number of transactions as we scale our enterprise. I’d additionally spotlight that it is a typical a part of the capital construction of mature companies and displays the additional growth of Lucid as a rising world firm. In Q2, we activated a working capital mortgage underneath the Gulf International Bank facility settlement within the quantity of roughly US$6.7 million associated to early work to construct our manufacturing facility in Saudi Arabia. We have roughly US$86.6 million presently obtainable underneath the working capital facility and an extra US$173.2 million underneath a bridge facility. It demonstrated by way of the sequence of actions, we’re dedicated to working proactively and opportunistically to make sure that our stability sheet stays an space of firm’s power. In Q2, we proceed to spend money on our expertise platform, the scaling of our world enterprise and the manufacturing infrastructure construct-out. Capital expenditures associated to those actions have been $309.8 million within the second quarter. As you’ll be able to see from the images we shared in our Q2 earnings presentation, our Phase 2 enlargement at our Casagrande, Arizona manufacturing facility is progressing. When full, we count on our put in capability to extend to 90, 000 items per yr by early 2023. As we exit mid-decade, we count on to succeed in an annual put in capability of 350,000 items in Arizona and 150, 000 annual items of put in capability in Saudi Arabia and that will get you to an annual put in capability of 500,000 shortly after mid-decade. In Q2, we introduced our preliminary launch plans into the European market with the Lucid Air Dream Edition R, which is optimized for an estimated 900 kilometers of vary and the Dream Edition T, which options 1,111 horsepower. We haven’t but begun to simply accept orders in Europe, however we did attain out to our current reservation holders to gauge curiosity in Dream Edition, and we instantly noticed sturdy demand. Moving to a number of the different main milestones within the quarter, we launched Lucid Financial Services in June, in all new digital platforms providing a versatile, quick and clear financing course of. Many Lucid Air prospects have been asking for versatile financing choices with a choice for a 100% digital expertise. And we have delivered on that ask. Loan merchandise can be found to U.S. prospects in all 50 states and leased merchandise in 38 states and rising by way of a seamless course of designed particularly for, Lucid prospects. We imagine this helps open up the market because it’s estimated that over 65% of OEM prospects search out mortgage or lease financing. This additionally permits us to proceed to construct direct relationships with our prospects all through their possession journey. Now it is extremely uncommon for an auto firm to rollout any such service is early within the development cycle as — actually superb and nice work by the group. Another proud milestone within the quarter was our — addition to the Russell 1000 Index. Russell Indices are extensively utilized by funding managers and institutional traders for index funds and as benchmarks for energetic funding methods. Our inclusion within the Russell 1000 Index is one other important milestone for Lucid and will assist broaden our consciousness within the institutional funding group. Now, turning to the outlook, Peter outlined a number of the provide chain and logistics challenges in addition to the actions we’re taking to handle the close to-time period manufacturing bottlenecks we’re experiencing. Bringing our logistics operations completely in-home in accelerating entry to our logistics middle on-site at our Arizona manufacturing facility will assist to cut back complexity, reduce down lead instances and cut back varied prices. We imagine these decisive actions in addition to the addition of management throughout logistics, course of transformation and provider high quality will assist us unlock these bottlenecks. However, it is unlikely we’ll be capable to make-up the anticipated loss quantity in 2022. Consequently, we’re adjusting our 2022 manufacturing steering to six,000 to 7,000 items from 12,000 to 14,000 items. Now turning to our money steering, we ended the quarter with $4.6 billion in money, money equivalents and investments, which we proceed to imagine is ample liquidity to fund us properly into 2023. This assumes we’re investing totally in accordance with our ahead plans. As a reminder, we additionally had the KAEC debt services and the ABL with important untapped capability. I’m additionally assured we could have choices for added funding as wanted, and our sturdy stability sheet permits us the flexibleness to be opportunistic out there. Moving to CapEx, CapEx within the first half of 2022 was $494.9 million. While the timing of CapEx outflows can shift quarter-to-quarter, we proceed to count on capital expenditures for the yr of roughly $2 billion. This funds services in addition to equipment and tools in Arizona, retail and repair middle growth, early funding in our presence in Saudi Arabia and different CapEx related to car and part growth. In phrases of our product highway map steering, we’re on monitor for deliveries of extra variations of Lucid Air later this yr, together with the grand — Air Grand tour efficiency, the Air Pure, the touring and for manufacturing of Project Gravity SUV within the first half of 2024. In closing, regardless of our fast challenges, I’m happy with what our group has been capable of accomplish collectively with our enterprise companions. We’ve enabled financings. We’ve continued essential infrastructure construct-out and launched award-successful merchandise. We welcome the brand new management group members and stay up for the capabilities that they bring about, as we work collectively to resolve points and seize the great alternatives forward of us. Following Peter’s closing remarks, we’ll start a Q&A portion of immediately’s name. Today’s Q&A will characteristic questions from a few of our retail traders, an essential constituency of our shareholder base by way of the Say Technologies platform. With that, I’d like to show it over to Peter for closing remarks. Thank you. Peter Rawlinson Thank you, Sherry. I need to shut by thanking all our workers for his or her dedication and onerous work, our prospects and traders who put their belief in us and our suppliers and companions who’re tirelessly serving to us on our journey. I’m extra satisfied than ever that it is a expertise race and that we’re properly positioned with our enhanced developed superior expertise. But I need to be clear that proper now, my relentless focus is with this nice group proper right here in Arizona, in serving to resolving our logistics challenges and in ramping up manufacturing. I stay assured that we will overcome these close to-time period challenges with a relentless tenacity and a steely dedication. And in so doing, put in place acceptable processes and methodologies that may serve us properly for the long run. And make no mistake, that future is massively thrilling as a result of proper now, greater than ever, the world wants the brand new Lucid merchandise and expertise developments that we’ve got but to deliver to market. And with that, let me flip it again to Maynard to get to your questions. Question-and-Answer Session A – Maynard Um Thank you, Peter. We’ll now begin the Q&A portion of the decision. Before we take questions from these on the telephone, we need to put up some questions from our retail traders despatched them by way of the Say Technologies platform. The first query, straight to it. We all need to know is there a chance for a partnership with Apple sooner or later. And we even have one other associated query concerning companions that may embody, which is Hertz went with Tesla would Lucid take into consideration one thing like a partnership with automobile rental corporations to get the model on the market? Sherry House Thanks, Maynard. So we do not have something to announce immediately concerning any new partnerships. That stated, we acknowledge the attractiveness of our product and tech platform for different corporations, and we’re keenly open to discussing partnership choices. With regard to fleet or rental vehicles particularly, our car line very strongly with the operational and monetary metrics that these operators care about. For occasion, we’re business-main in effectivity, which is measured in miles per unit of vitality and therefore miles per greenback. Our cost time and vary are additionally main the market, which interprets to larger car uptime, which each prospects and fleet operators want, and we will additionally allow fleet operators to handle and run predictive analytics on the fleet and talk with the fleet given we have put in an OTA-enabled software program platform in each automobile that we have bought. Peter Rawlinson Yes, certainly, Sherry. Even from a — I suppose, from a car structure perspective, our Lucid Air area idea gives extra room for baggage or cargo or within the case of an autonomous car like sharing fleets, that are configured with the additional laptop {hardware} and tools. We have extra room for that tools and — tools. So, I believe for a lot of of those traits and attributes would doubtlessly make us a unbelievable companion for one in all these teams immediately. And frankly, much more, I suppose, over time as we introduce extra inexpensive fashions sooner or later, such because the Air Pure, one other variants. I imply, what can I say? Well, look, we have got the proper present platform for such alternatives, I suppose. Maynard Um Great. We’ll transfer to the following query. Any plans for an EV within the $40,000 to $50,000 vary to compete with different EVs in that worth vary? And there’s one other query associated, which is will Lucid provide cheaper fashions for a broader market? Peter Rawlinson Yes, that is good. And I believe there is a kind of type of a preferred kind of widespread false impression that Lucid solely desires to be taking part in within the excessive-finish luxurious section of the market, and that is merely not true. In order to have a extra significant influence to the local weather, we simply must be within the larger quantity segments out there. That’s how we’ll actually make that influence. And one of many first steps, I see Pure as a stepping stone to a extra inexpensive automobile. That’s one so passionate concerning the Lucida Air Pure. And I imply, wanting a bit additional forward, we’ll see our midsized car platform simply mid-decade, which goes to be an extra advance in our expertise effectivity story. And I simply need to clarify, we intentionally selected to start out off on the excessive finish as a result of we have been defining a model, an excellent known as model with — from its California DNA, and that is simply the beginning place. I imply we begin off by creating our tech flagships resembling Lucid Air and Gravity first. And we targeted the technical effectivity, we set new benchmarks. And then we’ll make extra inexpensive merchandise, and that is what actually excites me. Remember that we design, we develop, we manufacture all our energy coaching in our manufacturing facility in Arizona. And we expect we will turn out to be much more environment friendly, and that is going to drive down price of simple possession and speed up and capitalize widespread adoption, which is my ardour. Maynard Um And we’ll transfer to the following query. Does Lucid plan to pay out dividends sooner or later? Sherry House We do not presently have plans to take action, however let me offer you a bit little bit of perspective. We imagine that our EV expertise platform is amongst the very best in-home developed expertise obtainable out there immediately. And so our main focus is to proceed investing behind the power and the expansion of that platform in order that we will fulfill our mission, which is to deliver sustainable applied sciences to the world. Therefore, we do not anticipate paying a money dividend within the foreseeable future. Maynard Um Thanks, Sherry. And our subsequent query from the identical platform. Is Lucid presently working with Apple to implement the brand new automobile play with iOS 16 that will probably be launched in 2023 to make the most of all Lucid Caustic shows? Peter Rawlinson Well, that is a really particular query, I suppose. Maybe permit me to clarify this extra broadly maybe. And after all, I can not converse for Apple’s future product line right here. But we’re at all times evaluating new applied sciences as they arrive to market. And after all, we are going to proceed to take action. Look, we have got an superior automobile from a {hardware} and mechanical perspective. And what I can speak about is a few very thrilling software program updates coming all year long that may actually kind of match the prowess from the {hardware} facet, and we are going to proceed to offer new options through over-the-air software program updates. And particularly, as regards to automobile play, we’re truly in a beta testing section of validating proper now. And truly, we plan to launch the ultimate model within the close to future. So, keep tune and watch for that. Maynard Um Great. Our subsequent query, how is Lucid planning to fight inflation and a possible recession within the quick time period? How will this have an effect on the Gravity SUV that is popping out in 2023 and doubtlessly a $50,000 EV in 2025? And Sherry, perhaps you’ll be able to take the primary half, and Peter, you’ll be able to take the second. Sherry House Thanks, Maynard. Well, all the business has been experiencing inflationary price surroundings, and we’re definitely not immune from that. With respect to the actions that we have particularly taken in June, we elevated the costs of the Lucid Air. And it was the primary time that we introduced – since that we introduced costs again in September 2020. And we’re not going to see a cloth influence from that motion till 2023, provided that we honor the prior costs on the reservations made by way of May 31 and orders of the grand touring, which have been confirmed in June. As I discussed within the ready remarks, we’re nonetheless within the development levels of our firm investing behind our strategic priorities. So, massive scale blanket price-reducing initiatives aren’t essentially acceptable in our case. That stated, I need to be clear that, we’re allocating capital in a really prudent and methodical method. We’re instilling a tradition of price consciousness. We’re working facet-by-facet with our gifted group members to establish after which execute on price effectivity alternatives. It typically takes time to get processes to be finest-in-class in effectivity. So there’s undoubtedly extra work that we will do to rein in prices. Like others within the business, we’re operating at varied draw back eventualities, and we’ll act accordingly primarily based on market circumstances. Peter Rawlinson Yeah. And I believe the second a part of the query was, is the whole lot on monitor for Gravity launch? Yeah, as we acknowledged, our Project Gravity SUV is on monitor for begin of manufacturing within the first half of 2024. And truly, we’re presently within the strategy of leasing engineering information for our prototype builds. And I’m massively enthusiastic about that, and have been carefully interacting with that complete course of. And we additionally occur to say that our midsized platform, after all, is on monitor for simply previous mid-decade as properly. Now after all, it is essential to acknowledge, however to sync with the beginning of manufacturing of gravity of swimming pools, however on the similar time, we’re readying our manufacturing facility by way of the Phase 2 right here of AMP-1 proper right here in Arizona. And notably, we’re increasing the north finish of the physique store prepared for Project Gravity, and the south facet of the constructing the brand new meeting halls the place we’ll run each air and gravity down that line. Now, we’ve got prospects asking us on a regular basis for SUV and Gravity can do for the SUV market, simply what Air did for the luxurious sedan market, and we’ll take the identical idea, the vary, the effectivity, the expertise and design and efficiency and apply all the nice stuff to an SUV. And I believe it in all probability does not shock lots of people. I’m not an ideal SUV fan, however this lastly is the SUV for me. It’s truly going to occur. And we lastly met the SUV love, and that is a Project Gravity. Maynard Um Great. Thank you. So now we might prefer to take a number of questions from the telephone strains. Towanda, can we take the primary query? Operator Thank you. [Operator Instructions] Our first query comes from the road of John Murphy with Bank of America. Your line is open. John Murphy Good afternoon and good night, guys. I even have three fast ones. First, Peter, you talked about that there have been completed autos that have been held on the manufacturing facility and that issue gated and ordered as completed. I’m simply curious what number of these have been and what number of of these are near being completed? Second, as we take into consideration the logistics middle being introduced on-site in Casa Grande, what the incremental price for that may be and does which have any influence on capability? And then the third query, Sherry, what’s the ABL borrowing base that is backstopping the brand new $1 billion mortgage or ABL facility? And you talked about that could be upsize. So what different property might be pledged for that ABL? Peter Rawlinson Thank you, John. Peter right here. Yes, I imply, the primary query was the vehicles that we held again by way of Q2 on the manufacturing facility. But we did that to actually be certain that the standard was simply good. And it was simply match and end changes on what we name flush and hole, the hood to the fenders, the — simply the finer factors of finessing that you’d count on options and the standard commensurate with our luxurious car. And though — and plenty of of these vehicles have been assembly a few of requirements of my high quality group, I took the choice that I actually need to up the sport right here and get issues proper. Now we’re truly releasing a variety of these vehicles, we’re directing them to our service facilities proper every now and then they’re discovering themselves their option to prospects having had that attendance, love and a spotlight and care. And I believe they’re going to be delighted with our greatest efforts to make them as good as they are often. You additionally requested concerning the logistics middle at Casa Grande. Now, this was — this was preplanned. Part of the large 2.85 million sq. foot enlargement does embody a number of hundred sq. ft, 100,000 sq. ft of logistics area. What we’re doing is simply accelerating that at a really modest outlay. Just getting that a bit bit faster, as a result of the nearer we will deliver the buffer delicate within the supplies to the road that’s key to create a extra environment friendly stream of fabric inside our personal plant. So that is nothing new. It’s simply an acceleration of what we have already deliberate. Sherry House Yes, proper. So no actual incremental price to talk of with respect to that LOC. You requested concerning the ABL. I imply, we’re simply delighted to place that in place with this world-class group of banks in our syndicate. The borrowing base, the preliminary dedicated a part of it’s $1 billion, okay? And then we will borrow as much as a few-quarter of that billion proper now primarily based on eligible property. That, we are going to develop into extra over time as stock goes up as different of our property go up, and that’s one thing that’s going to be obtainable to us on a rising foundation simply as we transfer ahead and mature as an organization. The neat characteristic about this ABL was it additionally has an accordion characteristic. So, though the second a part of it, the accordion half shouldn’t be dedicated but, it’s as much as an extra $500 million that is going to be obtainable for that. Operator Thank you. [Operator Instructions] Our subsequent query comes from the road of Itay Michaeli with Citi. Your line is open. Itay Michaeli Great. Thanks. Good afternoon, all people. Also a fast ones for me. First, it seems like on logistics points, you have recognized the issues and the group is in place. Hoping simply you’ll be able to elaborate extra degree of confidence within the second half of the yr. Maybe speak about what you count on manufacturing cut up between Q3 and This autumn, and diploma of confidence you could have in to rising that for subsequent yr? And then secondly, I hoped you could possibly additionally remark on the speed of reservations that you simply noticed after the June worth hike. Just curious on what you noticed for demand there. And lastly, Sherry, perhaps you could possibly remark on the minimal money stability you’d prefer to have as you type of plan out liquidity into 2023? Peter Rawlinson Hi, Itay. Peter right here. I believe it is a actually glorious query. We primarily based our steering. Based upon a mindset, which is neither tremendous, dually optimistic or dually pessimistic, a really balanced strategy, and we have taken a really complete and really thorough analytical strategy to the dangers and alternatives that we see and which confronts us. This is an ideal dimension and in exact space. But all the govt, analyze this very completely, and we’ve got a really excessive diploma of concurrence in our collective considering, which has led to this revised steering. Sherry House So let me discuss to the reservations query. So as you’ll be able to count on, once we introduced in May at our May earnings launch that we’re going to maintain the costs, the oil costs in impact by way of the top of May and never have them go into impact till June 1. That did deliver ahead some reservations. So we had a really massive spike that occurred in May. You see that as we went from 30,000 to 37,000 that is the biggest development that we have ever had in a 3-month. So that did occur as anticipated. I’d say that pull forward had a bit bit extra pure in it than others, which you additionally would discover as being intuitive that the lower cost factors could be a bit bit extra worth delicate, so trying to lock in that fee. Now, what was actually attention-grabbing, as we transfer forward the following couple of quarters and we regarded on the reservations which have are available, in June and July, if we take that June and July base that we have had after which we add to it the rise, that the over normalized improve that we obtained in May, we’re nonetheless means forward of the place we might usually be if we have been simply normalize by way of June and July. So that pull forward, we’re seeing actually might need been a little bit of a bump up, simply type of like a advertising and marketing occasion virtually, if you’ll. The different factor that was attention-grabbing is we booked on the June and July reservations which might be coming in is that they proceed to be allotted throughout the identical combine allocations that we noticed pre-worth hike. So you are still seeing Pure highest adopted by Grand Touring after which Touring. So Grand Touring continues to be above Touring as properly. So we’re seeing — what I’d say could be very encouraging response and reservations following related patterns. And while you take the bump in May with the discount we have seen in June and July, we’re sitting in a very good spot. Itay Michaeli Thank you. Sherry House And then third, I believe you had a query about minimal money stability. So that one’s attention-grabbing. There’s a variety of other ways to mannequin this as a result of the best way we’re wanting on the $4.6 billion. And once I speak about going — once I speak about being properly into 2023, I’m speaking about getting in accordance to our full plan, which is investing in Saudi Arabia, investing in all of our car variants, investing after the swift tempo that we’ve got chosen to do. We have some choices there, proper? So when you concentrate on the minimal stability, you could possibly stretch that out in order for you. So I imply, I’m probably not going to offer any steering with respect to how a lot money we need to the financial institution, however I simply need you to know that you will proceed to see from us the identical kind of proactive type of opportunistic habits that you have seen each quarter, we’re coming to you, and we’re telling you about one thing attention-grabbing that we have executed within the capital markets, we did the convertible bond providing. Now we have executed the ABL. We put in place $3.4 billion in Saudi Arabia. So I believe you are going to proceed to see that type of motion happening from us monitoring the markets and ensuring that we’re doing what’s prudent on behalf of all traders. Maynard Um We’ll take the following query, please. Operator Thank you. Our subsequent query comes from the road of Charles Coldicott with Redburn. Your line is open. Charles Coldicott Hi. Thanks for taking my query. I’ve additionally obtained three, please. So firstly, once more, sorry, on the manufacturing. I’m questioning, are you able to assist reassure us a bit bit on the ramp-up by giving us an concept of what your weekly manufacturing charges exited Q2 at and what it’s immediately? My second query on order consumption, Sherry, you simply talked about there that when you clean out the final three months, it was truly forward of what you anticipated. But if I have a look at it, I believe I’m proper in saying that you have averaged about 78 orders a day within the final interval because you up to date us? And within the three-month interval earlier than that, which is March to May, it was principally the identical as that. So I’m questioning is the kind of rationalization that there have been cancellations and so the gross order consumption was considerably above or perhaps the expectation is that the order consumption would sluggish? And thirdly, Sherry, I believe there was $1.4 billion of buy of securities in Q2. Can you simply inform us what that’s and whether or not or not we should always deal with it as being as liquid as money in relation to your funding necessities? Thank you. Peter Rawlinson Hi, Charles, it is Peter right here. I actually love to offer steering on weekly manufacturing charges, and it is because it may be so deceptive. There’s a complete host of things. If we will delay manufacturing a bit bit to enhancements to our line facet provide, which, for instance, can enhance fee sooner or later. And as soon as we begin cherry-choosing particularly weekly manufacturing charges, I believe we get into this territory. And I believe that the numbers we offer you give probably the most broad and sincere description of our skill to have produced vehicles by way of this related quarter. And our steering of 6,000 7,000 vehicles for the yr, I imagine, is a really balanced and a sensible information for the long run. So I’m sorry, I do not assume it is smart to me to present you or weekly manufacturing fee proper now. Sherry House Let me cowl off a few your questions as properly. So you have been asking concerning the quick-time period and lengthy-time period investments. So you are proper, we took a few of our money, and we parked it briefly-time period and lengthy-time period investments in individually managed funds. And we did this as a result of we did not want entry to all of the money proper now, and we needed to have the ability to get a bit bit larger return on our cash. Those {dollars} are accessible to us at any time that we do not intend to make use of them instantly and we plan to allow them to mature and garner the rates of interest, which is the aim why we put them there. But they’re completely acceptable to us. I do not need individuals to get confused once they see the money stability, the money line on the stability sheet taking place quarter-over-quarter. Some of that was moved into quick-time period and lengthy-time period investments. Our property are nonetheless there. It wasn’t that we spent all that. And I undoubtedly don’t desire there to be confusion on that time. Secondarily, you requested a bit about simply the reservation. So once we booked at that normalized curve, I used to be speaking about, we did precisely what you stated, I look again three months and I look again six months and 9 months. And I type of checked out what does that normalization appear to be, and we’re undoubtedly properly above that while you have a look at May, June and July type of taken collectively. Cancellations got here down barely. So we have truly seen some enchancment there as properly. But what you’re going to see as we go ahead is that the deliveries are going to be growing considerably. So I do not know you are going to proceed to see that type of development as a result of you are going to have a variety of deliveries popping out of that quantity. Now we will probably be opening up the gravity order guide in some unspecified time in the future, then we count on we’ll get one other massive spike to get, proper? So there’s going to be some dynamic nature to those reservation numbers going ahead, and we’ll you should definitely be as clear as we will about that in future earnings calls. Maynard Um Great. Thanks. And we’ll shut out with the final query from the, say platform, which is what’s the plan for development? How do you propose to take extra market share within the EV market? Peter Rawlinson Well, I imply, to begin with, I’ve to say this. I believe there isn’t a such factor as a marketplace for EVs. There’s a market of vehicles. So we’re not competing for this kind of synthetic assemble of EV market share. I believe that is a fantasy. We’re competing for the remainder of {the marketplace}, which is large, the white area, which is presently occupied by outdated gasoline vehicles. And that is what we’re competing with the penetration into that market. But I’d additionally say that it is a expertise race, and we’re in it. And that is but to play out as a result of not all EVs are created equal. And I’d additionally like so as to add, I imply, with Lucid Air, we’re addressing particular points which have been kind of resistance factors, I suppose, to buyer adoption with EVs up to now. I imply we have got the longest vary. We’re the quickest time to cost. We’ve obtained unimaginable area in inside design. It’s actually leveraging a lot extra than simply an EV. It’s a leverage all these benefits that electrification can present. And I believe we will promote extra vehicles, the associated fee we handle these key resistance factors. But moreover, I suppose there is a greater challenge at stake right here. And I’m glad you requested the query as a result of I imply it permits me to handle this. The world’s treasured battery supplies are actually scarce, and our expertise permits us to make extra vehicles with much less batteries and it is a level that is actually missed as a result of we will make extra vehicles much less — with much less assets as a result of we will go additional for a given quantity of vitality as a result of we have got extra effectivity. I imply, for instance, we imagine we may endow Lucid Air enchantment with over 400 miles vary with a battery pack dimension of lower than 90 kilowatt hours. That’s what is going on to make Lucid Air Pure actually superior related vary, however fewer batteries than in contrast with EVs for others. And that’s the future. That is the consequence of being within the tech race. Maynard Um Great. Thank you. And I believe that is a good way to finish. This concludes Lucid’s first quarter 2022 Earnings Conference Call. Thank you all for becoming a member of us immediately, and you could now disconnect.

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