Lucid Group, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Financial statements are unaudited. Lucid designs, develops, manufactures and sells electric vehicles and related powertrain and battery systems. It began delivering Lucid Air vehicles in October 2021; the prior-year quarter preceded vehicle deliveries, so revenue and expense comparisons reflect an early production ramp versus a pre-commercial period.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | $57.7 million | $0.3 million |
| Cost of revenue | $246.0 million | $0.1 million |
| Gross loss | Approximately $188.3 million; gross margin approximately -326% | Not meaningful given minimal revenue |
| Research and development | $186.1 million | $167.4 million |
| Selling, general and administrative | $223.2 million | $131.7 million |
| Operating loss | $597.5 million | $298.8 million |
| Net loss | $81.3 million, or $0.05 per share | $748.0 million; net loss attributable to common stockholders was $2.915 billion, including a $2.167 billion deemed dividend |
| Cash used in operating activities | $494.6 million | $218.7 million |
| Cash used in investing activities | $185.1 million | $94.8 million |
| Cash and cash equivalents at quarter-end | $5.392 billion | $6.263 billion at December 31, 2021 |
Q1 2022 net loss includes a $523.3 million non-cash gain from the decrease in fair value of common stock warrant liabilities. Accordingly, net loss was substantially lower than the $597.5 million operating loss and is not a straightforward measure of operating performance. The company recorded a $96.4 million inventory write-down in cost of revenue; excluding that item, cost of revenue and gross margin would still reflect substantial production-ramp costs.
At March 31, 2022, total assets were $7.402 billion, total liabilities $3.572 billion and stockholders’ equity $3.829 billion. Current assets were $5.864 billion and current liabilities $511.9 million. Long-term debt had a $1.988 billion carrying value; the $2.0125 billion principal amount consists of 1.25% convertible notes due December 2026. The notes were not eligible for conversion at quarter-end. The company reported an accumulated deficit of $6.1 billion.
Material changes and business developments
- Revenue rose to $57.7 million, primarily from Lucid Air deliveries. Cost of revenue reached $246.0 million as production remained limited and manufacturing overhead and personnel costs were spread across low vehicle volumes.
- Operating expenses increased 37% to $409.2 million. R&D rose 11%, while SG&A rose 70%, principally reflecting headcount growth, stock-based compensation and professional services.
- Cash and cash equivalents fell $871.1 million from year-end. Operating cash outflow increased from the prior-year quarter, while capital expenditures were $185.1 million, nearly double the prior-year amount.
- Inventory increased to $333.9 million from $127.3 million at year-end. Property, plant and equipment, net, increased to $1.328 billion as the company continued facility expansion and tooling.
- Cash used in Q1 financing activities was $187.3 million, primarily reflecting cash remitted for employee tax withholding on vested CEO RSUs; this was partly offset by stock-option exercise proceeds.
Outlook, risks and contingencies
- Management expected existing liquidity and projected cash flows to provide adequate liquidity for at least the next 12 months. It forecast approximately $2.0 billion of capital expenditures for fiscal 2022 and expected operating expenses to increase as the business expands.
- Lucid expects substantial continued spending on operations, R&D, production ramp, Arizona plant expansion, retail and service locations, and international manufacturing. It cautioned that it expects continued losses and does not expect positive operating cash flow for several years, if at all.
- Management said production volumes would remain well below manufacturing capacity in the near term. Supply-chain constraints, semiconductor shortages, inflation, supplier delays and construction costs could affect costs and production timing. The filing does not provide a clear numerical vehicle-production or delivery target for 2022 in the text provided.
- Project Gravity, a luxury SUV, was expected to begin production in the first half of 2024. Lucid reported refundable reservations and non-refundable orders representing potential sales exceeding $2.7 billion as of March 31, 2022; reservations may be cancelled and are not equivalent to delivered sales.
- For a planned Saudi manufacturing facility, the SIDF committed to loans of up to approximately $1.4 billion, subject to conditions and possible reductions in availability; no amounts were drawn at quarter-end. The loans carry service fees, security interests and restrictive covenants. The company described Saudi financing and incentives as potentially totaling up to $3.4 billion over 15 years.
- Subsequent to quarter-end, Saudi Arabia undertook to purchase up to 100,000 vehicles over ten years, including an initial commitment for 50,000 and an option for up to 50,000 more; deliveries are to begin no later than Q2 2023. Also subsequent to quarter-end, Lucid LLC entered into a revolving credit facility of approximately $266.7 million with Gulf International Bank, an affiliate of controlling shareholder Ayar; drawdowns are subject to conditions.
- Legal matters include securities class and derivative actions related to merger-era statements and projections, an SEC investigation for which Lucid said it was cooperating, and a separate class action filed April 1, 2022 concerning later delivery and revenue projections. The company said it did not consider pending matters material or likely to cause a material adverse effect, but outcomes remain uncertain.
- Lucid disclosed a February 2022 voluntary recall involving a potential front strut damper manufacturing issue. It also identified a portion of the Arizona facility requiring repair or remediation to support future production volumes; the company did not expect production to be taken offline, but costs and recovery from contractors were uncertain.
- Other key risks include lack of high-volume manufacturing experience, reliance on single-source suppliers, product quality and warranty exposure, capital needs, direct-sales regulation, and dependence on a single vehicle model during the near term. Ayar held approximately 60.9% of common stock at March 31, 2022, giving it control.
Important facts for investors to verify
- Progress in vehicle production and deliveries, and whether production can scale while reducing per-vehicle costs and inventory write-downs.
- Cash burn, capital expenditure pace, and whether liquidity remains adequate as Arizona and Saudi facility plans advance.
- Actual funding availability and conditions for SIDF loans and the post-quarter GIB credit facilities, including related-party terms and covenants.
- Whether the Saudi vehicle undertaking converts into scheduled orders and deliveries, and the economics and timing of the planned Saudi facility.
- Developments in the SEC review, securities litigation, derivative actions, and recall or facility remediation costs.
- The impact of warrant fair-value changes and stock-based compensation on reported earnings and cash needs; Q1 net loss benefited materially from a non-cash warrant remeasurement gain.