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

So the last meeting of the conference, we're going to be hosting Lucid company. Mr. Gagan is the CFO, and we're going to be talking about the product, the company, the strategy, the balance sheet, the funding, the shareholders and profit and the expectation for the market. If you prefer, we can sit, we can stand, whatever it is comfortable for you.

Yes. Let's sit, and then we can go from here.

I think that I always like -- so considering that a U.S. company and you don't sell your cars here in Europe for many of the investors here could be maybe a good starting point to explain your products? What products do you have today and the products that you're bringing going forward? Arguably, you have the best, the most beautiful, the most impressive electric vehicles in the market in the U.S. How would you describe those products? There is -- we perceive that has been kind of a commoditization of the product as we move from hardware to software from internal combustion to electric vehicles, a lot of Chinese companies copying Lucid body everything -- almost everything looks the same. Why your product is different?

Sure. So let me start, even with Lucid Group, and I'll come to products. As you may know, Peter, our CEO and CTO, the way he started this company to help save the planet and note every EV is created equally. So what does that mean is efficiency is a key component that does impact EVs as it influences multiple components when it comes to battery, when it comes to space, the performance, et cetera. All this can be done through technology, and Lucid Motors is known best for its technology. Our technology is, I would say, is basically we are ahead compared to our competition. And we are vertically integrated engineering company where we have best battery modules, charging station -- sorry, charging capacity, the range, the drive unit and also the software. Not many companies could do that. Now coming to product, to your question, we, right now, selling Lucid Air. We are very pleased with the progress. If we look at this year, we basically outpaced our competition. And also, our deliveries are all-time high, look at first 3 quarters record deliveries. And now we have the SUV, which is Lucid Gravity that is coming. In fact, we had one like the first Lucid Gravity already out production last week, and we are very excited about that. And Gravity is going to give us scale, and we believe that Gravity is going to be the best SUV in the market. Very excited about that.

So let's talk a little bit more about that. So you seem to be redefining what an SUV is and being able to put together things that they don't seem to go together like range and space and flexibility and how -- can you explain so people can visualize what is it?

Perfect. So let's stick with Lucid Air first, which we have been selling. On Lucid Air, our range is more than 500 miles, 516. And our competition is nowhere close to that. The second company is close to like low 400. The second thing is the efficiency. Like what is the battery efficiency per kilowatt, we already achieved 5 miles per kilowatt, and our vision is to go 6 miles per kilowatt soon. And again, competition is nowhere close to that. What does it mean is, basically is going to use less mileage like the running cost is really less for Lucid plus the space, the interior, the quality, even the charging time that it takes is really good. So it's really helping the planet when you have less batteries and also the efficiency, it's saving the planet. And we are on that mission.

But what is the secret formula to be able to deliver more space with more range at the same time?

Our technology. So technology, our powertrain technology is really great, like very unique and again, vertically integrated. So it's not only the battery cells, it's basically what goes behind that to be more efficient, which is our powertrain technology.

And to be able to deliver those advantages, do you need to be verticalized. This is a big debate in the market. You have the traditional OEMs that typically or they have been evolving in the last decade is to be assembling parts that other people produce. You have BYD and Tesla that they came with verticalization and now everybody is thinking about this. What is your take about that? What are the advantages, disadvantages? Can you be flexible on that? Or there is only one way?

Sure. I personally think in the long run is going to be very good for us even from a business perspective. The way industry is trending, I expect there will be some consolidation or more partnership in the near future. Having the best powertrain technology is going to open our doors to partner with many OEMs even with very large OEMs, and we are seeing significant inbound interest, very proud and I think it will take us to that level. It will get to economics. We already proved our powertrain and people are seeing that and we are seeing that interest.

Okay. Let's talk about that a little bit later. So I wanted to ask you about your production facilities. You have a plant in Arizona, you're building another plant in Saudi Arabia. What is the logic behind that? Does it make to have -- does it makes sense to have one bigger plant, several plants, what is the international expansion kind of strategy, not only commercially, but also considering the plant. So how do you see this?

Yes, it's a great question. So in Arizona first, our installed capacity is going to be 90,000 by end of this year. And this is for Lucid Air and also Gravity. But with certain CapEx, it can also accommodate midsize. Now coming to Saudi Arabia, that -- today, we have assembly plant with 5,000 capacity but now we're building a full complete business unit plant in Saudi Arabia with 150,000 installed capacity, and that will be for midsize. The idea to have midsize plant in Saudi Arabia with that capacity a couple of reasons. So even if you look at Tesla today, it's not their volume come from Model S or Model X is predominantly come through Model 3, Model Y. Our midsize is basically where we'll compete with Tesla Model 3 Model Y, which we expect to be significant volume a couple of reasons. One, it's -- we're going to be very price competitive. The second thing is our technology. So what happens, if you look at in the EV company, a significant portion, close to like 40% or so is the battery-related cost, which go as part of bill of materials. The more you go in the price range, the more efficiency matters because that increase the percentage of battery to total BOM cost. And we have already proved that our cost for battery pack is much lower compared to any competition in the world, number one. Number two, is like in terms of capacity, we are expecting that demand. And first, the purpose of having Saudi Arabia plant is not like those cars are coming to the U.S. or vice versa. The reason being is like it's close to Saudi Vision of 2030. Saudi Arabia is building an ecosystem for auto industry there. They're doing various partnerships. We're expecting even the supply chain will be localized there in many cases. And that will bring significant savings in terms of localization, in terms of freight, in terms of logistics because of that ecosystem, and there's no point manufacturing the car here sending to Saudi versus there. And the purpose of that plant will be accommodating that need in the Middle East and nearby continents. Same thing when we produce in U.S., that will be taken care for the north market. So it's more cost competitiveness. The other thing is, again, public investment from Saudi Arabia has been very supportive. There is also a significant amount of government grant and financing that is linked to our factory in Saudi Arabia. So from economies perspective, from a logistics perspective, we believe this is like the right fit for that purpose.

Okay. Many things in those comments. Okay, let's -- so talking about 90,000 installed capacity in Arizona and then 150,000. So what is the run rate of production of reservations that you're getting? How do you see this -- the slope of volume? And what level do you need to reach to, let's say, to become efficient from a capacity utilization point of view and reduce or dilute the cost of all the CapEx and all the research and development, so what level of volume do you need to have in each -- out of each factory to be profitable?

That's a great question. We want to be very close to the full capacity. In fact, our vision, what we hope for is to sell 1 million cars annually. Not only that 250 -- the way our technology is heading, the way we are looking, our vision is much, much, much bigger than 240,000 or 250,000. I know individual sales today, we are only selling the handful of cars, but that is Lucid Air sedan in that same trajectory, we're really doing well, and we outpaced the many, many competitors. Midsize is a completely different market, different trajectory. And as I said, we are already efficient on our battery cost, which is a significant component of the total bill of materials, and we are lower on battery compared to our competition. We're going to be very cost competitive comparing to many OEMs.

But what level -- so what are the key milestones in volume that which you'll be looking at for you to cross this line, where the cost of production is below the price?

Yes. That's a great question. One, I would say scale is very important, and we are getting to that trajectory now Gravity is coming. Second is cost discipline. If we look at our performance in 2024. In last 3 quarters, what we guided, we exceeded. And we achieved that because we have been very cost disciplined, we took various initiatives and were able to bring costs down significantly. But we -- but it's not sufficient. We have to do more. So we have identified very specific cost target where we want to be quarter-to-quarter, year-over-year for the next couple of quarters, and we're executing that. And it's not only just negotiating with suppliers, no. There are many things. There's a technology. And also, there is what we call cost transformation, like how we are making process more effective and efficient and simplify it that significantly changed. Looking at example, labor cost how we improve jobs per hour. So right now, we already footprint Lucid Air. We are applying those learnings to Gravity, but not only that, our efficiency is like basically increasing and I have a team who, on a daily basis, looking each and every penny, every dollar, how we could be better compared to our competition, and that's what we are driving.

Okay. And so you mentioned that Saudi Arabia, you are going to get support, financial support, and that's one of the reasons to open a factory over there. And what about the value chain? Is there a value chain available? You have to bring on the value chain, how feasible is that? Is this going to be U.S. providers. It's going to be Chinese? It's going to be a mix, competing for the -- how this is going to be working? What is the plan?

I believe, looking at the Saudi 2030 Vision, they are creating an ecosystem, the auto industry there. So as part of that, the Saudi government is investing bringing various OEMs even on the supplier base to the local market. And that is significantly going to benefit us in terms of the cost because those suppliers eventually are going to come in Saudi Arabia. So right now, what we buy from like within the U.S. or many countries the Saudi Arabia is going to be like a different trajectory is basically more economic from that perspective. And that will give us a volume as well. So that is the overall ecosystem is basically helping us.

How do you see the -- so putting all the -- moving -- obviously, you have cheaper funding, probably lower taxes, you will have lower logistic cost to distribute in the region, but also I guess that there are other things to consider. So how do you see the cost of production, the cost of goods sold per unit in Saudi Arabia versus the U.S.? You see them equivalent, you see them being able to produce cheaper?

Yes, it's a couple of things. So one is, if you look at the fixed costs, first of all, the fixed cost, whether you produce 10,000 units or 150,000 units in terms of total dollar value, it's not going to be significantly different, but per unit is going to come down significantly. And when you have government grant, means government is helping you, so kind of that takes out of your balance sheet and hence, there's no P&L. So that is on the fixed cost is going to be significantly lower per unit basis, which is like significant difference. The second is the localization of suppliers. That is another component where today, our OEM spent significant money on the duties as well as the freight inbound, that is going to be lower, much lower. And of course, when you scale all the suppliers, they also have fixed cost, which they amortize over the units they deliver is going to come down.

Okay. And also trying to understand the intensity -- asset intensity in the business. So once you are running 200,000, 300,000 units, what will be the CapEx and research and development of revenue? Just to understand the dilution of investments on the profit and loss?

Yes. So if you look at from, again, that perspective, like today, we'll have by end of this year, 90,000 capacity. In Saudi, we'll have 150,000 capacity. One can do the math. But at the same time, not everything go in that proportion. The -- like there are some benefits that we'll get. But again, this government support in terms of the funding and the grant is going to play a significant role there.

Are we talking about 10% of revenue, 15% of revenue to try to understand once you have this scale that you may be getting in 2, 3 years from now?

Yes. We haven't guided that number, so I want to be careful on that one.

Okay. Now also trying to understand all the Saudi Arabia angle. Could you explain a little bit your shareholders structure and how corporate governance works in the company?

Yes. I think like public investment fund has not only invested in Lucid, they have invested across the globe in many companies, I would say, 100-plus leading companies, and there is a strong governance model they follow. They have investment across the globe in many public companies, private companies, and we are seeing that governance process is actually very robust.

Okay. You -- correct me if I'm wrong, you have been investing CapEx around $2 billion, moving to $1 billion per year now? Is this a run rate that we should consider like stable in the next few years. So it depends?

No. I won't say this is a recurring run rate. It all depends what program we're working on it. Earlier, we had Lucid Air, and it was 30,000 capacity, end of this year will be like 90,000 capacity. In last earnings call, we guided CapEx for this year to be approximately $1 billion. A quarter before, we guided $1.3 billion. But the reason coming down from $1.3 billion to $1 billion, there were some savings and efficiencies we identified, but also like there's some significant portion that is getting deferred to next year in terms of timing of payments because what happens sometimes, let's say, suppliers have done the work, but last 1% or something is pending, where the entire milestone payment is on hold. So there's like some CapEx is getting deferred for next year. But the next 2 years, the main CapEx investment going to be more towards midsize factory. And I think once midsize is done, I won't say that will be the recurring rate unless we want to plan to build a new factory very soon. So that will take, but otherwise, I will say the recurring will be like we're also going to open more studios, the service centers as our delivery numbers grow.

Okay. And so the...

I would expect once the factory fully running, once we're seeing the full traction at some point, the CapEx is going to come down. It won't be the recurring run rate.

So with the current balance sheet, with the current cash position, basically, you are covered for 1 year, 1 year and something, that's the idea?

So as of September 30, our liquidity was $5.16 billion. In addition, in October, we raised another $1.75 billion. And we mentioned to the Street that, that liquidity will take us well into 2026.

Okay, including working capital investments?

Yes, that is for every -- like general corporate purpose, including working capital, CapEx and also our investment programs on the R&D side because today, we are working on 3 programs, which is -- we're still making some investments on Air. The Gravity is continuing and midsize investments. So it's like we're working on 3 programs continuously and making that investment for the future.

Okay. Obviously, you have many things on your plate. But just thinking medium, long term, once you have reached your installed capacity and you are running at a good level of capacity utilization, then what is next? So is Europe, is who knows is...

So today, we are selling in North America. We are selling in Middle East. We are selling in a few countries in Europe, especially with left hand driving. So our vision is to enter into new markets. So for example, in Middle East, early we were selling in Saudi Arabia, now we have opened a studio in Dubai. And same thing, we are going to go in new markets and get that trajectory.

How is the distribution model? So do you have your own dealers, do you plan to eventually open these to third-party dealers? How does it work?

That's a great question, and I really appreciate it. So we are also now exploring opportunities for everything. We're not saying no to anything, but we're exploring multiple options. And sometimes, it depends country to country as well, especially when you go to a new country, sometimes it could be challenged to open just one studio and you go on your own. So we are evaluating all strategy. I cannot disclose more, but we are looking at each and every angle and things could be different.

Okay. Understood. Also to understand linked to that, the profile of your client. You have a different product, a different product from a lifestyle point of view, also with a different positioning in price, how will you define your typical client today or maybe going forward because of the product pipeline?

Yes, that's a good question as well. Well, let me first take Lucid EV example, and I will come to the product portfolio. I started driving Lucid 2 years ago. In the beginning like first few days, I didn't realize how great the car was. It's like when I got more and more and more used to it as wow, means my other car is Mercedes. So after driving Lucid for 6 months, I said, okay, let me drive another car. And I could see the difference completely. Now I cannot drive my other car. So coming to like your question on our client base. Yes, today, our price is in that range where the customer base is different. But when it comes to Lucid Gravity, SUV, the TAM trajectory, addressable market is higher. So that will take us, especially in the U.S. as well as in the Middle East is more SUV driven, so it will take us to the next TAM trajectory. And plus, obviously, when we come midsize, where we already mentioned the price will be under $50,000, and that will take us to more and more TAM trajectory in many other places in the U.S., Middle East and obviously, in Europe and other places.

Okay. Moving now to -- so obviously, you are a technology company. How do you -- so is the fact that you are a Silicon Valley kind of company helping you to attract this kind of talent you need to have? What is the profile of employees you have is probably quite different to a traditional company. How is -- how do you see your capacity to attract the right people?

That's great. Talent is always challenging, the right talent. And more importantly, it's not bringing the talent but retaining that talent is there. So yes, we are a Silicon Valley-based technology company. Our culture, DNA is more technology driven. Just like any of the start-up, our employees are working extremely hard, engineers are working hard and they're working on the mission of how to save planet to be the best technology company. In terms of what employees, the critical employees, they are vested in -- we have a great product. They are really vested in that DNA and they are working day and night. They're working very hard. They are not working like a traditional OEM, okay, 8 hours job, no. They are working extremely hard day and night. We brought Lucid Gravity on time. No one would have thought that Gravity will be on time. And last week, the first Gravity came in, and it was as we promised we would do that. And same thing we want to do for our other programs. So it's -- like team is working very hard, just like the way they work in the startup. Like -- now in terms of retaining that talent, yes, that's always critical, and we are making sure that employees get the right experience, they are motivated and they see that product and they are seeing that eventually Lucid will pick up at some point like very high.

Okay. And talking about Silicon Valley and people and talent. By the way, we're open if in case anybody, yes.

Maybe just a follow-on question on this one. I mean you're well known for your electric powertrain for the efficiency and everything. I mean, on the other hand, you have like a LIDAR-based what's called DreamDrive system, and I think your ADAS system. So I'm just wondering, given your size, even if you get to 1 million cars over the medium term, wouldn't it make sense to more focus your resources and like license, FSD, for example, from Tesla. I'm not sure it's difficult from an outside perspective to see all the dynamics we are seeing right now, how you will be able to compete on this front?

And not only because -- that's exactly -- not only on ADAS, on the autonomous driving, but also software in general. So does it make sense to do it on home or to find a...

Yes. So if you look at today, we are like -- our software team is like in-house. There's very little dependency on outside we have. It's mainly in-house. But in terms of -- if you look at today, we are the fast followers. So when it comes to ADAS, whether lane changing, highway assist, we're doing great on that one. And when it comes to the autonomous driving -- but first, if you look at from a hardware perspective like LiDAR cameras, that technology is already there in the car, it's there. It's like in terms of LSD, no, we are not there yet. But in terms of like we are fast followers, we are like working hard, and our vision is to get there. But in terms of technology it's already there in our car, which is LiDAR and cameras.

And also on the software inside of the car. So do you think that the verticalization approach is the right way to go, basically?

Yes.

Okay. I want to take advantage. I don't know if obviously, if there is any other person who want to ask a question. I think that it will be interesting having you here with us today to have your view on an important debate that we have today in the market. On one side, the political changes in the U.S. suggests that all the electrification process may slow down, all the Inflationary Reduction Act may slow down. And on the other side, we have very important BEVs people in the government. So how do you think that this is going to play out?

Yes. So I think it's very clear. The transformation is going to happen. The future is EV. It's not going to be ICE. So is it basically industry shift. Now if we look at overall, in fact, interesting factors when the Biden administration came in like we were not getting much advantage because all the 7,500, they had a cap. So anyway, we were not getting that much benefit. We are less immune to those benefits compared to other EV cars. Yes, when it comes to leasing, then we get those benefits and we pass on to customers. But otherwise, when someone purchased the vehicle, we were not getting those benefits. We were less immune. But again, those things will apply to all the EV industries. And we think, to some extent, getting interest rate environment better will take some of the pain points from there, even if some incentive disappear. But I think one more thing is government is going to look at also is a transformation is going to impact every industry. So it's more an industry-wide thing, not Lucid specific thing. But the future is EV.

I agree with that. Okay. How far we are away in your opinion from solid-state batteries? Do you think we'll have them in 5 years? Or will you have them?

Sorry, which batteries?

Solid state batteries?

Yes, we are looking each and everything. There are obviously certain confidentially involved things, which I cannot share, but we are looking and we have something already planned in our models.

So the technology that you think...

I cannot comment on that one. Sorry.

Okay. So I have -- telling that we are out of time. So I don't know, we are above time. So if you have any final comment anything we didn't comment that you would like to mention, sorry.

Yes, congratulations for what you have done so far, especially on the technology side. I will look at the company, but to me, it's very difficult to understand the positioning. I think perhaps you should do more to explain to investors because so far, we have a state-of-the-art company and technology that is selling $800 million, $1 billion and losing $3 billion for just a segment, which is SUV with a high price tag, which is $70,000 around. So what is the long-term goal of this company is to be sold to one larger one to become the leader in the SUV, where you will get to a position of long term that you will become profitable or make -- perhaps I do not understand. So it will be -- I think most of us has this question in mind, you are great, but what's the long-term goal?

Absolutely. At the end, we're in business. So yes, we have to save the planet, but we're also in business. But at the same time, we are making significant investments for the future, like we're a startup, high-growth startup. So although we are selling Lucid Air, but the investments that we're making for Lucid Gravity and the midsize platform as well. But if you look at what we did this year, especially the last 3 quarters, we gained the confidence back from the investor and the analyst community. Like last 3 quarters, whatever we guided to the Street, we outpaced is like looking even the last quarter, we exceeded all the KPIs that we guided to the Street. We brought the confidence back. And not only that, we have like record deliveries, first 3 quarters, more market share. Plus, when it comes to the gross margin, we improved [ 135 ] percentage points year-over-year. In terms of free cash flow, we came all the way past. In terms of adjusted EBITDA, despite our increased OpEx as a result of midsize and Gravity R&D investments, we are coming flat. So we brought the confidence back. And the next trajectory, which is we have to continue cost discipline and scale. And we have identified very set target. Yes, will be profitable. And there's no doubt about it, and we are working on that direction. The one message, which I really want to share now the Lucid Gravity is coming, I really encourage all of you when you get the opportunity to see Lucid Gravity, how great that is. It looks completely different in the picture versus in reality. And it's a great pricing point as well. But more importantly, we are working towards next trajectory that we are not only the cost competitive, but we are better in terms of technology. And the technology with scale is working out well. And now we are seeing that happening. We are very excited, and thank you all for participating today.

Thank you very much, Mr. Gagan. Those are the KPIs we're going to be looking for.

Thank you.