Lucid Group, Inc.

Good day and thank you for standing by. Welcome to Lucid third quarter earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You'll then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 on your telephone again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Head of Investor Relations, Maynard Arm. Please go ahead.

Thank you, and welcome to Lucid Group's third quarter 2023 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 include forward-looking statements under federal securities law. 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 forward-looking statements on page two of our investor deck, available on the investor relations sections 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 the investor deck. With that, I'd like to turn the call over to Lucid CEO and CTO, Peter Rawlinson. Peter, please go ahead.

Thank you, Maynard, and thank you everyone for joining us for our third quarter earnings call. In Q3, we delivered on a number of the key milestones that we set out to achieve. In September, we started production of the AirPure rear-wheel drive, as we said we'd do, and we are currently in the process of ramping up its production. Now, the AirPure rear-wheel drive is our most attainable air with a starting price of just $77,400. However, it sacrifices absolutely nothing for the style and technology, range and performance, space and practicality. It has it all. The pure rear-wheel drive can charge up to 150 miles in just 12 minutes and has an official EPA estimated range of 419 miles, more than any other electric car currently available besides other Lucid Air models. But most importantly for me, it's incredibly delightful and engaging to drive. And we continue to push the boundaries of our technology with a pure rear-wheel drive efficiency of approximately 4.74 miles per kilowatt hour. And this is further widening the gap against our competitors. Now for customers, this means the ability to go further with less batteries. And because the battery is smaller, this means the car weighs less, is more agile, and can cost less than a vehicle of similar range with a larger battery pack. So you get greater distance, smaller battery, less raw materials, lower running costs, immense interior space, and it's much better for the environment. We also started production of Lucid Air Sapphire in September, and we delivered the first cars to customers at a special event in early October. The Air Sapphire is the world's first fully electric luxury super sports sedan, achieving a 0-60 mph time of just 1.89 seconds, a 0 to 100 miles per hour time in just 3.84 seconds, and a quarter mile time of 8.95 seconds with a top speed of 205 miles an hour. Air Sapphire delivers both 1,234 horsepower and an efficiency of 3.61 miles per kilowatt hour, as well as an EPA estimated range of 427 miles on a single charge, representing an extraordinary fusion of capabilities. I mean, for reference, the closest competitors provide perhaps between 20 and 50% less range. Now, the technology that underpins Sapphire enables an unsurpassed blend of performance, agility, and versatility. And the result is an extreme performance car. But it's not just about 0-60 time. That's just one dimension. It's truly a rewarding car to drive with amazing road car dynamics. In fact, Jason Kamisa, who is a well-regarded automotive journalist, said the Lucid Air Sapphire is, and I quote, the best handling sedan in the history of the world, or maybe the best handling car, period. With Lucid Air Sapphire, we once again raised the bar and increased the gap between Lucid and its competitors, creating the world's most well-rounded and versatile high-performance EV. We also achieved major manufacturing milestones in September. In Arizona, we officially shifted General Assembly to the Phase 2 factory. This is just the start as construction continues on the new powertrain manufacture area with our body and white expansion and stamping facility getting really vertically integrated out there. We made history in Saudi Arabia also, opening the country's first ever car manufacturing factory. In its first phase, the factory has a capacity to assemble 5,000 Lucid vehicles a year, and operations are already underway. Now, before turning to production and deliveries, I'm delighted to announce the appointment of Mr. Mark Winterhoff as our new Chief Operating Officer, a newly created role which reports directly to me. This appointment is a natural evolution of the company as Lucid enters the next phase of its growth. In just two years, we expanded our global sales and service footprint, built our second factory facility located in Saudi Arabia. We signed our first technology agreement with Aston Martin, and we're working assiduously on our future vehicles, the Gravity SUV, as well as our more affordable midsize vehicles. Thus, the execution of our strategy towards global manufacturing, supply chain, sales and service, marketing, and international markets is indeed critical to our success, and I'm confident that Mark's intimate knowledge of Lucid and extensive automotive experience will be invaluable as we continue to grow. And I believe this will significantly benefit us by freeing up my time to focus upon my key strengths, mainly the product strategy and its technical execution, the overall commercial strategy, and a long-term vision for this company. I particularly look forward to help drive our technology advantage over our competitors with our exciting technology roadmap. And naturally, I'll also be closely partnering with Mark in essential day-to-day matters and operations. Now, turning to production and deliveries. In Q3, we produced 1,550 vehicles. Now, this does not include over 700 vehicles that were in transit to Saudi Arabia. Whilst these were manufactured in Q3, they will only be counted towards production upon final assembly at our AMP2 facility in Saudi. We delivered 1,457 vehicles in the third quarter, including initial deliveries of Lucid Airs under the Ministry of Finance agreement. We decided to prudently align our production with deliveries and we are adjusting our production outlook to a range of 8,000 to 8,500 down from more than 10,000. Now Sherry will touch on this in a little more detail. Now turning to brand awareness, a critical imperative has been very specific and compelling sales and marketing initiatives and actions to enhance awareness and demand. Efforts are well underway and showing good results. In North America, the majority of orders in the third quarter came, in fact, from new customers. These are customers whose first contact with Lucid was in the quarter of their order. And we believe that our targeted, data-driven approach to marketing, as well as our compelling offerings, are bearing fruit despite an uneven macro environment. The volume of lucid airs on the road also continues to grow, and it's exciting to see all the photos of air sightings in the wild that people are sending out. I believe that our brand awareness can benefit more meaningfully once we hit that critical mass of cars on the road. So we're pleased with our brand awareness progress in the US as well as in the Middle East. We're making progress in Europe with test drive growth, but we're still early on in our journey there, frankly, and expect more significant progress towards growth next year. We've also been working on improving the customer journey. from the start of the journey with a financial service process all the way through the final delivery process. And we've made great progress, but we do still have some more work to do. We're also working on new sales initiatives to accelerate deliveries and to improve the customer experience. So a lot of things happening behind the scenes that we're really excited by. I'm also pleased to announce that Lucid customers can gain access to more than 15,000 Tesla superchargers in North America, and that we will integrate the North American charging standard into our vehicles in 2025. And of course, all Lucid vehicles with a current CCS charging standard will be able to access that network through an adapter. Now this is an important addition to providing our customers expanded access to reliable and convenient charging solutions. Now turning to software, earlier today we started rolling out our latest over-the-air software update. This update will enable a new revolutionary feature in vehicle-to-vehicle charging. Not only are we solving range anxiety with our industry leading range, but the Lucid Air can now also lower anxiety for owners of other EVs with less range. So please stay tuned for more details of this in the very near future. But let me tell you why this is so significant. This is a shining example of our systems approach to the design of the vehicle. It's the tight integration of our cutting-edge software with our state-of-the-art technology. Now, this systems approach of integrating hardware and software is what allows us to provide these value-added updates, and I believe few in the auto industry can do it as well as to the degree that we can. And with Lucid Air, the longer you own the car, the better it can get. We continue to improve and add functionality as you own the car. Now, I invite you to watch a video with Mike Bell, our head of digital, that you can find on the Tech Talk section of our Lucid website, and which I hope will give you some insight into our software differentiation and a glimpse into what's to come. I'm also delighted to say that we recently closed our Aston Martin arrangement. Sherry will go through this in more detail, but I want to highlight that Lucid was chosen as part of a competitive process based upon the merits of our Sapphire technology. And in fact, since the announcement of the Aston Martin deal, I'm very pleased to say that we've seen an increase in inbound interest to access our great technology. As we move forward, I continue to see significant market potential. We'll continue to advance our technology and look to further widen that technology gap. Some in the market are talking about the potential for a reduction in EV investments by other OEMs. Now whilst I urge the industry to accelerate the transition to sustainable transportation, nonetheless, If this were to come to bear, I believe that Lucid would be in a prodigious position to benefit through our technology licensing business. And whilst Lucid is becoming widely recognized as having the best EV technology bar none, some may be led to believe that it's expensive to make. And this is not well understood. ARDI's technology was designed from the outset for mass manufacturability. I cannot close without talking about a product I'm very excited about, the Lucid Gravity, our three-row, seven-passenger SUV. And I can't wait to unveil it at our special launch event on November the 16th next week at the LA Auto Show. the gravity will significantly expand our market opportunity, opening up a total addressable market that is nearly three times larger and growing. More importantly, for our customers and for the planet, the gravity takes all of the innovations of Lucid Air and builds upon them. The range, the efficiency, the performance, the driving experience, the interior space, Just everything that people love about the air and that helped redefine the sedan space. We will now bring to gravity and in turn, we will redefine the SUV in the electric age. But let me be clear, the gravity SUV isn't an air sedan design that we just converted to an SUV. that gravity has been designed from the ground up to be a true SUV. Now, I don't want to reveal too much, but I think you're going to love it, and I just can't wait to show it to you all next week. And I hope that many of you will be able to join us for this momentous occasion. So in closing, we recognize that there are forces that are out of our control and that some are not. we are navigating an uneven macro environment that is also affecting many others in the industry. But I'm excited about the remainder of this year and for 2024. In addition to gravity and the expansion into a larger and growing market, we have a number of other announcements that I'm excited to share with you in the future. We know we have a lot of hard work ahead of us, and I'd like to close by saying thank you to our most important asset, our employees, to our suppliers, and to our partners. And with that, let me turn it over to Sherry for an update on our financials. Sherry.

Thank you, Peter, and thank you to those who are taking the time to join us today. I'd like to start by acknowledging our employees for their perseverance, dedication, and especially their hard work. and our suppliers and partners for their deep commitment. We've endured through the pandemic, global supply chain disruptions, and now an uneven macro environment. Despite all of this, we gained almost 300 basis points, the U.S. market share in the premium luxury sedan market year-to-date as of September 30th, versus the same period in 2022. We opened manufacturing locations in two continents, and we launched our full lineup of air variants. We believe we have the best car on the market, and we're equally excited to redefine the SUV market with gravity. Before turning to Q3 results, let me speak about the Aston Martin agreement. We're pleased to have closed the deal, and pursuant to the terms of the agreement, we received approximately 28.35 million ordinary shares in the first cash installment of 33 million US dollars. Excluding the Aston Martin shares, This deal is anticipated to be worth in excess of $350 million. Turning to our cost control program, as you recall, this was one of our top two priorities we highlighted at the beginning of this year. The five-part cost control program that we implemented in the first half of this year has yielded significant operational improvements and cost savings through inventory-level drawdowns, as well as vehicle direct cost, freight, and overhead cost reductions. We've been able to draw down our raw material inventory levels by approximately 10% from the start of Q3 through improvements made in material planning and inventory management. Particularly, we've been able to improve forecast accuracy of our inbound shipping channels and optimize inventory entitlement through the course of the program. These lower inventory levels have resulted in materialized savings related to logistics and material handling labor, equipment rentals, and working capital. For vehicle direct costs during Q3, we were able to implement measures such as battery cell optimization and product development improvements. For example, a new battery cover is being introduced across all modules that we manufacture. Additionally, we've introduced packaging improvements on large parts such as fascias, panels, and glass as part of Lucid's carbon footprint reduction plan. The cost control program for vehicle direct cost has also helped identify and steer further opportunities for 2024 with key measures such as product feature consolidation and upgrades, as well as bringing select operations in-house. Further cost reduction opportunities have also been identified in both cost of goods sold and APEX. Now, turning to our 2023 third quarter financial results. We produced 1,550 vehicles during Q3. These are factory-gated vehicles that are ready to be sold to a customer. This does not include the over 700 additional vehicles that were manufactured and then prepared into semi-knockdown kits. These kits are not counted as factory-gated until they're finally assembled at our AMP2 factory in Saudi Arabia. These Saudi Arabia vehicles are a combination of retail customer and government cars, and we hope to deliver many of them in Q4. We delivered 1,457 vehicles, up 4% both year-over-year and sequentially versus Q2. We had hoped to deliver more vehicles in Saudi Arabia in the third quarter. However, the scale-up time has taken a little longer than estimated. Turning to the P&L. In Q3, we recorded revenue of $137.8 million, which represented a quarter-over-quarter decline of 9%, largely driven by a change in product mix. Cost of revenue was approximately $469.7 million for the third quarter. Our gross margin improved slightly on a quarter over quarter basis, primarily due to lower impairment charges in Q3 related to the lower of cost or net reliable value that we also refer to as LC-NRV. This amounted to $230.8 million in Q3, a 21.7% reduction from Q2. Looking forward to Q4, although there are many controllable and uncontrollable variables that can affect gross margin, we anticipate improvements to gross margin driven primarily by projected reductions in impairments, BOM costs, and logistics, along with us beginning to recognize productivity improvements as part of our transition to AMP1 Phase 2, offset to some degree by incentives to help aid conversions. I would also highlight that our results do not include any potential IRA benefits as we work through fully contemplating the accounting dynamics. However, we still expect to be able to recognize benefits, which may be up to $2,000 per vehicle, and we are evaluating the timing of recognition. It's also important to note that there have been meaningful reductions in commodity costs, which we've not yet benefited from, due to higher than optimal inventory levels. is we work down inventory we built partly due to COVID and partly due to the inventory ramp up associated with the launch of new vehicle variants. We expect to see meaningful financial benefits in 2024. We'll be watching very carefully for any inflationary impacts that may offset these gains, however. Now moving to operating expenses. R&D expense totaled approximately 230.8 million, down 1% sequentially. SG&A expense was approximately $189.7 million, down 4% sequentially. The sequential decrease was attributable to better cost management, partially offset by higher marketing expense. We added four new locations to our studio and service center network in Q3, bringing our total at the end of the quarter to 45, excluding our temporary and satellite service centers. On the service side, we ended Q3 with 41 mobile vans in the fleet in 77 nationwide approved body shops. We also plan to continue to open satellite service centers, which will cost effectively provide additional locations for Lucid customers. Our stock-based compensation in the quarter was $68.2 million, down 4% sequentially. You should expect to see an increase in Q4 due to vesting as well as incremental hires. Total other income was 122.3 million, up from 74 million in Q2. The increase was largely attributable to higher interest income due to higher average balances and book yield from cash and investments. We also recorded a non-cash benefit of 60.3 million related to the change in fair value of our common stock warrant liability, up from 42.1 million in Q2. As a reminder, this non-cash impact can be influenced quarter to quarter by a number of factors, with one of the larger factors being Lucid's share price at the end of the quarter. In Q3, we achieved an adjusted EBITDA loss of $624.1 million. Moving to the balance sheet, we ended the quarter with approximately $4.9 billion in cash, cash equivalents, and investments, with total liquidity of approximately $5.45 billion. We've been able to consistently sustain a strong balance sheet over time, and as we've done for the last two years, we'll continue to be opportunistic in exploring and diversifying access to financing sources. Turning to inventory, total inventory decreased 6% sequentially. Presuming that supply chain pressures continue to stabilize, we continue to see a pathway to a significant reduction in raw material days of inventory on hand as we work toward greater predictability in the transportation channel and refine our inventory management processes and systems. Capital expenditures were 192.5 million, down 5.5% versus Q2. Moving to the outlook. We are adjusting our production outlook to a range of 8,000 to $8,500, down from our prior guidance of more than $10,000. I want to make clear that production is not our bottleneck, but rather we're taking a prudent approach to inventory management and working capital to better align with deliveries. The timing of in-transit semi-knockdown kits to Saudi Arabia could affect production in any given quarter, as you saw in Q3. So that's something to keep in consideration as well. With regard to our liquidity position, we ended the quarter with total liquidity of approximately $5.54 billion. We expect this will give us runway through the start of production of gravity and into 2025. Moving to CapEx, we expect capital expenditures for 2023 to be between $1.0 billion and $1.1 billion, reflecting deferrals in our capital outlay. CapEx will support our continued growth objectives as we strategically invest in manufacturing capacity and capabilities, some moderate investment in retail studios and service center capabilities across the globe, as well as vendor tooling for gravity in other areas supporting growth of Lucid's business. Before I close, I want to mention the Form S3 that you may have seen filed today after market close. This is not a new issuance. and it's related to the previously announced private placement of common stock to the PIF in June of 2023. Pursuant to the agreement, we were required to file a registration statement. So this is simply the execution of our contractual obligations, and this is not a new issuance. I'd like to close by saying that I'm proud of the team's execution in a difficult environment that affects many in the industry. We started production of pure rear-wheel drive in Sapphire in September, We transitioned over from phase one to our new phase two facility for General Assembly in Arizona. We opened AMP2 in Saudi Arabia, all on time. We closed the app to Martin Deal, launched our referral program, and we'll be delivering our vehicle to vehicle charging feature through an over the air update, highlighting the tight integration of our hardware and software, something we believe few others in the industry can do. But we know we have much more work to do. We're working hard to increase the number of vehicles on the road to help drive an inflection in brand awareness. We're keeping a strong focus on cost control, and we're working diligently on improving the customer journey. And on November 16th, we'll finally release more details about our Gravity SUV at our unveil event at the LA Auto Show. We can't wait to show you this incredible SUV. We think you're going to love it. With that, let me turn it back to Maynard to get your question. Maynard?

Thanks, Sherry. We'll start the Q&A portion. Before we get to questions on the phone, we're going to post some questions from our retail investors through the SAVE platform. So we'll start the first question. What is the plan for Lucid to expand their operations and start becoming a profitable company?

Thanks, Maynard. Well, I think we answered the question about our expansion plans already. With our discussion of the AMP1 Phase 2 expansion in Arizona, with the AMP2 in Saudi Arabia, as well as the expansion of our studio and service network. The second part of your question refers to our path to profitability. This is where our cost control program and the efficiencies that we're looking to adapt through every part of our organization is a core part of our company's focus. Our most important areas of focus continue to be bill of material cost down initiatives, manufacturing labor and overhead cost down initiatives, automation of key process and expansion of core system capabilities. All of this is to be coupled with our extensive demand generation activities globally. As we ramp production and with gravity company coming, we believe it will start to really show the strength of our business model. And of course, we'll have midsize to look forward to as we exit in a decade.

Great. The second question, are there any plans to stop the current slide of stock prices? What are the efforts Lucid is doing for it?

Well, as you know, stock movement is a function of a number of factors, and some factors are clearly beyond any company's control. Things like interest rates, supply chain issues, and other macro conditions can make it extremely challenging for any company to offer the kind of predictability that investors would like to see. Now, that said, What is within our control is continuing to deliver on our product rollout promises to continue to innovate, to invest, and to make important progress against our plan. We'll also continue to push the revenue opportunities beyond automobiles, whether in technology, emission credits, and indeed software. So quite simply, we have to execute. And the announcement today of our org structure changes, I believe, will help us really, really tremendously.

Thanks, Peter. The third question I think we answered in our prepared remarks as it relates to any guidance for 2024. Sherry mentioned the outlook is typically something we give on our Q1 earnings call. So we'll move to the next question. What will Lucid do to prevent cash burn per vehicle?

Great. Well, first, let me just start with the cash and liquidity that we have on hand. In my prepared remarks, I think I might have just said $5.54 billion. I should have said $5.45 billion, so I just want to get that correct on the record. But this particular question, there's a lot out there today that is misleading and, frankly, misunderstood as it relates to this question. First off, it conflates cost with investment. And this particular question is specifically asking about our cash burn for vehicle. It's really important to note that there's a number of non-cash expenses that are in our P&L, things that we've already paid for that are showing up in the P&L. So the largest ones include depreciation. This is not just of our manufacturing and studio service center expansion efforts, but also for all other depreciation related to facilities, investment in our new program tools as well. Additionally, we talk about the impairment. We refer to it as the LC-NRV. which looks not at today, but it also includes costs today that are related to future quarters. So it's conflating future costs in the current period, which can give a misleading interpretation of these numbers. So with that as a backdrop, there are a number of things that we are doing today at a company level and at a per vehicle level. And those are as follows, and some of them I just talked about. Bomb cost reduction, manufacturing labor and overhead reduction, efficiencies across all areas of our business. Importantly, also enabling the flywheel effect that we expect to naturally occur as more of our cars are in the market and in people's driveways. And our fantastic customers have the ability to drive enthusiasm in their neighborhoods and on the streets. So what is important here is that we have a plan and we are working diligently across every area of our business to reduce costs, drive enthusiasm for our brand, and bring profitability to our investors as quickly as possible.

Thanks, Sherry. Maggie, we'd like to turn to the phone lines for questions.

No worries. Thank you very much. We will now conduct the audio questions.

Just a moment as we compile the Q&A, please. Our first question comes from John Murphy from Bank of America.

Please go ahead.

Good evening, everybody. Just a first question, just about the Saudi CKD units. It's 700 plus in the quarter, and I would imagine there'll be some more that come in the fourth quarter. Sort of an optimist might say, hey, that's the significant reason you have the guy down on production units, but sort of a pessimist might say, hey, those aren't included. So I'm just trying to understand where these units are ultimately going to be accounted for. And if we think about the 700,000 units going to Saudi, I would imagine they're effectively pre-sold. I mean, you know, there's no question that there's, you know, there's orders there. So I would imagine that the revenue recognition and the sale would occur, you know, almost immediate upon, you know, final assembly there. So just how are these being accounted for and how should we think of that relative to the guide down in production for the year?

So first off, the SKD units as we said are not showing up in production for this quarter. So we'll be building those out presumably over the next quarter. So they'll show up in production numbers likely mostly in Q4. Okay, so that's the first part of your question. With respect to being pre-sold, I can't really speak to the exact transaction dynamics with us in the Ministry of Finance. We really don't speak about the specific transaction elements of any of our customers. But what I can say is that part of these units will be for the government and part of them will be for retail. We have already begun deliveries to the government as we set in the 10Q, though that was non-material for this last quarter and we expect to increase going forward.

Sorry, maybe just to follow up on that. I mean, there will be a reload on this in the fourth quarter, right? So, I mean, it does seem like you're selling yourself short or being a little bit too humble on what was executed this quarter and what might be executed in the fourth quarter. Would it be fair to assume that these, you're calling them SKDs, I call them CKDs, whatever, these knockdown kits will continue to reload for the foreseeable future until that AMP2 is really up and running?

Yeah, so we'll be establishing a quarterly cadence over time. I think that's fair to say. And it's going to be important for us also to introduce other product variants into the region. So we've been producing new product variants that will also be shipped over to Saudi as well. Some of those will be produced in the quarter. Some of those are going to be in ships at the end of the quarter or not yet into production numbers. But yes, I mean, you're going to be sending vehicles over there. producing them into finished units, and then delivering them, and then completing that process each quarter.

Yes, I think we'll reach an equilibrium point, John, where those units in transit equalize out. A lot of this is due to the shipping time, getting those kits from Arizona right around the world to the Kingdom. And I think that you have to remember that those are incomplete units, so they have to be counted as work in progress. They cannot be counted as factory-gated. They might leave the factory in Arizona, but that doesn't count as factory-gated until they're reassembled, and that moment of leaving the factory in Saudi Arabia, that's when, for accounting purposes, we can count them as produced.

Yeah, and in fact, if you look at Total inventory, you would have noticed that went down by 6%. Raw material went down about 12. That was due to some of the better material planning we had talked about as well as inventory management. Finished goods actually went down as well around that same amount. But work in process went up. And that went up because of these specific SKDs. But again, on the whole, you're down about 6% on an inventory basis. You're just going to see a different composition of it now going forward.

Okay. That's incredibly helpful. And then just Peter, just real quickly as a second one, the idea of licensing powertrain technology seems like it should be becoming more and more appealing to the industry at large as everybody is struggling to get these EVs launched profitably. It's not just you, but it's literally everybody. Has anything changed in the tenor of discussions or is there anything new you can say directly on this? And Maybe you can kind of confirm that you might be having these conversations in Korea, Japan, Europe, and North America, maybe all the major regions, and China, obviously, too.

There's nothing specific I can talk to, but I will say this. We've closed successfully, delighted to close our agreement with Aston Martin. And that, indeed, awareness of that has definitely catalyzed a degree of inbound interest. Now... That said, the sort of technology we've got right now suits pretty high-end cars like Aston Martins. But as we transition to our technology, which is appropriate for a midsize platform, that's when we will be in a position to attract a whole new strata of clientele, more family cars, more affordable echelon altogether. And so really, we're looking at how could we accelerate that technology for the power train for midsize that we could be in a position to capture any inbound interest in that position of the market.

Yeah, and I want to provide maybe an ecosystem perspective on this as well. I mean, we're not going to prognosticate about what other OEMs are going to do, but if you read a lot of the earnings scripts that just came out, people are starting to look at the portfolio they have of ICE products and EV, and you hear some hinting as to possible pullback a bit on EV. If that were to be the case, we're not saying that it is, We do think that us having this technology licensing program puts us in an advantaged position. And we can possibly help some of these OEMs as a partner.

And I think there's also recognition as well, John. It's relatively straightforward to do a kind of average OK EV because you just buy the parts off the shelf. but that is gonna be unacceptable, it is already. And I think there's such a recognition that we've got something very special with our technology, and we still haven't got the message out, just how a fraud of our technology is in its own right, but when you overlay the true power of efficiency, that our efficiency of our drive units and our whole system means we can go further with less batteries. This addresses the cost of the battery. And I think that there's a growing awareness of this, which is our strategic advantage, and our customers can leverage this. Aston Martin can leverage this. And it can mean that the Aston Martin can be lighter with the same range because it's got less battery. And that's an incredibly valuable attribute for a super sports car like an Aston.

Pretty helpful, thank you guys.

Thank you.

Thank you.

Our next question comes from Steve Fox, Steven Fox from Fox Advisor LLC. Please go ahead.

Hi, good afternoon. I wanted to ask a question I think I've asked in the past in a different way. the company has definitely, you know, battened down the hatches in terms of costs and done a lot to leverage technology and, you know, the, the, um, white paper start you've had with the production, all of that is, uh, you know, you should, uh, receive applaud for, you know, how you've reacted to higher interest rates. However, I mean, to me, it seems like the company might need to take some more drastic steps in the future. Um, you know, given that interest rates look like they're going to stay higher, maybe move higher. Um, to sort of, you know, modify their, your ambitions. What would, what would trigger such an event in your mind, Peter? Like it just, it just seems like it's, it's a more niche market for a longer time for, for, for Lucid, unless you can argue the opposite for say the next 12 to 20.

I think we're taking a very prudent, very nuanced view. Sherry is doing a great job in leading the imperative of cost optimization. We're looking at all measures here, looking at our efficiency of making the cars, looking at our working capital, looking at inventory, all aspects of the business. We're also pushing like crazy to improve our delivery numbers. Now, I think that we're looking at Gravity, which is going to be a transformative product just around a year from now, late 2024, with a considerably greater market potential and a growing market potential in SUV. And I think that's going to have a transformative impact upon the company. We've always taken a very prudent, annoyance view for cost control and cost effectiveness within the company. And all I can say is that that will continue as an absolute core cornerstone of our thinking and our very being here at Lucid.

The other thing I would just say about the industry environment, I mean, it is known that it is more expensive right now for customers to buy cars. We know that. And that is why we are offering some support there. But there is another side to the interest rate environment for Lucid in particular. We're sitting on a very large cash balance and we have a lot of this invested. So we've actually been experiencing quite a bit of interest income associated with those costs or with the cash balance as well and the interest rate environment. So there is, you know, another side to it as well as it pertains to us in particular.

That's helpful, and if I could just ask maybe a more upbeat question, and I look forward to seeing the gravity next week, but when you think about ramping revenues from the SUV, how complementary do you think you can make it to the existing models out there, existing stores, so that the incremental cost to ramp gravity is more on the production side and less on the sales side? Thanks.

I think that we've configured our stores to have room for a gravity alongside an air. It's always been a part of our sort of cohesive strategy that we've implemented. Yeah, we're investing in our retail network, but a lot of that is built out ready for gravity. And I think we also should think of the very considerable investment we've already made in phase two of our factory in Arizona ready for the gravity. I think another point here, Stephen, is just how different a product Gravity is from AIR. When we look at cannibalization, of course, we took the decision not to just base Gravity upon AIR platform, therefore resulting some kind of car like sort of compromise we really designed gravity as a true SUV when it's all new platform made that investment to create two very very distinct product lines between air and gravity so I think we can really capture

people's imagination into very distinct markets from two very distinctly different products as a consequence of that and then just from a financial perspective the way I think about it is in a much higher asset utilization not just at the stores of the service centers of the sales staff but also we're sharing a paint shop we're sharing powertrain we're sharing General Assembly and So there's going to be a number of areas where this is just going to give us more flexibility as a company to really respond to the demand signals that we're seeing in the market.

Absolutely. I mean, air and gravity will go down the same line. So you'll actually see the same production line that we built in the factory. You might see one air and a couple of gravities, a couple of airs, three or four gravities, and they'll be coming right alongside each other. And that's the real economy of scale.

Great. That's all very helpful. Thank you.

Thank you. Thank you.

Thank you. Just a moment for our next question, please. Next, we have James Policolo from BNP PolyBuzz from Exane. Please go ahead.

Hi, guys. This is Jake on for James. So first, just looking at your liquidity, it looks like we're looking at about a $900 million cash burn per quarter into 1Q25. First, can you confirm if that's accurate? And then how much of that is tied to the gravity launch versus just continued run right on the air?

Sure. So the free cash flow this quarter is actually lower than what you just cited by a couple hundred million. And then your second question was about the gravity launch. And what was the question related to the gravity launch?

Just how much the cash burn is tied to the gravity launch versus continued run rate on the air?

Sure. So maybe I'll answer that a little bit on the CapEx side. So you'll see that we guided our CapEx down to $1.0 to $1.1 billion for the balance of the year. Now, we're not giving guidance, but you can do the math. You can see that we started the year with a a capital CapEx guidance for around 1.5 to 1.75 billion. What we were able to effectively do is we were able to move roughly 500 million of that CapEx from 2023 into 2024. So when you get into 2024, we do expect to have about 500 million of CapEx spend to finish the launch in the facilities As well as the machinery tooling and equipment associated with that gravity onboarding. And so we did recognize some savings. So that's why it's not as high as 1.75 You know, in totality, but that will be related to the gravity will also have some vendor tooling as we move into next year, probably spent about a third of the vendor tooling in 2023 about two thirds of that yet in 2024 So the error, the majority of the spend has already occurred. Of course, you have people that continue to be on carryover product, continuing to make advancements and improve the product. But the spend on an engineering level and an R&D level is really shifting into gravity and then also the midsize as well.

Perfect. That's very helpful. Thank you. And then it also looks like ASPs in the third quarter took a pretty big step down as pure mix ramped up. How should we expect that to trend in the fourth quarter as we see more Saudi shipments and you guys ship to Sapphire? Thank you.

Yeah, you're right. So as we went from Q2 to Q3, we had an ASP drop. That was partly expected as I guided last quarter I talked about how we were going to be introducing the pure and larger numbers in the US in that we were also going to be ramping shipments and deliveries in the Europe in KSA but that's small on a comparison a percentage basis as it relates to the US deliveries in q3 so as we move to q4 we continue to see the US as being the dominant market we do see KSA and Europe increasing, but I would guide that it's going to be relatively flat. I think it'll be a similar mix as you're seeing in Q3, as you'll see in Q4. Perfect.

Thank you.

Thank you. I would now like to pass back to Monard for closing remarks. Thank you.

Thank you. So this concludes Lucid's third quarter 2023 earnings conference call. Thanks, everyone, for joining us today. And you may now disconnect.