Lucid Group, Inc. (LCID) Earnings Call Transcript & Summary

Okay. I'm delighted to have Peter Rawlinson, CEO and CTO of Lucid. Thank you for joining us. We have Maynard and Gagan also in the audience to help answer your questions throughout the day and their meetings. I spent most of the good chunk of the morning with you on Tuesday and Casa Grande, I pronounced Casa Grande. Everyone else there called a Casa Grande, but I don't know, what do you call it?

Well, I learned to say it like the local.

Yes, Casa Grande.

Yes, Casa Grande I think it is an aberration. Spanish is [indiscernible]. You're very correct.

I'm such a linguist. But I mean, the plant is immaculate. You can literally get off the floor. It's got hundreds of beautiful robots, a super modern paint factory, amazing technology. You spent a lot of time showing off the powertrain technology and how electricity is distributed and moved around the car and power of the vehicle and the size of the software. It really was kind of tour to force of the technology that you bring to the table. And you don't win awards like you want without having real stuff you clearly do. But I kind of like to think that the technology kind of gets you into the -- across the velvet rope maybe into the club. But to get to the VIP room, you got to get your cost down. And you made -- I think you and your team have also emphasized that as well. So obviously, the volumes at 9,000 units. You're smaller than Ferrari in terms of unit volume right now, and you got a plant that's built for a hell of a lot more than that. So walk us through some of the key messages and as we kind of go from air to gravity midsized kind of that journey.

You're quite right. So the plant is in the process of being built out to 90,000 unit capacity, will be very soon. And we've indicated we intend to build 9,000 Lucid Air this year. You're absolutely right. So our trajectory is all -- and our costs and our finance are dominated by long-term investments for the future. You saw that with a degree of automation, technology and process technology, robots and vertical integration, both a stamping right through to Wunderbox, electronics line, making our own electric motors, and the battery pack we're famous for. So all of that, but we've really got a full step process for growth. First of all, we need to improve our brand awareness to grow our sales of Lucid Air. And that's coming on nicely. We just come off the back of a record Q1 and a record Q2, and we're heading very nicely and very pleased with the way Q3 is going. We actually outsold '23 numbers by the end of August this year. So that's going well. And it's very -- it takes time to build a brand. So that's going nicely. The second step, of course, is getting the Gravity SUV, Lucid Gravity SUV into production, that schedule for start of production late this year. And hopefully, we'll be able to make an announcement about that in more detail very soon, so watch this space. Then we've got really the big one, which is the midsized platform coming in and that schedule for production late '26. And to that aim, we're currently building out a plant, another plant on the other side of the world in Saudi Arabia with a capacity, an installed capacity of 150,000 units. We've laid the foundations for that. We're currently in the process of erecting steel. So that's where a midsized platform variant will go. We're also going to put a variant into Casa Grande in Arizona as well. And then beyond that, and that will give us some serious scale. I mean, the vision is I want us to be making about 1 million cars a year in early 2030s '31, '32, somewhere around there. And midsize will enable us to that, I believe at a price point of about $48,000, $50,000.

What is the benchmarks for that?

That's an unashamedly Tesla Model Y, Model 3.

Do you have Chinese benchmarks for that. And would that 1 million envision a Chinese contribution or more of an independent of China?

That's yet to be determined. We recognize that is the big price in terms of markets. But the competition there in the marketplace is absolutely brutal within China.

So again, going back to cost, from the steps from Air to Gravity, midsize, you're making enormous reductions of bill of material costs. Aside from volume, how do we think about that journey, let's say, I mean, I don't know I'm thinking your BOM cost would be going something like from maybe $150,000 a unit thereabouts to well, obviously, well below $50,000, if you want to be profitable. How do you take $100,000 out of an Air into a Gravity, for example.

So there's the easy bit, and there's the tough bit. And the easy of it is what everyone does, which is building a car with 4-wheels on. And I think there's almost too much emphasis put on that an EV is so different from a gasoline counterparty in that respect. I mean, clearly, we've got a software-enabled product. That's what our car is. But they've got 4 doors, and they've got 4 wheels and they've got 4 seats and whether they've got a steering wheel or not is another matter. But...

I'll take [indiscernible] over steering wheels.

Yes. Right. Well, let's assume that [indiscernible] . But to start -- I mean that's ostensibly the easy bit, building a car. The where -- our secret source and our super power is the cost of the powertrain because we've got a technological edge, which we can convert to a commercial edge because the cost of, particularly when you go to a family car, the cost of the bill of materials, that's the all the parts to build that car with is dominated by one thing, and that's the battery cap -- pack cost. Over 40% of that BOM bill of material costs for family vehicle is battery pack. And really, there's no internal combustion engine equivalent for one single item having so much contribution. And that's where our tech really plays its role that we can go further with less batteries and that means considerably less cost. And that's where our tech is a cost enabler. That's why we're doing that. That's why we built this company to really push down the cost and attainability of EVs, paradoxically, whilst we're in the luxury space at this moment in time.

Yes. I mean, again, the tech advantage is clear. You're one of the most efficient EVs or in many metrics, the most efficient 4.7 miles for a kilowatt hour, and I think you touched 5 and some of the versions.

Yes. Pure is now, we were 4.74 and we recently we announced 5.0.

Okay. So just at a high level, you think that, that kind of innovation catalyst of trying to like solve for battery technology that can you there. And in addition to the [indiscernible] and any other design -- that open that can leverage into a cost advantage because you can have smaller battery. Would that be really small. So then are we then going to then see the number of kilowatts in the vehicle reduced or...

Not only are we going to, we are already because our entry level, the one that's super-efficient or 5 miles per kilowatt hour. The Air Pure Rear-Wheel Drive. It's 410 -- this is in production today, 420 miles range. It's got more range than a competitor, and it's doing that with an 84-kilowatt hour pack, which is very, very small for the class of vehicle it's in. Take Mercedes-Benz, the EQS, it's 108 kilowatt hours, much bigger and significantly less range.

So you think you can have a cheaper battery than a Model Y?

Oh, yes. Yes. And so in my view of the car of the future is with a more mature infrastructure for charging -- cell chemistry, which is more accommodating in terms of charge rate and charge cycle time. You could see if we could get to the holy grail of, say, 6 miles per kilowatt hour, you can have a 240-mile range car with just a 40-kilowatt pack, you [ get a 40 or 6 ] and gets you to a 240. And then that's a tiny thing. And that really opens up a whole raft of opportunities for building an affordable car. Just the size of that thing that would fit underneath the front seats, much lighter. You wouldn't need big brakes, all suspension links could be smaller, everything gets more.

EVs are way too heavy. EVs are way too heavy right now, right? You've got to work...

Yes, absolutely. It pains me.

Especially you're racing back on a pedigree of Lotus and stuff. I mean anyone driven, Lotus, by the way? Do you own a Lotus right now?

Yes, they're pretty fun. I had [indiscernible] '21.

Okay. That's awesome. You're living the dream. Chinese EVs, Peter, are they any good?

I think they're amazing. I think they've come on at leaps and bounds. It's quite shocking. I was looking at some very recently. And they're right up there, shocking cost-effectiveness, I don't think they're there technologically in terms of their core EV competence yet, where they're really great is user interface. And certainly, if you look at some of the ADAS features and the ADAS visualization with the mapping they've got that they do mapping systems, 3D visualization and the fusion of 3D maps with surround view awareness, situational awareness of the vehicle within its sensors. So you fuse this world of maps, overlay and you put the car in that map is absolutely awesome.

So again, maybe when you're at the price points you're at now with Air, perhaps the Chinese are not the most relevant benchmark, which is why you like to show earlier this week, for example, the Germans and some of the Tesla vehicles. But as the price points come down, I think it's fair to assume that the Chinese benchmark become more relevant.

Totally as they get better as well.

So which companies and/or models would you say or in that kind of forward benchmark...

There is Nio, Xiaomi there's BYD. There's a whole bunch of them. And there's a whole bunch that I -- I keep learning about that I've never existed before, even I can't keep up.

All right. In terms of the licensing opportunity at Aston Martin, kind of -- any other discussions or other opportunities that...

I'm really asked and open the door for discussions with other automakers. And I've long said that's part of our business plan. But really is the icing on the cake because you never -- you can never tell. It becomes -- the decision becomes a third-party's decision. But I think that as time progresses, there will be many traditional car companies who recognize the inexorable road to pure battery electric, and they're going to miss out and we could offer them a real lifeline.

Gravity, start of production late this year, maybe an update soon. Yes. I don't know -- remind us how much overlap there is between Air and Gravity. And I know there's a lot of vertical integration, too. So -- but there's always some new suppliers and...

Yes. So there's -- in some areas, there's a high degree of overlap and economy of scale and others are not. So we decided to go for a completely new platform to make it a proper SUV. That's why we're not going to have too much product overlap, minimize cannibalization from Air to Gravity, have key really true product differentiation. That was important. But with things like the powertrain, there's a lot of carryover. The motors are very, very similar, a lot of the softwares very similar. Our battery pack about 95% the same, modules the same, subtle changes to architecture, little things like gear ratios in the drive units, the wheels are a little bit bigger. We want off-road tractability, so have slightly lower gears.

900-volt.

924 volts.

924-volt.

Yes. Highest voltage I'm aware of in the market.

Remind -- that's my understanding as well, Peter. So remind us then the price points.

Yes. Well, actually, people are surprised. Air is now available from $69,000, a pledge I made 4 years ago, in fact, and we've honored that. We envisage Gravity being from a price point just below $80,000 at some stage. I'm not saying we will launch with that variance, of course.

Or launch higher than, said 80...

Our launch vehicle is highly likely not to be that entry level vehicle.

I'm just throwing this out there, kind of like what Rivian R1 is right now, R1S is in that 90, low 90s kind of thing. R1S, R1 is -- their volume is fairly modest, certainly well under $50,000 a year. I don't know if that was a benchmark here. And again, you offer features and things that are very different, but I'm just thinking through the eyes of the consumer because there's not a lot of choice for electric multi-passenger vehicles. This is in this case, a 7-seat type vehicle. So who -- would it be unfair to say that the R1S and even maybe the Kia EV9?

EV9, yes.

It's unfair comps?

No, no. I think these are interesting bookends. I mean we put an array of competitor vehicles on display when you were present on Tuesday. And that lineup comprised the Porsche Cayenne , which we think is a great benchmark for ride and handling, although that's a 2-row. There was the BMW iX the Mercedes-Benz EQS SUV and the Rivian R1S.

Absolutely, I mean I'm watching that EV 9, which is not there, but that's selling kind of 3,000 -- again, the first year in the States, about 3,000 a month. Customers seem to love it. I'm just thinking what kind of volume at that price point or how are you thinking about -- I mean you have a large plant there...

EV9 can creep up into the close to around $70,000 I believe. So that then is not that cheaper car. I think our offering is far superior. We expect it to be. I mean we've got much roomier, more efficient and practical interior. And much more luxurious.

It's just my -- but it really feels like the Gravity is the step to the new platform, but then the kind of launch pad to midsize, I think to really fulfill the volume ambitions.

Yes. Well, no, I think that -- absolutely, it's a big step in our volume. We're looking at a total addressable market about 6x that of their, we believe. And I think that the key with Gravity is I think it's going to be an absolute landmark seminal product. It's got revolutionary packaging, and that's only enabled by our advanced technology by miniaturizing the drive units and making things super efficient. We've got far less batteries there. We've got about 120 kilowatt hours or so of batteries. Some of the competitions literally double that. So we've got a much better people package actually inside the vehicle -- we've got about -- it's 3 row 7 seats. And actually, the leg room is an inch greater inside than a long wheelbase, big traditional American SUV. And yet on the other side, the Gravity is only a couple of inches longer than an Air. So it's eminently usable in a metropolis.

Yes. The midsize, I think that's going to be a big -- big determination as to where we go here. On the capital needs, remind us your liquidity and cash runway.

Yes, yes. Yes. Well, we have sufficient cash runway to see us through into the fourth quarter of 2025, as we say it. We're at a capital-intensive stage of growing the business. We're making long-term investments for the future. And I've been very transparent, Adam. We're going to require some extra capitalization, and we'll do so at appropriate entrepreneurial moment. But I mean, you look at the investments we're making, you've seen the factory in Arizona, state-of-the-art. We'll go up to 90,000 unit cap...

Run a lot of the CapEx there.

That is in. Just look at the -- look at stamping. -- this last year. We've been paying for trucks, bringing stampings in. We've been paying for scrap, and we've been paying to build that damn thing. All those 3 costs now go as we go into 2025. We're going to build it and make everything in-house. And so also, we're building out the factory in Saudi Arabia. Then we've been investing in continuous improvement on Ad. Big software upgrade came just on Monday, which was very well received. We're going to be really known as a software-focused company, as a tech company with a software-defined vehicle. We've got an Ethernet architecture. We're one of the very first to put that in. We've had that in from the start. Others have only recently got that, got accolades, but actually, we were there originally with the data super highway and with great over-the-air capability. We're also invested so much in the tooling and launch now Gravity. We've also got a huge team effort running right now design and engineering of the midsize. And yes, and half powertrain is on midsize now because we've announced the Atlas powertrain program. So these represent 5 different areas of significant capital burn. And this is all a long-term strategy that's putting us in great stead for the future.

And midsize also 900 -- north of 900 volts.

We haven't disclosed that yet.

But I think that inevitable...

If it's inevitable it's going to be a very high voltage, yes. The right voltage is high.

Okay. But the way you answer that is maybe not 900...

They might not be....

And is that for cost reasons or just relative to the performance expectations?

It's going to be a multidimensional decision. I mean, for example, Sapphire and GT run at 924, the Touring runs at 756 volts today and our Pure runs at 672 volts. So we have a range between -- they're not all over 900 volts. And for a whole range of quite deep technical reasons for that.

And I get all else equal, if you had one vehicle, and maybe this is an impossible question, forgive me if it's a naive one. But if you had CAR A had 924 volts, CAR B had 500 volts. What is the cost differential? How significant is that? Are we talking single-digit thousands? Are we talking something close to 10,000? I didn't know...

Generally, if you've got high voltage, you can have less metal, less copper because you've got less current. You trade voltage for current, double the volts half the current. And it's the current you need the metal for. So you can actually reduce cost. It's just like having a 48-volt architecture, you have less copper in your low voltage. -- radar. That's right. But really where it matters is to have the high voltage in your high-voltage system, not have your high voltage in your low-voltage system. And that's what we've gone for. We've got low voltage, but 900 on a high voltage, which makes more sense.

Right. We're going to talk about software, too. And let me just pause for a second. Any questions for Peter from the audience? Has anyone not driven the Air out front, by the way, too. Okay. Who has driven it? Okay. Anyone care to share their impressions?

[indiscernible].

Pretty fast, I don't know what version it was. I don't recall -- it's pretty fun. That's cool. On your controlling -- you are a controlled company, pubic investment fund in Saudi Public. Beyond capital, okay? Because I talked to investors that say, you can never have too much capital. You can never -- the auto industry always spending, you never have too much. Do you agree with that?

I think there's a right -- there's a prudent amount of capital. I believe the right way to build the business is to show growth and performance and demonstrate the value that you bring your shareholders and then go for a prudent amount of capitalization, which is a balance between future investment and dilution for the existing shareholders. So I think there's this staircase where you trade the security of more capital with the enemy, which is dilution.

So beyond money, how else has PIF helped the strategic position of the company. In addition to the let's say, the Aston...

Hugely, hugely. I mean, they've added a sense of stability around us that we're here to stay. There's a huge credibility they placed an order for 50,000 vehicles up to 100,000 vehicles through Saudi government. They opened doors, they enabled a $3 billion accretive package incentive package for us, made a sense for us as a business to undertake the first car plant there in Saudi Arabia. And we're long-term partners here, which really transcends a normal near financial.

No, you're part of their strategic -- their vision -- the 2030 vision.

Absolutely. Absolutely. We're a cornerstone of realizing their bold vision, which is a beacon of light for the world actually for the quintessential fossil fuel economy to have the foresight to transition to a solar electric type of economy, I think, is the right way to go. I really do. And we -- and that's what's nice about this because we're mutually incentivized for success.

But making cars in Saudi, having a Saudi partner is one thing. Making cars in Saudi is another. You assemble them and you're increasing the local content. But there's not really that develops the supply chain. Maybe I'm wrong, but tell me like how do you -- that takes time. So if you're growing 150,000 units in the factory, the full-blown factory, kind of how would that what would that local content be? How would you describe it versus a normal -- to the extent, there's a normal plant in Casa Grande or in Europe or something like that.

Well, ultimately, it's a chicken and egg situation. What happens first the car plant or the supply base. You can't have one without the other start have to start somewhere. But remember, right now, we haven't got a lot of stuff that's localized in Arizona. Sure, we are near to Mexico, and we've got quite a number of suppliers.

You're quite close to Mexico.

And that's handy. There's no -- but if you're looking at getting cells, say, from the Far East, getting them to the shores of the Red Sea to deepwater harbor, it's probably easier getting them to inland Arizona realistically. So where we are in Saudi Arabia is in the King Abdullah Economic Center. And that's just north of Jeddah, really on the banks of the Red Sea. You're right alongside a major world trade artery there.

How do you get world-class automotive talent to live there?

It's all about making the environment really, really attractive. And you know what, we've got great local talent there, building the cars with great pride and there are female workers working alongside their male colleagues there in Saudi Arabia, there's a generation that really wants to work and put in pride in their work. And I'm really proud and pleased that we can be just a small catalyst for that chain.

Okay. That's great. So one of the messages, I get, a lot of the tech that you put on display was around the movement of electricity in the car and then moving the kinetic and electromagnetic forces, motor battery. It's very impressive. You're trying to emphasize the software and you do have great software and a software-defined architecture. I don't think it's appreciated much. And perhaps I think some of it was -- you said there was some self-inflicted execution around it. So tell us then if you're going to be in the EV business, it probably means you're going to have to have an AV strategy, maybe not a full robotax. Let's keep the steering wheel on for now. We're talking to -- but like you're going to have -- it's going to become table stakes to have the Level 2+ system at some point probably debate the capabilities. So what is the strategy there? How much do you need to vertically integrate versus work with partners? Or is this currently a...

The sad thing is we're not really known for our software, which is really not representative of what we're about. We've got world-class software in terms of our battery management software. We wouldn't be able to go over 500 miles. We're the only company that gets over 500 miles range here. We still got 100 miles more range over everyone else today with the car that we brought out 3 years ago. That's how good our battery software is our motor control software. We've got the Sapphire, the performance of that car is very much a function of its traction control, getting the power down. Power is nothing without control. And 1,000 times a second, that power is modulated to the tires, all with our own in-house software. We're making our own HUD augmented reality HUD, and that's developed entirely in-house, and that's going into the gravity the most advanced heads-up display in the world. That's an in-house development from the team that created the most advanced lighting and all the technology and the software for that in-house that you see in Lucid Air. So we've got incredible world-class software that you don't see that people think, oh, that's the batteries that gets you 500 miles. Believe you me, it's a lot of that is software, the motor control, the blending of the response of the pedal. It's phenomenal and how the regen comes on that is so seamless and so natural intuitive. That's all done in-house. What we haven't got great and not well known for, and it's a mere [indiscernible] . We need to do better. We need a better infotainment system and user experience. And actually, with the ADAS, it's not just so much the ADAS, it's the way the ADAS is graphically represented.

How it involves the -- I say I have a Tesla FSD has gotten better, but I've gotten better, faster than I think it has. I know when not to use it. And part of it is, understand the information that's given.

Yes. So exactly that. So I've made sweeping changes to the team. I've empowered people who have been with me for many, many years. I've personally taken a lead on this. And words are cheap. So although we've got a road map, and I showed the road map, Adam, to you and others on Tuesday, I was adamant that we got one of these iterations over their out. The day before we did that, we got 2.4.0, the odds release of software. And that was very well received, and it's seen as a major step up. And we're on that road map now. Next 6 to 8 months, you're going to see us change and really be known as a software-defined vehicle, a software-defined tech company. And the way that our ADAS system is going to be integrated, we're going to have a Level 2 hands-off system. I'm promising that by the end of this year. Just -- and it's just going to be relentless feature release upon feature release.

Is this in-house?

Absolutely, extensively in-house. We're moving -- even our OTA delivery now is fully in-house. So systems that were codeveloped are transitioning fully in-house. And our lane tracking, lane centering, the lane change control, that's in-house. And it's going to be -- we're transitioning to -- I wouldn't say fully in-house, but 99%...

Does this materially change your capital intensity of the business? Some of your competitors are spending billions of dollars on computer.

No, I've got a great team. It's just now we've made leadership changes. They're totally motivated and they're on it, and they're determined to be world-class, and they're working like crazy on being that.

Okay. You said power is nothing without control. Yes. Sounds a lot sexy. The way you say it, really accent. I don't know. It's good. That's good. If I went to my wife and said power is nothing without control, it should be like get the hell out of the kitchen. Thank you very, very much. All right. I appreciate it.

Thank you. Thank you, everybody.