Hello, and thank you for standing by. Welcome to Lucid's Fourth Quarter 2023 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Maynard Um, Senior Director of Investor Relations. You may begin.

Thank you, and welcome to Lucid Group's Fourth Quarter 2023 Earnings Call. Joining me today are Peter Rawlinson, our CEO and CTO; and Gagan Dhingra, our Interim CFO and Principal Accounting Officer. Before handing the call over to Peter, let me remind you that some of the statements on this call include forward-looking statements under federal securities laws. These include, without limitation, statements regarding the future financial performance of the company, production and delivery volumes, financial and operating outlook and guidance, macroeconomic and industry trends, company initiatives and other future events. These statements are based on predictions and expectations as of today and actual events or results may differ due to a number of risks and uncertainties. We refer you to the cautionary language and the risk factors in our most recent filings with the SEC and the forward-looking statements on Page 2 of our investor deck available on the Investor Relations section of our website at ir.lucidmotors.com. 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 our investor deck. 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, and thank you, everyone, for joining us for our fourth quarter earnings call. During the first three years of production of Lucid Air, we've garnered significant industry accolades, including Car and Driver's 10 Best List for 2024, The 2023 World Luxury Car of the Year and the 2022 Motor Trend Car of the Year. I can't think of any other company that has gotten this far this fast. Our superior technology, design, and performance have repeatedly been recognized. We've proved our technology prowess with Lucid Air. And not only did we pioneer the concept of efficient range through our technology, we also grew our lead with 4.74 miles of range per kilowatt hour for the Air Pure rear-wheel drive. The technology gap between Lucid and others is growing, not shrinking. We also launched the Lucid Air Sapphire, the first supersport EV sedan as a halo product to showcase the potency of our technology. Not just the most powerful production sedan ever, it has also been recognized as a great all-around driving car with exceptional handling and driving dynamics. Its exceptional 427 miles of EPA estimated range and fast charging truly completes the package. And now we're embarking upon our next and most transformational phase of our development with the expansion of our vehicle lineup. The expansion of Lucid's total addressable market starts right now with the Air Pure rear-wheel drive growing with Gravity and broadening with the forthcoming midsized platform. We unveiled the Lucid Gravity at the LA Auto Show in November to tremendous early reviews. I am confident that the Lucid Gravity will redefine the electric SUV segment with incredible range, superior efficiency, fast charging speed, and interior space that you have to see to believe. It will be unlike anything in its class, and it will be massive for Lucid. And for those who might be in Geneva, Switzerland next week, we welcome you to come and see us at the Geneva International Motor Show, where we will introduce the Gravity to the European market. Now turning to sales and marketing. In 2023, we increased our brand awareness. And of greater significance, our awareness among EV purchasing tenders increased substantially from the beginning of the year. And this gives us confidence that our sales and marketing initiatives are making solid progress. And we'll continue to take a science-based, data-driven analytical approach to our marketing but are also adding new initiatives. For example, our recent Saks Fifth Avenue partnership will allow us to leverage Saks luxury brand and ecosystem to generate awareness, leads, and sales. Select locations will have test drive vehicles, further expanding our reach in locations which are not currently present with the studio. Of particular significance has been our recent Air Pure Stealth initiative launched just last week. We have now realized a starting price point for the Lucid Air range of $69,900. Yes, that's right. The finest production EV in the world now starts at under $70,000. This effectively extends the scope of the Lucid Air range into a new total addressable market segment. In fact, we're already seeing extremely promising results from this. Moreover, this is commensurate with our long-term strategy to make progressively more affordable vehicles. This remarkable value proposition has in large part been made possible by our world-leading technology. Because our technology enables our cars to go further with fewer batteries, the Air Pure rear-wheel drive is able to achieve an EPA estimated range of 419 miles, significantly further than the competition. But more significantly, it achieves this with a battery pack size of just 88 kilowatt hours. And since the cost of an EV is dominated by the cost of the battery pack, this technical advantage translates directly to profound commercial advantage. Now I believe it's important that the full impact of this is fully comprehended. The EPA testing procedure has recently been revised, and it's become more stringent. So Air Pure rear-wheel drive is able to achieve a landmark miles of range per kilowatt hour of battery capacity, and that's with new EPA ratings. So whilst we are currently witnessing other EV brands registering reductions in their respective range ratings, Lucid is forging ahead, growing and building upon our technology advantage, and with it, I believe our future commercial advantage. But I want to be clear, I'm also critically focused on cost. It's not well understood that we designed and developed our technology for true mass manufacturability at scale. And we have more coming. We have significant advancements that I believe can drive costs down further. Technology is not only about creating incredible products. It's also about innovation to improve costs. And I've never been more excited about what's coming, what's yet to come from our technology roadmap. We are resolutely focused on cost whilst continuing to prudently invest for the future. Through 2023, we dramatically expanded our advanced manufacturing plant in Arizona, which we call AMP 1, and that was in preparation for Gravity. We built a state-of-the-art general assembly line that is capable of assembling both Gravity and Air on the same line. And we'll continue to vertically integrate where it makes the most sense in areas of stamping, our paint shop expansion, and the new powertrain facility at AMP 1. We built the first-ever car manufacturing plant in Saudi Arabia for semi knockdown kits. This year we also broke ground for the manufacturing of the completely built-up cars there. These are critical long-term investments that are reflected in our cost of goods sold. Now the imagery in our earnings presentation, I hope, gives you some sense of the scope and scale of what we're doing. When you see it in person and not the different shots in the factory, you truly start to understand how we're building a state-of-the-art factory for the future. In fact, in January of this year, we had more than 100 guests representing over 60 strategic suppliers for Gravity, Air, and possibly midsize come to our factory. The feedback and support from our suppliers was extraordinary. They highlighted our best-in-class and advanced technology and continued investment in our production facilities, which provide a material signal of our long-term commitment. My key message to them was one of growth, the critical need for obsessed partners, focused on excellence and the importance of driving this journey together. So I want to express my heartfelt gratitude to all of them. Now on the R&D side, we continue to invest for future supremacy, and I'm incredibly excited about our roadmap, both from an innovation and cost perspective. In 2023, we also raised $3 billion, including unparalleled support of $1.8 billion in equity funding from our largest shareholder, the PIF. Now Gagan will talk about liquidity in further detail. We formed our technology licensing and access business through our first such deal with Aston Martin, and we're actively exploring additional and even broader technology and supply agreements. We also have sales to a rental car company, and we're very pleased with early results. Lucid's range and efficiency are perfectly suited for fleets. In fact, we saw new incremental orders from that rental car company due to demand. Of course, we haven't yet scaled this business. We're taking a methodical approach, which is prudent, and we're pleased with what we're seeing thus far. This is yet another tool to help grow our brand awareness and allow potential customers to experience the car. 2023 was also a year where we made significant progress with our in-house software capabilities. Software is more than just the user interface. We have some of the best software engineers in the world working on everything from user interface to new features, to powertrain to infrastructure. In fact, we developed and have been transitioning to our own in-house over-the-air software infrastructure. This not only helps our OTA functionality but it's also a source of cost savings. Now building an OTA software as a service platform is no small feat. One that I believe most other car companies would simply not be able to do. And it's another example of technology aiding costs. And of course, this is a platform that we could potentially monetize in the future. Now I want to be transparent as well. We also had some challenges. Firstly, the macroeconomic and higher interest rate environment impacted mainly this market. And in the new markets to us, there's been some learning. For example, in Saudi Arabia, we learned that there are different market dynamics and intricacies unique to that market. And so we have to scale that business differently for growth. But we've addressed the pain points. We're scaling up and expect good growth in the region this year. Now we've also faced some technical challenges with commencing production of the rear-wheel drive Pure in the fourth quarter. This is normal when doing something so advanced and so efficient. As I said, a landmark achievement with a 4.74 miles of range per kilowatt hour. This is our most accessible car, and we had challenges ramping it up. But I'm delighted to say that we've now overcome these challenges and are now fully ramped in Pure production. So as we start 2024, I'm very excited about the year ahead and beyond. We made focused improvements to further enhance our customer journey. For example, the Lucid financial services team has been working to enhance and simplify the customer financing experience, significantly reducing the customer cycle time to finance vehicles. And we are also in the midst of implementing a new technology platform. Combined with the rollout of our accelerated delivery pilots, we were able to significantly improve the cycle times from order to delivery, improve customer satisfaction, and in some cases, increase orders. In one instance, we were able to get a customer through their purchase journey from the time they placed the order to the time they completed their delivery walk out in just about three hours. Now this new process has been live for select markets since Q4 and for new loans and is expected to go live for all lease and other loan markets by the end of Q1 of this year. You'll see us roll these out to more locations throughout 2024. So our total addressable market triples by doing what we always intended to do, making the Air progressively more affordable and now starting at under $70,000. A technical achievement in getting an 88-kilowatt hour battery pack in the Pure allows us to cut battery costs but still provide an EPA estimated range of 419 miles even based upon the new and more stringent EPA testing. And Gravity will further expand our total addressable market from 2023 by more than six times. The Gravity is scheduled for start of production late this year and numerous prototypes are already driving around. In fact, we just built more than 40 prototypes to date. You just have to see to believe it, the interior space and the sheer practicality is what every family has been craving—made only possible by our technology and design. And I'm exceptionally encouraged by the early feedback and interest. We saw more than a fourfold increase in daily Gravity interest sign-ups following the L.A. Auto Show unveil. And the start of production for the more affordable, high-volume midsized car is scheduled for late 2026. We'll continue to push the boundaries of what's possible with the midsized platform and the next-gen powertrain technology. And this will expand our market opportunity from 2023 to nearly 20 times. As I mentioned earlier, we'll continue to invest in our future with further vertical integration with stamping, paint shop expansion, and powertrain at AMP 1—an important part of our longer-term cost and quality strategy. I want also to touch on the broader market landscape, and what seems to be a shift in emphasis from EVs. We have the utmost confidence in the future growth of the EV market. Environmental sustainability, energy storage improvements, regulatory forces, and sheer performance superiority over internal combustion engine vehicles will drive the eventual march to an EV dominated automotive market. Emission standards are getting more stringent, and you've heard me say this many times. This truly is a technology race. But doing world-leading EV technology isn't easy, and not everyone can do it. And I believe that is becoming better understood now. As others are pulling back on EVs, we are here ready to help. We've talked about our willingness to work with other OEMs, and we've signed our first technology access deal with Aston Martin. And we continue to receive incremental interest from larger OEMs and others in the automotive space as well as in adjacent markets for our advanced technology. In the automotive vertical, this is not only for electric vehicles, but we are also seeing interest in our technology for use in hybrid electric vehicles. There's nothing to announce yet today in terms of the deal, but we're really encouraged by the level of interest. And we're open to it because we think it's critically important for the planet. Sustainability is at the core of who we are. It's ingrained in our purpose and our products, and we are a technology innovation company. EVs are just the start, but we also believe in the importance of accountability and transparency, which is why I'm so proud to say that we published our very first sustainability report just last week. We have more to come in 2024 with the expansion of our total addressable market opportunity with Air Pure and Gravity, further software enhancements and significant announcements, the opening of Gravity orders, the start of Gravity test drives, and, of course, the start of production of Gravity later this year. Now we've come a long way, and we're here to do much more. We are here to stay. We have a clear and determined strategy for growth while having a laser focus on costs. So I'd like to close by saying thank you to our suppliers, to our partners, and to our most important asset—our employees. We've overcome significant challenges and I can't think of any other people I would rather be with on this journey than the people here at Lucid. You are the core of our successes. And we are embarking upon our next transformational phase of the Lucid story, and so I've never been more excited about the future. And with that, I'd like to introduce Gagan Dhingra, who has stepped into the role of our Interim CFO. Gagan, please provide an update on our financials.

Thank you, Peter, and thank you to those who are taking the time to join us today. Before I get to my prepared remarks, I would also like to start by thanking the entire Lucid team. Over the past few months, I have spent even more time working closely with all the different parts of the organization. I am incredibly impressed by your perseverance, resourcefulness, and teamwork. The successes we have been able to achieve are in no small part due to all of you. Turning to the business. In 2023, we made headway with our cost optimization programs, the key strategic priority for the company. We found success in areas, including freight, logistics, overhead, and bill of materials. For example, we activated logistics as a part of the Phase II build-out of our Arizona factory, AMP 1, allowing us to bring the vast majority of vehicle components under the same roof as general assembly. This enabled us to realize savings from the reduction in overhead, transportation, and complexity, as well as better efficiency. From an inventory perspective, we drew down raw material inventory levels by high teens percent from the start of Q4 through material planning and inventory management improvements. Improvements in focus accuracy, in particular, allowed us to reduce inventory resulted in savings related to logistics and material handling labor, equipment rentals, and storage costs. We also experienced a significant reduction in freight from more efficient transportation and storage planning. For vehicle direct costs, we implemented a number of initiatives that resulted in certain bill of materials cost savings, some of which were directly related to our commitment to reduce our carbon footprint. We have identified additional opportunities in cost of goods sold as well as operating expenses that we will look to operationalize over the course of 2024. Turning to our 2023 and fourth quarter financial results. We produced 8,428 vehicles in 2023, up 17% year-over-year and at the higher end of the 8,000 to 8,500 guidance we provided on our third quarter earnings call. During the fourth quarter, we produced 2,390 vehicles, up 54% sequentially. In 2023, we delivered 6,001 vehicles, up 37% year-over-year and in the fourth quarter, delivered 1,734 vehicles, up 19% sequentially. We expected to deliver more vehicles in Saudi Arabia in the fourth quarter. As we mentioned last quarter, the ramp-up was taking longer than we expected. However, we believe we now have the right infrastructure and processes built out. Turning to the P&L. For Q4, revenue was $157.2 million, up 14% sequentially, driven primarily by higher deliveries. Cost of revenue in Q4 was $410 million. I want to make sure this is well understood. You cannot take this line item and divide it by the number of cars delivered to get the initial cost of making each vehicle. This is because our lower of cost or net eligible value, or LCNRV, also takes into account losses on raw materials and from purchase commitments. We have LCNRV adjustments, which write down certain inventory value to the amount we anticipate receiving upon vehicle sale after considering the future cost necessary to get the inventory ready for the ultimate sale. And we also record losses on firm purchase commitments. In addition, as we ramp up production, we expect the overhead per vehicle to improve. Our gross margin improved on a quarter-over-quarter basis primarily due to lower impairment charges in Q4 related to LCNRV. This amount was approximately $174.1 million, a 24.6% reduction from Q3. Although there are many controllable and uncontrollable variables that can affect gross margin, so we don't typically provide specific gross margin guidance, I wanted to provide some directional color to aid in your modeling. Looking forward to the first quarter of 2024, we anticipate improvements to gross margin despite the price adjustments in the quarter for Pure and Tooling. The improvements are expected to be driven primarily by projected reductions in impairments. As we move into the back half of the year, we expect to build inventory of Gravity components ahead of the start of production, and so expect an increase in LCNRV impairments from an accounting standpoint that will affect gross margin. As I noted earlier, we have identified additional opportunities in cost of goods sold and we'll continue to focus on implementation and further areas for cost out. Now moving to operating expenses. R&D expense in Q4 totaled approximately $243 million, up 5.3% sequentially due largely to higher personnel-related expenses. We believe our R&D investment into technology garners a strong return as the technology is not only used in our own vehicles but can also be leveraged as an additional revenue stream through strategic technology deals such as the one with Aston Martin. SG&A expense in Q4 was approximately $241 million, up from $189.7 million in Q3. The sequential increase was primarily related to an increase in sales and marketing spend, which is consistent with what we talked about in prior quarters related to putting more energy behind our science-based data-driven sales and marketing initiatives, professional services, and personnel-related expenses related to largely geographic expansion. We ended the fourth quarter with 45 studio and service centers, excluding our temporary and satellite service centers flat from Q3. On the service side, we ended Q4 with 47 mobile vans in the fleet and 79 nationwide shops. We plan to continue to strategically expand our studio and service center footprint as well as satellite service centers, which will cost effectively provide additional locations for Lucid customers. Although we don't provide specific guidance on operating expenses, I did want to provide some broader directional color. Looking into 2024, we expect operating expenses to be up year-over-year on an absolute basis, but expect it to decrease as a percentage of revenue. Our stock-based compensation in the quarter was $63.9 million. Total other income was $83.1 million, down from $122.3 million in Q3. The decrease was largely attributable to a lower noncash benefit of $25.3 million related to the change in fair value of our common stock warrant liability, down from $60.3 million in Q3. As a reminder, this noncash impact can be influenced quarter-to-quarter by a number of factors, with one of the larger factors being Lucid’s share price at the end of the quarter. We also recognized $6 million in unrealized gains related to the Aston Martin stock we received in Q4 as a part of our strategic technology management. In Q4, we achieved an adjusted EBITDA loss of $604.6 million, a slight improvement from $624.1 million in Q3. Moving to the balance sheet. We ended the quarter with approximately $4.3 billion in cash, cash equivalents, and investments, with total liquidity of approximately $4.78 billion. Note, this excludes the $81.5 million in value of the Aston Martin shares as of December 31. We have been able to consistently sustain a strong balance sheet over time. And as we have done for the last couple of years, we will continue to be opportunistic in exploring and diversifying access to financing sources. Accounts receivable increased to $51.8 million in the fourth quarter, up sequentially from $23.4 million in the third quarter. The increase was primarily due to vehicle sales related to EV purchase agreements with the government of Saudi Arabia, and you can expect that this mix could result in fluctuations on a quarter-to-quarter basis. Turning to inventory. Total inventory decreased 12.9% sequentially primarily due to raw material drawdown. We continue to see a box to a significant reduction in raw material days of inventory on hand as we work towards greater predictability in the transportation channel and refine our inventory management processes and systems. Capital expenditures for 2023 was $910.6 million, slightly below the $1 billion to $1.1 billion range we guided to on our third quarter earnings conference call. The lower CapEx was primarily related to developed projects into 2024. CapEx in the fourth quarter was $272.6 million, up from $192.5 million in Q3. Moving to the outlook for 2024. We forecast production of approximately 9,000 vehicles in 2024, and we'll continue to prudently manage and adjust our production to meet our sales and delivery needs. Although we don't typically provide quarterly forecasts, I would remind you that the North American market is typically down sequentially in the first quarter. However, we expect to deliver vehicles in Saudi Arabia that we were not able to deliver in fourth quarter of 2023. With regard to our liquidity position, we ended the quarter with total liquidity of approximately $4.78 billion. We expect this will give us runway through the start of production of Gravity and at least into 2025. Moving to CapEx. Our focus is on increasing investments in our future growth initiatives, and we expect capital expenditures for 2024 to be approximately $1.5 billion, reflecting certain deferrals in our capital outlay, M2 expansion for completely built-up unit which we broke out last month. The completion of the AMP 1 Phase II expansion for stamping, paint shop, powertrain on-premise and Gravity body in. From a product perspective, we have scheduled for Gravity starter production in late 2024, and start of production of our high-volume midsized platform is scheduled for late 2026. In closing, I would like to echo Peter's excitement as we enter the next transformation phase of Lucid. We gained market share in 2023 and outpaced our overall addressable market despite the challenging macro environment, and I'm excited about the significant expansion of our total addressable market opportunity with the Pure, Gravity, and the upcoming midsized platform. We are confident in the growth of the EV market and that we have the right technology, people, and product lineup to succeed.

Thanks, Gagan. We'll now start the Q&A portion of the call. As we typically do, we'll start with the saved retail questions. The first question is from Ed. Where are you at on production and delivery of Saudi orders?

Well, last year, we made history in Saudi Arabia with the opening of the country's first ever manufacturing facility. In its first phase, the factory has a capacity to assemble just 5,000 Lucid vehicles a year, and operations have been well underway. Last month, actually, we broke ground on the factory for completely built up or CBU cars, and these are critical investments into our future. And we're grateful for all the support from the government and our partners.

With regard to deliveries, we started deliveries to the Ministry of Finance last year. Under the terms of the agreement, the government has committed to purchase 50,000 vehicles with an option to purchase an additional 50,000 over a 10-year timeframe. This includes the Lucid Air as well as future models such as the Gravity and midsized platform. As I said in the opening remarks, the ramp was taking longer. We now have the infrastructure built out and have the right processes. We are scaling and expect good growth in 2024.

Our next question is from Paul. Do you plan to reduce time to market for new products? Gravity has delayed 1 year. The third model is now mooted as mid- to late decade to the 2025. And as shareholders, we're losing value due to failures and delays. What happened to the all-star team and proven track record?

Yes. That's a good point actually. I mean, what we saw unprecedented external forces that impacted us with COVID and the global supply chain disruption. And that impacted many in the industry, not just Lucid. But I would say this. Tesla is the benchmark for engineering speed. If you look at the time taken between the start of production of the Tesla Model S and X, it was just a bit over three years. If you look at where we are scheduled for production for Gravity late this year, that's going to be a very similar time period between production of Air and Gravity. And that's despite it not being a derivative product there, but a whole new platform. So I think that is a world-leading pace of engineering. And for a small team to get Gravity, a landmark product, a completely differentiated product in just over three years. Now for midsize what we've done is define a schedule for it—we're scheduling for late '26. Very similar in time scale. It’s right there. I think this is world-class execution, frankly.

Thanks, Peter. We'll go to question 3. Are there any updates regarding future partnerships with Apple?

Well, as a general corporate policy, we don't talk about any particular companies, particularly as it relates to the future. But as I said in my prepared remarks, we have what I believe is the best tech history. We've seen increased interest from others, and we're very open to it because we think it's critically important for the planet. As I said before, it's super hard to do a good EV. It's relatively easy to make a bad EV, and this growing realization just how hard it is to do a world-class EV.

Next question is from Landon. When will Gravity reservations open? Is there a target date for first deliveries? We know the target date for first deliveries.

Oh, yes, I'm hoping we'll deliver some Gravity vehicles later this year. But naturally, you should expect the bigger volume to be around 2025. But we know the excitement around Gravity is palpable.

Okay. And we'll take our last saved question from Daniel. Do you plan to take a salary cut to reduce losses or plan to buy back shares to improve stock health?

Well, many may not be aware of my founding role in this company as we know it today. I joined the company around 11 years ago, with a clear goal of making the very best electric vehicle and to drive a revolution towards sustainable transportation, which is going to benefit everyone on the planet. Around that, we would call it a startup. I guess we had around 19 employees. So in 2021, I received a one-time CEO stock grant, and this was solely determined and approved by the Board of Directors. A significant portion of that vested due to the company achieving certain market capitalization milestones as we publicly disclosed in 2023. So I think there's a huge misperception that this one-time grant was received as a salary and somehow was replicated as my salary in the future. In fact, in 2023, at my request, I did not receive a bonus for 2022, nor did I receive any further equity grants in '22 or '23. And I just want to assure you, my mission and my dedication is still unwavering. I have not sold a single share of stock in all this time, over 10 years, except what was absolutely necessary for tax purposes. And the company's stock I received from the grant remains in the form of company stock. And so I am also directly tied, personally tied, directly and hugely to the company's performance as a key shareholder. And so I'm incentivized that way. My promise is to continue to work tirelessly, day and night, to drive brand awareness, to deliver more cars, to sign up more technology licensing and access agreements, to drive down costs and to bring the Gravity and midsized platform to market.

Regarding the second part of the question, we are investing in our future, but we are a growth company. We are also a technology company, and I believe our investments in areas such as our research and development is an advantage and give us the opportunity for higher returns than any other automotive company because we are monetizing the intellectual property through agreements such as the one with Aston Martin. When we feel we can't increase value from reinvesting back into the business, we would consider returning the cash to shareholders via a repurchase program. But we don't believe this would happen for quite some time.

Okay, thanks. Towanda, can we turn it over to go to questions on the call, please?

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

Good morning, everyone. Apologies for the long day here. Peter, when considering the Gravity, it really showcases your technology not only in the powertrain but also in the vehicle's body and structure, allowing for maximum material efficiency within the footprint, which is impressive. As we evaluate the Gravity, it appears to be a potential game changer for you in the market. However, the midsize platform seems like it could be even more significant. As we look to launch these two programs later this year and the midsize in 2026, which one do you believe holds greater importance for Lucid's mid- to long-term success? How do you assess the relative significance of these initiatives to the company?

Thank you, John. I mean if you asked the question a year or two ago, people would question our technology. Today, it's given. The world's most— we've got the very best technology. What we haven't got is scale and an economy of scale. And that is going to take place in three critical steps and the first step happened last week. We launched our Pure Stealth initiative. Lucid Air is now available for $69,900, the best EV on the planet at that price. That puts us into three times the total addressable market because now we go into E-class Mercedes territory rather than S-class So step one, Pure from $69,900, three times the total addressable market. And then scheduled for production late this year, we have Gravity, the SUV. We're talking about six times the total addressable market with Gravity. And then scheduled production late '26, the third step on this journey, midsize, 20 times for total addressable market. It's all about scale. We've got the tech. The tech is designed for scale. It's about achieving scale and with that, we'll get the economies of scale and the margins and profitability.

So ultimately, just to interpret that, I mean we're fighting to the position of getting to that even greater scale with the midsize, and that probably is sort of the fulcrum point and where you'll get to escape philosophy on profitability and cash flow. Is that a fair statement?

Today, we're competing with Mercedes and Porsche. With midsized, we compete directly with Tesla Model Y and Model 3. That's the best selling car in the world.

And then just one follow-up. You mentioned the potential for hybrid technology or joining obviously a nice engine to be part of a hybrid powertrain. I mean, one, what kind of discussions are going on there? And two, I mean in layman's terms, there's always these positions in electric motors to be put or placed in the ICE powertrain from P0 all the way back to P4 and various positions in the middle. As you kind of envision what you could bring to the table and the potential positioning or integration with an ICE engine to make a presumably pretty efficient powertrain for hybrid, where would you land in that positioning? And have you even thought of that at this point? So if you just talk about discussions that are going on and then sort of your thought process about how you would integrate into an ICE engine.

Yes. So we always envisaged a key pillar of our business being the technology licensing and supply where we got the best technology, and that's recognized. Our arrangement with Aston Martin last year has triggered an increase in interest in our technology. We're also growing our own internal team so that we'll be able to not just be receiving passively inquiries but actually become a little bit more proactive in the future. Actually, the application for hybrid has come as an external inquiry. Because if you look at the core capabilities of our powertrain, the unique selling proposition of it is its efficiency. Well, that applies equally to say a hydrogen fuel cell vehicle or a gasoline electric hybrid and also its compactness, its power. And that is very relevant to the hybrid because in a hybrid, you've got to stuff in a gasoline engine, exhaust, and all that paraphernalia, and electric motors and batteries. And it really becomes a packaging puzzle. And because we've got the most complex technology, that ideally lends itself to that. Now Lucid's not going to do hybrids. We're ready to bat for electric. We believe Pure is the solution. But certainly, the hybrid opportunity opens up a whole new market arena for our technology.

Our next question comes from the line of Doug Dutton with Evercore ISI.

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

Right. So we're really looking at further vertical integration, particularly in our factory in Arizona. We're bringing stamping in-house and that is going to be right alongside the new body shop for our Gravity. So we will reduce the operational cost, we will reduce OpEx. We'll reduce inbound logistics costs, and we will actually reduce scrap as well. There's an internal efficiency as well by having an integrated state-of-the-art hydraulic transfer stamping line with laser blanking facility fully integrated. Then we're actually moving our powertrain, which is already vertically integrated, our world-class motors, inverters, and drive units—all in-house at the moment. But that's in a separate factory up the road so we will save those logistics costs by actually putting them under the same roof as our main factory in Arizona, so we will save on operational and efficiencies. The other thing we're integrating into that factory is logistics. And we've been able to draw down some of the cross stocks. I think all our cross stocks now virtually have been drawn down upon. So we've got inbound logistics cost savings. And then the other thing we're doing is we've really revised the organization so that quality reports directly into me. We're really driving down man hours per vehicle. But perhaps, Gagan, you could provide a little bit more color on some of the initiatives you're driving leading to drive down costs.

Yes. Thank you, Peter. So we have identified three initiatives, one scale. Scale will help us improve our margin. This is technology and volume rate. One, we took some initiatives in 2023, and we are seeing the results. But more importantly, we have identified additional opportunities that we will look to operationalize in 2024. On operational efficiency, which is number three. And as Peter mentioned, we are looking at multiple areas. One, freight, we made significant improvements in '23 and looking more in 2024. Logistics specifically as we move from our LOC warehouse to implement Phase 2 general assembly. This has really helped us in reducing the cost. This is a consistent exercise. And we are looking at this very carefully. This is my number one goal, having the cost optimization. But again, it is not easy. We are looking at this consistently. And also, we have initiated a team under me specifically looking at each area very carefully, looking at each dollar and bringing the efficiencies. But as we grow, as we scale, it will bring us efficiencies. This is a technology and volume risk.

Yes. Scale is critical because to drive down the COGS, you've got that fixed cost component. And it's the amortization of the fixed cost and overhead depreciation per vehicle. So this initiative to start at $69,000 is three-step hitting our total addressable market—the scale will drive down the costs.

Excellent. I appreciate all the detail there. That's really helpful. Just one quick one from me then. On Gravity, starting price of $80,000, obviously, not a ton of deliveries in 2024, but will that be similar to the strategy with the air where you're starting with the higher trims and then moving downstream? Is that the right way to think about pricing and the model pending '24 and going into '25?

Yes. We haven't disclosed that yet. I do think it's reasonable to assume Gravity is going to be in a similar competitive set as Air; it's going to be completing more in the Mercedes arena. We'll have to wait for midsize to come, which is scheduled for production late '26 to have a true Tesla Model Y Model 3 competitor. I mean, the key thing with Gravity is we're going to hit about six times the total addressable market—that's going to help us hugely with this economy of scale.

Our next question comes from the line of Steven Fox with Fox Advisors, LLC.

I was just wondering if you could talk a little bit more about your expectations for the KSA market this year. You mentioned, first of all, that there were some unexpected nuances in ramping and I guess, production during '23. So how do we think about how you benefit from that market and the growth during the year?

Yes. Thank you, Steven. We are limited to what we can say in general, and we do not specifically talk about any specific customer. But what we can say, and most of you are already aware is that the government of Saudi Arabia has an initial commitment to purchase 50,000 vehicles with an option to purchase an additional 50,000 vehicles. And as I said in the opening remarks, the ramp was taking longer than we expected. We now have the right infrastructure and processes built out. There were significant administrative challenges. We have addressed most of the pain points; we are scaling and expect good growth this year. And also note this government with Saudi Arabia also includes Air, Gravity, and Midsize.

That's helpful. And then just one clarification. You mentioned a lot of cost initiatives that are underway for '24. In '23, is there a way to quantify how the bill of materials came down or just directionally what it did versus '22?

Yes. We don't specifically guide but what I can say that our gross margin in Q4 improved compared to Q3. And also we don't provide guidance, but I expect our gross margin will improve sequentially in Q1 next year. Having said that, our purchase of Gravity components ahead of start of production may have some impact on LCNRV as we progress. But as I said, the cost is a critical component. We are looking at it very carefully. We are very proud of what the team has accomplished, specifically related to the engineering team and supply chain team. They have done a tremendous job finding savings even through technology. So we have identified a couple of areas, and we are looking very aggressively. And this is our number one goal, looking at the cost optimization.

I think the other thing is that I know I keep bringing this point that is critical. It's a critical differentiator for us. Because we can go batteries, we can hit the biggest single cost item for an EV, which is the cost of the battery. Some people are looking at these so-called advances in technology and manufacturing; you might save $100 in a vehicle. You can save potentially $1,000 with having the ability to go further with fewer batteries. And we're seeing that playing out now with the Air Pure rear-wheel drive. We've got more range than anyone else in that sector. And with just an 88-kilowatt hour battery pack, a smaller pack saves potentially thousands of bucks on the bill of material.

Our next question comes from the line of Tobias Beith with Redburn Electric.

I'd like to - and maybe we'll start with my questions for Gagan. If I exclude the inventory write-down of the $172 million from COGS in the fourth quarter, it looks like unit COGS improved by about 20 percentage points sequentially. I was wondering what was it that drove the improvement? Was it the receipt of the $98 million government grant? Or is this accounted for elsewhere?

Yes, that's a good question. So first of all, grants don't play a role in the cost as of today. What—as I highlighted, we took a couple of initiatives in 2023. Freight, like very important, we made significant savings but also, more importantly, our forecast accuracy of raw materials because today, the cost of goods sold is not only related to how many cars we sell but is also related to what raw material inventory we'll have and how we utilize that. So the focus, accuracy, the freight opportunities in BAM really helped us out improve our gross margin in Q4.

Sure. Okay. That's helpful. And my second question relates to the Air and the Gravity. If I put aside the differences in the interior and exterior of the vehicles, are you able to share roughly what proportion of parts and components are shared I guess the fact that these vehicles are using different platforms may impact the variable cost assumptions. It was previously communicated that both vehicles would leverage LEAP.

Okay. Let me cover that. If you look at the battery pack, which is the core, core part of the bill of materials of both vehicles, it is about 95% the same. They've both got the same number of modules, the same number of cells. They made exactly on the same line. It's just that the two upper modules are in a different location. We move them from underneath the rear seat in Air to underneath the front seat in Gravity. This has a transformative effect upon the nature of the vehicle, which in turn leads to a much bigger total addressable market. We can only capture that total addressable market by having a degree of differentiation. Now if you look at the core powertrain, the drive units and the inverters, they're very, very high carryover proportion—slightly different gear ratios because the wheels are bigger, and you need more tractability, you have slightly lower gear ratios. Now the rest of the platform is very similar, which has meant that it saved on our R&D costs because we've got the learning and the process knowledge of how we rivet and glue the sheet stampings, the castings, and the extrusions together. But there is a degree of difference in that platform, which I think makes a whole bunch of sense because it makes Gravity a true SUV, not some sort of soft CUV derivative. And that means we go into a whole new TAM six times. We would not be able to capture that TAM. And also, you need to double the tools anyway because of the extra volume. So then we look at the upper body shell of the car; they're always going to be different anyway. So we're talking about a very slight increase in tooling costs. But in return for that, we truly enter a massively bigger term, six times, and this is all about economy of scale. We've got the technology; it's designed for scale. We just haven't achieved that scale yet. And so therefore, it's not showing in our P&L.

Makes sense. All right. And if I could squeeze one last one in. Two quarters ago, I asked about the steps required to move from beta prototyping of the Gravity, which has just started to series production. I was wondering if you could provide an update on the progress today.

So we're right in the thick of beta prototypes. In fact, between betas and alphas, we've got more than 40 prototypes built, many of which are running around right now. We'll be finishing our run of beta prototypes over as we move now into the spring. And the next step will be to do our release candidates—that's our preproduction run through the summer in the factory in Arizona, which will lead to our scheduled start of production late this year.

Thank you. Due to the interest of time, I would now like to turn the call back over to Maynard for closing remarks.

Thank you. This concludes Lucid's Fourth Quarter 2023 Earnings Conference Call. Thank you all for joining us today, and you may now disconnect.