Lucid Group’s earnings call for Q1 2024 was introduced by Maynard Um, Senior Director of Investor Relations.
CEO and CTO Peter Rawlinson, along with Interim CFO and Principal Accounting Officer Gagan Dhingra, were present.
Financial and Operational Highlights
Lucid raised $1 billion through a private placement of convertible preferred stock to an affiliate of the Public Investment Fund (PIF).
Produced 1,728 Lucid Air vehicles and delivered 1,967 in Q1 2024, marking the company’s best quarter for deliveries with a 39.9% year-over-year increase.
Lucid aims to produce approximately 9,000 vehicles in 2024, consistent with previous guidance.
Brand awareness and pricing improved, with a reduction in media spend from Q4.
Lucid Air named the best luxury electric car for the third consecutive year by U.S. and World Report.
The upcoming Gravity SUV is expected to expand Lucid’s total addressable market significantly.
Q1 2024 revenue was $172.7 million, up 9.9% sequentially, driven by higher deliveries.
Q1 gross margin improved quarter-over-quarter due to cost optimization initiatives.
Q1 operating expenses included $284.6 million in R&D and $213.2 million in SG&A.
Lucid ended Q1 with approximately $4.6 billion in cash, cash equivalents, and investments, with total liquidity of approximately $5.03 billion.
Capital expenditures in Q1 were $198.2 million, down from $272.6 million in Q4.
Lucid forecasts 2024 capital expenditures to be approximately $1.5 billion, focusing on future growth initiatives and expansions.
Strategic Insights
Lucid’s partnership with the PIF supports the company’s alignment with Saudi Vision 2030 goals.
The company’s cost advantage and in-house technology set it apart from competitors.
Lucid’s efficiency and technology are central to its strategy for reducing production costs and achieving positive gross margins.
The company is in talks with legacy automakers to provide battery or motor technologies, aiming to impact the environment positively and share its technological advancements.
Forward-Looking Statements
Despite challenges, Lucid is optimistic about achieving scale and improving its financial metrics, including gross margins, through cost optimization and strategic growth initiatives.
Lucid anticipates some seasonal slowing in sales in Saudi Arabia in Q2 and globally in Q3.
The company remains focused on executing its strategy, optimizing costs, and expanding its market reach with upcoming vehicle launches.
Q&A Highlights
Lucid addressed questions from retail investors and analysts, focusing on the pathway to profitability, measures to improve stock price, partnerships with legacy automakers, and plans to compete with Tesla with more affordable car options.
Question and Answer
Sales Momentum and Growth
Question
Can you quantify the statement that sales momentum is building, and over what period was it measured?
Answer
Compared to 2022, Lucid’s sales were up by close to 37%, and in Q1 2024, there was almost 40% growth compared to Q1 2023.
The company is outpacing market trends.
Cost Optimization and BOM Improvements
Question
Can you provide examples of the improvement in BOM costs and who you are benchmarking for the BOM cost for the Gravity?
Answer
Despite pricing actions, gross margin improved due to cost optimization initiatives, including BOM cost reduction.
Efforts include working with suppliers and internally on technology and logistics to bring down battery and overall costs.
The company is also managing inventory effectively to reduce costs.
Escape Velocity and Funding for Future Growth
Question
Do you agree with the comparison to Tesla’s Model 3 launch and reaching escape velocity with the Gravity? Will you have the funding to reach that point?
Answer
The vision is to achieve significant volume, and the Gravity will play a crucial role in that, capturing a larger market than the Model X.
The company’s partnership with the PIF provides strong support and mutual incentives for success.
Production and Delivery Balancing
Question
Could deliveries exceed the 9,000 Airs produced this year, as they have in the past quarter?
Answer
The company has not provided guidance on delivery numbers exceeding production but emphasizes prudent steps to balance production with deliveries to avoid excessive inventory and tie-up of working capital.
Supplier Readiness and Gravity Launch
Question
Can you provide an update on supplier readiness for the Gravity launch and how you are feeling about it?
Answer
Progress towards Gravity’s start of production is closely monitored, with a focus on syncing readiness of the product, factory, and supply base.
The company has commissioned a video series to provide transparency on the path to Gravity, highlighting these key pillars.
Unlike the Air launch during the pandemic, there will be more opportunities for supplier quality awareness and audit.
Gross Margin Trends and Variable Margins
Question
Can you discuss trends in variable margins, excluding labor and overhead costs?
Answer
The company has been actively working on cost reduction, including BOM costs, and is continuously bringing down costs through technology and logistics optimization.
With Gravity’s production approaching, the company expects further improvements in variable and fixed costs due to increased scale and operating leverage.
Deliveries to Saudi Arabia and Funding Sources
Question
Can you quantify the possible development of deliveries to Saudi Arabia and the agreement’s progression? What are the potential funding sources for the next capital raise?
Answer
The company delivered over 500 units to Saudi Arabia in Q1 and sees strong demand in the region, particularly for the SUV.
While not providing specific guidance on future splits, the company is confident in the market potential in Saudi Arabia.
Lucid will take an opportunistic view of raising capital when needed, acknowledging the strong support from the PIF but not specifying the source of future funding.
Impact of Vertical Integration on Margins
Question
Will the increased vertical integration through Phase II expansion of AMP-1 lead to increased losses in the near term, and will it decrease variable margins for Air and Gravity?
Answer
While Phase II activities and Gravity component purchases may impact gross margins in the second half of the year, the company expects significant improvements in margins as it scales and reaches its capacity.
The company is focusing on improving contribution margins trim by trim and expects better margins with scale due to the amortization of fixed costs by suppliers.
Underlying Cost Trends and Pricing Actions
Question
Can you comment on the 5% sequential increase in underlying costs per unit delivered in Q1, excluding the impairment charge, and the impact of pricing actions and cost reduction activities?
Answer
The sequential increase is partly due to pricing actions taken in the current quarter, which were largely offset by cost reduction activities.
Pricing actions involve both the pricing offered and product mix, and the company is actively managing cost reduction initiatives.
Third-Party Sales and Liquidity
Question
Has there been an increasing number of bottlenecks in finalizing deals for third-party hardware and software sales, and how does this impact liquidity?
Answer
The pace of such arrangements with traditional OEMs has a natural cadence, and regulatory pressures for sustainable mobility also play a role.
Cash Burn and Capital Expenditure
Question
How should everyone think about cash burn through next year, considering the implied step-up from previous commentary, and what is the cadence of CapEx necessary for the midsized model launch?
Answer
Cash burn is influenced by capital investment, with significant spending on expanding AMP-1 in Arizona and building AMP-2 in Saudi Arabia, with continued capital expenditure expected in the next year.
The company has not provided specific guidance on cash burn through next year but highlights the capital-intensive nature of its growth trajectory.
Midsized Model Teasers and Reservations
Question
Have you considered providing more detail or teaser pictures of the midsized model earlier to generate interest and potentially open reservations to increase liquidity?
Answer
The company believes in transparency and providing a realistic view of the product before opening reservations, as opposed to taking reservations far in advance.
Gravity Order Timing
Question
How soon before production begins will you open up Gravity orders?
Answer
The company will open a waiting list for the Gravity when it feels confident in releasing more specific details about the trim and specifications of the vehicle, ensuring transparency and avoiding an environment of opacity.
