Lucid Group, Inc. Q1 FY2024 Earnings Call

Thank you, and welcome to Lucid Group's First Quarter 2024 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 on our first quarter 2024 earnings call. In my prepared remarks today, I'll discuss our partners at the PIF, our better-than-expected production and delivery figures, our cost advantage and our overall momentum, all of which makes me more optimistic than I've ever been about our future. Now I believe there are 2 key factors that really set Lucid apart: our superior in-house technology and our partnership with the PIF, who have been steadfast investors and partners. In Q1, we raised $1 billion in capital through a private placement of convertible preferred stock to an affiliate of the PIF. We are a strategic partner in the country's plan to achieve its Saudi Vision 2030 goals. I'm very grateful for the PIF's continued confidence and their steadfast support. Now turning to production and deliveries. In Q1, we produced 1,728 Lucid Airs, and we delivered 1,967. Both slightly above our expectations. In fact, it was our best quarter-to-date for deliveries, up 39.9% year-over-year. Our lower production than deliveries is an active decision to be cost-conscious and is not a reflection of production bottlenecks. For 2024, we expect to produce approximately 9,000 vehicles, which is consistent with our guidance last quarter. Let me now provide you with an update on where I believe Lucid stands today. We've made solid progress on both brand awareness and pricing, with our general brand awareness raising in the first quarter despite reducing media spend from the fourth quarter. Our Lucid Air is increasingly recognized as a superior vehicle in nearly every aspect that customers value. For the third consecutive year, Lucid Air was named the best luxury electric car by U.S. News & World Report on its 2024 Best Hybrid and Electric Car Awards. Lucid Air is the only EV to win this category award 3 years in a row, another achievement that sets us apart. Lucid Air solves biased key concerns. It has price parity with gas car equivalents. It's the longest range and fastest charging production car in the U.S. market. It's engaging to drive, with remarkable performance, and it enjoys lower total running costs due to its efficiency. Now consumers are savvy, and they recognize the deficiency of other EVs in the market, particularly the limited range of most EVs. To ease fears of range anxiety, other automakers must produce and install bigger batteries, which results in a higher cost to charge the vehicle and longer relative charge times versus Lucid Air. Remember, Lucid Air is the most efficient vehicle in its class, as measured in miles per kilowatt hour while leading the industry for range and charging speed and having a lower total cost to charge. I've seen commentary about our losses per vehicle, but such speculations reflect a lack of knowledge about our costs and our scale of intentions. Inside the extensively high cost of goods line item is the cost of the factories and equipment needed to make the vehicles and scale our business. If we envisage the company would only make a small number of vehicles, we would have purchased less equipment and built a smaller factory. But we have a more ambitious goal to provide affordable, long-range EVs for mainstream mass market consumers. And as we scale, the leverage in our model should become obvious. And we're embarking on a transformational phase: the expansion of our vehicle lineup. Lucid Air Pure is already here, with a starting price from $69,900. And the Gravity SUV program is scheduled for start of production late this year. Our SUV's total addressable market is 6 times larger than the market we could access in 2023. And the excitement is palpable. In a third-party survey, already 2/3 of EV SUV purchasing tenders would consider Lucid. And this is worth emphasizing: 2 in every 3 people intending to purchase an electric SUV knows and would consider Lucid. Amongst all SUV purchase intenders, EVs and gas SUVs, more than 50% would consider Lucid. Now this is a staggering figure for any brand, let alone a new one, and this reflects the significant opportunity ahead. We are continuing to invest in our future with further vertical integration, stamping, body in white for the Gravity SUV program, paint shop expansion and powertrain at AMP-1, an important part of our longer-term cost and quality strategy. We've applied all of our learnings from Air and incorporated them into our SUV program. So I'm confident that Gravity will redefine the segment with world-class range, efficiency, charging speed and interior volume. Later this year, we plan to host analysts and institutional investors at our AMP-1 facility in Arizona to show you our state-of-the-art factory manned by our incredible employees and the machines that build the machines. We'll also have vehicles on the road later this year for you to test drive. And following the Gravity SUV program, we see another step change in total addressable market expansion with our midsized vehicle, which is scheduled for start of production in late 2026. I am confident that we can achieve unrivaled levels of efficiency for this crucial midsized class vehicle. And again, I can't stress enough: Efficiency is the key to a smaller battery for any given range, and a smaller battery is a key element to lower cost when it comes to making an EV. I can't wait to show you our midsized game changer. Next, I'd like to talk about our technology business. Our Aston Martin deal continues to generate more interest in our technology from other prospective partners. And additionally, we are the sole supplier of a front drive unit to a leading electric racing series. Please watch this space as we continue to discuss monetization opportunities across all aspects of our technology, including our world-class software. I'll close with additional details about our momentum. We surpassed 12,000 vehicles on the road in Q1, which takes us nicely past the critical threshold into boosting word-of-mouth awareness. And I am pleased with the 39.9% year-over-year uptick in sales in Q1 and with the momentum we're seeing here in April. I always offer caveats. We expect typical seasonal slowing in Saudi Arabia in Q2 and we expect typical seasonal slowing globally in Q3 as consumers go on vacation. Despite this, for the first time, I feel we're on the cusp of escape velocity. We have sales momentum, a compounding efficiency advantage, unprecedented interest from consumers and corporate partners, more than $5 billion in total liquidity, and Gravity, which I believe is on track to become the world's best SUV. Therefore, I've never been more confident in our future. So before turning the call over to Gagan, I would like to take a moment to acknowledge our recently announced management change. Derrick Carty will now lead the digital organization as interim head, taking over from Mike Bell, who will be leaving to pursue other opportunities. I'd like to thank Mike for all of his contributions. Mike joined Lucid in early 2021 and was instrumental in building a truly unparalleled software organization. Mike will be staying on for a period of time in an advisory capacity, and I have full confidence in Derrick and the digital organization as we enter into our next transformational phase of the company. So I'll end with a big thank you to all of our suppliers, our partners and our shareholders. And most of all, thank you to all Lucid employees for your commitment, your dedication and shared hard work. So with that, I'd like to turn it over to Gagan Dhingra to provide an update on our financials. Gagan?

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. I am continually amazed by and thankful for everyone's dedication and perseverance. Turning to our 2024 first quarter financial results. During the first quarter, we produced 1,728 vehicles and we reiterate our guidance to produce approximately 9,000 vehicles this year. We delivered 1,967 vehicles in Q1, up nearly 40% year-over-year and up 13% sequentially. In Saudi Arabia, we resolved some of the logistical go-to-market challenges we had in Q4, and we were able to ramp up deliveries in Q1. We are also pleased with North American volumes, which we think is benefiting from growing brand awareness and increasing number of vehicles on the road and improving affordability. We are encouraged by what we are seeing. Turning to the P&L. For Q1, revenue was $172.7 million, up 9.9% sequentially, driven primarily by higher deliveries. Average selling prices were down sequentially due to mix as well as the pricing adjustments, which affected a part of the quarter. Cost of revenue in Q1 was $404.8 million. Despite lower average selling price, our gross margin improved on a quarter-over-quarter basis due to both cost optimization initiatives, including production and Bill of Material and logistics costs and lower impairment charges in Q1 related to LCNRV. The LCNRV amount was approximately $137.8 million or 20.8% reduction from Q4. Fixed costs related to the depreciation of our factories and equipment remain a large part of the cost of revenue. And as we ramp up production and deliveries, we expect the overhead per vehicle to significantly improve. There are many controllable and uncontrollable variables that can affect gross margin. And as a result, we don't typically provide specific gross margin guidance. However, I wanted to provide some directional color to aid in your modeling. Looking forward to the second quarter of 2024, we anticipate gross margin to remain flat despite our full quarter price adjustment in Q2 instead of half quarter impact in Q1. This improvement is mainly due to further cost optimization initiatives. As we move into the back half of the year, we expect to build inventory of components for the Gravity SUV program resulting in an increase in LCNRV impairments from an accounting standpoint. This, in addition to higher depreciation due to further Phase 2 activation, is expected to adversely affect gross margin. I mentioned this in my prepared remarks last quarter as well. We have identified additional opportunities in cost of goods sold, and we'll continue to focus on implementation and further areas for cost out. Longer term, our technology will be a key driver of our gross margin. With scale, I believe you will see strong gross margins, with efficiency the key enabler. Now moving to operating expenses. R&D expense in Q1 totaled approximately $284.6 million, up 17.1% sequentially. We expect R&D to increase further as we ramp up the new vehicle programs. I think it's widely accepted that Lucid has the best EV technology in the world. SG&A expense in Q1 was approximately $213.2 million, down 11.5% from Q4. The sequential decrease was primarily due to lower sales and marketing spend due to seasonality and lower professional services and other general expenses due to continued cost optimization initiatives. Although we have identified additional cost reduction opportunities to execute this year, we expect SG&A to increase primarily due to continued investments in strategic growth initiatives. We ended the first quarter with 50 studio and service centers, excluding our temporary and satellite service centers, up from 45 in Q4. On the service side, we ended Q1 with 54 mobile brands in the fleet and 93 nationwide-approved body 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. In 2024, we see a pathway to operating leverage. The key will be driving volumes and scale. Our stock-based compensation in the quarter was $63.7 million. Total other income was $49.2 million, down from $83.1 million in Q4. The decrease was primarily attributable to a noncash loss of $19.9 million related to the change in fair value of our equity securities of Aston Martin shares, which we received in Q4 as a part of our strategic technology arrangement. In Q1, we achieved an adjusted EBITDA loss of $598.4 million, a slight improvement from $604.6 million in Q4. Moving to the balance sheet. In Q1, we raised $1 billion through a private placement of convertible preference stock to an affiliate of the PIF. I would like to echo Peter and thank the PIF for their partnership and their commitment to Lucid and our mission. PIF's partnership and support separates us from others in the industry. We ended the quarter with approximately $4.6 billion in cash, cash equivalents and investments, with total liquidity of approximately $5.03 billion. Note, this excludes the $50.8 million in value of the Aston Martin shares as of March 31. We have been able to consistently sustain a strong balance sheet over time. And as we have done for the last several years, we will continue to be opportunistic in exploring financing. Turning to inventory. Total inventory decreased 18.8% sequentially, primarily due to further raw material drawdown and lower purchases as we optimize our existing inventory. This is consistent with what I outlined last quarter, where we continue to see a pathway to a significant reduction in raw material on hand. Capital expenditures in Q1 was $198.2 million, down from $272.6 million in Q4. Moving to the outlook for 2024. We forecast production of approximately 9,000 vehicles in 2024, and we will continue to prudently manage and adjust our production to meet our sales and delivery needs. As Peter mentioned, we are pleased with the demand we are seeing, but I would also remind you that we typically see some seasonality in Saudi Arabia towards the end of the second quarter. With regard to our liquidity position, we ended the quarter with total liquidity of approximately $5.03 billion. We expect this will give us a runway through the start of production of the Gravity SUV program and into the second quarter of 2025. Moving to CapEx. We will continue to focus on our future growth initiatives, and we expect capital expenditures for 2024 to be approximately $1.5 billion. This reflects certain deferrals in our capital outlay from last year: the AMP-2 expansion for completely built-up unit; the completion of the AMP-1 Phase 2 expansion for stamping paint shop powertrain on-premise and body in white for the Gravity SUV program. From a product perspective, we are scheduled for start-up production of the Gravity SUV program in late 2024 and scheduled for start-up production of our high-volume midsized platform in late 2026. Our performance this quarter continues to demonstrate the positive momentum. The expansion of our total addressable market, the Pure, upcoming Gravity SUV and midsize programs provide further opportunities, and I feel very good about our cost optimization strategies and see many opportunities ahead. With that, let me turn it back to Maynard to get to your questions.

Thanks, Gagan. We'll now start the Q&A portion of the call. Before we take questions from those on the phone, I want to post some questions that our retail investors sent into the Say Technologies platform. Our first question is from Anav. Can you elaborate on Lucid's pathway to profitability? What are the key milestones and challenges the company anticipates facing in reducing production costs and achieving positive gross margins?

Thank you, Anav. It's all about scale. The more we can scale, the more cars we make, the more volume we can spread the fixed cost. That's the cost of our investment, our incredible factory and facility and our long-term investments across the sale of each car. So how do we do that? We need to continue growth of Lucid Air sales right now. And right now, we're trending up 40% from Q1 this year relative to last year. Now in a similar period, we see the sales of Tesla Model S down very, very considerably. We're outselling key competitors like Porsche Taycan. It’s about scale. And the next thing on that scale path is to get Gravity into production that will have a multiplier effect upon the market size, and Gravity is scheduled for startup production late this year. And then beyond that, we need to get our midsized vehicle, our volume vehicle priced at around, we believe, about $48,000, get that into production and is on schedule for production for late '26. And I've got to tell you just how much our current finances are truly dominated by the major investments that Lucid's made for its future. Things like the expansion of our Arizona first factory, we've got nearly 4 million square feet in there. General assembly is ready. We're putting robots in now for building the body structure for Gravity. We've invested in a huge stamping line, we're integrating logistics, we're bringing a powertrain facility right under that one roof, and that's exactly where we're going to make the units that we supply to Aston Martin, all under one roof. And I think there are some photographs in the presentation, Maynard, and videos on our social media pages. And then the other thing is the real big advantage that Lucid's got over everyone else is efficiency. And I don't say that as an engineer, I say that as a businessman. That efficiency means we can make cars with smaller batteries, with less batteries than anyone else. That means because the battery is the most costly part of an EV, we will be able to make cars more cost-effectively and therefore, with more profit margin than anyone else, which leads perfectly to your role, Gagan.

Yes. Thank you, Peter. And 2 things more: scale and continuous cost optimization initiatives. With scale, we'll be able to significantly bring down: number one, the fixed cost per vehicle, including depreciation of the investment we made in the factory, which is a big part of our cost of goods sold; number two, labor and overhead, and you get more efficient when you work at the optimal capacity; number three, also the BOM cost as volume provides a significant cost leverage. Now let me add to the cost optimization initiatives that we have been working very aggressively, and I'm personally leading this on a daily basis with big support from Peter. As I said in the prepared remarks, we were able to reduce the Bill of Materials, which is the cost of the parts that go into the car and also logistics costs significantly this quarter. We have also identified additional opportunities to execute throughout the year.

Our next question from the platform is Jason. The stock price keeps dropping. What measures will you be employing to bring the price up considerably? It seems product output is extremely low.

Thanks, Jason. Our share price is largely dependent on volume. It's important to note that the share price and profitability are interconnected. In contrast to a broader EV market where other manufacturers are seeing declines, we have increased our deliveries by 40% year-on-year, defying the trend. It's all about scaling and brand recognition, and I believe we are making progress. With Gravity on the way, let me highlight that in Q1, we outsold the Porsche Taycan for the first time. We have also outsold the Mercedes Benz EQE for the third consecutive quarter, the Mercedes Benz EQS for the third consecutive quarter, the new BMW i7, and the Audi e-tron GT for the fifth consecutive quarter. I want to clarify that we are not limited by manufacturing capabilities. This is not a ramp-up issue; it's related to the economy. It’s about increasing awareness of the product's excellence, and sales will follow. That's the direction we are heading in—focused on sales and volume. Lastly, to provide context for Lucid's stock price this year: Tesla is down about 25.6%, Rivian is down about 56%, and we are down 27%. There is a trend in this sector, but we clearly have a path to improve. Gagan, would you like to add some insights?

Yes. Thank you, Peter. And again, we are also very focused on execution and optimization of cost. We have the most efficient vehicle, but it's not just about the sustainability story. It's about growth, it's about scale, and it's about the profitability. I expect it will show in our margins over time as we scale.

The third question is from Justin. Is Lucid in talks with any of the legacy automakers to provide battery or motors for production?

Thanks, Justin. Thanks for the question. I can't emphasize enough. This is absolutely central to the whole vision of the company, and that's why we call it Lucid Group. The vision is to have a meaningful impact upon the planet, upon the environment to take technological leadership. And to use that leadership that we can travel further with less and be truly sustainable and then to share that technology and provide that technology to other companies. And we've taken the first step, we're providing the sapphire technology, our hypercar technology to no less than Aston Martin. And there's a time scale associated with this. I mean the technology that we've got in our current lineup of touring, grand touring was ideally suited to a luxury performance car from another automaker. But what really excites me is the potential for the technology that we're currently developing right here in this building, in Lucid headquarters where I speak, for our midsized tech platform. This is the tech that really is going to suit a high-volume family car of the future. And that's what's going to create the multiplier effect. So as you can appreciate, we can't really talk about specifics. But indeed, we are in talks. There are large OEMs that appreciate the value of our tech, and they are certainly interested in working together with us.

Yes. And of course, under the right economics.

Absolutely. And I think therein lies another misunderstanding. Because of our current finances, there's this completeness information that our tech is so expensive. And it's completely the opposite. Our tech is made for affordability at scale. It's designed around reducing the need for battery, which is the biggest cost item of making an EV. So actually adopting Lucid's technology is a route to significantly reducing the cost of making an EV. And this is simply just not sufficiently appreciated or understood.

Great. And our last Say question is from Robert. Will Lucid make an affordable car to compete with Tesla?

Well, I've got an answer to that. We already are. The Lucid Air Pure rear-wheel drive, the finest machine on the planet, $69,900, the price I promised back in September 2020, we're already competing with Tesla. But wait until our midsize comes out late '26. That's when we'll have a car, $48,000, $50,000, and that is the big one, the one that's going to be really exciting.

Great. Now we'd like to take questions from the phone lines. Twanda, can we take the first question, please?

Our first questions from the line of Adam Jonas.

Peter, you said in your prepared remarks and in the statements that you published that sales momentum is building? Can you quantify what supports that statement? Over what period was it measured? Were you talking year-on-year? Or were you talking about momentum building kind of more during the quarter and sequentially?

Okay. Yes. Adam. So if we look at 2023 versus '22, I believe we were up by 37% or close to 37% on memory. And if you compare Q1 '24 to Q1 '23, that's where we had the 39.9%, very, very close to 40% growth. So we're bucking the trend of the market quite nicely.

Okay. And just as a follow-up, you said that your focus remains on cost, a relentless attention to cost. And you mentioned some big improvements this quarter on BOM costs specifically. Can you give some examples of this improvement in BOM within the quarter? And who are you benchmarking for the BOM cost for the Gravity?

Adam, thank you for your question. So yes, in this quarter, despite the pricing actions, our gross margin improved and is mainly due to cost optimization initiatives, including BOM cost reduction. And within BOM cost, there are various components, and we are working hard with both the supplier side of things and internally, more on the technology side of it, where we are bringing the battery cost down. Our car is the lowest per vehicle range. But also then on the logistics side of it, we are able to bring our cost down significantly quarter-over-quarter. And in addition, we identified a few other initiatives that we want to execute throughout the year. We're also managing our inventory very effectively. That helps bring the cost down.

Our next question comes from the line of John Murphy with Bank of America.

Peter, I don't mean to directly compare the company to Tesla for various reasons. However, when we look at SNX, it struggled until the launch of the Model 3 when it achieved self-funding momentum. It feels like we might be in a somewhat similar situation here. While I don’t want to imply an exact comparison, it seems that the launch of the smaller vehicle in late '26 could be a point where you gain that same momentum, akin to what happened with the Model 3. I'm curious if you might agree with this perspective. I hope you don’t take any offense to this idea. Furthermore, as we consider this, we are seeing increments in funding discussions; while $1 billion is not a small amount, there's still investor concern about whether you can secure the funding needed to reach that pivotal point in 2026. So, do you agree that this is when you could achieve that momentum, and will you have the necessary funding to get there?

Thank you, John. You always ask thoughtful questions, and I appreciate it. Our goal is to achieve significant volume, which involves a few key steps. First, we need to enhance brand awareness for Air. Next, we aim to expand our total addressable market with Gravity, which presents a substantial opportunity that Model X didn't fully realize. Unlike Model X, which was more car-like, Gravity is a true SUV, offering 7 seats and 3 rows. We also have a unique advantage in that we can extend our range with less battery, which will help manage costs as we grow. However, we won't see the full benefits until we begin production of the midsized platform, expected to start in late 2026. In terms of our partnership, what differentiates Lucid is our world-class technology combined with our strong relationship with the Public Investment Fund. This relationship goes beyond financial investment, as they are a key player in transitioning Saudi Arabia's economy toward sustainability, as outlined in Vision 2030. We are both motivated for mutual success. Currently, we are establishing the first operational car plant in Saudi Arabia and laying the groundwork for our complete business unit, which will align with the launch of the midsize in the region. Our success is interlinked, and anything less than success is not an option.

Okay. That's very helpful. Just one second follow-up. 9,000 vehicles produced or Airs produced this year. You already delivered more than you produced. I think there's well over 5,000 units or I think there are over 5,000 units in inventory. Could we see deliveries significantly above that 9,000 production number? I think you did 239. Delivery is greater than production this quarter. Should we expect something similar to that go through the rest of the year? Or could it actually be higher?

Well, we haven't guided on that. And actually, I'd love to see it. what is crucial here is the key message is that management is taking prudent steps in balancing our production with deliveries so that we don't get an undue amount of inventory and have that working capital tied up. This is prudent from management.

Our next question comes from the line of Itay Michaeli with Citi.

Just 2 questions for me. First, Peter, can you just give us an update on kind of supplier readiness for the Gravity launch? What would the progress you're making there and just over how you're feeling about that? And then maybe a second question, just going back to the gross margin. I know there's a lot of noise in that number. I was hoping you could talk a little bit to what you're seeing across trends for kind of variable margins. They're just kind of looking at parts, material, freight and warranty, excluding kind of labor and overhead costs. If you can give us a little bit of sense of how that's trending, that would be helpful, too.

Thank you, Itay. I am personally managing the progress towards the start of production for Gravity. Every morning, I begin my day with a status review. To prepare the program, we need to align three key areas: the readiness of the Gravity product, the readiness of the Arizona factory and its equipment installation, and the readiness of our supply base. We are very focused on this matter, working with several hundred suppliers providing thousands of parts, sourced from some of the best suppliers globally. I want this process to be very transparent, so I've asked the team to create a series of videos that will communicate our progress toward Gravity, highlighting the product, factory readiness, and supply chain readiness. We launched this initiative last week. We also have a significant advantage this time around since we are not emerging from a pandemic, which should provide more opportunities for supplier quality awareness and audits. Our supplier quality engineering teams are actively visiting suppliers to check and validate their readiness for starter production later this year. As for margins, I would like to pass that question to Gagan.

Yes. Thanks, Peter. So Itay, on the gross margin, we have been working very hard with both the supplier side of things and then taking cost out of the business. And looking at the BOM cost first is a significant effort. We are continuously bringing thousands of dollars out from the cost. But one thing this quarter specifically, I want to call about technology. Our car also has its lowest cost of ownership. And if you look at in the investor deck, we added Slide 7 and Slide 8, explaining how our car has the lowest cost. And it will be good for you to look at that. And then in parallel, our cost optimization team, this team is challenging each and every one and also for every dollar value, and I'm personally leading this initiative with support from Peter. But what does that mean to us, we're able to significantly bring the logistics cost down. We are looking more and more opportunities. Now it's a matter of scale because we today are spending significant amount of money on the fixed cost. Even on the variable cost, we identify more opportunities, and it will help us because look at it from a supplier perspective, also, they also allocate their fixed overhead to the volume they deliver. But we have part to go there. And with Gravity coming late 2024, we are getting close and close to our capacity, and that will give us an operating leverage.

Our next question comes from the line of Andres Sheppard with Cantor Fitzgerald.

Peter, I wanted to follow up on the deliveries to Saudi Arabia. I'm trying to understand if we can estimate how that agreement will evolve this year, next year, and beyond. If I recall correctly, you mentioned that many of these deliveries would consist of the Gravity and the midsized high-volume models, which are still pending their start of production. I'm curious if we can estimate what these deliveries to Saudi Arabia will look like this year and next year as you progress towards the Gravity.

Yes. We're not planning to guide on the split in the future, but our deliveries in Q1 exceeded 500 units. I'm very confident that we've got equal demand for our products in Saudi, particularly to the SUV. That's going to be quite an interesting market. But again, I'm not in a position to guide right now on these. And we haven't decided yet where would guide on that specific split, either, Andres.

Got it, that's helpful. Over 500 deliveries in Q1 were to the Saudi Arabian market, which is useful information. Regarding liquidity, the recent $1 billion capital raise strengthens the balance sheet. You mentioned that the liquidity available is enough to support the business until the second quarter of next year. My question is about the next capital raise. To the extent you can answer, do you expect that to come from the Public Investment Fund or possibly from external sources? With $6.4 billion in funding from the PIF so far this year, do you anticipate the next raise will also involve them or come from elsewhere?

Well, look, we're a technology company. We're on a growth trajectory, and it's a capital-intensive endeavor. We know that. And so all I can say is that we will take an entrepreneurial opportunistic view of raising capital when the business requires it. We are very, very aware and appreciative of a very special relationship and the steadfast support that the public investment fund has shown us and gone every single round supporting us to date. And I think that puts us in a very strong position. It takes us past the start of production of gravity and well into next year. And I think that's an enviable position. It puts us in a very strong position financially.

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

I have 2 questions for Gagan, please, and I'll ask them separately. Through 2024, the expectation is that production processes will become more vertically integrated as you continue to build out the Phase II expansion of AMP-1. Can you confirm whether this will increase losses in the near term while volumes are subscale?

Yes. As mentioned in my prepared remarks, we usually don't provide guidance on gross margin due to various controllable and uncontrollable factors. However, I can share some directional insights. In Q2, I anticipate that gross margin will remain stable despite the full quarter effects of the pricing actions we implemented in Q1, which only impacted us partially during that quarter. Looking ahead to the second half of the year, the advance purchase of gravity components for production will lead to increased inventory, affecting last cost non-recoverable value and resulting in higher depreciation from Phase 2 activation, which we expect will negatively affect gross margin. However, we have Gravity scheduled for production later this year, and as we transition into next year, we foresee significant changes.

Okay, just to ask my question slightly differently. On a variable margin basis, do you expect the higher vertical integration to decrease the variable margins in the near term, for both Air and Gravity?

Yes, that's a great question. Now it is a game of scale. We're getting better on contribution margin trim by trim. Now the BOM cost, freight and certain overheads, part of contribution margin gets significantly impacted when you have a low volume. And with scale, it significantly improves because suppliers also amortize their fixed cost based on the volume they deliver. It's a matter of scale. The more we get close to our capacity, our margins get much better.

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

I have a question about the push for increased sales of hardware and software through third parties. Over the last few quarters, have you noticed any growing bottlenecks in finalizing these deals? I'm interested because it seems you've demonstrated some cost advantages from a third-party perspective, and the pressure on OEMs to lower their BOM costs has intensified in the past year. Any insights on this and your progress moving forward would be appreciated.

That's an interesting point, Steve. I would say this that there's a time scale, there's a cadence, there's a chronology associated with any such arrangement with the traditional OE. There's a natural cadence to the place they work and operate. And also, there's this sort of impending regulatory overhang in terms of the drivers for that transition to sustainable mobility model. So all I can say is just watch this space. We need patience when we're talking to large automakers.

Our next question comes from the line of James Picariello with BNP.

This is Jake on for James. So if I just look at your liquidity and the implied cash burn with the $5 billion lasting into the second quarter of 2025. It looks like the implied cash burn has stepped up from roughly $900 million in your previous commentary to over $1 billion now. So how should everyone think about cash burn really through next year once you get through the launch of the Gravity?

Yes. There are several factors contributing to cash burn. One of them is the capital investment we are making. As we have indicated, we expect to invest approximately $1.5 billion, primarily for expansion in Arizona, increasing our installed capacity from 30,000 to 90,000 due to the paint shop, stamping, and body in white facilities coming later this year. Additionally, we are making significant investments in AMP-2 in Saudi Arabia, where we are building our CBU facility. This capital expenditure has a substantial impact, and we anticipate a considerable amount of capital expenditure continuing into next year.

Got it. That's very helpful. And then just following up on John's question about the midsize more mass market model. How do you guys thought about providing some more just detail on it, maybe some teaser pictures a little earlier to try to draw up some just some more interest from a broader consumer base and even potentially opening the door reservation to just generate more liquidity?

That's an interesting point. I actually believe that some companies have not served consumers well by allowing reservations too far in advance in an unrealistic way. We think there should be much more transparency and a closer alignment with the actual product availability. It’s important to remember that taking reservations and accepting money is a misleading form of liquidity because we would have to hold it in escrow. It’s not real liquidity. We are committed to maintaining complete transparency and showcasing the product with realistic specifications, as we are doing with Gravity. We have intentionally not taken reservations until we are closer to starting production. This is the philosophy we have adopted. We will inform you in the future when we open a waiting list for Gravity. Right now, we are not close to that. I don't believe it's appropriate to start accepting reservations for a product that's over two years away. I think it doesn't serve the consumer well, and I feel that this lack of transparency is an issue.

Our next question comes from the line of Stephen Gengaro with Stifel.

Just going back to a question about the cash burn. Can you give us any sense as we think getting to the midsize launch sort of the cadence of CapEx necessary in '25, '26 time frame?

Well, I mean, it's interesting. We haven't guided on that. But I mean we are in a very good position, which will see us beyond Gravity start of production. We have some amazing incentives from the Kingdom of Saudi Arabia for a setup of our factory there, our AMP-2 facility, and that's where we're going to put in the midsized product to start with.

Great. And just a quick follow-up on the Gravity order question. How soon before production begins do you open up Gravity orders?

It's an interesting point. I think we can look forward to opening a waiting list when we feel we can release more specific details about the trim and specifications of that vehicle with absolute transparency. I don't want to do it in an environment of opacity. Gravity is scheduled to start production later this year, and we're on that runway now. Every day counts as we build up to that launch, and we will let you know. Watch this space.

Thank you. So this concludes Lucid's First Quarter 2024 Earnings Conference Call. Thank you all for joining us today, and you may now disconnect.