Lucid Group, Inc.

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Good day and thank you for standing by. Welcome to the Lucid Group second quarter 2022 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during the session, you will need to press star 1-1 on your telephone. I would now like to hand the conference over to your speaker for today. Maynard, you may begin.

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

Thank you, Maynard. In Q2, we continued to see strong customer demand for our vehicles with over 37,000 customer reservations as of today. That's an increase of more than 7,000 in the quarter, up from the 30,000 reservations as we reported last quarter. Now, this 37,000 figure does not include our agreement with the government of Saudi Arabia to purchase up to 100,000 vehicles, which is entirely incremental, nor indeed does it include potential reservations for our forthcoming SUV, the Project Gravity, nor even potential reservations for Lucid Air in markets outside of North America, Middle East, and Europe. As such, we're very pleased with the reaction from customers and the excitement surrounding Lucid Air. And we believe that as we get more of our vehicles into our customers' hands and expand our test drive program, that our momentum will just continue to build. We're also pleased to report that Lucid Air continues to garner many industry accolades, besting some very well-established luxury car brands. Now, for example, we debuted the 1,050 horsepower Lucid Air Grand Touring Performance in June at the Goodwood Festival of Speed in the UK, which features some of the world's fastest vehicles. The Lucid Air Grand Touring performance recorded a Goodwood Hill time climb of 50.79 seconds in the shootout. And that's the fastest time of any production road car at the event. And the 12th fastest time overall, which included many racing cars. Now, to be clear, only racing cars were faster at the event. And many of the racing cars were not as fast. Now, this demonstrable performance advantage lies in Lucid's in-house EV powertrain technology. Lucid designs, develops, and manufactures all our core EV technology in-house. This vertical integration differentiates Lucid from virtually every other car manufacturer today. However, with all that positive momentum, I do have to say that this quarter has proven to be a very challenging period. And whilst we have experienced supply chain and logistics challenges along with the entire industry, the limitations of our logistics system have compounded the challenge. And although we continue to face supply chain constraints, the resolution of some earlier gating component supply issues allowed us to push toward increasing the production rate. And as we attempted to push forward the rate, we found that our logistics constraints prevented us from scaling meaningfully this past quarter. For example, our ability to feed the correct parts to the line at the correct time and cadence, where each car is built with thousands of parts, and do this whilst maintaining a high Lucid quality build standards. So with that, let me walk you through our first half and Q2 production and delivery figures to provide a little context. In the first half of 2022, we produced 1,405 vehicles. These were factory-gated vehicles, and this means that they're completed and ready for delivery to customers. But in Q2, we also made a significant number of vehicles that we did not factory gate, instead electing to hold them back in order to ensure that these cars met the highest standard of quality. Remember, quality must take a priority over volume as a luxury brand. And I'll touch on quality a little bit later. From a production standpoint, We have both planned and unplanned pauses in the quarter that resulted in approximately two and a half weeks where we have no daily production at the factory, in addition to pauses of a more transient nature related to supply chain and logistics issues. A production pause due to installation of body shell assembly equipment and robotics for the Lucid Air Pure was preplanned. The equipment has been successfully installed, and we're on track for the start of Pure before the end of the year, which we expect to be hugely significant for us as a company. At the same time, we did also experience some unplanned production pauses, primarily in order to improve our logistics processes, which, as I stated earlier, became more apparent as we started to scale. So, as a result, we are reducing our 2022 production guidance to a range of 6,000 to 7,000 vehicles. Our revised outlook guidance for the year reflects the logistic challenges I described as we began scaling, which exposed the immaturity of our logistics processes. But I do believe that we've identified the primary bottlenecks and have already taken steps to begin to remedy the situation. We have made a significant decision to bring our logistics operations in-house. We've made key hires to the executive team and we've restructured our logistics and manufacturing organizations accordingly. We accelerated access to our logistics center as part of our phase two expansion in Arizona. And within a couple of months, we expect to have our logistics center on site at AMP1, which should help mitigate and begin to eliminate the logistics bottlenecks as well as reduce costs of the shipping and handling of parts. Furthermore, we're overhauling our logistics processes and introducing a series of improvements to simplify the system and yet make it more efficient and robust. I'm pleased to announce that Stephen David has joined Lucid as Senior Vice President of Operations. Stephen will report to me and will be based in Arizona at the center of our critical manufacturing and logistics operations. In this newly created role, Stephen will lead global operations, including oversight for the expansion of AMP1, as well as future operational centers. The business leaders of supply chain, logistics, Manufacturing and quality will now report directly to Stephen, ensuring we execute in tight alignment across these business units. Stephen's wealth of experience in manufacturing and operations will be a tremendous asset to Lucid. Most recently, he was head of component operations at Stellantis, responsible for business operations, including P&L, for two companies within the organization. And before that, Stephen served in a variety of leadership positions at Fiat Chrysler Automobiles, including vice president of manufacturing and engineering manufacturing for Asia Pacific. Stephen has expansive knowledge in the automotive arena. I'm also delighted to welcome Walter Ludwig, Vice President of Global Logistics to our executive team who will be reporting to Stephen. Walter brings over 28 years of automotive experience and joins us from Mercedes-Benz where he held various roles, including head of operations, head of quality, and most recently, head of central logistics. For the last 20 years, his main management focus has been ramping up and stabilizing the manufacturing plants in Germany, China, Russia, Argentina, and the United States. Walter provides operational leadership in developing and implementing logistics and parts management, material planning, as well as other areas. Now, moving on to the deliveries. Last quarter, I highlighted that we delivered well over 300 vehicles in the month of April. In Q2, we delivered 679 vehicles to customers. Our decision to prioritize quality had an effect on our deliveries, and quality is an organizational priority. I've been working with the team to make sure that nothing leaves our house without meeting our high standards. Now, in fact, I'm joining today's Q2 earnings conference call directly from our AMP One factory right here in Arizona. I'm right here on the front line. And I've been spending the vast majority of my time here, right here on the shop floor. I believe it's my responsibility as the CEO to be here resolving issues and helping to onboard the new executives. Indeed, I feel particularly at home on and around the production line where I am personally and directly engaged in helping solve problems. It is right here that I witnessed the passion and the camaraderie of the Lucid employees in the factory first hand and particularly our much valued associates who are so engaged in this process and this is very real they are so engaged because just like me they really want to build the world's best cars and just like me we want to do that in volume and believe me we're working tirelessly to make that happen And so I'd like to personally thank all of our employees for their sheer dedication and for working alongside me shoulder to shoulder right here in the factory. Now we've also made enhancements to our quality processes that are yielding improvements. The quality of the cars that we're factory gating now are excellent. And we're working to make sure that this excellence in quality is consistent at scale off the line. Again, quality simply must take priority over volume as we establish our brand reputation. In the quarter, we aligned manufacturing quality and field quality under Nick Mimbiol, our vice president of global quality. And that is already yielding improvements. We also brought in Sun Hai Moon as Global Head of Supplier Quality. Sun Hai joins us from LG Electronics Vehicle Components Solutions Company, where she was the Vice President of Field Quality and of Customer Support, responsible for leading all aspects of field quality performance, customer support, and aftermarket for products. Prior to LG, Sung Hai served as Power Train Quality Director for General Motors International Operations in Asia. Now, they, along with the team, have already identified areas for further improvement, and implementation has been underway, and these, combined with existing planned process improvements, give me confidence in our ability to ramp significant production volumes. On a positive note, our ability to produce cars has not been limited by our ability to manufacture our electric powertrain. And this advanced technology, which truly differentiates us, is manufactured in-house by attendantly advanced processes. And these are largely all going pretty well. And when you consider just how advanced these systems are, this part of the story is really quite an achievement. And from a product perspective, as I noted earlier, we already started deliveries of the 1,050 horsepower Grand Touring Performance. And we're on track for additional version of the Lucid Air for later this year, followed by the start of Project Gravity SUV production in the first half of 2024. We also expect to ship the very first Lucid Airs into Europe and Saudi Arabia by year end. So we see a lot of opportunity ahead of us. Now, I also want to provide an update on our Formula E relationship. As we approach the completion of four successful seasons supplying the standard battery pack to the Series, I am proud to say that we have had a 100% safety record to date with just two races remaining in this, the final Series season for the Generation 2 race cars. With the advent of the all-new Generation 3 Formula e-Race cars for next season, Lucid is proud to announce that we will be the sole provider of front drive units for the series. This brand new Lucid front drive unit has been custom developed to provide ultra-high performance with gravimetric and volumetric power density. These drive units are capable of 469 horsepower, yet remarkably are approximately half the weight of the Lucid Air drive units. Their position in the nose of the electric racecar in front of the driver's feet would drive shaft connecting out to the front wheels. Make no mistake, this is impressive, next level technology. And just as our learnings from our racing battery program provided technological transfer into our road car, the Lucid Air, I think that this brand new Lucid high-tech racing drive unit is probably a good pointer to a potentially smaller yet powerful road car drive unit in our future. As far as I'm aware, we are one of only two OEMs, or through the design, development, and manufacturing of our own technology. And I'm confident that as this technology race plays out, Lucid will continue to stand out. And we continue to garner strong industry accolades driven by our technology and our design. In Q2, we won the 2022 awards 10 Best Interiors and UX. This award validates one of the founding principles of Lucid Air, which is the Lucid Space Concept. In fact, I recently filmed a Lucid Tech Talk on the Space Concept, whilst Chief Engineer Eric Bach presented our latest Tech Talk on the Wonderbox bidirectional charger, which you can find on our Investor Relations website. The software team continues to work hard, with 19 over-the-air updates delivered since the beginning of the year. We added a number of features including an enhancement to Lucid Air's ability to identify traffic signs and inform the driver of speed limit changes and other important road information. a major upgrade to navigation, as well as other customer-requested features. And we'll have a major software upgrade coming later this year. Now, although I'm delighted by the strength of demand we see for our cars and the ovations we've received, I am conspicuously aware that the true value of having what is now widely recognized as a truly exceptional car can only be achieved by producing it in a meaningful volume. And that is why my laser focus, and indeed that of our Lucid team, is right here in Arizona, unlocking the path to our volume ramp-up. Make no mistake, although frustrating, this is a phase of our growth as a company that we will power through. and that one we will power through with a steely determination. We have a product, we've augmented our workforce, and we're improving our processes to enable this to happen. Now, furthermore, as we increase the number of vehicles on the road, I believe we will see further demand growth as the awareness of Lucid Air and of the Lucid brand proliferates. I'm also excited about the potential reservation demand for Project Gravity SUV, which we are now considering just how to debut and when precisely to open reservations. Longer term, in order to have a more meaningful impact on the climate, we recognize that we need to be in the more affordable, higher volume segments of the market. And we will be doing just that with our mid-sized vehicle platform around mid-decade, which I believe will further demonstrate the value of our efficiency through our in-house EV technology. In short, I remain very excited about our future and the broad roadmap ahead. Whilst right now we're taking steps to resolve our current constraints, at the same time, we're driving forward with a sense of urgency to get our incredible vehicles to market. And indeed, on that note, I'm very hopeful you will see the fruits of these labours in the coming months and quarters. And with that, let me turn it over to Sherry for an update on our financials and an additional perspective on our business. Sherry.

Thank you, Peter. And thank you to all those who are taking the time to join us today. I want to echo Peter's excitement about our future product and technology roadmap and customer demand. We remain incredibly excited to bring new versions of Elucidate to customers this year. And to put the reservation number of over 37,000 in context, This represents potential future revenue of approximately $3.5 billion, and that's before including the up to 100,000 vehicle deal with Saudi Arabia and the future reservations for the Gravity, since we've not yet opened the order books for our upcoming SUV. Our future reservations, taken together with our growing customer base, brand awareness, and number of industry accolades, gives us the conviction to continue to invest in the rapid expansion of our business. Turning to our second quarter financial results, our second quarter revenue was $97.3 million, which represented a quarter over quarter increase of 69%. This included $96.1 million in automotive revenue from the delivery of 679 vehicles. We also recorded other revenue of approximately $1.2 million, which includes sales to Formula E. As Peter mentioned, the Formula E drivetrain agreement is the natural next step in our relationship, and it's a true testament to our advanced technology differentiation. Cost of revenue was $292.3 million. Similar to last quarter, this expected increase was primarily related to personnel and overhead costs as we ramp up production, offset by lower freight costs quarter over quarter due to our ability to shift a vast majority of our international shipments from air to ocean freight. We recorded an impairment charge of $81.7 million in the second quarter, primarily as a result of these increased costs being capitalized into inventory. This is fairly typical in initial production ramps, and just as we saw a decline from Q1 to Q2 in this impairment charge, we expect that the impact should lessen over time if we ramp up production volumes toward our planned manufacturing capacity. Moving to operating expenses. We're still in the growth stages of our company and investing behind our strategic priorities. But I want to be clear that we're doing this in a prudent and methodical manner. We're instilling a culture of cost consciousness and we're working with our talented team members across the company to identify and execute on cost efficiency opportunities. To illustrate this point, I'd like to add on to Peter's earlier comments around the importance of quality. Getting quality right and getting it right early on in the factory helps to reduce downstream costs and improve throughput. So in addition to building the brand and customer loyalty, there's also tangible financial benefits to our quality first approach. Now turning to research and development, R&D expense totaled $200.4 million. The 7.7% increase sequentially was primarily related to prototype material, engineering, design and testing services, offset partially by lower stock-based compensation expense. SG&A expense was $163.8 million, down 26.6% from the first quarter, primarily due to lower stock-based compensation expense. In Q2, we added five new studios for a total of 29 studios and service centers across the US, Canada, and Europe. We're proud to have added new studio locations in Boston, Massachusetts, Manhasset, New York, Denver, Colorado, Seattle, Washington, and our first European studio in Munich, Germany. And we'll continue to strategically open new locations globally as we scale the business and grow our presence. We're also increasing our fleet of mobile vans and have a total of 29 in North America as of quarter end. Our mobile service vans can perform over 80% of the service procedures that can be done in a service center, and it's an important element in ensuring high customer satisfaction and a lower cost approach to providing service as the fleet of Lucid vehicles grows. Stock-based compensation in the quarter was $94.4 million. $10.4 million was in cost of revenue, $39.2 million was in research and development, and $44.8 million was in SG&A. In other income, we recognized a non-cash gain of approximately $335 million related to the mark-to-market value of private warrants. The value of the warrants can be influenced quarter-to-quarter by a number of factors, including Lucid Group's end-of-quarter share price. Now, moving to the balance sheet. We ended the quarter with $4.6 billion in cash, cash equivalents, and investments, which we expect will fund us well into 2023. During the quarter, we also announced a new ABL asset-based loan credit facility with initial committed capital of up to $1 billion, and the availability is based on the value of certain eligible assets. The terms also provide for incremental revolving commitments of up to an additional $500 million subject to obtaining lender commitments. We had no outstanding borrowings under the ABL credit facility in Q2. The importance of this facility is that it provides Lucid with incremental liquidity and demonstrates a vote of confidence from a world-class syndicate of global banks, many of which have been with us through multiple transactions as we scale our business. I'd also highlight that this is a typical part of the capital structure of mature businesses and reflects the further development of Lucid as a growing global company. In Q2, we activated a working capital loan under the Gulf International Bank facility agreement in the amount of approximately 6.7 million US dollars related to early work to build our factory in Saudi Arabia. We have approximately 86.6 million U.S. dollars currently available under the working capital facility and an additional 173.2 million U.S. dollars under a bridge facility. As demonstrated through this series of actions, we are committed to working proactively and opportunistically to ensure that our balance sheet remains an area of company strength. In Q2, we continue to invest in our technology platform, the scaling of our global business and the manufacturing infrastructure build out. Capital expenditures related to these activities were 309.8 million in the second quarter. As you can see from the photos we shared in our Q2 earnings presentation, our phase two expansion at our Casa Grande Arizona factory is progressing. When complete, we expect our installed capacity to increase to 90,000 units per year by early 2023. As we exit mid-decade, we expect to reach an annual installed capacity of 350,000 units in Arizona and 150,000 annual units of installed capacity in Saudi Arabia. And that gets you to an annual installed capacity of 500,000 shortly after mid-decade. In Q2, we announced our initial launch plans into the European market with the Lucid Air Dream Edition R, which is optimized for an estimated 900 kilometers of range, and the Dream Edition P, which features 1,111 horsepower. We have not yet begun to accept orders in Europe, but we did reach out to our existing reservation holders to gauge interest in Dream Edition, and we immediately saw strong demand. Moving to some of the other major milestones in the quarter. We launched Lucid Financial Services in June, an all-new digital platform offering a flexible, fast, and transparent financing process. Many Lucid Air customers have been asking for flexible financing options with a preference for a 100% digital experience, and we've delivered on that ask. Loan products are available to U.S. customers in all 50 states and lease products in 38 states and growing through a seamless process designed specifically for Lucid customers. We believe this helps open up the market as it's estimated that over 65% of OEM customers seek out loan or lease financing. This also enables us to continue to build direct relationships with our customers throughout their ownership journey. Now, it's highly unusual for an auto company to roll out this type of service as early in the growth cycles as we do. Truly amazing and great work by the team. Another proud milestone in the quarter was our addition to the Russell 3000-Russell 1000 Index. RUSLE indices are widely used by investment managers and institutional investors for index funds and as benchmarks for active investment strategies. Our inclusion in the RUSLE 1000 Index is another significant milestone for Lucid and should help broaden our awareness in the institutional investment community. Now, turning to the Outlook. Peter outlined some of the supply chain and logistics challenges, as well as the actions we're taking to address the near-term production bottlenecks we're experiencing. Bringing our logistics operations entirely in-house and accelerating access to our logistics center onsite at our Arizona factory will help reduce complexity, cut down lead times, and reduce various costs. We believe these decisive actions as well as the addition of leadership across logistics, process transformation, and supplier quality will help us unlock these bottlenecks. However, it's unlikely we'll be able to make up the anticipated loss volume in 2022. Consequently, we are adjusting our 2022 production guidance to 6,000 to 7,000 units from 12,000 to 14,000 units. Now turning to our cash guidance, we ended the quarter with $4.6 billion in cash, cash equivalents, and investments, which we continue to believe is sufficient liquidity to fund us well into 2023. This assumes we are investing fully in accordance with our forward plan. As a reminder, we also have the KSA debt facilities and the ABL with significant untapped capacity. I'm also confident we will have options for additional funding as needed, and our strong balance sheet allows us the flexibility to be opportunistic in the market. Moving to CapEx. CapEx in the first half of 2022 was $494.9 million. While the timing of CapEx outflows can shift quarter to quarter, we continue to expect capital expenditures for the year of approximately $2 billion. This funds facilities as well as machinery and equipment in Arizona. retail and service center development, early investment in our presence in Saudi Arabia, and other capex associated with vehicle and component development. In terms of our product roadmap guidance, we're on track for deliveries of additional versions of Lucid Air later this year, including the grand air grand touring performance, the air pure, the touring, and for production of Project Gravity SUV in the first half of 2024. In closing, despite our immediate challenges, I'm proud of what our team has been able to accomplish collectively with our business partners. We've enabled financings, we've continued important infrastructure build-out, and launched award-winning products. We welcome the new leadership team members and look forward to the capabilities that they bring as we work together to resolve issues and capture the tremendous opportunities ahead of us. Following Peter's closing remarks, we'll begin the Q&A portion of today's call. Today's Q&A will feature questions from some of our retail investors, an important constituency of our shareholder base, through the Say Technologies platform. With that, I'd like to turn it over to Peter for closing remarks. Thank you.

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

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

No, thanks Maynard. So we don't have anything to announce today regarding any new partnerships. That said, we recognize the attractiveness of our products and tech platform for other companies and we're keenly open to discussing partnership options. With regard to fleets or rental cars specifically, our vehicles align very strongly with the operational and financial metrics that these operators care about. For instance, we are industry leading in efficiency, which is measured in miles per unit of energy and hence miles per dollar. Our charge time and range are also leading the market, which translates to higher vehicle uptime, which both customers and fleet operators desire. And we can also enable fleet operators to manage and run predictive analytics on the fleet and communicate with the fleet, given we've installed an OTA-enabled software platform on every car that we've sold.

Yeah, indeed, Sherry. You know, even from a, I guess, from a vehicle architecture perspective, Our lucid air space concepts provides additional room for luggage or cargo, or in the case of an autonomous vehicle, ride-sharing fleets, which are configured with the extra computer hardware and equipment. We have more room for that equipment and the batteries to power the equipment. So, you know, I think for many of these characteristics and attributes, would potentially make us a fantastic partner for one of these groups today. And frankly, even more, I guess, over time as we introduce more affordable models in the future, such as the AirPure and other variants. I mean, what can I say? Well, look, we've got the perfect current platform for such opportunities, I guess.

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

Oh, yeah, this is good. And I think there's sort of kind of a popular sort of widespread misconception perception that Lucid only wants to be playing in the high-end luxury segment of the market, and that's simply not true. In order to have a more meaningful impact on the climate, we just need to be in that higher volume segment of the market. That's how we're going to really make that impact. And, you know, one of the first steps, I see Pure as a stepping stone to a more affordable car, and that's why I'm so passionate about the Lucid Air Pure. And, I mean, looking a little further ahead, we'll see our midsize vehicle platform just mid-decade, which is going to be a further advance in our technology and efficiency story. And I just want to explain, we deliberately chose to start off at the high end because we were defining a a super cool brand with, you know, from its Californian DNA. And this is just the starting position. I mean, we start off by creating our tech flagships, such as Lucid Air and Gravity First. And we focused on the technical efficiency. We've set new benchmarks. And then we're going to make more affordable products. And that's what really excites me. Remember that we design, we develop, we manufacture all our power training in our factory in Arizona. And we think we can become even more efficient. And that's going to drive down cost of easy ownership and accelerate and catalyze widespread adoption, which is my passion.

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

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

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

Oh, wow. Well, that's a very specific question, I guess. Maybe allow me to explain this more broadly, perhaps. And of course, I can't speak for Apple's future product line here. But we're always evaluating new technologies as they come to market. And of course, we'll continue to do so. Look, we've got an awesome car from a hardware and mechanical perspective. And what I can talk about is some very exciting software updates coming throughout the year that will really sort of match the prowess from the hardware side. And we will continue to provide new features via over the air software updates. And specifically, with regards to card play, we're actually in a beta testing phase of validation right now. And actually, we plan to release the final version in the near future. So stay tuned and wait for that.

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

Thanks, Maynard. Well, the entire industry has been experiencing inflationary cost environment, and we're certainly not immune from that. I mean, with respect to the actions that we've specifically taken, in June, we increased the prices of the Lucid Air. And that was the first time that we announced, since the first time that we announced prices back in September 2020. We're not going to see a material impact from that action until 2023, given that we honor the prior prices on the reservations made through May 31st and orders to the Grand Touring, which were confirmed in June. As I've mentioned in the prepared remarks, we're still in the growth stages of our company and investing behind our strategic priorities. So large-scale blanket cost-cutting initiatives aren't necessarily appropriate in our case. That said, I want to be clear that we're allocating capital in a very prudent and methodical manner. We're instilling a culture of cost consciousness. We're working side by side with our talented team members to identify and then execute on cost efficiency opportunities. It often takes time to get processes to be best in class and efficiency, so there is definitely more work that we can do to rein in costs. You know, like others in the industry, we're running various downside scenarios and we'll act accordingly based on market conditions.

Yeah, and I think the second part of the question was, is everything on track for gravity release? Yeah, as we stated, our project Gravity SUV is on track for start of production in the first half of 2024. And actually, we're currently in the process of releasing the engineering data for our prototype build, and I'm hugely excited about that, and I've been closely interacting with that whole process. And we also happen to mention that our mid-size platform, of course, is on track for just past mid-decade as well. Now, of course, it's important to recognize that to sync with the start of production of gravity, of course, at the same time we're readying our factory through the phase two here of AMP1 right here in Arizona. In particular, we're expanding the north end of the body shop ready for project gravity and the south side of the building, the new assembly halls where we'll run both air and gravity down that line. Now, we have customers asking us all the time for an SUV, and our hope is that Gravity can do for the SUV market just what AIR did for the luxury sedan market. And we're going to take the same space concept, the range, the efficiency, the technology, and design and performance, and apply all that great stuff to an SUV. And I think probably doesn't surprise a lot of people. I'm not a great SUV fan, but this finally is the SUV for me. It's actually going to happen. I've finally met the SUV I love, and that's Project Gravity.

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

Thank you. As a reminder, ladies and gentlemen, you will need to press star 11 on your telephone. One moment for our first question. Our first question comes from the line of John Murphy with Bank of America. Your line is open.

Good afternoon and good evening, guys. I just have three quick ones. First, Peter, you mentioned that there were finished vehicles that were held at the factory and not, you know, fabricated and ordered as finished. I'm just curious, you know, how many those were and how many of those are close to being finished. Second, as we think about the logistics center being brought on site in Casa Grande and, what the incremental cost for that would be, and does that have any impact on capacity? And then the third question, Sherry, what is the ABL borrowing base that's backstopping the new billion-dollar loan or ABL facility? And you mentioned that might be upside, so what other assets could be pledged for that ABL?

Thank you, John. Peter here. Yeah, I mean, the first question was the cars that we held back through Q2 at the factory. We did that to really ensure that the quality was just perfect. And, you know, it was just fit and finish adjustments on what we call flush and gap. the hood to the fenders, just the finer points, the finessing that you would expect, features and the quality commensurate with a luxury automobile. And although many of those cars were meeting some of the standards of my quality team, I took the decision, look, I really want to up the game here. and get things right. Now we're actually releasing a lot of those cards, we're direct feeding them to our service centers right now and then they'll find themselves their way through customers having had that attendance, love and attention and care and I think they'll be delighted with our best efforts to make them as perfect as they can be. You also asked about the logistics center at Casa Grande, now this was probably 2.85 million square foot expansion does include several hundred square feet hundred thousand square feet of a logistics space what we're doing is just accelerating that at a very modest outlay just getting them a little bit quicker because the closer we can bring the buffer stock and the materials to the line that is key to creating a more efficient flow of material within our own house. So this is nothing new, it's just an acceleration of what was already planned.

That's right. So no real incremental costs to speak of with respect to that LOC. You know, you asked about the ABL. I mean, we are just delighted to have put that in place with this world-class group of banks and, you know, in our syndicate. You know, the borrowing base, the initial committed part of it is $1 billion, okay? And then we can borrow up to about a quarter of that billion right now based on eligible assets. That we will grow into more over time as inventory goes up, as other of our assets go up. And so that is something that is going to be available to us on a growing basis just as we move forward and mature as a company. The neat feature about this ABL is it also has an accordion feature. So although the second part of it, the accordion part, is not committed yet, it is up to an additional $500 million that's going to be available for that.

Thank you. Please stand by for our next question. Our next question comes from the line of Atay McKelly with Citi. Your line is open.

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

Hi, Peter here. I think it's a really excellent question. You know, we've based our guidance based upon a mindset which is neither super unduly optimistic nor unduly pessimistic, a very balanced approach, and we've taken a very comprehensive and very thorough analytical approach to the risk and opportunities that we see and which confront us. This is an imperfect science, an imprecise area, but the entire executive analyzed this very thoroughly and we have a very high degree of concurrence in our collective thinking which has led to this revised guidance.

So let me talk to the reservations question. So as you can expect, when we announced in May at our May earnings release that we were going to keep the prices, the old prices in effect through the end of May and not have them go into effect until June 1st, that did bring forward some reservations. So we had a very large spike that happened in May. You see that as we went from 30,000 to 37,000. That's the largest spike. growth that we've ever had in a three-month period before. So that did happen as expected. I'd say that the POLA has had a little bit more pure in it than others, which you also would find as being intuitive that the lower price points might be a little bit more price sensitive, so looking to lock in that rate. Now, what was really interesting is as we moved ahead the next couple of quarters and we looked at the reservations that have come in in June and July, If we take that June and July base that we've had and then we add to it the increase, the over-normalized increase that we got in May, we are still way ahead of where we would typically be if we were just normalized through June and July. So that pull ahead we're seeing, you know, really might have been a bit of a bump up, you know, just kind of like a marketing event almost, if you will. The other thing that was interesting is we looked at the June and July, you know, reservations that are coming in is that they continue to be allocated across the same mixed allocations that we saw pre-price hike. So you're still seeing pure highest followed by grand touring and then touring. So grand touring continues to be above touring as well. So we're seeing what I would say is very encouraging response and reservations following similar patterns. And when you take the bump in May with the reduction we've seen in June and July, we're sitting in a really great place.

Thank you.

And then third, I think you had a question about minimum cash balance. So that one's interesting. There's a lot of different ways to model this because the way we are looking at the $4.6 billion. And when I talk about going, when I talk about being well into 2023, I'm talking about going in accordance to our full plan, which is investing in Saudi Arabia, investing in all of our vehicle variants, investing at this swift pace that we have chosen to do. We have some options there, right? So when you think about the minimum balance, you could stretch that out if you want. So, I mean, I'm not really going to provide any guidance, you know, with respect to how much cash we want in the bank. But I just want you to know that you're going to continue to see from us the same type of proactive, you know, kind of opportunistic behavior that you've seen all along. Every quarter, we're coming to you and we're telling you about something interesting that we've done in the capital markets. We did the convertible bond offering. Now we've done the ABL. We put in place the $3.4 billion in Saudi Arabia. So I think you're going to continue to see that kind of action taking place from us, monitoring the markets and making sure that we're doing what is prudent on behalf of all investors.

We'll take the next question, please.

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

Hi. Thanks for taking my questions. I've also got three, please. So, firstly, again, sorry, on the production, I'm wondering, can you help reassure us a little bit on the ramp-up by giving us an idea of what your weekly production rate exited Q2 at and what it is today? My second question, on order intake, Sherry, you just mentioned there that If you smooth out the last three months, it was actually ahead of what you expected. But if I look at it, I think I'm right in saying that you've averaged about 78 orders a day in the last period since you updated us. And in the three-month period before that, which was March to May, it was basically the same as that. So I'm wondering, is the sort of explanation that there were cancellations, and so the gross order intake was significantly above, or maybe the expectation is that the order intake would slow? And thirdly, Shari, I think there was $1.4 billion of purchase of securities in Q2. Can you just Tell us what that is and whether or not we should treat it as being as liquid as cash when it comes to your funding requirements. Thank you.

Hi Charles, Peter here. You know, I'm really learning to provide guidance on weekly production rates and this because it can be so misleading. There's a whole host of factors. If we can delay production a little bit to put in improvements to our line size supply, which, for example, can improve rate in the future. And once we start cherry picking specifically weekly production, I think that the numbers we provide you give the most broad and honest description of our ability to have produced cards through this relevant quarter, and our guidance of between 6,000 and 7,000 cards for the year, I believe, is a very balanced and a realistic guide for the future. Sorry, I don't think it's wise for me to give you a weekly production rate right now.

Let me cover off a couple of your questions as well. So you were asking about the short-term and long-term investments. So you're right. We took some of our cash and we parked it in short-term and long-term investments and separately managed funds. And we did this because we didn't need access to all the cash right now, and we wanted to be able to get a little bit higher return on our money. Those dollars are accessible to us at any time, but we don't intend to use them right away. And we plan to let them mature and garner the interest rates, which is the purpose why we put them there. But they are absolutely accessible to us. I don't want people to get confused when they see the cash balance, the cash line on the balance sheet going down quarter over quarter. Some of that was moved into short-term and long-term investments, so our assets are still there. It wasn't that we spent all that, and I definitely don't want there to be confusion on that point. Secondarily, you asked a bit about just the reservations. So when we looked at that normalized curve I was talking about, we did exactly what you said. I looked back three months, and I looked back six months and nine months, and I kind of looked at what does that normalization look like. And we are definitely well above that when you look at May, June, and July, you know, kind of taken together. Cancellations came down slightly. So we've actually seen some improvement there as well. But what you are going to see as we go forward is that the deliveries are going to be increasing substantially. So I don't know you're going to continue to see that kind of growth because you're going to have a lot of deliveries coming out of that number. Now, we will be opening up the gravity order book at some point. Then we expect we're going to get another large spike again, right? So there's going to be some dynamic nature to these reservation numbers going forward, and we'll be sure to be as transparent as we can about that in future earnings calls.

Great. Thanks. And we'll close out with the last question from the SAE platform, which is, what is the plan for growth? How do you plan to take more market share in the EV market?

Well, I mean, first of all, I have to say this. I think there is no such thing as a market for EVs. There's a market for cars. So we're not competing for this sort of artificial construct of EV market share. I think that's a fantasy. We're competing for the rest of the marketplace, which is huge, the white space, which is currently occupied by outdated gasoline cars. And that's what we're market but I would also say that this is a technology race and we're in it and this is yet to play out because not all EVs are created equal. And I'd also like to add, I mean, with Lucid Air, we're addressing specific issues that have been sort of resistance points, I guess, to customer adoption of EVs in the past. I mean, we've got the longest range. We've got the fastest time to charge. We've got incredible space in superior design. You know, it's really leveraging so much more than just an EV. It's leveraging all those advantages that electrification can provide. And I think we can sell more cars because we address these key resistance points. But furthermore, I guess there's a bigger issue at stake here. And I'm glad you asked the question because it allows me to address this. The world's precious battery materials are really scarce. And our technology allows us to make more cars with less batteries. And this is a point that's really missed. because we can make more cars with less resources, because we can go further for a given amount of energy, because we've got more efficiency. I mean, for example, we believe we can endow a Lucid Air Pure with over 400 miles range with a battery pack size of less than 90 kilowatt hours. That's what's going to make Lucid Air Pure really awesome. You know, similar range, but fewer batteries than compared with EVs for others. And that is the future. That is the consequence of being in the tech race.

Great. Thank you. And I think that's a great way to end. This concludes Lucid's first quarter 2022 earnings conference call. Thank you all for joining us today. And you may now disconnect.