Lucid Group, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Amounts below are in U.S. dollars; financial statement figures are converted from thousands to millions unless otherwise stated. The July 23, 2021 business combination with Churchill was accounted for as a reverse recapitalization, so the statements principally continue Legacy Lucid’s results.
Business context and reporting period
Lucid designs and develops electric vehicles, powertrains and battery systems. Through September 30, it had not sold vehicles; revenue came primarily from battery-pack systems, supplies and related services to a single customer. Lucid began commercial production of the Lucid Air in September and reported first customer deliveries in late October 2021. It was building manufacturing capacity and its direct-to-consumer retail and service network.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $0.232m | $0.334m | $0.719m | $0.342m |
| Gross loss | $3.088m | $0.275m | $2.705m | $0.208m |
| Research and development | $242.4m | $133.9m | $586.6m | $341.6m |
| Selling, general and administrative | $251.6m | $27.9m | $455.5m | $57.7m |
| Operating loss | $497.1m | $162.1m | $1,044.8m | $399.5m |
| Net loss | $524.4m | $161.2m | $1,534.1m | $408.1m |
| Net loss per share | $(0.43) | $(6.64) | $(8.56) | $(19.54) |
The nine-month net loss attributable to common stockholders was $3.701bn, including a $2.167bn deemed dividend related to Series E preferred stock. Q3 revenue was very limited and declined year over year; it did not yet reflect vehicle sales. Q3 gross loss widened as early-stage production costs increased. Research and development and SG&A rose substantially, with stock-based compensation a major contributor: $237.0m in Q3 and $366.2m for the nine months.
- Cash and liquidity at September 30: $4.797bn cash and cash equivalents; $0.5m short-term investments. Cash and restricted cash totaled $4.833bn, including $35.7m restricted cash.
- Cash flows for nine months: $745.4m used in operating activities; $299.3m used in investing activities, primarily capital expenditures; $5.237bn provided by financing activities. Financing included $4.400bn net proceeds from the merger, $600m Series E proceeds and $173.3m from public warrant exercises.
- Balance sheet: Total assets were $6.139bn and total liabilities $1.294bn. The filing reports no conventional borrowings on the balance sheet; liabilities include $192.0m in operating and finance lease obligations and an $836.8m liability for private warrants.
- Capital investment and commitments: Property, plant and equipment, net, was $965.9m. The company reported $363.0m of commitments for the Arizona plant and equipment and an estimated $509.2m minimum battery-cell purchase commitment over the following three years.
Material changes versus the prior comparable period
- Nine-month revenue increased $0.377m year over year, from a low base, while nine-month net loss increased $1.126bn. Operating expenses rose $642.7m, reflecting growth, commercialization preparation and significantly higher compensation expense.
- Operating cash use increased to $745.4m from $377.4m. Investing cash use declined to $299.3m from $355.9m, while financing cash flow rose sharply due primarily to the merger and associated capital raising.
- The merger converted Legacy Lucid preferred stock into common stock and brought in $4.400bn net cash proceeds. At September 30, Lucid had 1.642bn common shares outstanding; merger-related equity awards and warrants add potential dilution.
- Fair-value accounting for Series E contingent forward contracts produced a $454.5m nine-month loss, compared with $8.7m in the prior-year period. The contracts were settled by April 2021. The newly issued private-warrant liability generated a $24.8m Q3 loss from fair-value remeasurement.
Outlook, risks and unusual items
- Management said existing cash was expected to fund capital expenditure and working-capital requirements for at least 12 months from the report date, while also stating that additional capital may be required. It expected capital expenditures to increase through 2023 as manufacturing capacity and international operations expand. No specific vehicle delivery-volume or financial earnings guidance is provided in the filing text.
- The company expected significant losses and operating cash use to continue while it scales production, expands facilities, develops future models and builds sales and service operations. Management said the merger proceeds eliminated substantial doubt about going concern within the stated one-year assessment period.
- Execution risks include scaling manufacturing and tooling, supplier and semiconductor availability, battery-cell costs, quality and warranty performance, customer cancellations of refundable reservations, competition, and the ability to establish a service network and direct-sales model. COVID-19 and supply-chain disruption were also identified as risks.
- As of September 30, Lucid reported more than 13,000 refundable Air reservations, representing potential sales greater than $1.3bn. Reservations could be cancelled and are not equivalent to firm orders or revenue.
- Management concluded disclosure controls were ineffective because of material weaknesses in accounting staffing and processes, vendor-payment controls, IT access controls and warrant accounting. Remediation was underway. The company also disclosed securities litigation relating to the merger; the filing text describes claims and transfers of cases, while the financial-statement note says no material pending or threatened litigation remained outstanding. Verify current status from subsequent filings.
- Other notable items include the $836.8m private-warrant liability, which is subject to fair-value changes; a $32.7m payroll-tax liability with a related $27.4m employee receivable; and $732.2m of unamortized stock-based compensation at quarter end. After quarter end, remaining public warrants were exercised cashlessly or redeemed, and customer deliveries began.
Important facts for investors to verify
- Production ramp, delivery volumes, customer cancellations and conversion of refundable reservations into completed sales.
- Cash burn, capital expenditure pace, manufacturing expansion costs and whether additional financing will be needed.
- Vehicle gross margins and warranty, service and repair costs as commercial sales scale.
- Supplier capacity and exposure to battery-cell, semiconductor and other input-cost or availability constraints.
- Remediation progress for internal-control weaknesses and the status and potential exposure of merger-related litigation.
- Potential dilution and earnings volatility from stock awards, warrants and fair-value accounting; confirm post-quarter warrant exercises and share counts in subsequent filings.