Lucid Group, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Lucid designs, develops, manufactures and sells electric vehicles and related powertrain and battery systems. It began delivering the Lucid Air in October 2021; the 2021 comparison period largely preceded vehicle deliveries, so year-over-year comparisons are affected by the ramp from pre-commercial operations.
Key financial metrics
| Metric | Q2 2022 | Six months 2022 |
|---|---|---|
| Revenue | $97.3 million | $155.0 million |
| Cost of revenue | $292.3 million | $538.3 million |
| Gross loss and approximate gross margin | $195.0 million; (200%) | $383.3 million; (247%) |
| Research and development | $200.4 million | $386.5 million |
| Selling, general and administrative | $163.8 million | $387.0 million |
| Operating loss | $559.2 million | $1.157 billion |
| Net loss | $220.4 million | $301.7 million |
| Cash used in operating activities | Not provided separately for the quarter | $1.008 billion |
| Cash used in investing activities | Not provided separately for the quarter | $1.914 billion |
At June 30, cash and cash equivalents were $3.157 billion, with short- and long-term investments of $1.137 billion and $278.1 million, respectively—$4.572 billion combined. Current assets were $4.966 billion and current liabilities $654.1 million. Total assets were $7.129 billion; accumulated deficit was $6.368 billion.
Long-term debt had a $1.989 billion carrying value, principally the $2.0125 billion principal amount of 1.25% convertible notes due December 2026. Lucid also had $6.7 million outstanding under a Saudi working-capital facility, no SIDF loan or ABL borrowings, and $252.9 million of ABL availability after the borrowing base. The SIDF facility may provide up to approximately $1.4 billion subject to conditions; the ABL commitment is up to $1.0 billion, but availability is asset-based.
Changes versus the prior comparable period
- Q2 revenue rose from $174,000 to $97.3 million, primarily from Lucid Air deliveries. Six-month revenue rose from $487,000 to $155.0 million.
- Operating loss widened from $248.9 million to $559.2 million in Q2, as vehicle production costs and operating expenses grew. For the first half, operating loss widened from $547.7 million to $1.157 billion.
- Net loss narrowed year over year to $220.4 million in Q2 and $301.7 million for the first half. The improvement chiefly reflects non-cash gains from revaluing common-stock warrants: $334.8 million in Q2 and $858.2 million for the first half. These gains do not represent operating performance.
- First-half operating cash use increased from $453.8 million to $1.008 billion. Investing cash use rose from $206.5 million to $1.914 billion, including $1.419 billion of investment purchases and higher capital expenditures.
- Inventory increased to $553.0 million from $127.3 million at year-end. Lucid recorded inventory write-downs of $81.7 million in Q2 and $178.1 million for the first half.
Outlook, commentary and risks
- Management said existing liquidity and projected operating cash flows were expected to provide adequate liquidity for at least the next 12 months. The company nevertheless reported continuing operating losses and negative operating cash flow and said its growth plan requires considerable capital.
- Lucid anticipated approximately $2.0 billion of capital expenditures for fiscal 2022 and expected operating expenses to increase as it scales. The filing text does not provide a clear specific 2022 production or delivery target.
- Management said production was limited relative to manufacturing capacity and expected near-term production to remain below capacity. Inventory write-downs could continue to weigh on vehicle costs during the ramp. The company cited supplier delays, semiconductor shortages, logistics constraints and inflation.
- Lucid was expanding its Arizona manufacturing plant and beginning construction of a Saudi facility. The Saudi agreements were estimated to provide financing and incentives of up to $3.4 billion over 15 years, subject to conditions and milestones; no MISA incentives had been received by June 30. Project Gravity, a luxury SUV, was expected to begin production in the first half of 2024.
- Manufacturing expansion faces execution risks: Phase 2 general assembly equipment was expected to be delayed until early 2023, and part of the Arizona facility requires repair or remediation to support future production volumes. Lucid expected significant costs and said recovery from contractors was uncertain.
- Lucid reported two vehicle recalls in 2022: a February recall involving a potential front-strut-damper issue and a May recall involving wiring connected to in-vehicle displays.
- Legal matters include securities class actions related to the merger and later projections or guidance, shareholder derivative suits, and an SEC investigation concerning the merger and certain projections and statements. Lucid said it intended to defend itself and was cooperating with the SEC; it did not consider pending matters likely to have a material adverse effect at the time of filing.
- Other significant risks include dependence on single-source suppliers, limited high-volume manufacturing experience, customer cancellations, reliance on the Lucid Air as the primary model, additional financing needs, and potential effects of COVID-19, inflation and the Russia-Ukraine conflict. The company disclosed a correction of an immaterial prior-quarter diluted loss-per-share error: Q1 diluted loss per share changed from $0.05 to $0.36.
Investor facts to verify
- Actual production, deliveries and cancellations versus management’s plans; the filing text here does not give a clear delivery count or annual target.
- Whether the production ramp reduces the substantial per-vehicle losses and inventory write-downs, and how much cash operations consume as inventory and capacity expand.
- Cash and investment balances, capital spending, and the amount actually drawable under the asset-based and Saudi facilities—not just stated commitments.
- Progress, costs and timing for Arizona remediation and expansion, the Saudi facility, and the Project Gravity launch.
- Developments in recalls, warranty costs, the SEC investigation and securities litigation, including any material changes in potential exposure.
- The effect of warrant revaluations and stock-based compensation on reported earnings and shareholder dilution; Q2’s warrant gain materially reduced reported net loss.