Lucid Group, Inc. — Q3 2022 Form 10-Q
Business context and period. This unaudited report covers the three and nine months ended September 30, 2022. Lucid designs and manufactures electric vehicles and began delivering its first model, the Lucid Air, in October 2021. It is expanding its Arizona manufacturing capacity, building a planned Saudi Arabian facility, and developing future models.
Key financial metrics
Amounts below are in millions of dollars except per-share data, unless noted.
| Metric | Q3 2022 | Nine months 2022 | Comparison / context |
|---|---|---|---|
| Revenue | $195.5 | $350.5 | Versus $0.2 million and $0.7 million, respectively, in 2021, when vehicle deliveries had not yet begun. |
| Cost of revenue | $492.5 | $1,030.8 | Includes inventory and firm-purchase-commitment write-downs of $186.5 million in Q3 and $364.6 million year to date. |
| Gross loss / gross margin | $297.0 / (152%) | $680.3 / (194%) | Calculated from reported revenue and cost of revenue. |
| Operating loss | $687.5 | $1,844.3 | Research and development and selling, general and administrative expenses totaled $390.5 million and $1,163.9 million, respectively. |
| Net loss | $530.1 | $831.8 | Basic loss per share was $0.32 and $0.50, respectively. Q3 and year-to-date results included non-cash warrant remeasurement gains of $140.1 million and $998.3 million. |
| Operating cash flow | — | $(1,577.7) | Compared with $(745.4) million in the prior-year period. |
| Investing cash flow | — | $(3,289.0) | Included $2,726.7 million of investment purchases and $785.0 million of property, plant and equipment purchases. |
| Cash, cash equivalents and investments | — | $3,855.9 at Sept. 30 | Cash and equivalents were $1,264.1 million; short- and long-term investments were $2,078.0 million and $513.7 million. |
| Debt and credit availability | — | $1,990.6 long-term debt carrying value | $2,012.5 million principal of 1.25% convertible notes due 2026; $13.6 million drawn under GIB working-capital facility. ABL facility had $303.7 million available; SIDF loan had no amounts outstanding. |
Material changes and liquidity
- Revenue rose as Lucid began customer deliveries, but production remained limited relative to manufacturing capacity. The report says near-term inventory write-downs could continue to weigh on vehicle costs.
- Inventory increased to $685.3 million from $127.3 million at year-end 2021. Property, plant and equipment rose to $1,954.3 million from $1,182.2 million, reflecting investment in facilities and tooling.
- Cash, cash equivalents and restricted cash fell by $5,032.3 million over the first nine months. Much of the investing outflow reflected purchases of marketable investments; available liquidity also includes those investments.
- Management stated that existing liquidity and projected operating cash flows were expected to fund operations and planned investment for at least the next 12 months. It anticipated approximately $1.2 billion of 2022 capital expenditures.
- The company received $97.3 million of Saudi MISA support during the nine months, recorded partly as deferred liability and partly as a reduction of related asset cost. Saudi financing and support are subject to facility milestones, conditions and other terms.
Outlook, risks and unusual items
- Lucid expects substantial losses, expenses and cash needs to continue as it ramps production, expands AMP-1, builds AMP-2, develops new vehicles and grows sales and service operations. The filing does not provide a clear numerical vehicle-production or revenue forecast for the remainder of 2022.
- Project Gravity, a planned luxury SUV, was expected to begin production in 2024. As of November 7, 2022, reservations and non-refundable orders for undelivered vehicles represented potential sales of more than $3.2 billion; the filing cautions that reservations and orders may be cancelled and are not assured sales.
- Key risks include production ramp and tooling delays, reliance on single-source suppliers, semiconductor and battery-cell availability, inflation and logistics costs, vehicle quality and recalls, premium-vehicle demand, and the need for additional financing. The company reported recalls in February, May and September 2022.
- After quarter-end, on November 8, Lucid entered an agreement allowing up to $600 million of at-the-market stock sales and a conditional subscription agreement under which controlling stockholder Ayar may purchase up to $915 million of shares tied to shares sold in the offering. These potential financings could dilute existing shareholders.
- Pending matters include securities litigation relating to the merger and later projections and guidance, derivative suits, and an SEC investigation that the company said appears to concern the merger. Lucid said it was cooperating with the SEC and did not consider pending matters likely to have a material adverse effect at the time of filing.
- Management reported disclosure controls were effective as of September 30, 2022, with no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether production and deliveries are increasing fast enough to improve the substantial negative gross margin, and whether inventory write-downs recur.
- Actual cash burn and capital spending versus management’s 2022 expectations, including how much reported liquidity is available for operations after planned investment.
- Conditions, borrowing-base limits and milestones governing access to ABL, GIB, SIDF and Saudi support; committed amounts are not necessarily fully drawable.
- Progress, costs and timing for AMP-1 expansion, AMP-2 construction and Project Gravity, including the impact of supply, tooling and facility remediation issues.
- Customer order conversion and cancellations, and the effects of pricing, economic conditions and changes to EV incentives on demand.
- Terms and completion of the post-quarter ATM and Ayar transactions, including share issuance and resulting dilution, as well as developments in litigation and the SEC investigation.