Lucid Group, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Financial statements are unaudited. Unless otherwise noted, amounts are U.S. dollars.
Business context and reporting period
Lucid designs, manufactures, and sells luxury electric vehicles and related technology. The company was generating revenue primarily from Lucid Air deliveries, while continuing to expand its Arizona manufacturing plant, build its planned Saudi Arabian facility, and invest in future vehicles, including the Gravity SUV. Management said Gravity production is expected to begin in late 2024. The filing does not provide a clear Q2 vehicle delivery or production total.
Key financial metrics
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $150.9 million | $97.3 million | $300.3 million | $155.0 million |
| Gross loss | $404.9 million | $195.0 million | $756.0 million | $383.3 million |
| Gross margin | (268.4)% | (200.5)% | (251.8)% | (247.3)% |
| Operating loss | $837.7 million | $559.2 million | $1.610 billion | $1.157 billion |
| Net loss | $764.2 million | $220.4 million | $1.544 billion | $301.7 million |
| Basic and diluted loss per share | $0.40 | $0.13 basic | $0.82 | $0.18 basic |
| Cash used in operating activities | — | $1.502 billion | $1.008 billion | |
| Cash used in investing activities | — | $466.7 million | $1.914 billion |
Q2 revenue rose 55% year over year and first-half revenue rose 94%, primarily due to higher Lucid Air deliveries. Cost of revenue increased faster than sales, reflecting higher manufacturing costs and inventory and firm-purchase-commitment write-downs. Q2 inventory write-downs were $295.0 million; first-half write-downs were $522.0 million. Q2 operating expenses included $1.5 million in restructuring charges; first-half charges were $24.0 million.
Liquidity, debt, and capital
- At June 30, cash and cash equivalents were $2.775 billion; short- and long-term investments were $2.762 billion. Together, cash, cash equivalents, and investments totaled approximately $5.537 billion.
- Current assets were $6.257 billion and current liabilities were $885.6 million. Total liabilities were $3.455 billion; stockholders’ equity was $5.960 billion.
- Long-term debt had a carrying value of $1.994 billion, principally the $2.013 billion principal amount of 1.25% convertible notes due December 2026. The notes were not eligible for conversion as of June 30. Lucid also had $13.9 million of GIB facility borrowings and no ABL facility borrowings.
- Available capacity was reported as $252.6 million under the GIB facility and $596.2 million under the ABL facility, subject to facility terms and borrowing-base limits. No amount was outstanding under the Saudi Industrial Development Fund loan commitment.
- First-half financing cash flow was $3.008 billion, mainly from June equity offerings: approximately $1.2 billion net from a public offering and $1.8 billion net from a private placement to controlling stockholder Ayar. The offerings issued approximately 439 million shares in total.
- Management stated that existing liquidity and projected operating cash flows were expected to provide adequate liquidity for at least the next 12 months. It forecast 2023 capital expenditures of $1.1–$1.3 billion. The company nevertheless reported an $8.9 billion accumulated deficit and substantial ongoing operating losses.
Material changes and management commentary
- Compared with the prior-year quarter, revenue increased, but the gross loss widened substantially and net loss increased. The prior-year results included a $334.8 million noncash gain from the change in fair value of warrants; Q2 2023 included a $42.1 million gain. For the first half, the comparable warrant gains were $1.3 million in 2023 and $858.2 million in 2022.
- First-half operating cash use increased by $493.3 million year over year, which management attributed to higher loss excluding noncash items and changes in operating assets and liabilities, including supplier advances and payment timing.
- Management said near-term vehicle production is expected to remain well below manufacturing capacity and warned that inventory write-downs could continue to weigh on vehicle costs. It also cited inflation, supply-chain and semiconductor constraints, single-source suppliers, and the risk of customer cancellations.
- The March 2023 restructuring plan, intended to reduce operating expenses through workforce reductions, was substantially completed in Q2. Management cautioned that expected savings are not assured and that restructuring could affect operations and employee retention.
- A June 2023 agreement with Aston Martin contemplated a technology partnership, subject to approvals and other conditions. Lucid would receive a $232 million technology-access fee—$100 million in Aston Martin shares and $132 million in cash over three years—and Aston Martin would commit to a $225 million effective minimum spend on powertrain components.
- As a subsequent event, in August 2023 Lucid entered a Saudi government vehicle purchase agreement covering a minimum of 50,000 vehicles and an option for up to 50,000 additional vehicles over ten years. The purchaser may reduce the minimum based on unaccepted orders or delivery failures; the additional quantity is discretionary.
Risks, contingencies, and unusual items
- Lucid’s capital-intensive expansion, negative operating cash flow, production ramp, and continuing losses create ongoing financing needs. Future financing may be unavailable or dilutive.
- The company reported $5.041 billion of minimum purchase commitments, primarily battery-cell commitments, and $438.1 million of commitments for AMP-1 and AMP-2 plant and equipment. These obligations may increase cost or write-off risk if production is below plan.
- Lucid disclosed vehicle recalls and campaigns, and a $62.2 million accrued warranty balance at June 30, including estimated recall and repair costs. The adequacy of warranty reserves is uncertain given limited vehicle history.
- A securities class action concerning alleged statements about delivery and revenue projections remained pending, with a motion to dismiss before the court; related derivative litigation also remained. The company said it did not consider pending proceedings material at that time. A separate class action concerning the 2021 merger was dismissed on June 29, 2023, though an appeal remained possible.
- The SEC informed Lucid on April 27, 2023 that it had concluded its review of the merger-related matter and did not intend to recommend an enforcement action against the company.
- Management reported disclosure controls and procedures were effective as of June 30, 2023, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Vehicle deliveries, production volumes, and demand trends: the supplied filing text does not provide a clear Q2 delivery or production count.
- Whether gross losses and inventory/firm-commitment write-downs decline as production scales, and whether the restructuring plan yields sustained cost savings.
- Actual cash burn, capital spending, and the timing of any additional financing needs relative to management’s stated 12-month liquidity expectation.
- Progress and conditions for the Aston Martin partnership, Gravity launch, AMP-1 expansion, and Saudi facility, including related commitments and funding milestones.
- Execution and delivery terms under the Saudi government purchase agreement, alongside warranty, recall, and pending litigation developments.