Lucid Group, Inc. Q4 FY2025 Earnings Call

Good day, and welcome to Lucid Group's Fourth Quarter 2025 Earnings Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Nick Twork, Vice President of Communications. Please go ahead. Thank you, and welcome to Lucid Group's Fourth Quarter 2025 Earnings Call. Joining me today are Marc Winterhoff, our Interim CEO; and Taoufiq Boussaid, our CFO. Before handing the call over to Marc, 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, vehicles and products, studios and service networks, financial and operating outlook and guidance, macroeconomic, policy and industry trends, tariffs and trade policy, company initiatives and other future events. These statements are based on various assumptions, whether or not identified in this communication and on the predictions and expectations of our management as of today. Actual events or results are difficult or impossible to predict and 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, including our annual report on Form 10-K for the year ended December 31, 2025, and the forward-looking statements on Page 2 of our earnings presentation available on the Investor Relations section of our website. We undertake no obligation to revise or update any forward-looking statement for any reason, except as required by law. 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 earnings presentation. With that, I'd like to turn the call over to Lucid's Interim CEO, Marc Winterhoff. Marc, please go ahead.

Thank you, Nick. Good afternoon, everyone, and thank you for joining us. 2025 was a defining year for the industry at large. It was a year of extraordinary macro turbulences with increased tariffs, the end of federal incentives, changing EV demand, and unexpected supply chain disruptions. I'm pleased to say that we navigated those challenges well. We nearly doubled production, significantly increased deliveries, reduced unit costs, gained market share, and strengthened our financial position. Let's start with production and operations. In 2025, we ramped up our first SUV, the award-winning Lucid Gravity. We about doubled annual production, and I will explain why I’m using the term about shortly. Total units produced were close to the expectations we set at the start of 2025. Despite unprecedented industry challenges like tariffs, chip shortages, and even fires at one of our major suppliers, 2025 turned out to be one of the most difficult operating environments in recent industry history. I'm very proud of what the Lucid team achieved given these manifold challenges. I think we performed quite well compared to others in the industry. I'm not going to name names, but I encourage everyone to do your own research. Specifically, I'm proud that we managed to double production from Q3 to Q4, clearly demonstrating that our manufacturing system can scale when supply chain issues are resolved. During the year, we improved throughput, reduced rework, built repeatable processes, and expanded our manufacturing workforce in a disciplined manner to allow for flexible scaling. We also overcame quality issues that initially hindered our Gravity ramp, which were mainly related to software. We listened to our customers, acknowledged the problems, and focused on fixing them. This month, we introduced new software for all Gravities, addressing many concerns, and we are thankful that this has been recognized by both our customers and the media. We also achieved a significant reduction in material costs for the Lucid Air and Gravity, partially offsetting the additional costs introduced by the tariffs. We implemented key organizational changes, streamlined decision-making, and improved collaboration to drive efficiency and support accelerated growth. We established a larger technology partnership, this time not only focused on EV components, but also a broader partnership with Uber and Nuro, leveraging the entire vehicle, the Lucid Gravity. We see great long-term value in that. We also defined and executed our plan for autonomy, allowing us to offer highly competitive solutions for both customer vehicles and robotaxis, designed to be implemented quickly and with limited capital expenditure. We view the emerging global robotaxi market as a prime opportunity to utilize our leading technology for potential partners and their customers. This approach leads to a lower and industry-leading total cost of ownership, creating possibilities for new partnerships and significantly expanding our total addressable market. Autonomy effectively expands our total addressable market to an estimated $700 billion by 2035. As a first step, in July, we announced our agreement with Uber to develop a robotaxi based on the Lucid Gravity, leveraging Nuro's proven Level 4 technology, deploying at least 20,000 autonomous Lucids on Uber's global rideshare platform, which included a significant equity investment from Uber. In Q3, we closed that $300 million investment from Uber and began delivering the first engineering vehicles for evaluation at our dedicated testing facility. In Q4, on-road testing of the robotaxi began in the San Francisco Bay area, which we announced as the area of first deployment later this year. At CES in January, we unveiled the production intent design, the culmination of collaboration between our engineering team and our partners at Uber and Nuro. Advanced autonomy is not solely enabling the new robotaxi market; it is also a critical feature for our customer vehicles. Today, many of our customers enjoy our driver-assist feature, and we anticipate that in the future, most of them will want the option to choose whether to drive themselves or to be driven autonomously. To enhance autonomy for our customers, we are partnering to offer highly competitive autonomous functionality as quickly as possible in a capital-efficient way. Our roadmap is clear: point-to-point autonomy will roll out in Gravity later this year, with L3 targeted for 2028 and L4 set for 2029, starting with our midsize vehicles. This not only provides leading autonomy functionality for our customers but also opens new software revenue streams. We've shown that we can compete and lead in luxury sedans and SUVs. Just a reminder, the Lucid Air was the number one selling EV in the U.S. within its segment in 2025, and it ranked third in the overall large luxury car segment, which includes traditional internal combustion engine vehicles. With our midsize platform, we are preparing to enter much higher volume segments with prices starting below $50,000, which is around the average selling price of a new vehicle in the U.S. recently. The midsize platform expands our total addressable market from $40 billion currently to $350 billion by 2030. Over time, our participation in the robotaxi market will further increase this to $700 billion, as mentioned earlier. We recently began production validation builds for the first model of our midsized platform, and they came together seamlessly. The total cost of components to date is below our initial cost estimates. Overall, our midsize Bill of Materials costs favorably compare to competitors. The construction of our M2 factory in King Abdullah Economic City, Saudi Arabia, remains slightly ahead of schedule with equipment installation that started in Q4 progressing as planned. Additionally, the local supplier ecosystem around M2 is rapidly developing, with partners like Pirelli, Lear, and Benteler localizing production. This is just the beginning. Startup production of the first vehicles from our midsized platform is still scheduled for the end of this year. In Q4, we marked our eighth consecutive quarter of record deliveries, and we continue to gain market share. In our largest market, the United States, the Lucid Air was the number one selling EV in its segment in 2025 and ranked third in the overall large luxury car segment. Q4 deliveries were up 72.5% year-over-year and increased 31.1% from Q3. Almost all other manufacturers reported declines in EV sales, with many having drastic reductions. Only Lucid and one other manufacturer reported a significant increase in EV deliveries in the U.S. in the fourth quarter. Our full-year deliveries increased 54.7% compared to the full year of 2024. As expected, the Lucid Gravity accounted for the majority of our deliveries in Q4, which was also a key reason for our substantial average selling price increase for the quarter. I also want to highlight that the Lucid Gravity continues Lucid Air's tradition of winning multiple awards. It wrapped up 2025 with major accolades like Esquire Car of the Year, Good Housekeeping Luxury SUV of the Year, and Car and Driver 10Best in its first year of eligibility. In fact, not only was the Lucid Gravity named to Car and Driver 10Best for 2026, but the Lucid Air was also added to the list for the third consecutive year, making Lucid the only manufacturer with all offered models on the 2026 list, which included only EVs. For 2025, Lucid was recognized as the Best Electric Luxury Vehicle Brand by U.S. News & World Report. Also, contrary to the belief that EVs aren't suitable for winter conditions, the Lucid Air demonstrated its range leadership during Norway's NAF winter test, driving 520 kilometers on a single charge in temperatures as low as negative 31 degrees Celsius, nearly 100 kilometers farther than the next closest competitor. Along with gaining more accolades, we continued to build brand awareness. We launched our global campaign with Timothee Chalamet and expanded awareness through collaborations with NBA stars Jalen Brunson and his teammate Josh Hart. The Hard Launch campaign featuring those three stars has performed exceptionally well for Lucid. To cater to the new customers we are attracting, we expanded our sales studio footprint across the U.S., Europe, and the Middle East. I'm pleased to report that we signed our first European dealer group agent in Germany and are in advanced discussions with over 10 others, as well as importer candidates for other European markets. We also increased service lift capacity by 40% in the U.S. and Canada to serve our growing customer base better. To improve the ownership experience, we enabled access to more than 27,500 Tesla Superchargers in North America, where the Gravity can achieve some of the fastest charging speeds in the industry at over 400 kilowatts. Overall, Lucid customers now have access to more than 66,500 fast chargers across the U.S. In December, we launched Lucid Recharged, our certified pre-owned program, to provide a more accessible entry point to the brand. Our operational progress and the demand for our award-winning vehicles have led to financial improvements. I will let Taoufiq share more details shortly. Before I move on to 2026, I want to clarify why I mentioned earlier that we about doubled our production in 2025. After releasing our Q4 production and delivery numbers, we discovered that 538 vehicles counted as factory gated at M2 in Saudi Arabia during the last week of 2025 did not meet certain procedures required for that designation. Although those vehicles were fully built in our Arizona plant, shipped to KSA as kits, and reassembled at M2 per our standards, we only count factory gated vehicles as produced. Therefore, you will notice that our final production number for Q4 2025 has decreased from what we initially announced this year, and those units are now expected to be recorded as factory gated in 2026. To be clear, this had no impact on customer deliveries. We are taking additional steps to ensure the accuracy of our production numbers moving forward. Looking ahead to 2026, we remain confident in our long-term growth opportunities. To reiterate, we are just getting started. The ramp-up of Gravity provides us ample opportunity to further grow production and deliveries in 2026. Our midsized vehicles enable us to compete in a much larger total addressable market than the Air and Gravity, and we have made it clear that we intend to play a significant role in the developing robotaxi market. The macro environment for 2026 remains uncertain. Therefore, our focus is grounded in prudence. We are concentrating on execution, streamlining operations, managing costs, and protecting the balance sheet while positioning the company for profitable growth. This includes the step we took last week to reduce our U.S. workforce by 12%, excluding hourly production employees in manufacturing, logistics, and quality. We anticipate this measure will yield up to $500 million in cost savings over the next three years. This challenging but necessary decision was made to enhance operational effectiveness and optimize our resources as we continue on our path toward profitability. A narrative of an EV winter has emerged following the phase-out of federal incentives. We believe much of this is an overreaction. Yes, there was demand pull forward in Q3. Yes, buying an EV has become more than just a technology decision. Yes, building outstanding EVs is challenging. However, rather than backtracking, our industry must improve education for customers, showing that EVs are genuinely superior technology, and we need to build cars that live up to that claim without relying on incentives. We are convinced that EVs are the future, and we are staying the course; however, we do not consider ourselves solely an EV company. Our customers choose Lucid because our cars are thrilling to drive, they outperform, and they believe they are the best vehicles on the market, regardless of whether they are electric. With our midsized vehicles, we will make that unique Lucid experience accessible to a much wider audience. For 2026, we have five clear priorities: First, we will continue to grow production and deliveries by leveraging the full potential of the Air and Gravity and expanding our presence in new markets. In the U.S. and internationally, we plan to open 42 new locations in 2026. Second, we will continue to enhance our vehicles through over-the-air updates. Given our recent software improvements, driving the Gravity is now even more enjoyable, as noted by third-party reviews and customer feedback. Additional features will be rolled out soon. Third, we aim to start production of the first model from our midsized platform by the end of this year, which represents a significant shift in our cost structure. We will share more at our Investor Day on March 12. Fourth, we will deliver our first production vehicles to Uber to support commercial operations for our robotaxi partnership. We are currently delivering our final alpha test vehicles and remain on track for commercial deployment in the San Francisco Bay area later this year. Lastly, we will continue with prudent cost and cash management, and I will leave this for Taoufiq to elaborate on. In closing, 2025 was a year of progress against extraordinary macro challenges, and we rose to meet those challenges. We exited the year stronger operationally, financially, and strategically. Now, let me hand over the call to Taoufiq to discuss our financial performance and outlook.

Good afternoon, everyone. The fourth quarter was about execution, improving operational stability, improving unit economics and improving liquidity to extend our runway. We scaled production, delivered strong top line growth, reduced cost per unit and maintained solid liquidity even in a volatile environment. After working through operational complexity earlier in the year, Q4 marked a clear step change in throughput consistency, cost trajectory and financial visibility. And importantly, the progress we made is structural, driven by better quality, higher yield, tighter cost control and disciplined capital management. Let me walk through the key operating and financial results. Production in Q4 was 7,874 vehicles, up 133% year-over-year. Full year production reached 7,840 vehicles, up 98% year-over-year. Operationally, we addressed key throughput constraints in final assembly, increased system commonality and tightened configuration discipline. First time through improved, rework and scrap declined sequentially and software and process improvements reduced variability. And in Q4, we did not experience the same degree of supply chain disruptions as we did earlier in the year, demonstrating the adaptability of our supply chain team. We exited the quarter with an underlying run rate that supports up to 7,500 vehicles per quarter, supported by higher yield and improved stability. This is not the result of temporary measures; it reflects a more repeatable operating cadence heading into 2026. Q4 deliveries were 5,345 vehicles, up 72% year-over-year, our eighth consecutive record quarter. Full year deliveries were 15,841 vehicles, up 55% year-over-year. Gravity represented the majority of deliveries in each month in Q4. Operationally, we shifted to a more targeted build-to-stock approach to meet customer expectations for faster delivery of specific trends and configurations. Days on hand in December were 108, well within the industry range, and we expect this to trend down in Q1 2026. On pricing, we remain disciplined. We will not chase volume at the expense of margin. As Gravity mix builds, particularly higher priced trims, and as conversion improves with expanded configurations, we expect mix and pricing to remain positive factors. Q4 revenue was $522.7 million, up 55% sequentially and 123% year-over-year. Full year revenue reached $1.35 billion, up 68% year-over-year. We exceeded consensus expectations in both Q4 and the full year. Growth was driven by higher deliveries and higher ASPs, reflecting a richer mix and demand for higher value configurations. Gross margin improved approximately 18 points sequentially in Q4. Full year gross margin improved meaningfully as well, though it remains below our long-term targets. The improvement was driven by higher production volume and improved fixed cost absorption, richer Gravity mix, yield gains, lower scrap and logistics and material cost optimization. Those improvements were partially offset by incremental tariffs, transitory ramping efficiencies and inventory impairments, factors we believe are unlikely to repeat or to repeat at the same magnitude. As throughput stabilizes and Gravity mix increases, fixed cost absorption improves and process efficiencies compound. We expect continued sequential gross margin improvement and OpEx will continue to grow at a slower pace than revenue. Stepping back, 2025 represented a clear step change in scale and unit economics. We are on the journey of scaling, and we are clearly witnessing the benefits of it through improved fixed cost absorption. Given our investments in manufacturing capacity, we have made significant progress, reflecting our ramp in production this year. Looking ahead to 2026, we expect to realize further meaningful gains. In addition, we had transitory ramp inefficiencies and incremental tariffs of approximately $10,000 per unit that we do not expect in 2026. Zooming in on manufacturing efficiency, our manufacturing cost per vehicle produced, including manufacturing and logistics, labor and overhead declined approximately 27% during 2025. These gains are coming from higher line rates, yield improvements and labor efficiency as the team gains experience. For 2026, we expect continued gains from Q1 2025 baseline, achievable through continued yield gains, production stabilization, labor productivity and logistics optimizations. We've continued to exercise strict cost discipline as we scale operations and is showing up in the model. While revenue grew 55% sequentially in Q4, total operating expenses grew only 6% sequentially to $643 million, reflecting improved cost absorption and tighter discipline. R&D expense was $361 million and decreased as a percentage of revenue growth. R&D remains focused on high-return programs, including software, battery and powertrain improvements and our autonomy initiatives, which we'll discuss more at our Investor Day on March 12. SG&A expense was $282 million, down from $283 million in Q3, and trending downward relative to revenue growth. Operating loss was $1.065 billion, reflecting meaningful improvement in margins in Q4. Adjusted EBITDA margin has improved by 46 percentage points in the prior quarter with adjusted EBITDA losses of $875 million, reflecting high ramp costs partially offset by higher sales in Q4. As volume absorbs fixed costs and our cost actions continue to flow through, we expect margins to keep improving. An important update on operating cost. Last Friday, we executed the reduction of our U.S. workforce by approximately 12% to reallocate resources following the launch of Gravity and to support the next stage of execution, operation and discipline and margin progression. Financially, this initiative is expected to deliver approximately $500 million in cost savings over the next three years with benefits weighted towards the near and medium term, supporting our path towards gross margin breakeven. The action was taken with our U.S.-based operation; only production workers in manufacturing, logistics and quality are excluded from this action. These organizations remain fully staffed to support current and future production plans. Our ability to build and deliver vehicles is unchanged. This is a proactive step aligned with our long-term operating plan and our emphasis on disciplined execution in 2026 and beyond. Moving to the balance sheet. We ended the quarter with approximately $4.6 billion in liquidity, $2.1 billion in cash and $2.5 billion in undrawn committed facilities. CapEx was $325 million, up 64% from the prior quarter, focused on the Gravity ramp, manufacturing efficiency, midsized tooling and capitalized investment in fixed assets. CapEx is front-loaded for the manufacturing build-out and ramp. And over time, we expect it to trend towards the more maintenance-oriented profile as volumes stabilize and we continue implementing CapEx-light growth initiatives with partners. Free cash flow was negative $1.2 billion, primarily driven by ramp-related operating losses, working capital tied to production and mix shift, and the $325 million on CapEx mentioned previously. As production stabilizes, working capital normalizes and cost per unit continues to decline. We expect operating cash flow to improve sequentially. Under our current operating plan and CapEx profile, our runway extends into the first half of 2027. Robotaxi testing is underway with commercial deployment on track for 2026. Our agreement with Uber for a minimum of 20,000 vehicles adds long-term demand visibility. It supports production planning, improved fixed cost absorption, and creates more predictable fleet-based volume over time. On a related note, you might have seen our filing of a resale prospective supplement today relating to shares held by Uber and PIF. We registered these shares to fulfill contractual obligations. Registration of these shares does not mean they will be offered or sold in the near future. In fact, Uber is locked up until March 2027, and shares are not expected to be delivered to PIF until April 2030, subject to possible early settlements. On the consumer side, hands of autonomy capabilities strengthen competitiveness and support mix and pricing. The economics reinforce our cost per unit discipline and our partnerships support scalable returns with disciplined capital deployment. To close, in 2025, we demonstrated we can scale production, improve unit economics and maintain strong liquidity at the same time. The progress we made is structural and designed to be repeatable. 2026 is about predictable execution and repeatable process improvements, not temporary actions. We will not chase volume at the expense of margins and we will expand and optimize liquidity while translating operational progress into a more predictable financial profile. We have four priorities with clear outcomes. First, continue reducing cost per vehicle produced, targeting roughly an additional 20% reduction in manufacturing cost per unit by Q4 2026, along with continued progress in total cost per unit over the year. Then, we will continue the improvement in the bill of material costs, supported by ongoing efficiency initiatives and pricing benefits associated with higher volumes from upcoming midsized platform. Next, we will drive sequential gross margin improvement. And finally, we will maintain disciplined cash burn and tight working capital control. Now on outlook. With greater control over production and with an eye towards caution in 2026, as we focus on long-term sustainable profitability, we expect to produce between 25,000 to 27,000 vehicles for the year. We project CapEx at $1.2 billion to $1.4 billion. We believe we have liquidity into the first half of 2027. And we are reaffirming that we are on track to start production of the first model on our midsized platform this year. We entered 2026 with a strong operational foundation and a clear path forward, and we look forward to providing greater insight to you at our upcoming Investor Day on March 12. With that, I turn the call back to Nick to begin the Q&A.

Our first question comes from Cahir A. Will Lucid generate ongoing revenue through its partnership with Uber and Nuro, such as fleet maintenance services, software licensing, or subscriptions?

Thanks for that question. For this particular arrangement that we have with Uber and Nuro, we're basically selling the cars to Uber or one of its fleet partners. So there are no further licensing or subscription revenues involved. Having said that, this is only the start of our relationship, both with Uber and with other players in the markets. So we are working on other arrangements in the future.

Our next question comes from Sung K. When does the Board plan to appoint a permanent CEO?

That is a question for the Board, and I don't have any further updates to give today.

Our next question comes from Martina. What is the clearest path to positive gross margin? And when do you realistically expect to get there?

Great question, Martina. That's exactly where our focus is in 2026. After turning the corner on production challenges in 2025 in one of the most challenging macro environments in memory, we expect to deliver meaningful progress in gross margin in 2026 through improved cost of materials, absorption of fixed costs through scale and improved efficiencies. When you look at our gross margin currently, what you're seeing is a company with valuable assets that we are only beginning to leverage. At our Investor Day on March 12, we're going to show you our path to profitability. We expect to drive further cost reductions through improved bond costs, ongoing efficiency initiatives and other improvements as we continue to scale.

Our next question comes from Andrew Z. With Tesla scaling back the number of models they will be offering, what is Lucid's plan to grab market share?

Well, first of all, I would like to acknowledge the role that Tesla and also the Model S have played in paving the way for electromobility. I would say we take it from here for the Model S, but also for the Model X. I think we are the natural successor to those two vehicles. And we are certainly seeing an uptake in customer inquiries from Model S and Model X owners. And we are working right now on plans on how to further accelerate that.

All right. Now I'd like to take questions from the phone lines. Operator?

And our first question will come from Itay Michaeli with TD Cowen.

Just the first question on the midsized platform. It sounds like you're still on track to produce it at the end of the year. Just kind of curious what sort of other milestones are there left to do between now and then and how do you think about the progress towards startup production today?

Just before we respond, I'd like to correct something I mentioned earlier in my prepared remarks, that's related to the adjusted EBITDA margin. It has improved by 46 percentage points from the prior quarter and not the 50 basis points that you might have heard earlier. With that, Marc.

Maybe I can take the question about the midsize. I mean there's a couple of milestones. First of all, we are, I would say, in the final stretch of their product development. We have built the first production validation vehicles, and there are actually four versions of that throughout the remainder until we go to the start of production. And we also have to finish the installation of the equipment in our plant in Saudi Arabia. So there are a number of key milestones, but we're well underway, both with the construction of the plant and at the same time, also with finalizing all of the development and particularly the validation and homologation that we need to do.

Terrific. And then as a follow-up on Slide 13. With the launch of the point-to-point feature later this year, I'm curious whether you can share but maybe we'll talk about it on the Investor Day as well. How many miles and what the ODDs initially might look like for point-to-point as well as how you're thinking about charging for the future?

Yes. Well, we actually will talk about this more at our Investor Day on March 12. But I mean, it will be a rollout. It will not be a big bang where we have basically served the whole world on one day. So there will be a little bit of cadence, and yes, we will talk about that later. Same for the pricing. That's also something that we will talk about in the near future.

Perfect. I could sneak one last one in on the outlook. I'm just curious if you're seeing any constraints with DRAM memory at all in production. Just kind of curious what you're seeing out there with that situation.

Yes. Not right now. Not right now. I mean obviously, we are monitoring this situation very closely. We have seen cost increases, but at the same time, not a shortage. And the cost increases, given the percentage of the overall BOM cost, they are negligible. So really on a small level compared to the overall cost. So, so far, we are in good shape, but that is absolutely one of the topics that we are monitoring on a daily basis.

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

Marc and Taoufiq, congratulations on all the great progress. I want to come back to the production guidance. I'm wondering if you can help us with how we should think about the unit mix for that guidance for this year between Air, Gravity, and possibly some midsize. Should we assume anything from M2 or from robotaxi in that guidance?

Yes. Thanks, Andre. I can definitely answer that. I mean just like in Q4 last year, the majority of our production and then also the deliveries for next year is going to be the Gravity that actually happened also in Q4. When it comes to midsize, there will not be because it's very late in the year when we start of production, there will not be any meaningful numbers to be reported. I mean the vehicles that we are building right now, the production validation vehicles and so on, they don't count. Robotaxis as well, it's a small number in 2026, and then there is ramp up next year and then following.

Got it. Super helpful. And maybe just as a quick follow-up. Taoufiq, can you just remind us now with the total liquidity of $4.6 billion funded into the first half of '27, how are you thinking about capital needs and maybe cash burn between now and then?

Well, I mean, I think that the $4.6 billion and the guidance that we gave cover our needs until the first half of 2027. Can give you an approximation of the cash burn that we will have in the upcoming quarters. So I mean, we are not guiding specifically, as you know, for the cash burn or cash usage within the year. We're providing this directional comment. So for the time being, I mean, again, that's all the information we can really share. We will be further elaborating on that during the Investor Day, but it's really all we can say at this stage.

Our next question will come from Andrew Percoco with Morgan Stanley.

Great. To begin with the margin trends for the year, I understand you will provide more information soon. Could you help clarify some of the factors influencing the numbers for 2026? While there will be an increase in production as per your guidance, there may also be costs associated with the ramp-up and potential commodity price headwinds, given the current trends in steel, lithium, and memory prices. Can you provide more insight into how all these margin drivers will come together for 2026?

There are various factors influencing our margin progress and the path we anticipate. Firstly, it’s crucial to highlight that we expect an overall improvement in gross margin from 2026 compared to 2025. There are different measures we will implement; the first being volume-driven. The increase in production volume will certainly affect our margins, and we have discussed this in the presentation shared earlier. Fixed cost absorption is another significant factor, and we expect substantial advancements in our efficiency ramp-up. We aim to enhance our productivity in the plant, focusing on key performance indicators related to throughput and first-pass yields. Additionally, we'll work on improving quality and reducing costs related to reworks and scrap. In terms of supply chain constraints, we demonstrated our agility last year in handling various challenges. Our current plan continues to target improvements in the bill of materials for our existing Air and Gravity programs. Recently, we appointed a new Head of Supply Chain, which has invigorated our pursuit of opportunities in that area. Therefore, we will maintain our efforts and activations in this regard. Volume and scale remain essential components of our overall strategy.

Got it. That's helpful. To follow up, it sounds like Europe is becoming more of a growth strategy for you this year. Can you elaborate on your expectations there? While I understand you may not break out the percentage of your guidance for Europe versus the U.S., I'm trying to gauge your expectations. There's a significant focus on China, which is a different market, but I'm generally curious about your growth expectations in that region.

Yes, I can address that. We are planning for growth, but in the upcoming year, until we have the midsized vehicles available, we do not anticipate significant growth. Our current models, the Air and Gravity, are still on the larger side for vehicle demand in Europe. As a result, we expect limited growth in that region, which will change with the introduction of the midsize vehicles. Regarding China, the majority of the growth from Chinese OEMs in Europe is tied to low-cost vehicles. Brands that are selling higher-priced vehicles are not performing well. Even major players like BYD are experiencing a slowdown in their expansion efforts in Europe in recent weeks and months. However, from our perspective, Europe will play a much greater role when the midsize vehicles arrive, as that size is more suitable for the European market.

Our next question will come from the line of James Picariello with BNP Paribas.

Just first on CapEx. What portion of the $1.2 billion to $1.4 billion is attributed to Lucid's M2 Saudi plant because theoretically, that entire cash outlay, well, the first phase of that cash outlay should be funded by the company's $1.4 billion SIDF loan that you have access to. Is that right?

That's correct. So the majority of CapEx that we see next year will be geared towards M2. So we will have some additional CapEx that we will do for M1. The rest of the CapEx spend will be mainly related to some vendor tooling and our commercial network. But to answer the question, the majority is M2.

And then there's just a one or two-quarter delay in terms of the accessibility of the SIDF loan?

Yes, that's about right.

Okay. That's helpful. Regarding the OpEx savings of $500 million over three years, it seems like the reductions are more front-loaded. I'm curious about the timing of this since it appears that you've already implemented the full 12% workforce reduction. Why is it expected to take three years, and when can we anticipate the savings?

No, no, that's not the intent of the message. What we said is that the cumulative savings over the next three years would be approximately $500 million that we mentioned. So it will be an equivalent proportional amount equivalent year-over-year, and the cumulative impact will be $0.5 billion. So there will be no specific impact from phasing other than the fact that in 2026 we will have some outflow associated with the severance related to the plan.

Right. But the $500 million in cumulative savings is achieved over 3 years. It's not all hitting in 2026, right?

Absolutely. Correct.

Yes. My question is about the 3-year timeline. If the reason is workforce reductions, what is causing it to take 3 years instead of all happening this year? I'm just curious.

Well, I mean, it's already happening now. So I mean, the way you should look at it is $500 million divided by three, and that's the yearly impact, and there will be an equivalent for the three years.

Thank you. That is all the time we have for our question-and-answer session as well as our conference call. This concludes the program. Thank you all for participating. You may now disconnect.