Lucid Group, Inc. quarterly report, Q3 FY2023

Lucid Group, Inc. — Q3 2023 Form 10-Q

Reporting period: Three and nine months ended September 30, 2023. The company designs, manufactures and sells luxury electric vehicles and related technology; the Lucid Air was its sole commercially available vehicle model during the period.

Financial results and liquidity

Metric	Q3 2023	Q3 2022	Nine months 2023	Nine months 2022
Revenue	$137.8 million	$195.5 million	$438.1 million	$350.5 million
Gross loss	$331.9 million	$297.0 million	$1,087.9 million	$680.3 million
Gross margin	Approximately -241%	Approximately -152%	Approximately -248%	Approximately -194%
Operating loss	$752.9 million	$687.5 million	$2,362.7 million	$1,844.3 million
Net loss	$630.9 million	$530.1 million	$2,174.7 million	$831.8 million
Basic loss per share	$0.28	$0.32	$1.08	$0.50

Gross margin is calculated from reported revenue and cost of revenue. The company recorded inventory and firm purchase commitment write-downs of $230.8 million in Q3 and $752.8 million year to date, versus $186.5 million and $364.6 million in the comparable 2022 periods.

Cash and investments: Approximately $4.9 billion at September 30, comprising $1.16 billion cash and cash equivalents, $3.26 billion short-term investments and $480 million long-term investments.
Cash flows, nine months: $2.02 billion used in operating activities; $1.60 billion used in investing activities; and $3.04 billion provided by financing activities. Capital expenditures were $638 million. Financing included approximately $1.18 billion net proceeds from a public share offering and $1.81 billion from a private placement to Ayar.
Debt and liquidity facilities: Long-term debt carrying value was $2.00 billion, primarily the 1.25% convertible notes due 2026. GIB borrowings were $52.5 million, up from $9.6 million at year-end 2022. No ABL Credit Facility borrowings were outstanding; reported availability was $476.5 million. The company reported compliance with applicable debt covenants.
Balance sheet: Total assets were $8.94 billion, total liabilities $3.54 billion and stockholders’ equity $5.41 billion. Accumulated deficit was $9.54 billion.

Material changes and operating performance

Q3 revenue fell 29% year over year, which management attributed primarily to product mix, pricing and incentives. Nine-month revenue rose 25%, primarily from increased Lucid Air deliveries, partly offset by pricing and incentives.
Q3 cost of revenue declined 5%, but the reduction was smaller than the revenue decline; nine-month cost of revenue rose 48%. Management cited production and sales costs, substantial facility overhead while ramping production, and inventory and purchase-commitment write-downs.
Research and development expense increased 8% in Q3 and 16% year to date, mainly reflecting prototype work and personnel costs. Selling, general and administrative expense increased 7% in Q3 and decreased 1% year to date.
Year-to-date net loss increased substantially versus 2022. Prior-year results included a much larger noncash gain from remeasurement of warrant liabilities; 2023 included warrant fair-value gains of $61.6 million for nine months, versus $998.3 million in 2022.
Shares outstanding increased following the June 2023 equity offerings. The company issued approximately 439 million shares in the public offering and Ayar private placement combined.

Outlook, risks and notable items

Management stated that available liquidity, together with projected operating cash flows, was expected to fund operations and plans for at least the next 12 months. It anticipated 2023 capital expenditures of $1.0–$1.1 billion. These are management expectations, not assurances.
The company expects operating losses and cash needs to continue; it stated it does not expect positive operating cash flow for several years, if at all. Management expects production to remain well below manufacturing capacity in the near term and warned that inventory write-downs could continue to pressure vehicle costs.
The company began Lucid Gravity SUV production planning and expected production to begin in late 2024. Timing remains subject to development, manufacturing, supply and funding risks.
AMP-2’s semi-knocked-down facility in Saudi Arabia was completed in September 2023; construction of the completely-built-up portion continues. The company disclosed that part of its Arizona manufacturing facility was not built to contractual requirements and will require significant repair or remediation costs; it did not provide a clear estimate of those costs.
A Saudi government vehicle purchase agreement provides for a minimum of 50,000 vehicles over ten years and an option for up to 50,000 more. The minimum may be reduced under specified circumstances, including unaccepted orders or delivery failures; the additional quantity is at the purchaser’s discretion.
After quarter-end, on November 6, the Aston Martin technology and supply arrangement became effective. Lucid received 28.35 million Aston Martin shares and a $33 million initial cash installment; a further $99 million is payable over three years, and Aston Martin committed to an effective minimum spend of $225 million on components. Benefits depend on successful integration and supply execution.
Other significant risks include cancellable customer orders, dependence on a single vehicle model, competition and price pressure, single-source suppliers, battery and semiconductor availability, high fixed costs, and the need for additional financing. The company reported approximately $5.0 billion in non-cancellable long-term purchase commitments, primarily battery cells.
Legal matters include securities and derivative actions; the company said it did not consider pending matters material, although outcomes remain uncertain. The SEC informed Lucid in April 2023 that it had concluded its review of the business combination and did not intend to recommend enforcement action.
The March 2023 workforce restructuring was substantially completed in Q2 and generated $24.5 million in charges for the first nine months. Disclosure controls were assessed as effective at September 30, 2023.

Investor verification priorities

Track vehicle deliveries, realized pricing and incentives, and whether revenue growth can outpace costs as production scales.
Assess the size and persistence of inventory and firm purchase commitment write-downs and their effect on gross margin and cash use.
Reconcile cash burn and investment maturities against the stated 12-month liquidity outlook, planned capital expenditures and financing availability.
Review progress, costs and timing for Arizona facility remediation, AMP-1 expansion, AMP-2 construction and Lucid Gravity production.
Monitor dilution and potential further capital needs, including the implications of Ayar’s control and the company’s long-term purchase commitments.
Verify execution and cash realization under the Saudi vehicle agreement and Aston Martin arrangement, including contractual conditions and delivery milestones.
Follow pending litigation, warranty and recall exposure, and supplier and manufacturing risks.