Lucid Group, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Lucid Group second quarter 2024 earnings conference call. Please be advised that today's conference is being recorded. Later, we will conduct a question and answer session. If you have a question, please press star 11 on your touchtone telephone. I would now like to turn the conference over to your speaker for today, Maynard Um, Senior Director of Investor Relations. Please go ahead, sir.

Thank you, and welcome to Lucid Group's second quarter 2024 earnings call. Joining me today are Peter Rawlinson, our CEO and CTO, and Gagan Dhingra, our interim CFO and principal accounting officer. Before handing the call over to Peter, let me remind you that some of our statements on this call include forward-looking statements under federal securities laws. These include, without limitation, statements regarding the future financial performance of the company, production and delivery volumes, financial and operating outlook and guidance, macroeconomic and industry trends, company initiatives, and other future events. These statements are based on predictions and expectations as of today, and actual events or results may differ due to a number of risks and uncertainties. We refer you to the cautionary language and the risk factors in our most recent filings with the SEC and the forward-looking statements on page two of our investor deck available on the investor relations section of our website at ir.lucidmotors.com. In addition, management will make reference to non-GAAP financial measures during this call. A discussion of why we use non-GAAP financial measures and information regarding reconciliation of our GAAP versus non-GAAP results is available in our earnings press release issued earlier this afternoon, as well as in 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 on our second quarter 2024 earnings call. Now, before I get to my prepared remarks, I'd like to extend a heartfelt thank you to all Lucid employees, as well as all our suppliers and partners. Our record deliveries in the second quarter were in no small part due to your hard work. We generated great momentum and progress in the first half of the year. and will look to build upon this through the back half of the year and into the scheduled start of production of Lucid Gravity, which is, of course, highly anticipated. I'm also pleased to announce today that we executed financing agreements with an affiliate of the Public Investment Fund for an additional commitment of $1.5 billion. Through its strategic investment in Lucid, The PIF is not only advancing the country's commitment to sustainable energy and innovation, but also propelling it towards achieving the ambitious goals of Vision 2030. This partnership underscores their dedication to fostering a diversified economy and positioning itself as a global leader in the electric vehicle industry. I'd like to thank them for their continued support. Now turning to deliveries, we delivered a record 2,394 vehicles in the second quarter and that was up 21.7% sequentially and up 70.5% year upon year. The increase was driven by strength in North America where deliveries were up sequentially. Now, turning to production, we produced 2,110 vehicles in the second quarter, and we're on track to produce approximately 9,000 vehicles in 2024, as I've noticed previously. Production is not our bottleneck, and we are managing production to prudently optimize cash flow and to match deliveries. Lucid's brand awareness continues to grow, reaching an all-time high in June since we started tracking the metric. Now, we still have more work to do, but the combination of our science-based, data-driven approach to marketing, an increasing number of Lucid heirs on the road, and the word-of-mouth advocacy of our loyal customers is building momentum. I think customers are also increasingly becoming aware of the tremendous value and technology in the lucid air. In many ways, we've reached parity or even surpassed gas cars in our class when it comes to range, performance, technology, and pricing. And this is especially true when compared to other electric vehicles. So it may come as no surprise that Lucid Air has once again been named the best luxury electric car by US News and World Report. This is the third year in a row that this award has been bestowed upon the air, and no other car has ever achieved this. But we're moving beyond being known as a luxury car maker. We're a technology company, and people are recognizing that we have the most advanced electric vehicle. We announced in July that we achieved a landmark five miles per kilowatt hour with the Lucid Air Pure. A critical element in achieving this was our software and innovations in our advanced motor control mathematical algorithms. And I'm pleased to announce that with an over-the-air software update coming soon, I expect all vehicles in the fleet will see some further efficiency improvements, bringing greater value to the car well after a customer's initial purchase. 2025 air sedans will also have the Sapphire heat pump and, of course, the latest advancements in motor design. Now, this collectively is how we were able to obtain a 512 miles of EPA estimated range for the Lucid Air Grand Touring under the more stringent EPA testing and achieve five miles per kilowatt hour with the new AirPure. And we'll continue to provide more features and value. We are planning an over-the-air software update that will significantly enhance our Advanced Driver Assistance System or ADAS. And it's including the introduction of hands-free highway assist, lane change assist, curb rash assist, and more. We also have plans for a comprehensive update to the user experience, new interfaces, new functions, and further app enhancements. I think customers are going to be delighted. We're making a really big push on many aspects of our user interface software so despite the market dynamics we are making inroads making constant improvements and gaining market share with air yet again in q2 in the us market the lucid air outsold many of the largest and most storied brands in the industry within our competitive set of electric vehicles And in some cases, we outsold our competitors by more than double. And with the Lucid Gravity, I suspect we will find greater success in the large and growing SUV market. In late July, the first Lucid Gravity pre-production body shell dropped down from the roof conveyor and into the main production line at our factory in Casa Grande, Arizona. This marked the beginning of the Lucid Gravity pre-production run on our assembly line. And just last week, I had the honor of driving the first pre-production Lucid Gravity off the production line, a key milestone in the journey to the scheduled start of production later this year. Each unit will help us perfect the process and will be used for final validation testing to ensure top-tier build quality in full-scale production. Now, we'll be hosting a technology and manufacturing day at our factory on September 10th to showcase our technology and also give you a closer look at the Lucid Gravity and the new advanced factory where the machines build the machines. We've made significant advances to the factory that will help drive down costs, and I can't wait to show it to you. Now, I'd like to emphasize something that may still not be well appreciated by the market. Whilst many may now understand the concept of efficiency, which means how many miles can one go with a given amount of battery, it may not be broadly known as to why this energy efficiency is so damn critical. It's quite interesting. Some might believe that it's the engineer in me driving the narrative of the importance of efficiency. But actually, it's the businessman in me that's driving the efficiency story. So let me explain. According to the database A2MAC1, nearly 40% of the bill of materials or the cost of the materials to make an electric vehicle is attributable to the battery pack. Almost 40% in cars above $60,000, and in lower priced cars, the battery cost as a percentage of the bill of materials can be even higher than that 40%. And this is why energy efficiency matters so much, because the higher the energy efficiency, the smaller the battery needed for a given amount of range. And this is worth repeating. The higher the energy efficiency, the fewer battery cells we need for a given amount of range. And this is an essential factor to lowering cost when it comes to making an EV and a key element in improving gross margins. It also means less battery raw materials, which is better for the environment. And this is critically important. This is truly our life's mission. And we can start having a greater impact through our technology because not all EVs are born equal. And our technology licensing and access business enables our partners to accelerate their EV transition and reduce emissions with a goal of achieving the mission of a cleaner environment. I've said this before, making good EV technology is really hard. In fact, using publicly available EPA data, we estimate that if the closest competitor were to continue at its rate of operational efficiency progress, it would take them many years to match where Lucid's core EV technology is today. By this measure, Lucid is many years ahead of the number two player. And of course, the traditional car brands are even further behind them and I think you're seeing this play out some are recognizing just how hard it is and I think it's a matter of time before car brands might look to enhance their own know-how with lucid advanced technology because remember product defines brand I believe many of the products in the market are not yet commensurate to the heritage of their brands and And I believe that our technology can be a key enabler. Whilst it's difficult to identify the exact timing of when we will reach a tipping point, we have been seeing increased interest in our technology. Now there's been more questions of late about our ECU and general architecture. An ECU or I should say an electronic control unit is essentially a computer that controls certain specific functions of the car. Now Lucid has been at the forefront of this for quite some time and I really would like to share my thoughts here because this is an element of our technology licensing and access business. We were very early on in bringing Ethernet ring architectures to electric vehicles when we launched the Lucida Air back in 2021. We were also early with air and gravity programs incorporating aspects of zonal electrical architecture. We have 16 in-house ECUs, all of which are over-the-air updatable. And in mid-size platform, we'll introduce our next zonal architecture where we'll further reduce the number of ECUs down to single digits. These are only possible when you take a clean sheet approach to vehicle design. It's interesting to note that others are just now getting to this place where we have taken the lead for quite some time. Now, these are important because the architecture plays a role in helping cost and efficiency. But we've gone much further than that. We've been able to improve efficiency at a pace that's truly unheard of in the industry through innovations in our core powertrain technology. This isn't just hardware, but it's also the software. Indeed, we could not achieve the level of efficiency that we've been able to hit without advanced software developed in-house. So in closing, I'm very encouraged by the momentum that we're seeing in the market, the benefits we're realizing from our cost optimization programs, and the excitement that's been building into the Lucid Gravity launch. I believe our strategic initiatives and dedicated team position us well for continued growth, for momentum, and innovation in the coming quarters and years. And we look forward to updating you on our progress in the future. So, with that, I'd like to turn it over to Gagan Dhingra to provide an update on our financials.

Gagan. Thank you, Peter, and thank you to those who are taking the time to join us today. Before I get to my prepared remarks, I would also like to start by thanking the entire LUCI team for their tireless work in achieving very solid results. turning to our 2024 second quarter financial results. During the second quarter, we produced 2,110 vehicles and we reaffirmed our guidance to produce approximately 9,000 vehicles this year. More importantly, deliveries of 2,394 vehicles were ahead of our expectations in the second quarter, up 70.5% year-over-year and up 21.7% sequentially. As Peter mentioned, we are pleased with the demand we have been experiencing thus far. Deliveries outpaced production in the quarter, which was according to plan, and we worked on inventory to much more manageable levels while still enabling a hub-and-spoke model to facilitate shorter customer delivery times. We reported revenue of approximately $200.6 million in the second quarter, up 32.9% year-over-year, and up 16.1 percent sequentially driven primarily by higher deliveries cost of revenue in the second quarter was approximately 470.4 million dollars the lcnrv impairment was approximately 154.2 million dollars gross margin was essentially flat from the first quarter in line with what we guided to on the last earnings call despite the full quarter impact of pricing actions taken in q1 We continue to see improvements in our BOM costs, inbound freight, and labor costs per vehicle as part of our cost optimization initiatives, which were offset by a special provision related to a warranty campaign. Excluding this campaign, gross margin would have improved 800 basis points sequentially. Although we don't explicitly provide gross margin guidance, let me provide some direction to help with your modeling. We expect to build inventory of components for the lucid gravity, which will result in an increase in LCNRV impairments from an accounting standpoint. We also expect to incur incremental depreciation in the back half of the year for phase two activations in our Arizona factory. We expect this will impact gross margin in Q3. However, we expect to see the meaningful benefits from vertical integration in lowering our bill of materials as we move forward. Longer term, I would echo Peter's comments that our technology and increased scale will be key enablers of our gross margin. As we ramp volume, you will see improving gross margins with efficiency the key enabler to driving a lower bill of materials. Now, moving to operating expenses. R&D expense in Q2 total approximately $287.2 billion, up less than 1% sequentially. We expect R&D to increase in backup for the year, which is typical in the run-up to start a production of new vehicle programs. SG&E expense in Q2 was approximately $210.2 million, down 1.4% from Q1. The sequential decrease was primarily due to lower professional services and other cost optimization initiatives. Although we have identified further cost reduction opportunities to execute this year, We expect SG&E to increase in the second half primarily due to high stock-based compensation expenses and continued investments into strategic growth initiatives. We ended the second quarter with 53 studio and service centers, excluding our temporary and satellite service locations, up from 50 in Q1. On the service side, we ended Q2 with 64 mobile vans in the fleet and 113 approved body shops worldwide. we plan to continue to strategically expand our studio and service center footprint as well as satellite service centers which will cost effectively provide additional locations as well as ensure high customer satisfaction as we continue to grow we recorded restructuring charges of 20.2 million dollars related to the recent reduction in force announcement our stock risk compensation expense in the quarter was 58.5 million dollars We expect this expansion to grow substantially in the second half due to the timing of new grants. In Q2, we recorded a gain of $103 million in other income from a change in fair value of derivative liability and a corresponding total accretion of $146.9 million associated with our redeemable convertible preferred stock under a line item below net loss. The adjusted EBITDA loss was $647.6 million. Gap net loss per share in Q2 was $0.34 and non-gap net loss per share was $0.29. Moving to the balance sheet, we ended the quarter with approximately $3.9 billion in cash, cash equivalents and investments and total liquidity of approximately $4.28 billion. We remain committed to maintaining a healthy balance sheet to execute on our strategic vision and will continue to be opportunistic in exploring financing. We also announced after market close today that Lucid executed financing agreements with an affiliate of the public investment fund for an additional capital commitment of $1.5 billion. This is made up of $750 million of convertible preferred stock via private placement and a $750 million unsecured delayed draw term loan facility. Turning to inventory, total inventory decreased 9.9% sequentially consistent with a decrease over the last few quarters and driven primarily by higher vehicle deliveries. CapEx in Q2 was $234.3 million, up from $198.2 million in Q1. Moving to Outlook for 2024, we reiterate our 2024 production guidance of approximately 9,000 vehicles, and we will continue to prudently manage and adjust our production to meet our sales and delivery needs. As Peter mentioned, I would also remind you that Q3 is typically a seasonally down quarter for the industry given summer holidays and then ramps up in Q4. So something to consider in your modeling. Turning to our liquidity outlook, we expect total liquidity inclusive of the $1.5 billion commitment from an affiliate of the PIF to give us sufficient runway at least into the fourth quarter of 2025. Moving to CapEx. we're updating our 2024 capex guidance to approximately 1.3 billion dollars from our prior guidance of 1.5 billion dollars this reflects a meaningful reduction as a part of our cost optimization efforts as well as certain defaults in our capital outlay into 2025. from a product perspective the lucid gravity startup production is scheduled for late 2024 and startup production of our high volume mid-size platform is scheduled for late 2026. I want to close by sharing my experience with the Lucid Gravity and why I'm very excited about the future. I recently had the opportunity to get on the road in a Lucid Gravity Beta vehicle and I have to tell you the ride was stunning, the way the car handled, the performance. I don't think there's any other electric SUV like this in the market today. With new products on the horizon, the strong financial commitment by the PIF and progress on cost optimization, I feel we are well positioned for the future. With that, let me turn it back to Minna to get to your questions.

Thanks, Gagan. We'll now start the Q&A portion of the call. Before we take questions from those on the phone, I want to post some questions from our retail investors sent in through the SAIT technology platform. Our first question comes from Paul C. Can you provide more information on what you're doing to cut costs? For example, Rivian recently announced a 35% reduction in costs and expect to have positive gross margin in Q4. Can you share your path to positive margins?

Yeah, I mean this is an absolute key activity and Gagan and his team are absolutely focused on this. We're doing a tremendous amount across the entire company looking at cost cutting as well as efficiencies. Direct vehicle costs, supplier partnerships, manufacturing efficiencies, quality assurance, logistics, transportation, inventory management, development strategies, We're looking at go-to-market models. We're looking at internal policies, professional services and CapEx. I can't think of anything more. I mean, it's right across the board. And we're also, of course, focused on using our technology to reduce costs and efficiency. This is a huge enabler. For example, we're testing service machinery that I think can not only save us millions across our service centers, but it could also reduce real estate footprint. It could increase employee efficiencies, reduce repair times, and it could improve customer satisfaction. And I think we've made great progress, but we're really working. It's a work in progress. And in addition, we've taken a lot of the learnings from AIR and, of course, incorporated them into the lucid gravity early on. And I think we'll see significant benefits from that learning transition from the one product to the other. But, Gagan, you're right at the heart of this. Could you add to this, please?

Yeah.

Thanks, Peter.

Cost optimization has become an essential part of our life at Lucid. First, let me start with company-wide initiatives of cutting costs and path to improving margins, and then I will cover a similar focus around OPEX and CAPEX. On Coastal Revenue, starting with bill of materials, we are able to bring the cost down by double digit percentage since we launched AIR. And we identified more cost action that we plan to implement in the second half of this year. On logistics, the cost is reduced by more than double digit percentage year over year. On transportation, we have made meaningful improvements in reducing the cost since the beginning of this year. Further, we also reduced labor cost per vehicle this year through efficiency improvements. Looking at our journey over the last few quarters, our gross margin improved from negative 240% to negative 134%. We're also looking into the longer term. Although we believe the best way to reduce battery cost is to reduce the number of batteries by increasing efficiency, we're also evaluating every opportunity to drive down cell cost. For example, we recently signed a supply agreement with Graphite One. In addition to BOM and logistics cost, I want to remind that a meaningful portion of our cost of goods sold is related to the depreciation of our factories and equipment. We made a very deliberate choice of making our long-term investments, including a leading in-house powertrain and battery technology, software, and state-of-art manufacturing facilities. So as we start to ramp volumes, you will not only see improvement in gross margins, but will also have a significant cost advantage to our competition, which we are very proud of. On other areas on OPEX, we are looking each and every corner whether it is headcount optimization, professional services, or overhead. Each expense is monitored and challenged, which is evident from our results that the SG&A expense went down in the current quarter despite our increased footprint and higher number of deliveries. On GAPEX, we updated our guidance today to reduce the annual spend by $200 million, and a significant portion is related to savings and cost reduction.

Thanks, Guy. Thanks, Peter. Question two is also from Paul C. There are companies working on axial radial flux motors and claiming highest torque and power density while using less materials. Some claim to be production ready within one to two years. How does this compare to Lucid's motors, and how are you staying ahead of the upcoming tech?

Oh, man, don't get me started here. So there's two sort of categories of permanent magnet motors. There's the axial flux motor, which is larger diameter, and it's shorter. It's more like a pancake shape. And then Lucid's motors are radial flux. They're more like a drum shape. And it's quite fascinating. I mean, really, I think there's a fundamental lack of understanding just how technically advanced Lucid's radial flux motors are. The axial flux motors stack up reasonably well against other people's radial flux, but compared with what the level of technology that we've got at Lucid For a battery EV, an axial motor flux motor really sucks. Now, because they are large diameter, relatively low revs, and quite flat, they've got a great application in a gasoline hybrid. And you see these in super sports cars. And they're great for that because they rev about 8,000 RPM, like a fast internal combustion engine. But really, the problem they've got is... There are very high thrust forces and they effectively, because they're large diameter, they can't spin very fast. And if you want to get the speed up to maybe 10,000 RPM, you really need to resort to carbon wrapping. And believe you me, anyone who has to resort to carbon wrapping doesn't really know what they're doing with electric motors because it's super high cost. It's super difficult to manufacture. You do not want to do carbon wrapping. It is a last resort. And also, axial flux motors are super difficult to manufacture. They've got these segmented laminations, and they're radial-laden, so each lamination's a different size. They're a nightmare to put together. And so here's the thing, that you can, for a similar power-to-weight ratio, get more torque out of an axial flux. But it's about 23% more, something like that, a really good example compared with where a lucid radial flux is. But the lucid radial flux will spin about 20,000 RPM compared to the axial flux of 8,000 RPM. And what I said in one of my tech talks on motors is what really matters is not just, not even gravimetric power density, it's this bandwidth between maximum spin speed bottom-end talk and and we're just so far ahead of an axial flux motor and as I say I think there's a there's a fundamental lack of understanding just how far advanced we are we're not going to get to five miles per kilowatt hour anywhere close if we went axial flux I'm sorry thanks Peter

And we'll take our last question. Can you give an update on the progress for a retail ESS product? Are you still running prototypes, and can you provide information on their performance?

Okay. Well, yes, we are. I mean, first of all, I'd like to say we're closely engaged in this energy sector. At the end of last year, we launched our range exchange feature, and it's an innovative feature. It gives, you know, enabled by the Lucid's bi-directional Thunderbox and the software. And that enables elucid air to directly charge other electric vehicles. But that's beside the point in many ways. Specifically related to energy storage, I've got all my engineering teams absolutely laser focused on three things. We're further enhancing elucid air. We're looking for further advancements. We've got the launch of elucid gravity coming imminently. And there's a whole advanced team working on the development of our midsize vehicle. We have to have that laser focus And our products have that take priority. Now, that said, technology leadership is core to our business, and it's a bigger strength. And I believe that our core competency in the future in battery tech will allow us to develop engineer and engineer in energy storage solutions. But right now, our main focus is the vehicles, not ESS.

Great. Thanks, Peter. Now we'd like to take some questions from the phone lines. Tawanda, can we move to the instructions and first question?

Thank you. Ladies and gentlemen, as a reminder to ask the question, please press star 11 on your telephone and then wait to hear your name announced. To withdraw your question, please press star 11 again. If you're using a speakerphone, please pick up your handset. Please stand by while we compile the Q&A roster. Our first question comes from the line of John Murphy with Bank of America. Your line is open.

This is actually John Babcock on the line for John Murphy. Just quickly for the first question, I did want to ask, are you going to be able to reach free cash flow positive with the small-to-mid TV? Ultimately, we've been calling it the space, but I'm not sure if it's going to come out with a different product name or that. And or should we expect that you might get to free cash flow positive before that?

Well, I certainly plan to. I mean, that is the vision. Our whole business model is a long-term model of successive growth through successive periods and the phasing of product. We move now with Lucid Air off the back of two record quarters for deliveries to six times the TAM with the Lucid Gravity to potentially 30 times the TAM with our mid-sized platform. And it's that scale that's going to lead us to cash flow positive. Gagan, would you like to add anything?

Yeah, I think Peter well said, you know, we are a high growth technology company and we are operating in a capital intensive space. And at the same time, you know, we have in-house, the way we made our investments, we are like leading in-house powertrain and battery technologies. So that will give us a competitive advantage when our volume increases, and we are very proud of that one.

And I'd really like to add something here, John, as well. I think the key USP of us as a company when we get to scale is this efficiency story because, you know, we will not rest. We're advancing the technology. We're significantly ahead of the competition, all competition. We have leadership with five miles per kilowatt hour. And this is going to play. That means we can make a car of a given range with a smaller battery pack than other people. And that is really going to play to our midsize. We'll be able to make it more cost-effectively, and that will lead directly to help us to become free cash flow positive.

Okay, that's helpful. And then next question, you know, I was wondering if you might be able to talk about price elasticity of demand for the air and also – whether it makes any sense to reduce prices or go down on trim to drive volume, or if ultimately the goal would be to protect the brand for future vehicles.

Well, what we've done is we've introduced the Lucid Air Pure, which is a rear-wheel drive car, at just $69,900. A lot of people think a Lucid is much more expensive than that, but we did actually promise that back in 2020 when we launched the product, in our 2020 reveal that we would hit 69,900. So think of this really as us introducing successively more accessible versions of the car rather than price cuts. But clearly, there is a degree of price sensitive in the marketplace. Thanks, Tawanda. Let's go to our next.

Please stand by for our next question. Our next question comes from the line of Steven Gingaro with Stifel. Your line is open.

Thanks, and good afternoon, everybody. Two questions for me. The first, just quickly, when do you think you'll start opening reservations for the gravity?

Okay, well, we haven't disclosed that yet. I would say that we will do so at an appropriate time. What we feel is that some companies have really done their customer base a disservice by prematurely opening a reservation list. It becomes very speculative and almost meaningless to a certain degree. What we are thinking of is opening a pre-order list, and we'll let you know as soon as we're in a position to do so.

Thank you. And the other picture, the other question from a bigger picture perspective is, as we think about the mid-priced vehicle, and I think you said by the end of 2026, how do you, unless you're exactly how to ask this, but how do you calibrate or reconfigure the engine based on your phenomenal technology at a lower price point to sort of help bring the cost of materials down on that vehicle along with the battery.

Yes, so we're using all our considerable experience now with creating the most advanced systems in the world to create a much more cost-effective variant for our midsize. And that work is well underway already. I think what we've done is achieved remarkable efficiency. I think we've achieved remarkable compactness. I don't think going further compact is the way we can use all our expertise to reduce the cost, the cost of the bearings, the cost of the amount of copper that we're using, the cost of the materials, the heat treatment in the gears. And this is a laser focus for us now. But I want to be clear. there is this misunderstanding that our current technology is so esoteric, so expensive, that's driving our losses. And the truth is so far from this. Our current technology is eminently manufacturable and cost-effective for its level of performance. What I'm trying to do now is take all that knowledge and go for even more cost-effectiveness for a lower performance, unit, which eminently suits our midsize and would suit licensing for a family car from a traditional OE as well.

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

Great. Thanks. Hi, everyone. Just two financial questions for me. First, on the capital raise announced today, can you just talk about your intentions to actually draw down on the delayed term loan? Do we expect that to happen this year or just given your cash position, should that be maybe more of a next year expectation? And then secondly, I hope you could talk a little bit more about the drivers of the CapEx outlook reduction for this year. Thank you.

Yeah, sure. Thank you. So we entered the quarter with $4.28 billion of liquidity. And yes, we announced $1.5 billion today. Coming to specifically when we take out the money from the facility, so we have enough liquidity today. And also with $750 million convertible, this adds to our liquidity as well. So at this stage, we don't have intention to withdraw $750 million from term loan in the near future. We'll do in the due course of time.

Yeah, I think there was a misunderstanding, Itay, that I've seen it out there that we had $1.28 billion cash. But of course, we should be looking at the $4.28 liquidity because of course we're investing prudently some some of that and and remember that we're investing heavily in a few areas we're looking we're currently building out we just put the foot still work up in our new factory in Saudi Arabia I just got the pictures in this morning and so we're putting putting a significant chunk of money into that then we're completing a major investment in an additional 3 million square feet, close to 3 million in our factory in Arizona, bringing stamping in-house, bringing our logistics center in-house under the same roof to reduce OPEX, and bringing our state of the art powertrain plant actually under that same roof and expanding its capability massively. So there's a huge chunk of investment there. We've got the gravity, all the tooling and R&D costs, the launch costs for gravity. And on top of that, we're building out our sales and service network internationally. And look, we've got to think of this as a long-term play. This is where the money is going in these crucial investments for the long term.

And part of your second question on the CapEx, this $200 million investment Revising the guidance, a significant amount of that is based on the cost reduction efforts, which basically looking at challenging each and every item, the negotiation, how we want to build the factory, how we want to procure our machinery and equipment, the number of units, a very thorough process looking each dollar carefully. and we are able to bring down our capex cost. Yes, as part of revising guidance, there is also some capex deferral, but savings and reduction have played a bigger part. That's a very helpful thing.

Thank you, John.

Please stand by for our next question. Our next question comes from the line of Steven Fox with Fox Advisors. Your line is open.

hi good afternoon uh i had two questions first of all um when i'm looking at chart seven um it looks like you're back on your efficiency uh improvement curve with the latest model year can you just talk about say over the next two to three years of improvements um you know how should we think of the mix between coming from software versus electrical versus battery etc and then i had a follow-up it's actually absolutely right steven it's a fusion software

And hardware. I mean, we recently announced the most efficient car in production ever with five miles per kilowatt hour and 146 MPG. And I think it's just to be put in context because the new way of assessing cars by the EPA here in the USA has become more stringent. And you see actually some, we saw some today, quite a close competitor actually recording worse numbers because it's having to face a more stringent test. So I think that's absolutely key. But this is a technology race. It's yet to play out. And I recently was delighted to commission what we called internally Project Huert, which is the Welsh word for six as we move towards the aspirational six miles per kilowatt hour. So project is officially go here. You heard it first and you might have to look that up in the dictionary, but it's an aspirational. How much better than 5.0 can we go? And I've got a brilliant team of scientists and research engineers on that.

That's helpful. And I just learned some Welsh for the first time in a while. And then just as a follow-up, can you just talk about the importance you're finding initially with customers in terms of your ADAS features that you have in place and are rolling out?

We're having a big, big push on software. I've personally taken a leading role in driving software. I was reviewing ADAS this morning with the team. There is a new vigor in the company, and we're going to introduce a hands-free lane assist before the year is out. We've got a whole range of improvements that I am personally driving, and that isn't just ADAS. That's the whole infotainment stack in the car, and I want to roll a lot of that out this year on air in the run-up to gravity. So people will see what's due on gravity, how awesome it's going to be, and there'll be incremental evidence of improvement on air as we roll towards gravity.

Thank you. Please stand by for our next question. Our next question comes from the line of Andrea Shepard with Canna Fitzgerald. Your line is open.

Hey, good afternoon, everyone. Thanks for taking our questions, and congratulations on the quarter. You know, a lot of our questions have been asked, but maybe to touch on the capital race again. You know, Peter, what is the best way we should be viewing this announcement? Obviously, on the near term, it extends the cash runway into Q4 of 25. which helps to address any near-term liquidity issues. But should we see this as a, you know, final straw from the PIF, or is it more accurate to view it as kind of re-strengthening that relationship and then being more focused on the medium to long-term as well? Thank you.

Thank you, Andrew. I'd describe it as a resounding further endorsement of their long-term commitment of a long-term relationship And they are the perfect partners. I couldn't ask for any more. And we are so aligned. This transcends a mere financial arrangement. We are a cornerstone of Saudi Arabia's ambitious Vision 2030 to transition their company to a sustainable economy. And we are proud to participate in this. and that's why we're currently putting up steel work in our factory in Saudi Arabia. This isn't the case. It's often portrayed, how long is it before Saudi is going to get fed up with Peter playing with his cars? It's not that. You know, we have regular dialogues. I have with my chairman, and we are absolutely both committed. You know, the dialogue is much more of, Peter, keep things on track. We want this midsize. We want these products. Is gravity on track? This is the commitment that we have together. This is the sense of enduring partnership that Lucid has with the PIF. And also, it's non-dilutionary. So I think this is an ideal manner of raising capital. And the significance of it. to take us through into, well into Q4 next year. This means that we go through the critical launch period of gravity through a large part of its production ramp up. And remember, gravity is just the product that everybody wants. And remember what Gagan has said over and over. Our economics are driven by scale. And gravity's gonna be scaled, there's gonna be four steps to scale. Sell more airs, and that's about brand awareness. Get gravity ramped up, get the midsize running, and see if we can get technical partnerships with other OEs. Those are the four steps, and efficiency is going to play absolutely into all of those right now with pure efficiency. getting to 5 miles per kilowatt hour, we're getting 420 miles with just 84 kilowatt hours of energy. Nobody is even close. That's why we can make it at 69,000. That's why it makes sense at 69,900. And it's going to make even more sense. We're going to have a gravity with a sort of range with half the battery size of some other players out there, just half the battery size. No one else is even close. And it really is going to come, this whole chess game is going to play out. We get to mid-size. We'll be able to have a competitive range with a relatively tiny battery pack and much less cost than anyone else.

Got it. Thanks, Peter. That's super helpful. I appreciate all that color. Maybe just one last quick question. I wanted to touch on something we haven't maybe spoken about in a couple of quarters, but just on the licensing agreement with Aston Martin. I'm curious if you could maybe expand on how that relationship is going and particularly when and how you expect that to ramp up in terms of revenue.

Thank you. There was an announcement that there's a little delay on their end, which is disappointing because It's disappointing that any EV is delayed, but I completely empathize with where they are in terms of their customer requirements. I don't think it makes any long-term difference to the relationship. We're solid as a rock. Aston is fully committed. We're all in to ensure that Aston creates the best electric hypercars possible. in the world and what's great about that is you know our price range from 69 900 we go up to 249 with sapphire we're not going to go above that and aston starts where we finish so there's no cannibalization there's absolute synergy and a great working relationship thank you please stand by for our next question our next question comes from the line of tobias beef with redburn atlantic your line is open

Good evening. Thanks for taking my questions. I have three, please, and I'll ask them individually. Peter, I noticed the stated capacity of the 2025 Lucid Air Pure is four kilowatt hours smaller than its predecessor. And this seems to me too small to reflect the removal of one battery module from the pack, suggesting that the cells themselves could be slightly different and the vehicle weight may have been reduced. Are you able to comment on this logic and perhaps provide more information on other improvements that were made to breach the five miles per kilowatt hour threshold?

Yeah, absolutely. It runs at 16 module pack, which is, I think, 672 volts. If you look at Ram Touring and Sapphire have a 22 module pack, which runs at 924 volts and then a touring has a 16 module pack which runs at 756 volts and we've reduced that down to a 16 module pack for for pure at 84 kilowatt hours and that runs at 672 volts it's 42 volts per module open circuit voltage So we've got the most efficient car ever, 146 miles per gallon E, and it's the magic five miles per kilowatt hour. No one's even close. And let me tell you, if we were to choose less range, we'd get even more efficiency because there's even less battery weight. So what you've got to remember is we're achieving that 5.0 miles per kilowatt hour with 420 miles range, which has got more range that there's no other competitive car out there from any other manufacturer, other than Lucid, that's close to the 420. And we've still got the world record for efficiency. If we drop that down to 360, we'd be above 5 miles per kilowatt hour. Lower range cars, it's easy to get to these efficiency levels. Well, relatively. OK.

What is the end game for Lucid's theoretical advantage on the bill of material costs for an electric vehicle, assuming that the lead can be maintained whilst volume scale? Is it to achieve superior profitability?

Yeah, absolutely. The end game is why we exist. There is a misunderstanding, a misinterpretation that we're some niche luxury car company when nothing could be further from the truth. We're here to advance the state of art of the electric car in order to find ways of driving the cost down so that it can be attained by far more people to have a meaningful impact upon the planet. If you look at even the Bloomberg numbers of $128 per kilowatt hour at pack level, I mean, you know, we can save, you know, with 15, 16 kilowatt hours less than the competition. This is multi-thousand dollar cost saving today. And that's going to make all the difference when we look at mid-size products. And if we license our tech to another car company that maybe wants to do a $25,000, $30,000 car, this is just like where every dollar counts. We can suddenly start saving millions. the odd thousands of dollars. And in fact, if you look at the agony that some of the other OEs have put with the wrong product trying to do an electric pickup and electric propulsion isn't the right solution for a usable, affordable pickup, believe you me, but our technology would save those OEs thousands if it was applied to those pickups because their pickups would require so much smaller battery pack with our high-tech solutions.

And to add to this, you know, we made a choice of our long-term investment having in-house powertrain technology and battery technology. So as we get to scale, we expect long-term investments to pay dividends many times over. This also translates to significant cost advantage compared to our competition, better margin profile than where traditional OEM are today. It's just a matter of scale, and we're getting there. We already have narrowed down our losses, and with scale, we'll be in a better position than competition.

And that's a really good point, Gagan, because we're going to hold this technology and manufacturing day on September the 10th. And Tobias, I hope you'll be able to join us there, because I think you're seeing is believing We really got the world-leading state-of-the-art in-house advanced EV powertrain manufacturing plant. I doubt if anyone's got anything to compete with.

Thank you. Will you stand by for our next question? Our next question comes from the line of James Piccarello with BNP Paribus. Your line is open.

Hi, everybody. I have a question on deliveries for this year. You obviously have the production guide of 9,000 units. You saw a nice uptick in North America demand, North American deliveries in the second quarter. We could see that in the sequentially lower Saudi revenue in the second quarter. But I think the indication was for lower third quarter deliveries. Just curious what's in play there and what the expectation is for the full year.

Sure. So what we haven't guided on deliveries, what we have guided upon is that we plan to make approximately 9,000 cars. this year, and we've just reaffirmed that today, that we're on track for that. Now, of course, regarding deliveries, we're on the back of two record quarters, 70% up from Q2 this year over last year. But clearly what we're trying to do is prudently manage the business, manage the efficiency of our inventory. We need some inventory, we need a buffer, and we need to be able to supply to customers directly out of inventory So we don't want no inventory, but we want a managed amount of inventory. We don't want that inventory to grow. So therefore, implicitly, that implies that we want to be delivering a very similar number or more than the number we manufacture, although we haven't guided upon that.

And, you know, right now we believe our inventory is manageable. And it also, you know, a couple of benefits that bring managing our cash flow better, reducing the risk of obsolescence. Also, you know, reducing the storage costs. So we believe we're in a good position from that perspective.

And I think we were cautioning about Q3 because of the summer months. I think we've just been prudent about that.

Yeah, that was just ultimately on the deliveries and the demand side. Just seems as though it's more cautionary.

Well, traditionally, you tend to see a bit of a shutdown when people are on their long summer vacation and then an upturn in Q4. But we will see.

Got it. And then just my quick follow-up question. Well, one, is there any discernible difference in ASP between your general deliveries and those to the Saudi government? And then on the quarterly cash burn rate that's implied, right? We've got the 4.3 billion in liquidity plus the one and a half billion that you just, that you just raised and announced today, right? The, and then that gets you into the fourth quarter as you state, right? So that implied quarterly cash burn rate still is in that 900 million to a billion. Just curious, you know, what goes into that? Is that just loose math and not necessarily your expectation, which is, you know, ultimately of critical importance, right, in terms of the cash burn rate through next year and how that corresponds with your profitability expectation on gross profit? Yeah, sure.

So a couple of things here. First of all, you know, from CapEx perspective, you know, we spent around $243 million this quarter, nearly $200 million last quarter. We guided $1.3 billion for CapEx. So significant amount of CapEx is going to come remaining part of the year. Plus, we are working on gravity as well as midsize where significant investment is going to be there. plus we're building a factory in Saudi Arabia. So our CapEx and the R&D programs, where we are going to spend significant amount of capital for us to be ready for the future to take us to the next journey.

I mean, please come and, James, please visit us in the factory on September the 10th. We're holding the Technology and Manufacturing Day. I think anyone visiting will realize that, You know, the sheer level of investment we've made, we've got a state-of-the-art facility. This puts us in an incredible position for the future. We're continuing this. This is a long-term play. You know, this is where the money is going. The money is going to new factories in Saudi Arabia. We're completing our state-of-the-art facility in Arizona on the tooling to get the best SUV in the world in gravity into production. We're spending money now investing in in the design of our midsize, and on the service network around the world. So these are long-term strategic investments. That's where the money is going. This is a long-term play, and it will come to pass.

Thanks. Look forward to September. Thanks.

Thank you. Thanks, everyone. So this concludes Lucid's second quarter 2024 earnings conference call. Appreciate everyone joining us today.

Thank you. Thanks everyone.

Ladies and gentlemen you may now disconnect.