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

All right. Marc Winterhoff, Interim CEO of Lucid Group. He just came back from the Frankfurt Auto Show, the IAA Auto Show. I was saying in a former life, I would -- I spent many, many nights in Frankfurt. I'm actually a fan of Frankfurt. And I don't go to car shows as often as I used to. I don't test drive cars as often as I used to, but I did have the opportunity to drive the Gravity yesterday with some colleagues, some colleagues that are in the room. And Marc, I've been covering Autos for 3 decades. I've driven just about everything, just about everything. And I -- it might be the best car I've ever driven. Really, it really might be. Like I was seriously impressed. And look, is it cheap? It depends what you mean by that. But I actually think if it's -- if what I drove was anywhere near $100,000 for that level of performance, 828 horsepower and 800 whatever newton meters of torque and that -- those materials and that comfort level and that suspension. Look, I drive Teslas, like I've been driving Teslas for 5 years, and this thing is just -- this is it's insane. So put your order in? Like how -- if someone were to order one now, how long would it take to get it?

It depends on the configuration. But we will try to deliver everything that we have in the order bank right now this year. And so yes, if you put in an order right now, it should come this year. Absolutely. And thank you very much for that. I think our team would be super proud to hear that. And we need to work on the fact that you're driving Tesla. So maybe talk about this afterwards.

It's not my budget. My boss is in the room. So...

Yes. So I mean, as you said, the car that you were driving yesterday is north of $100,000, but that's simply because we packed it with everything that we have. It starts below $100,000, and we also have a version that will start around $80,000. So it will come down. And as you said, our motto is "compromise nothing"

I said the same that there are no compromises with this vehicle.

Right. And that's, I think, what we achieved first with the Air, but I think we did it even a little bit better with the Gravity as well. So yes, we are very proud of it. And yes, so I mean, the demand is actually very good, despite obviously that we only opened right now the higher-priced models. But yes, so I think this year is going to be a strong year at the end of the year. We're ramping up quite a bit. On the Gravity, we had a little bit of some supplier issues at the beginning of the year. But now we are ramping up in Q3, and then there will be a big increase also in Q4. Yes. And as you said, I just came back last night -- late last night. So when I'm a little bit slow because of that. From Munich, the IAA now is in Munich, and it was actually a great show because in the last couple of years in all these auto shows, they became a little bit, I would say, boring, but the IAA is a difference, and it was really buzzing. And also our stand there, we launched the Gravity now also for Europe last Monday was very well received. And we're very bullish about our next step and growing and Europe is one of the key next steps.

So what are some of the messages from Munich that you'd share with the audience here in terms of just either your market or the kind of this transition of Europe to electrification. Where you're just kind of scratching the surface there now, the Chinese presence that kind of -- which is obviously very consequential in the market that you're maybe not at the price -- at the luxury level you are right now, but in many of the technologies that you delve in? And then what are your key messages in terms of what's relevant for the equity story over the next 6 to 12 months?

Yes. I think what I took away from the IAA, obviously, the big elephant, the big topic was about the Chinese onslaught. That really was a big topic. And I have to say what I saw from us, but also from the other Western automotive manufacturers, my fellow countrymen, I'm born and raised in Germany. I think they got it now and they focus on the right things. And I think that from a technology point of view, they show things that are definitely competitive. And I don't think they have to be afraid or we have to be afraid of the Chinese. Not only when it comes to the products, yes, they are -- first of all, they definitely came of age. There's no doubt about it. The technology is good, but it's not leading edge. And that's what we are focusing on, innovation, differentiation by innovating, being best-in-class, but not only in one area, but really package this in one, in the car so that you can get everything that you want really on the leading edge. And I think that still has absolutely a future. And I'm not really concerned about the Chinese. Obviously, that's very different in different price segments, but we are not planning to go down into, let's say, $25,000, $30,000 price range. And even our next platform that we will bring and then start end of next year will start around the $50,000, and I'm very confident that we are competitive in that area.

Okay. Just going back to the Gravity. You had some production supplier issues initially, but it sounds like you're moving past that. You had targeted kind of a significant increase in production or you saw a significant increase in production in your outlook for the second half. Just confirming, is that -- how is that progressing? Is it in line with your expectations?

It's still progressing. So it's moving up in Q3. We recently put out a range when it comes to this year's production numbers, 18,000 to 20,000. And all of our internal plan -- actually still shoots for 20,000. I just said, okay, let's put in a range because it's very hard to hit exactly one number. That's one thing. And given all of it, let's say, the surprises that we had in this year, I said, okay, let's put in the range. But I mean, it's still in that range. And internally, we're shooting for 20,000 and that the team is giving everything to make that happen.

We were just on a panel on the stage right before you arrived here. We're talking about all sorts of issues in the relationship with China and U.S. and policy and on-shoring. The topic of rare earths came up as well. I didn't know what lessons you've taken away or your comments on how significant the rare earth issue is for things like permanent magnet electric motors? I know you've mentioned using different suppliers and other metals in other ways, but can you elaborate on kind of where we are there, how serious that is?

Yes. I mean, obviously, in the middle of the year, end of -- actually around Q2, it was a big issue, absolutely. We actually managed around it. We did some internal switches of what kind of vehicles we produce to be able to use magnets that we had and not the ones that we're not getting out of China. So we were okay there. But first of all, we are developing a couple of new generations of our drive units, which are the biggest user of those magnets, but not the only one. And we first go away from only Chinese suppliers, as mentioned before. We are opening different suppliers, for instance, in Australia that we have now agreements with. And on top of that, we're moving away from heavy rare earth to light rare earth because they're actually easier to get outside of China. And the next step is going away completely from rare earth, but that's what we're working on right now as well. And our next-generation drive unit will be available with permanent magnets, but also with induction.

Let's move to autonomy. I mean a lot of interesting things. I mean I like to tell clients here, cars, particularly electric cars with software-defined vehicle architecture, electric architecture are basically just car-shaped robots. And I know in the first -- while the Air was your first halo vehicle and to get the brand out there and uncompromising luxury and kind of a lot of learnings, right, particularly on cost. But one area your team felt you could do better in was like the autonomy side, particularly given the software-defined and OTA updatability of the car. So I don't think it's -- when you see the Gravity, you don't really see the massive changes underneath the skin in terms of simplification and advancement of that architecture. So it opens up a whole new area for you to engage with partners like Nuro and Uber where you kind of struck some partnerships there. When you announced the Uber-Nuro partnership for basically robotaxi and fully autonomous vehicles, you said it was only the first step for Lucid into robotaxi. What sort of vision do you have when you think out 3 to 5 years on this? Are you -- and are you in discussion with other potential partners? And how is that going?

Yes, absolutely. So I mean, you're totally right. I think our first focus was on the car to make it the best driving car in the world. And I think that has a little bit to do on how we were founded and priorities there. When I took over, I said, okay, we need to move further because we already now established us as the EV technology leader and the best driving car. We had a lot of quotes from famous influencers that it's the best driving car ever, but now...

And most efficient in terms of miles per kilowatt hour.

Exactly. So we have -- the EV technology we have down. But now we need to move on into the autonomy space. And it is our first step at that announcement was with Uber and Nuro on the robotaxi side to open a completely new addressable market where we haven't played before. Now you can ask, okay, why the Gravity? It's not necessarily, I would say, the prime choice. It actually is, when you want to have a great experience. But from a, let's say, cost perspective, we got very often the question, hey, why would you take such an expensive vehicle in a robotaxi? So it is the start because the vehicle is already prepared for that. And when we discussed this with Uber and with Nuro, there was a deadline when we want to be ready or also Uber wants to be ready. And that's how this came about, let's take the Gravity because we can together make that work. Then from there on, the Gravity will be the start, but there will be other platforms we are going to use as robotaxi platforms, for instance, and also with our current partnerships, but also beyond. I also would like to really focus it's not only robotaxis. It's also for the personally owned vehicles, where we just announced a couple of weeks ago, hands-free driving, but still we have -- when you look in the market, that's clear, we have to catch up. And that's what we're working on a lot. You will see much more even on the B2C side, not only on the robotaxi side.

That will be really important just for feedback. I mean if I'm driving a incredible car that love the -- square wheel, the squeal, whatever you call it. I like it. You see there's the pupil monitoring right there, and then there's also near the mirror as well. So you can tell the car is set up for like just let it take you, let it drive you. Exactly. And I think a lot of your customers that will migrate -- a subset of your conquest will come from Teslas where many of the people who would -- people afford a Gravity probably had full self-driving as well. And just from my own experience, if you have that, if you have full self-driving, it's really tough to give up. So -- how close are we then? How -- what would be that step? And what are those milestones so you can kind of get that the training and/or system to kind of get -- because you see the body there. I know the hardware is there. But when do you think you're actually able to have that to be commercializable?

Yes. I mean I'm fully with you, to be honest, because every time when I go to work, my commute is 45 minutes. When I go to the highway, I turn Driver Assist on and I turn it off when I leave the highway. And I would love to have the car completely go to the parking lot, if possible. So we know that. And many of the Tesla people that want to buy a Lucid actually tell us exactly what you just said. So that is a very big focus for us, and we're working on this. I would say it will come next year, that we are closing that gap. As a matter of fact, we are working right now on this particular topic also with other partners. We plan to actually leapfrog what is out there right now and get something out which is even on a higher level.

So going back to the Nuro, more of the robotaxi partnership, can you tell us more about the economics or what investors should expect kind of as you roll that out, either in terms of numbers or commitments from you that might affect your CapEx or R&D outlay? Just things that might be relevant for 2026 horizon?

Yes. I mean on the CapEx side, there's actually a marginal impact because the vehicles will be built on our existing line in Casa Grande, and we don't have to do any additional investments there. There's development going on right now because, obviously, when you have the Uber -- the Nuro Driver, that's one thing. But building a car that -- first of all, building a car, in total, is already very complex, but then make it fully autonomous is even more complex. And you need to then make sure that in any given point of time, the actuations work exactly as intended. So there's a lot of work to do still, to make this work. I don't know whether that's widely known, but we were able to do our first pilot within just 5 weeks. Everybody was super excited about that to do that. But we still have to do the full development. Actually, it will look great. That's the other thing. It doesn't look like many other robotaxi that you see on the street right now. It's much more looking like a normal vehicle, still with the [ TR ] on top, but much different. But we will -- yes, we still have to do some work on the development piece. But when it comes to CapEx outlay, there -- it's really minimal. And when it comes to commercials, as I said, the Gravity is the first step. And we're working on also what's then coming after that in the next generation. Right now, we basically get paid on a per unit basis. And actually in a normal pricing as well, I have to say there's not a humongous fleet discount or something in there. Going forward, what we're planning to do is to move from a per piece price into more in a way of getting driven by the mile or definitely have recurring revenue by doing this. So we have plans that go way beyond what we have right now announced.

I'm curious, have you experienced the Xiaomi like SU7 or YU7, you have?

Yes.

Can I ask how recently this might have been?

Two days ago.

Okay. That's pretty recent. So you drove it.

I didn't drive it, but I crawled through it.

What do you think?

I mean, again, the Chinese manufacturers came of age. There's no doubt about it. I'm personally, I'm still not overly concerned. It's a great car, but it's -- in my opinion, it's not giving this full rounded experience that we will provide also with our midsize because it will be exactly in the same space. And I can guess what your next question will be. What is about the cost? What is about the price point?

I mean like if it's -- if you're still superior to the YU7, but it's priced half of your car, that's going to be...

But it won't, okay. But it won't. And here's the thing. Well, we are not playing in China, and I have no intention to go to China. It's a [indiscernible] competition right now. It's also highly subsidized, a lot of overcapacity. That's actually why you can get from -- even from suppliers very good prices right now, but we're not there. The prices that you see and that are going around in the media are -- and that are so low, they are Chinese prices. When they come out, go to Europe into other markets, it's not the same prices. It's not so far away. It's actually on a similar level where we are going to be as well. And when I look at the costs, our costs right now for the midsized platform is not even on the same planet for where we are with...

Easy comp.

Yes. We have -- we basically started with a blank sheet of paper. We reduced the parts drastically. And right now, we are even coming in, and I hope knock on wood, it stays that way until we finish all the sourcing, we are coming in below our -- [ should ] cost. So we calculated the [ should ] cost and what we get right now is below. Why are we able to do this? Maybe that's another point. We have two plants. We have a plant, obviously, in Casa Grande, where we build all of our cars right now, but we will build the midsize also in Saudi Arabia. And there, we have more levels of freedom in how we source, and we're exploiting this right now.

Okay. Let me just be a little devil's advocate because obviously, in your first iteration or two, like profitability is not sustainable, right? You can't lose tens of thousands of dollars of vehicles on a car and have a business long term. You know that. We know that. Elon at Tesla, he sells 1.7 million, 1.8 million vehicles, probably a little bit less than that this year, but it's a better part of 2 million vehicles. And his -- so he's -- in terms of scale outside of China, no one can really touch this guy, right? And his gross margins are like low to mid-teens. And his operating margin is basically zero, particularly when you strip out some of the downstream servicing and stuff. So if Elon is unable to make a profit at an operating level, selling hundreds and hundreds of thousands or a couple of million of these things at a $50,000 price point. What makes -- what gives you the confidence that you can be like -- we got it from here, and we could sell a $50,000, $60,000 car and make a profit?

Yes. I mean, I fully get that. And I think there are a couple of other reasons. I mean, I would say when you look at what the investments were from Tesla, what they were thinking, what they were selling. It's on a different level than where they are right now. I would say many of the decisions that have been made in the last couple of years didn't turn out in the way that they were anticipated, and that hurts now. And then there are some other...

I would agree.

Other reasons why all of a sudden the demand tanks, which also then leaves capacity unused. So our current plan right now allows us to be profitable with the car business itself. And the other things that we're now adding on top of it, like software revenue or revenue with robotaxis and recurring revenue later on will come on top. So -- and again, we also don't -- we will not plan to go down in the rabbit race of $25,000 cars because we don't think we can do that. That only goes at very, very high scale. And I honestly think it's not the Lucid brand. we want to compromise nothing. We want to target segments that are actually willing to pay for good quality, and that's what we are focusing on. We fully know that this is a challenge. But based on our plans, they're not like, okay, by 2030, we are selling 1 million vehicles or so. That's actually not our plan.

You are not throwing a target out.

Yes. We basically have aligned our capacity development and all of the investments with the way that we think we can achieve and it pans out.

But Marc, do you think is the base case for Lucid that you do it alone, that you are capitalizing and running the company and recruiting and kind of strategizing that Lucid will commercialize a midsize vehicle. And at that price point, you would need to be several hundred thousand units to kind of be -- to match that level of price point with the supply and demand. Is the plan -- we are good. We are going to capitalize this and be on our own? Or where does then the openness to partner with the technology partners on the autonomy side or even production partners on the manufacturing side? How do you think about that?

Yes. I mean...

I'm watching your facial expressions very closely.

It is an ongoing discussion. I mean you hear that Lucid has discussions about technology partnerships now over a year after the Aston Martin. And I get the question always, okay, when, what's happening? So what I personally pivoted to a little bit is not only focusing on the components, but also what we just did with Uber and Nuro, where the whole platform is used in a partnership. But maybe to paint a broader picture. We will go with partners. We will -- on the autonomy side, we will go with partners. We have started with Nuro. Together, there will be others. We have those discussions already. Even on the manufacturing side, there are discussions going on right now. And also, last but not least, we continue the discussions on our technology. But that is a topic that I personally think is -- actually right now is a good time because of the -- some of the big OEMs are pulling back on electrification, and therefore, they don't want to invest and they say, okay, maybe for the next generation, we go with that. But automotive manufacturers are very proud about their technology and making them or their technology departments to accept that, is very hard. So I'd rather go with a full platform with people that only look at it as a business case and don't go, oh, we need to convince all of the CTOs out there.

Well, as I was driving around Laguna area in the Gravity, experiencing the massage seat on Deep Tissue Mode. It's deep. It's deep. I was thinking this is really -- this is like a tour of force. Like I want to have like a meeting, like I would stay in here for 12 hours and just like meet with CEOs of other companies and say, what can we do? What do you think? And really did get the sense that you designed the vehicle, not just to create a wonderful consumer experience, but also to kind of show what you're capable of doing.

That's correct.

And the fact that it's done in Arizona is pretty sick. It's absolutely incredible. So let's talk about then your largest shareholder, Kingdom of Saudi Arabia through various entities, a controlled company. Just from my perspective, when I talk to clients, they're like, well, at least they have Saudi to give them money. I'm like, yes, the money, that was nice, but that you don't win with the money. To me -- and I'd like your reaction to this. I think it's the strategic value that your largest shareholder, your controlling shareholder can provide to you. You mentioned the example of Aston Martin and others and maybe possibly being helpful with Uber, where they're on the cap table, they're on Page 1 as well. How -- am I overestimating that? Am I going too far with that potential further strategic value of your largest shareholder and then how that could help shape the the future for Lucid? Or kind of how are you -- what's your spin on that?

Yes. Well, first of all, I have to say I'm very thankful about this partnership because they are very strategic long-term looking at investors, which is very good for us because, I mean, automotive and building great cars at scale is an extremely capital expensive business. And having a partner that doesn't look at the watch every quarter and say, "Hey, where are you? Actually, they do that, but they know it's going to be further out is extremely valuable, and we are very grateful for that. It is not like an ATM machine where you go and every time when you need money, you just withdraw a lot. We obviously have to hit our milestones. We need to show progress. On top of that is I mean, I want to be blunt. I've been working with Lucid already back in the day after the first investment of the PIF, and we were working on a long-term plan at that time with the team before. I then joined the company. And the -- at that time, we basically worked on, okay, how can we be part of the Vision 2030 in Saudi Arabia to become the first automotive manufacturer and build an automotive cluster in Saudi Arabia? I can assure you at that time, that was a tough discussion. Now in hindsight, I actually think it is of a big value for us because it is in an area, you could almost call it like the new Switzerland that can do business with everybody, whereas many other areas in the world, you have issues. And right now, that actually works to our advantage. When I mentioned it earlier that, we are very well underway with our [ BOM ] cost for the midsize, and for -- particularly for our plant in Saudi Arabia. We're leveraging all of the supplier sources to put it that way and not only the ones in North America for that plant. And that helps us. And that's something that is now actually of strategic value.

We've got about 5 minutes or so left. Some questions here. Can we got a mic up here. Microphone?

I wanted to ask a little bit more on the AD side. I'm super excited about talking about the L2+ stuff that's going to come out next year and hopefully leapfrog. But I was a little surprised seeing the robotaxi stuff partnering with Nuro. And I guess I wanted to understand how you guys see the pathway for you guys alone as Lucid to go from L2+ to L4. Is there any -- is there an ambition to have L4 yourself over time and just kind of riff a little bit there?

So maybe going back to what I said, what Jonas asked me about partnerships or going alone. Actually, the answer is both. So we're going with partners for the sake of smart capital investment because it's an extremely expensive endeavor and at the same time, speed. At the same time, we're also investing ourselves, and we have partnerships actually coming back to our partners in Saudi Arabia with universities and access to super computing down there that we're using to also do a path in parallel ourselves. So it is both, I have to say. And particularly, I can tell you, there will be soon more information, which is not ready now, but our path to L4 is not only in the direction of robotaxis. So we're thinking -- we are working on a plan to also bring this to our end customers. And yes, I mean, I think that is as much as I can say, right now?

Oh, you can't leave us there. You said the Level 4 platform is something that's not just robotaxis? That... like, for example?

You and me? Making your dream possible that you can in our gravity, actually, maybe not the first thing with our gravity because we need to make some changes on the sensors and all that. But for future platforms, we're working on not doing this only for robotax seats, but also for end customers.

For personal owned vehicles. Okay. I thought you were talking about aviation or something like that...

No, no.

Forgive me. I got excited.

Not yet.

I though you're [indiscernible a humanoid effort here. All right. A question back here.

Just wanted to understand your partnership with Uber and Nuro a little bit more. Could you maybe talk to how your engineers are working with Nuro on the robotaxi platform there? Just wanted to understand level of engagement and how that could inform your L4 strategy, too?

Yes. Well, I mean, it's a very close one. Nuro is actually very close by to our headquarters in the Bay Area. And it has to be a very close collaboration. I mean the team is actually sitting pretty much next to each other in order to make this work because it is a very tight integration of software sensors and then the actual car. And I mean, when you -- how does that inform our L4 capabilities? We get data from this engagement. We get -- and actually, in addition, we have vehicles driving around gathering data in order to also support our own initiatives and obviously, for Nuro. And obviously, we learn what are the issues when it comes to integrating those kind of drivers into our vehicles. So it's a very tight collaboration right now. And yes, so far, I would say, well on track.

Any other questions? So just to kind of wrap up for me, I'd like to take us mentally to Casa Grande, Arizona. And what's your -- given your automotive experience, I'd be curious through your lens of how you feel the manufacturing is going there? The quality, the rate of change of productivity because we have Chris Schneider here who runs our cap goods team and on-shoring and reshoring is a big -- is a really big theme. I don't think it's appreciated by enough investors how unstoppable it is. But you're interesting, you're on that kind of the bleeding edge of this of making a high-tech robotic product in Arizona with probably workers that many of them have never made products like that. So in terms of talent acquisition and training and vocational training and productivity and labor, kind of -- what are some things if you were presenting to like a committee on U.S. onshoring for advanced manufacturing and technology with Elon and others, what would be your kind of contribution to that discussion from your learnings?

Yes. I mean you have a very good point because we obviously have in that region, another big pool of people that are used to build cars.

Just some aerospace. Some. Legacy there.

But there's not a lot. So we have to train those people. We also need to make it easy for them in order to do it. We're actually enhancing right now our automation. When that initially was designed, it was automated, but I wouldn't say to the level where it needs to be. So we're actually making a lot of changes as we speak on a further automating things and also thinking about future robotic use in -- we haven't done a test on humanoid robots yet, but I'm absolutely -- the teams are actually looking into it because many of those tasks are -- I mean, they're so repetitive, you don't -- you actually don't need a human for that. So -- but when it comes to hiring and training, I can only say it is actually possible. We are -- the issues that we had, let's say, with the ramp-up of the gravity were not necessarily on not being able to manufacture because of lack of people. It was really driven by suppliers and other issues. And we are hitting the JPH when we -- when the suppliers provide that we need in order to grow. And yes, I mean, it is absolutely possible to do that kind of complex manufacturing in Casa Grande despite that you not have this background of a big pool of people. And with more automation, that's where it goes. But I think we still need to find the best combination between automation and what should you still be doing with humans. But more and more, it will become automated.

Great.Marc and Lucid team, thanks for coming in from Munich and spent some time with us this morning. Best of luck.

Thanks for having me.

Got it. Thanks.