Lucid Group, Inc. Q2 FY2022 Earnings Call

Good day and thank you for joining us. Welcome to the Lucid Group Second Quarter 2022 Earnings Conference Call. All participants are currently in a listen-only mode. After the presentations, we will open the floor for questions. I would now like to turn the call over to your speaker for today, Maynard Um. You may begin.

Thank you, and welcome to Lucid Group's second quarter 2022 earnings call. Joining me today are Peter Rawlinson, our CEO and CTO; and Sherry House, our CFO. Before handing the call over to Peter, let me remind you that some of the statements on this call, particularly those regarding the future financial performance of the company, production and delivery volumes, macroeconomic and industry trends, company initiatives and other future events, are based on the information that we have as of today and include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to numerous risks, uncertainties and other factors that could cause actual results to differ from expectations, and we refer you to the cautionary language and the risk factors in our quarterly report on Form 10-Q for the quarter ended June 30, 2022, as well as other documents filed or to be filed with the SEC for a full discussion of such risks, uncertainties and other factors. Forward-looking statements made during today's call speak only as of the time they are made, and we are under no obligation and expressly disclaim any obligation to update, alter or otherwise revise any forward-looking statements, whether as a result of new information, future events or otherwise except as required by law. You are cautioned not to place undue reliance on these forward-looking statements. 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 available on the Investor Relations section of our website at ir.lucidmotors.com. With that, I'd like to turn the call over to Lucid's CEO and CTO, Peter Rawlinson. Peter, please go ahead.

Thank you, Maynard. In Q2, we continued to see strong customer demand for our vehicles, with over 37,000 customer reservations as of today. That's an increase of more than 7,000 in the quarter, up from 30,000 reservations as we reported last quarter. Now this 37,000 figure does not include our agreement with the Government of Saudi Arabia to purchase up to 100,000 vehicles, which is entirely incremental, nor indeed does it include potential reservations for our forthcoming SUV, the Project Gravity, nor even potential reservations for Lucid Air in markets outside of North America, the Middle East and Europe. As such, we are very pleased with the reaction from customers and the excitement surrounding Lucid Air. And we believe that as we get more of our vehicles into our customers' hands and expand our test drive program, our momentum will just continue to build. We're also pleased to report that Lucid Air continues to garner many industry accolades, besting some very well-established luxury car brands. For example, we debuted the 1,050 horsepower Lucid Air grand touring performance in June at the Goodwood Festival of Speed in the UK, which featured some of the world's fastest vehicles. Although Lucid Air grand touring performance recorded a Goodwood Hill climb time of 50.79 seconds in the shoot-out, and that's the fastest time of any production road car at the event and the 12th fastest time overall, which included many racing cars. To be clear, only racing cars were faster at the event, and many of the racing cars were not as fast. This demonstrable performance advantage lies in Lucid's in-house EV powertrain technology. Lucid designs, develops and manufactures all our core EV body in-house. This vertical integration differentiates Lucid from virtually every other car manufacturer today. However, with all that positive momentum, I do have to say that this quarter has proven to be a very challenging period. While we have experienced supply chain and logistics challenges along with the entire industry, the limitations of our logistics system have compounded the challenge. Although we continue to face supply chain constraints, the resolution of some earlier gating component supply issues allowed us to push towards increasing the production rate. As we attempted to push forward the rate, we found that our logistics constraints prevented us from scaling meaningfully this past quarter. For example, our ability to speed the correct part through the line at the correct time and cadence is challenging. Each car is built with thousands of parts, and we must do this while maintaining high Lucid quality build standards. So with that, let me walk you through our first half and Q2 production and delivery figures to provide a little context. In the first half of 2022, we produced 1,405 vehicles. These were factory-gated vehicles, meaning that they are completed and ready for delivery to customers. In Q2, we also made a significant number of vehicles that we did not factory gate, instead electing to hold them back in order to ensure that these cars met the highest standard of quality. Remember, quality must take priority over volume as a luxury brand, and I'll touch on quality a little bit later. Now from a production standpoint, we have both planned and unplanned pauses in the quarter that resulted in approximately 2.5 weeks where we had no daily production at the factory. Additionally, some of these pauses were related to supply chain and logistics issues. A production pause due to the installation of body shell assembly equipment and robotics with the Lucid Air Pure was preplanned. The equipment has been successfully installed, and we're on track for the start of Pure before the end of the year, which we expect will be hugely significant for us as a company. We also experienced some unplanned production pauses primarily to improve our logistics processes, which became more apparent as we started to scale. As a result, we are reducing our 2022 production guidance to a range of 6,000 to 7,000 vehicles. Our revised outlook guidance for the year reflects the logistics challenges I described as we begin scaling, which exposed the immaturity of our logistics processes. But I do believe that we've identified the primary bottlenecks and have already taken steps to begin to remedy the situation. We have made a significant decision to bring our logistics operations in-house. We've made key hires to the executive team and have restructured our logistics and manufacturing organizations accordingly. We accelerated access to our logistics center as part of our Phase 2 expansion in Arizona. Within a couple of months, we expect to have our logistics center on site at AMP-1, which should help mitigate and begin to eliminate the logistics bottlenecks as well as reduce costs of shipping and handling parts. Furthermore, we're overhauling our logistics processes and introducing a series of improvements to simplify the system and yet make it more efficient and robust. I am pleased to announce that Steven David has joined Lucid as Senior Vice President of Operations. Steven will report to me and will be based in Arizona at the center of our critical manufacturing and logistics operations. In this newly created role, Steven will lead global operations, including oversight for the expansion of AMP-1, as well as future operational centers. The business leaders of supply chain, logistics, and manufacturing quality will now report directly to Steven, ensuring we're executing tight alignment across these business units. Steven's wealth of experience in manufacturing and operations will be a tremendous asset to Lucid. Most recently, he was Head of Components Operations at Stellantis, responsible for business operations, including P&L for two companies within the organization. Before that, Steven has served in various leadership positions at Fiat Chrysler Automobiles, including Vice President of Manufacturing and Engineering Manufacturing for Asia Pacific. Steven has extensive and in-depth experience in the automotive arena. I'm also delighted to welcome Walter Ludwig, Vice President of Global Logistics to our executive team, who will be reporting to Steven. Walter brings over 28 years of automotive experience and joins us from Mercedes-Benz where he held various roles, including Head of Operations, Head of Quality, and most recently, Head of Central Logistics. For the last 20 years, his main management focus has been ramping up and stabilizing manufacturing plants in Germany, China, Russia, Argentina, and the United States. Walter provides operational leadership in developing and implementing best practices in automotive logistics and parts management, material planning, as well as other areas. Now moving on to deliveries, last quarter, I highlighted that we delivered well over 300 vehicles in the month of April. In Q2, we delivered 679 vehicles to customers. Our decision to prioritize quality had an effect on our deliveries, and quality is an organizational priority. I've been working with the team to ensure that nothing leaves our house without meeting our high standards. In fact, I'm joining today's Q2 earnings conference call directly from our AMP-1 factory in Arizona. I'm right here on the front line, and I've been spending a vast majority of my time here on the shop floor. As I believe it's my responsibility as the CEO to be here, resolving issues and helping onboard the new executives. Indeed, I feel particularly at home on and around the production line, where I am personally and directly engaged in helping solve problems. It is right here that I witness the passion and camaraderie of the Lucid employees in the factory firsthand, particularly among the much-valued associates who are engaged in this process. They are highly motivated because, just like me, they really want to build the world's best cars, and just like me, we want to do that in volume. Believe me, we're working tirelessly to make that happen. I'd like to personally thank all our employees for their sheer dedication in working alongside me shoulder to shoulder right here in the factory. We have also made enhancements to our quality processes that are yielding improvements. The quality of the cars that we're factory gating now is excellent, and we are working to ensure that this excellence in quality is consistent at scale off the line. Again, quality must take priority over volume as we establish our brand reputation. In the quarter, we aligned manufacturing quality and field quality under Nick Minbiole, our Vice President of Global Quality, and that has already begun to yield improvements. We also brought in Sun Hei Moon as Global Head of Supplier Quality. Sun Hei joins us from LG Electronics vehicle component solutions company, where she was the Vice President of Field Quality and Customer Support, responsible for leading all aspects of field quality performance, customer support, and aftermarket for products. Prior to LG, Sun Hei served as Powertrain Quality Director for General Motors, International Operations in Asia. They, along with the team, have already identified areas for further improvement, and implementation has been underway. Combined with existing planned process improvements, I feel confident about our ability to ramp significant production volumes. On a positive note, our ability to produce cars has not been limited by our ability to manufacture our electric powertrain. This advanced technology, which truly differentiates us, is manufactured in-house by our advanced processes, and these are largely all going quite well. From a product perspective, as I noted earlier, we already started deliveries of the 1,050 horsepower grand touring performance. We are on track for additional versions of Lucid Air for later this year, followed by the start of Project Gravity SUV production in the first half of 2024. We also expect to ship the very first Lucid Air into Europe and Saudi Arabia by year-end, so we see a lot of opportunities ahead of us. I also want to provide an update on our Formula E relationship. As we approach the completion of four successful seasons supplying the standard battery pack to the series, I'm proud to say that we have had a 100% safety record to date with just two races remaining in this final season for the Generation 2 race cars. With the advent of the all-new Generation 3 Formula E race cars for next season, Lucid is proud to announce that we will be the sole provider of front drive units for the series. This brand-new Lucid front drive unit has been custom developed to provide ultra-high performance with gravimetric and volumetric power density. These drive units are capable of 469 horsepower, yet remarkably are approximately half the weight of the Lucid Air drive units. Their position in the nose of the electric race car, in front of the driver’s feet, would connect to the front wheels. Make no mistake, this is impressive next-level technology. Just as our learnings from our racing battery program provided technological transfer into our road-to-Lucid Air, I think this brand-new Lucid high-tech racing drive unit is probably a good pointer to a potentially smaller, yet powerful road car drive unit in our future. As far as I'm aware, we are one of only two OEMs or car companies that are vertically integrated through the design, development, and manufacturing of our own technology. I'm confident that as this technology race plays out, Lucid will continue to stand out. We continue to garner strong industry accolades driven by our technology and design. In Q2, we won the 2022 Wards 10 Best Interiors and UX. This award validates one of the founding principles of Lucid Air, which is the Lucid Space Concept. In fact, I recently filmed our Lucid Tech Talk on the Space Concept, whilst Chief Engineer Eric Bach presented our latest Tech Talk on the Wunderbox bi-directional charger, which you can find on our Investor Relations website. The software team continues to work hard with 19 over-the-air updates delivered since the beginning of the year. We added a number of features, including an enhancement to Lucid Air’s ability to identify traffic signs and inform the driver of speed limit changes and other important driving information, a major upgrade to navigation, as well as other customer-requested features, and we have a major software upgrade coming later this year. Although I'm delighted by the strength of demand we see for our cars and the accolades we have received, I am conspicuously aware that the true value of having what is now widely recognized as a truly exceptional car can only be achieved by producing it in meaningful volume, and that is why my laser focus and indeed that of our Lucid team is right here in Arizona, unlocking the path to our volume ramp-up. Make no mistake, although it's frustrating, this is a phase of our growth as a company that we will power through with steely determination. We have a product, we've augmented our workforce, and we're improving our processes to enable this to happen. Furthermore, as we increase the number of vehicles on the road, I believe we will see further demand growth as the awareness of Lucid Air and the Lucid brand proliferates. I am also excited about the potential reservation demand for Project Gravity SUV, which we are now considering how to debut and when precisely to open reservations. Longer term, in order to have a more meaningful impact on the climate, we recognize that we need to be in the more affordable, higher volume segments of the market, and we will be doing just that with our midsized vehicle platform around mid-decade, which I believe will further demonstrate the value of our efficiency through our in-house EV technology. In short, I remain very excited about our future and the broad road map ahead. While right now, we're taking steps to resolve our current constraints, at the same time, we're driving forward with a sense of urgency to get our incredible vehicles to market. On that note, I am hopeful you will see the fruits of these labors in the coming months and quarters. With that, let me turn it over to Sherry for an update on our financials and additional perspective on our business. Sherry?

Thank you, Peter, and thank you to all those for taking the time to join us today. I want to echo Peter's excitement about our future product and technology roadmap and customer demand. We remain incredibly excited to bring new versions of the Lucid Air to customers this year. To put the reservation number of over 37,000 in context, this represents potential future revenue of approximately $3.5 billion, and that's before including the up to 100,000 vehicle deal with Saudi Arabia and the future reservations for Gravity since we've not yet opened the order book for our upcoming SUV. Our future reservations, combined with our growing customer base, brand awareness, and number of industry accolades, give us the conviction to continue to invest in the rapid expansion of our business. Turning to our second-quarter financial results. Our second-quarter revenue was $97.3 million, representing a quarter-over-quarter increase of 69%. This included $96.1 million in automotive revenue from the delivery of 679 vehicles. We also recorded other revenue of approximately $1.2 million, which includes sales to Formula E. As Peter mentioned, the Formula E drivetrain agreement is the natural next step in our relationship and is a true testament to our advanced technology differentiation. Cost of revenue was $292.3 million. Similar to last quarter, this expected increase was primarily related to personnel and overhead costs as we ramp up production, offset by lower freight costs quarter-over-quarter due to our ability to ship the vast majority of our international shipments from air to ocean freight. We recorded an impairment charge of $81.7 million in the second quarter, primarily due to these increased costs being capitalized into inventory. This is fairly typical during initial production ramps. Just as we saw a decline from Q1 to Q2 in this impairment charge, we expect that the impact should lessen over time as we ramp up production volumes toward our planned manufacturing capacity. Moving to operating expenses. We're still in the growth stages of our company and investing behind our strategic priorities, but I want to be clear that we're doing this in a prudent and methodical manner. We're instilling a culture of cost consciousness, and we're working with our talented team members across the company to identify and execute on cost efficiency opportunities. To illustrate this point, I'd like to add on to Peter's earlier comments around the importance of quality. Getting quality right and getting it right early on in the factory helps to reduce downstream costs and improve throughput. In addition to building the brand and customer loyalty, there are tangible financial benefits to our quality-first approach. Now turning to research and development. R&D expense totaled $200.4 million. The 7.7% increase sequentially was primarily due to prototype material, engineering, design, and testing services, offset partially by lower stock-based compensation expense. SG&A expense was $163.8 million, down 26.6% from the first quarter, primarily due to lower stock-based compensation expense. In Q2, we added five new studios for a total of 29 studios and service centers across the U.S., Canada, and Europe. We're proud to have opened new studio locations in Boston, Massachusetts; Manhasset, New York; Denver, Colorado; Seattle, Washington; and our first European studio in Munich, Germany. We will continue to strategically open new locations globally as we scale the business and grow our presence. We're also increasing our fleet of mobile vans, with a total of 29 in North America as of quarter-end. These mobile service vans can perform over 80% of the service procedures that can be done in a service center, and it's an important element in ensuring high customer satisfaction and a lower-cost approach to providing service as the fleet of Lucid vehicles grows. Stock-based compensation in the quarter was $94.4 million, with $10.4 million in cost of revenue, $39.2 million in research and development, and $44.8 million in SG&A. In other income, we recognized a non-cash gain of approximately $335 million related to the mark-to-market value of private warrants. The value of the warrants can be influenced quarter-to-quarter by a number of factors, including Lucid Group's end-of-quarter share price. Now moving to the balance sheet. We ended the quarter with $4.6 billion in cash, cash equivalents, and investments, which we expect will fund us well into 2023. During the quarter, we also announced a new ABL asset-based loan credit facility with initial committed capital of up to $1 billion, and the availability is based on the value of certain eligible assets. The terms also provide for incremental revolving commitments of up to an additional $500 million, subject to obtaining vendor commitments. We had no outstanding borrowings under the ABL credit facility in Q2. The importance of these facilities is that they provide Lucid with incremental liquidity and demonstrate the vote of confidence from world-class syndicated global banks, many of which have been with us through multiple transactions as we scale our business. I would also highlight that this is a typical part of the capital structure of mature businesses and reflects the further development of Lucid as a growing global company. In Q2, we activated a working capital loan under the Gulf International Bank facility agreement in the amount of approximately $6.7 million related to early work to build our factory in Saudi Arabia. We have approximately $86.6 million currently available under the working capital facility and an additional $173.2 million under a bridge facility. It demonstrates through this series of actions that we are committed to working proactively and opportunistically to ensure that our balance sheet remains a strength for the company. In Q2, we continued to invest in our technology platform, the scaling of our global business, and the manufacturing infrastructure build-out. Capital expenditures related to these activities were $309.8 million in the second quarter. As you can see from the photos we shared in our Q2 earnings presentation, our Phase 2 expansion at our Casa Grande, Arizona factory is progressing. When complete, we expect our installed capacity to increase to 90,000 units per year by early 2023. As we exit mid-decade, we expect to reach an annual installed capacity of 350,000 units in Arizona and 150,000 annual units of installed capacity in Saudi Arabia, getting us to an annual installed capacity of 500,000 shortly after mid-decade. In Q2, we announced our initial launch plans into the European market with the Lucid Air Dream Edition R, which is optimized for an estimated 900 kilometers of range, and the Dream Edition T, which features 1,111 horsepower. We have not yet begun to accept orders in Europe, but we reached out to our existing reservation holders to gauge interest in the Dream Edition, and we immediately saw strong demand. Moving on to some other major milestones in the quarter, we launched Lucid Financial Services in June, an all-new digital platform offering a flexible, fast, and transparent financing process. Many Lucid Air customers have been asking for flexible financing options with a preference for a 100% digital experience, and we've delivered on that ask. Loan products are available to U.S. customers in all 50 states and leased products in 38 states and growing through a seamless process designed specifically for Lucid customers. We believe this helps open up the market, as it's estimated that over 65% of OEM customers seek out loan or lease financing. This also enables us to build direct relationships with our customers throughout their ownership journey. It's highly unusual for an auto company to roll out this type of service early in their growth cycle, which is truly amazing, reflecting the great work by the team. Another proud milestone in the quarter was our addition to the Russell 1000 Index. Russell Indices are widely used by investment managers and institutional investors for index funds and as benchmarks for active investment strategies. Our inclusion in the Russell 1000 Index is another significant milestone for Lucid and should help broaden our awareness in the institutional investment community. Now, turning to the outlook, Peter outlined some of the supply chain and logistics challenges as well as the actions we're taking to address the near-term production bottlenecks we're experiencing. Bringing our logistics operations entirely in-house and accelerating access to our logistics center on-site at our Arizona factory will help reduce complexity, cut down lead times, and reduce various costs. We believe these decisive actions as well as the addition of leadership across logistics, process transformation, and supplier quality will help us unlock these bottlenecks. However, it's unlikely we'll be able to make up the anticipated lost volume in 2022. Consequently, we are adjusting our 2022 production guidance to 6,000 to 7,000 units from 12,000 to 14,000 units. Now turning to our cash guidance, we ended the quarter with $4.6 billion in cash, cash equivalents, and investments, which we continue to believe is sufficient liquidity to fund us well into 2023. This assumes we are investing fully in accordance with our forward plans. As a reminder, we also had the KAEC debt facilities and the ABL with significant untapped capacity. I'm also confident we will have options for additional funding as needed, and our strong balance sheet allows us the flexibility to be opportunistic in the market. Moving to CapEx, CapEx in the first half of 2022 was $494.9 million. While the timing of CapEx outflows can shift quarter-to-quarter, we continue to expect capital expenditures for the year to be approximately $2 billion. This funds facilities, as well as machinery and equipment in Arizona, retail and service center development, early investment in our presence in Saudi Arabia, and other CapEx associated with vehicle and component development. In terms of our product roadmap guidance, we're on track for deliveries of additional versions of Lucid Air later this year, including the grand Air Grand tour performance, the Air Pure, the touring, and production of Project Gravity SUV in the first half of 2024. In closing, despite our immediate challenges, I’m proud of what our team has been able to accomplish collectively with our business partners. We've enabled financings, we've continued important infrastructure build-out, and launched award-winning products. We welcome the new leadership team members and look forward to the capabilities they bring as we work together to resolve issues and capture the tremendous opportunities ahead of us. Following Peter's closing remarks, we'll begin a Q&A portion of today's call. Today's Q&A will feature questions from some of our retail investors, an important constituency of our shareholder base through the Say Technologies platform. With that, I'd like to turn it over to Peter for closing remarks.

Thank you, Sherry. I want to close by thanking all our employees for their dedication and hard work, our customers and investors who put their trust in us, and our suppliers and partners who are tirelessly helping us on our journey. I am more convinced than ever that this is a technology race and that we are well positioned with our enhanced developed advanced technology. But I want to be clear that right now, my relentless focus is with this great team right here in Arizona, in helping resolve our logistics challenges and in ramping up production. I remain confident that we shall overcome these near-term challenges with relentless tenacity and steely determination. In so doing, we will put in place appropriate processes and methodologies that will serve us well for the future. Make no mistake, that future is hugely exciting because right now, more than ever, the world needs the new Lucid products and technology advancements that we have yet to bring to market. With that, let me turn it back to Maynard to get to your questions.

Thank you, Peter. We'll now start the Q&A portion of the call. Before we take questions from those on the phone, we want to pose some questions from our retail investors sent through the Say Technologies platform. The first question, straight to it. We all want to know is there a possibility for a partnership with Apple in the future? And we also have another related question regarding partnerships that will include, which is Hertz went with Tesla; would Lucid think about something like a partnership with car rental companies to get the brand out there?

Thanks, Maynard. We don't have anything to announce today regarding any new partnerships. That said, we recognize the attractiveness of our product and tech platform for other companies, and we're keenly open to discussing partnership options. Regarding fleet or rental cars specifically, our vehicle line strongly aligns with the operational and financial metrics that these operators care about. For instance, we are industry-leading in efficiency, which is measured in miles per unit of energy, hence miles per dollar. Our charge time and range are also leading the market, translating to higher vehicle uptime, which both customers and fleet operators desire. We can also enable fleet operators to manage and run predictive analytics on the fleet and communicate with the fleet, given we have installed an OTA-enabled software platform in every car that we've sold.

Yes, indeed, Sherry. Even from a vehicle architecture perspective, our Lucid Air space concept provides additional room for luggage or cargo, or in the case of an autonomous vehicle like sharing fleets, which are configured with the extra computer hardware and equipment. We have additional room for that equipment. So I think many of these characteristics and attributes would potentially make us a fantastic partner for one of these groups today. Frankly, even more over time as we introduce more affordable models in the future, such as the Air Pure and other variants. We have the perfect current platform for such opportunities.

Great. We'll move to the next question. Any plans for an EV in the $40,000 to $50,000 range to compete with other EVs in that price range? And there's another question related, which is will Lucid offer cheaper models for a broader market?

Yes, this is good. I think there's a popular misconception that Lucid only wants to be playing in the high-end luxury segment of the market, and that's simply not true. To have a more meaningful impact on the climate, we need to be in the higher volume segments. That's how we're going to truly make that impact. I see Pure as a stepping stone to more affordable cars. I'm very passionate about the Lucid Air Pure. Looking further ahead, we will see our midsized vehicle platform by mid-decade, which will further advance our technology efficiency story. We deliberately chose to start at the high end to define a brand, a super-cool brand from its California roots. This is just the starting position. We begin with tech flagships like Lucid Air and Gravity first, focusing on technical efficiency and setting new benchmarks. We will then create more affordable products, which is what truly excites me. Remember that we design, develop, and manufacture all our powertrains in our factory in Arizona. We believe we can become even more efficient, and this will drive down the cost of ownership and accelerate widespread adoption, which is my passion.

And we'll move to the next question. Does Lucid plan to pay out dividends in the future?

We don't currently have plans to do so, but let me give you a little perspective. We believe that our EV technology platform is among the best in-house developed technology available in the market today. Our primary focus is to continue investing behind the strength and growth of that platform so that we can fulfill our mission of bringing sustainable technologies to the world. Therefore, we don't anticipate paying a cash dividend in the foreseeable future.

Thanks, Sherry. Our next question from the same platform is, is Lucid currently working with Apple to implement the new CarPlay with iOS 16 that will be released in 2023 to utilize all Lucid displays?

That's a very specific question. Allow me to explain more broadly. I can't speak for Apple's future product line here, but we're always evaluating new technologies as they come to market. We're committed to leveraging our incredible hardware and mechanical features in our cars. We have exciting software updates coming throughout the year that will match our hardware's prowess. We're currently in a beta testing phase of validating this, and we plan to release the final version in the near future, so stay tuned.

Great. Our next question is how is Lucid planning to combat inflation and a potential recession in the short term? How will this affect the Gravity SUV that's coming out in 2023 and potentially a $50,000 EV in 2025? Sherry, maybe you can take the first part, and Peter, you can take the second.

Thanks, Maynard. The entire industry has been experiencing inflationary cost environments, and we're certainly not immune from that. In June, we increased the prices of the Lucid Air, which was the first time since we announced prices back in September 2020. We're not going to see a material impact from that action until 2023, given that we honor prior prices for reservations made through May 31 and orders of the grand touring confirmed in June. While we continue to invest behind our strategic priorities, large-scale blanket cost-cutting initiatives aren't necessarily appropriate for us. That said, I want to be clear that we're allocating capital in a prudent and methodical manner. We're instilling a culture of cost consciousness and working with our talented team to identify and execute on cost efficiency opportunities. It often takes time to get processes to best-in-class efficiency, so there's definitely more work to be done to manage costs. Like others in the industry, we're planning for various downside scenarios, and we'll act accordingly based on market conditions.

Yes, and regarding the Gravity release, everything is on track. Our Project Gravity SUV is on track for production start in the first half of 2024. We're currently in the process of leasing engineering data for our prototype builds, and I'm hugely excited about that. I've been closely interacting with that whole process. We’re readying our factory through Phase 2 of AMP-1 here in Arizona, particularly expanding the north end of the body shop for Project Gravity and the south side at the new assembly halls where we will run both Air and Gravity down that line. Customers are asking us all the time about the SUV, and we believe Gravity can do for the SUV market what Air did for the luxury sedan market. We're going to apply all the features from our technology, design, range, and efficiency to an SUV. This is an SUV that finally excites me.

Thank you. So now we'd like to take a few questions from the phone lines. Towanda, can we take the first question?

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

Good afternoon and good evening, guys. I actually have three quick ones. First, Peter, you mentioned that there were finished vehicles that were held at the factory and that factory-gated and ordered as finished. I'm just curious how many those were and how many of those are close to being finished? Second, as we think about the logistics center being brought on-site in Casa Grande, what the incremental cost for that would be and does that have any impact on capacity? And then the third question, Sherry, what is the ABL borrowing base that's backstopping the new $1 billion loan or ABL facility? You mentioned that might be upsize, so what other assets could be pledged for that ABL?

Thank you, John. Yes, many cars were held back at the factory to ensure quality was perfect. It was just fit and finish adjustments, specifically on what we call flush and gap, the hood to the fenders, and just the finer points of finessing that you would expect for a luxury automobile. Many cars were meeting our quality team's standards, but I decided to up the game further and ensure things are right. We're directing a lot of those cars to our service centers and with their attention to detail, customers will be delighted. You also asked about the logistics center at Casa Grande. This has been preplanned as part of our massive 2.85 million square foot expansion, which includes about 100,000 square feet of logistics space. What we're doing is accelerating that at a modest cost, just getting it a little quicker because the closer we can bring buffer stock materials to the line, the more efficient the flow of material will be within our plant. This is nothing new, just an acceleration of our plans.

Yes, right. So no real incremental cost to speak of regarding that LOC. You asked about the ABL. We're delighted to have put that in place with this world-class group of banks in our syndicate. The borrowing base, the initial committed part of it is $1 billion. We can borrow up to about one quarter of that billion based on eligible assets. We will grow into more over time as inventory goes up and as our other assets increase, and that is something available to us on a continuously growing basis as we mature as a company. The neat feature of this ABL is that it also has an accordion feature. Although the second part of it is not committed yet, it is up to an additional $500 million that can be available.

Thank you. Our next question comes from Itay Michaeli with Citi. Your line is open.

Great. Thanks. Good afternoon, everybody. Also quick ones for me. First, it sounds like on logistics issues, you've identified the problems, and the team is in place. Hoping you can elaborate more on the level of confidence in the second half of the year. Maybe talk about what you expect production split between Q3 and Q4 and your degree of confidence in growing that for next year. Secondly, I was hoping you could also comment on the rate of reservations you saw after the June price hike, just curious on what you saw for demand there. Lastly, Sherry, could you comment on the minimum cash balance you'd like to have as you plan out liquidity into 2023?

Hi, Itay. I think it's an excellent question. We based our guidance on a balanced mindset, very thoroughly analyzing the risks and opportunities we see. This advice provided the most broad and honest description of our ability to produce cars through this relevant quarter, and our guidance of 6,000 to 7,000 cars for the year is a very balanced and realistic guide for the future. I'm sorry, but I can't provide specific weekly production rates right now.

Let me talk to the reservations question. When we announced in May that we would keep prices unchanged until June 1, that did bring forward some reservations. We had a large spike in May. The reservations grew from 30,000 to 37,000 that's the largest growth we've seen in three months. That pull ahead had more of Pure in it than others, which is intuitive since the lower price points are often more price-sensitive. Looking forward, if we consider the June and July reservations alongside the bump from May, we're still ahead of where we would typically be if we just normalize through June and July. What is encouraging is that the reservations we've booked in June and July remain aligned with the mix we observed prior to the price hike. We're seeing an encouraging response in reservations structured similarly, so we're in a great place. Regarding our liquidity planning, there are ways to model this because the $4.6 billion in cash can be approached in various manners. Going into 2023, I'm talking about following our full plan, which involves investments in Saudi Arabia and across our vehicle variants. There are options available to us. I'm not providing specific guidance on the minimum balance we would like to have, but you will continue to see from us the same proactive approach we've taken each quarter. We'll ensure our capital remains strong.

We'll take the next question, please.

Thank you. Our next question comes from the line of Charles Coldicott with Redburn. Your line is open.

Hi, thanks for taking my question. I've also got three, please. Firstly, can you help reassure us a little bit on the ramp-up by giving us an idea of what your weekly production rates exited Q2 at and what it is today? Secondly, on order intake, you mentioned that you've averaged about 78 orders a day in the last period since you updated us? In the three-month period before that, it was about the same. So I'm wondering if there were cancellations and thus significant above expectations gross order intake or the expectation is that order intake would slow. Lastly, Sherry, there was $1.4 billion in purchases of securities in Q2. Can you tell us what that is and whether or not we should treat it as liquid cash regarding your funding requirements? Thank you.

Hi, Charles. I love to provide guidance on weekly production rates, but there's a range of factors that can mislead expectations. Delaying production slightly can improve future rates. Weekly production numbers can be precise but can lead to misleading conclusions. Our guidance of 6,000 to 7,000 cars for the year provides a balanced and realistic view of our future capacity.

Regarding your question about short-term and long-term investments, you're correct. We took some cash and parked it in short-term and long-term investments in managed funds. We did this since we didn't need access to the cash immediately and wanted to get a higher return. These dollars are accessible at any time; we don't require them right away, so we plan to let them mature. I don't want confusion on the cash balance appearing to go down quarter-over-quarter—some of that was moved into investments; our assets are still part of the overall portfolio.

Thank you.

I want to emphasize that there is no such thing as a market for EVs; there is a market for cars. We're not competing for an artificial construct of EV market share, which I find to be a fantasy. We're targeting the marketplace currently occupied by gasoline cars and aiming to increase our penetration into that space. This is a technology race, and we're actively in it. Not all EVs are created equal, and our Lucid Air addresses customer adoption resistance points, such as the longest range and fastest charge time. Leveraging the advantages of electrification will drive our sales further. Furthermore, as battery materials are scarce, our technology allows us to produce more cars using fewer resources, enabling efficiencies that others do not. For example, we can achieve over 400 miles of range with a battery size of less than 90 kilowatt hours.

Great. Thank you. This concludes Lucid's first quarter 2022 Earnings Conference Call. Thank you all for joining us today, and you may now disconnect.