Lucid Group, Inc. (NASDAQ:LCID) Q1 2024 Earnings Call Transcript

Lucid Group, Inc. (NASDAQ:LCID) Q1 2024 Earnings Call Transcript May 6, 2024

Lucid Group, Inc. misses on earnings expectations. Reported EPS is $-0.29579 EPS, expectations were $-0.25. Lucid Group, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Ladies and gentlemen, thank you for standing by. And welcome to the Lucid Group First Quarter 2024 Earnings Conference Call. Please be advised that today’s conference is being recorded. Later we will conduct question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker for today, Maynard Um, Senior Director of Investor Relations. Please go ahead.

Maynard Um: Thank you, and welcome to Lucid Group’s first 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 the statements on this call include forward-looking statements under federal securities laws. These include, without limitation, statements regarding the future financial performance of the company, production and delivery volumes, 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 2 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 our investor deck. With that, I’d like to turn the call over to Lucid’s CEO and CTO, Peter Rawlinson. Peter, please go ahead.

Peter Rawlinson: Thank you, Maynard, and thank you, everyone, for joining us on our first quarter 2024 earnings call. In my prepared remarks today, I’ll discuss our partners at the PIF, our better-than-expected production and delivery figures, our cost advantage and our overall momentum. All of which makes me more optimistic than I’ve ever been about our future. Now I believe there are two key factors that really set Lucid apart. Our superior in-house technology and our partnership with the PIF, who have been steadfast investors and partners. In Q1, we raised $1 billion in capital through a private placement of convertible preferred stock to an affiliate of the PIF. We are a strategic partner in the country’s plan to achieve its Saudi Vision 2030 goals.

I’m very grateful for the PIF continued confidence and their steadfast support. Now turning to production and deliveries. In Q1, we produced 1,728 Lucid Airs, and we delivered 1,967 both slightly above our expectations. In fact, it was our best quarter-to-date for deliveries, up 39.9% year-over-year. Our lower production than deliveries is an active decision to be cost conscious and is not a reflection of production bottlenecks. For 2024, we expect to produce approximately 9,000 vehicles, which is consistent with our guidance last quarter. Let me now provide you with an update on where I believe Lucid stands today. We’ve made solid progress on both brand awareness and pricing. With our general brand awareness raising in the first quarter despite reducing media spend from the fourth quarter.

See also Best English-Learning Courses Online: 10 Free or Cheap Alternatives and 15 Best Places to Retire in Alabama.

Q&A Session

Our Lucid Air is increasingly recognized as a superior vehicle in nearly every aspect that customers value. For the third consecutive year, Lucid Air was named the best luxury electric car by US and World Report on its 2024 best hybrid and electric car awards. Lucid Air is the only EV to win this category award three years in a row, another achievement that sets us apart. Lucid Air solves biased key concerns. It has price parity with gas car equivalents. It’s the longest range and fastest charging production car in the US market. It’s engaging to drive with remarkable performance and it enjoys a lower total running costs due to its efficiency. Now consumers are savvy, and they recognize the deficiency of other EVs in the market, particularly the limited range of most EVs. To ease fears of range anxiety, other automakers must produce and install bigger batteries, which results in higher cost to charge the vehicle and longer relative charge times versus Lucid Air.

Remember, Lucid Air is the most efficient vehicle in its class as measured in miles per kilowatt hour. While leading the industry for range and charging speed and having a lower total cost to charge. I’ve seen commentary about our losses per vehicle, but such speculations reflect a lack of knowledge about our costs and our scale of intentions. Inside, the extensively high cost of goods line item is the cost of the factories and equipment needed to make the vehicles and scale our business. If we envisage the company would only make a small number of vehicles, we would have purchased less equipment and built a smaller factory. But we have a more ambitious goal to provide affordable, long-range EVs for mainstream mass market consumers. And as we scale, the leverage in our model should become obvious.

And we’re embarking on a transformational phase, the expansion of our vehicle lineup. Lucid Air Pure is already here with a starting price from $69,900. And the gravity SUV program is scheduled for start of production late this year. Our SUV’s total addressable market is six times larger than the market we could access in 2023. And the excitement is palpable. In a third-party survey, already two-third of EV SUV purchasing tenders would consider Lucid. And this is worth emphasizing two in every three people intending to purchase an electric SUV knows and would consider Lucid. Amongst all SUV purchase intenders, EVs and gas SUVs, more than 50% would consider Lucid. Now this is a staggering figure for any brand, let alone a new one, and this reflects the significant opportunity ahead.

We are continuing to invest in our future with further Virtual Vertical Integration, Stamping, Body in Whites for the Gravity SUV program, paint shop expansion and Powertrain at AMP-1, an important part of our longer-term cost and quality strategy. We’ve applied all of our learnings from Air, and incorporated them into our SUV program. So I’m confident that Gravity will redefine the segment with world-class range, efficiency, charging speed and interior volume. Later this year, we plan to host analysts and institutional investors at our AMP-1 facility in Arizona. To show you our state-of-the-art factory manned by our incredible employees and the machines that build the machines. We’ll also have vehicles on the road later this year for you to test drive.

And following the Gravity SUV program, we see another step change in total addressable market expansion with our midsized vehicle, which is scheduled for start of production in late 2026. I am confident that we can achieve unrivaled levels of efficiency for this crucial midsized class vehicle. And again, I can’t stress enough efficiency is the key to a smaller battery for any given range. And a smaller battery is a key element to lower cost when it comes to making an EV. I can’t wait to show you our midsized game changer. Next, I’d like to talk about our technology business. Our Aston Martin deal continues to generate more interest in our technology from other prospective partners. And additionally, we are the sole supplier of the front drive unit to a leading electric racing series.

Please watch this space as we continue to discuss monetization opportunities across all aspects of our technology, including our world plus software. I’ll close with additional details about our momentum. We surpassed 12,000 vehicles on the road in Q1, which takes us nicely past the critical threshold into boosting word-of-mouth awareness. And I am pleased with the 39.9% year-over-year uptick in sales in Q1 and with the momentum we’re seeing here in April. I always offer caveats. We expect typical seasonal slowing in Saudi Arabia in Q2 and we expect typical seasonal slowing globally in Q3 as consumers go on vacation. Despite this, for the first time, I feel we’re on the cusp of escape velocity. We have sales momentum, a compounding efficiency advantage, unprecedented interest from consumers and corporate partners, more than $5 billion in total liquidity, and Gravity, which I believe is on track to become the world’s best SUV.

Therefore, I’ve never been more confident in our future. So, before turning the call over to Gagan, I would like to take a moment to acknowledge our recently announced management change. Derrick Carty will now lead Digital’s organization as interim Head, taking over from Mike Bell, who will be leaving to pursue other opportunities. I’d like to thank Mike for all of his contributions. Mike joined Lucid in early 2021 and was instrumental in building a truly unparalleled software organization. Mike will be staying on for a period of time in an advisory capacity, and I have full confidence in Derrick and the digital organization as we enter into our next transformational phase of the company. So, I’ll end with a big thank you to all of our suppliers, our partners, and our shareholders.

And most of all, thank you to all Lucid employees for your commitment, your dedication, and sheer hard work. So, with that, I’d like to turn it over to Gagan Dhingra to provide an update on our financials. Gagan?

Gagan Dhingra: 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 Lucid team. I am continually amazed by and thankful for everyone’s dedication and perseverance. Turning to our 2024 first quarter financial results. During the first quarter, we produced 1,728 vehicles and we reiterate our guidance to produce approximately 9,000 vehicles this year. We delivered 1,967 vehicles in Q1, up nearly 40% year-over-year and up 13% sequentially. In Saudi Arabia, we resolved some of the logistical go-to-market challenges we had in Q4, and we were able to ramp up deliveries in Q1. We are also pleased with North American volumes, which we think is benefiting from growing brand awareness and increasing number of vehicles on the road, and improving affordability.

We are encouraged by what we are seeing. Turning to the P&L. For Q1, revenue was $172.7 million, up 9.9% sequentially, driven primarily by higher deliveries. Average selling prices were down sequentially due to mix as well as mixed pricing adjustments, which affected a part of the quarter. Cost of revenue in Q1 was $404.8 million. Despite lower average selling price, our gross margin improved on a quarter-over-quarter basis due to both cost optimization initiatives, including production in bill of material and logistics costs and lower impairment charges in Q1 related to LCNRV. The LCNRV amount was approximately $137.8 million or 20.8% reduction from Q4. Fixed costs related to the depreciation of our factories and equipment remains a large part of the cost of revenue.

And as we ramp up production and deliveries, we expect the overhead per vehicle to significantly improve. There are many controllable and uncontrollable variables that can affect gross margin. And as a result, we don’t typically provide specific gross margin guidance. However, I wanted to provide some directional color to aid in your modeling. Looking forward to the second quarter of 2024, we anticipate gross margin to remain flat despite our full quarter price adjustment in Q2 instead of half quarter impact in Q1. This improvement is mainly due to further cost optimization initiatives. As we move into the back half of the year, we expect to build inventory of components for the gravity SUV program resulting in an increase in LCNRV impairments from an accounting standpoint.

This, in addition to higher depreciation due to further Phase 2 activation, is expected to adversely affect gross margin. I mentioned this in my prepared remarks last quarter as well. We have identified additional opportunities in cost of goods sold and we’ll continue to focus on implementation and further areas for cost out. Longer term, our technology will be a key driver of our gross margin. With scale, I believe you will see strong gross margins with efficiency, the key enabler. Now moving to operating expenses. R&D expense in Q1 totaled approximately $284.6 million, up 17.1% sequentially. We expect R&D to increase further as we ramp up the new vehicle programs. I think it’s widely accepted that Lucid has the best EV technology in the world.

SG&A expense in Q1 was approximately $213.2 million, down 11.5% from Q4. The sequential decrease was primarily due to lower sales and marketing spend due to seasonality and lower professional services and other general expenses due to continued cost optimization initiatives. Although we have identified additional cost reduction opportunities to execute this year, we expect SG&A to increase primarily due to continued investments in strategic growth initiatives. We ended the first quarter with 50 studio and service centers, excluding our temporary and satellite service centers, up from 45 in Q4. On the service side, we ended Q1 with 54 mobile brands in the fleet and 93 nationwide approved body shops. 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 for Lucid customers.

In 2024, we see a pathway to operating leverage. The key will be driving volumes and scale. Our stock-based compensation in the quarter was $63.7 million. Total other income was $49.2 million down from $83.1 million in Q4. The decrease was primarily attributable to a non-cash loss of $19.9 million related to the change in fair value of our equity securities of Aston Martin shares, which we received in Q4 as a part of our strategic technology management. In Q1, we achieved an adjusted EBITDA loss of $598.4 million, a slight improvement from $604.6 million in Q4. Moving to the balance sheet. In Q1, we raised $1 billion through a private placement of convertible preference stock to an affiliate of the PIF. I would like to echo Peter and thank the PIF for their partnership and their commitment to Lucid and our mission.

PIF’s partnership and support separates us from others in the industry. We ended the quarter with approximately $4.6 billion in cash, cash equivalents and investments, with total liquidity of approximately $5.03 billion. Note, this excludes the $50.8 [ph] million in value of the Aston Martin market shares as of March 31. We have been able to consistently sustain a strong balance sheet over time. And as we have done for the last several years, we will continue to be opportunistic in exploring financing. Turning to inventory. Total inventory decreased 18.8% sequentially, primarily due to further raw material drawdown and lower purchases as we optimize our existing inventory. This is consistent with what I outlined last quarter, where we continue to see a pathway to a significant reduction in raw material on hand.

Capital expenditures in Q1 was $198.2 million, down from $272.6 million in Q4. Moving to the outlook for 2024. We forecast production of approximately 9,000 vehicles in 2024, and we will continue to prudently manage and adjust our production to meet our sales and delivery needs. As Peter mentioned, we are pleased with the demand we are seeing, but I would also remind you that we typically see some seasonality in Saudi Arabia towards the end of the second quarter. With regard to our liquidity position, we ended the quarter with total liquidity of approximately $5.03 billion. We expect this will give us a runway through the start of production of the Gravity SUV program and into the second quarter of 2025. Moving to CapEx. We will continue to focus on our future growth initiatives and we expect capital expenditures for 2024 to be approximately $1.5 billion.