Ladies and gentlemen, thank you for standing by, and welcome to the Lucid Group Fourth Quarter and Full Year 2021 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Lauren Sloane, Investor Relations of Lucid. Ms. Sloane. You may begin.

Thank you, and welcome to Lucid Group's Fourth Quarter and Fiscal Year 2021 Earnings Call. Thank you for joining us today. On the call, we have Peter Rawlinson, our CEO and CTO; and Sherry House, our CFO. Our 10-K was filed and the earnings release were issued after the close of market earlier today. Both are posted on our website. Before we get started, we want to emphasize that some of our statements made on this call, particularly those regarding the future financial performance of the company, industry trends, company initiatives and other future events are based on the information that we have as of today and include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to numerous risks, uncertainties and other factors that could cause actual results to differ from expectations, and we refer you to the cautionary language included in Risk Factors in our annual report on Form 10-K for the year ended December 31, 2021, as well as other documents filed or to be filed with the SEC for a fuller discussion of such risks, uncertainties and other factors. Forward-looking statements made during today's call speak only as of the time they are made, and we are under no obligation and expressly disclaim any obligation to update, alter or otherwise revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. You are cautioned not to place undue reliance on these forward-looking statements. In addition, management will make reference to non-GAAP financial measures during this call. A discussion of why we use non-GAAP financial measures and information regarding a reconciliation of GAAP versus non-GAAP results is currently available in our earnings press release issued earlier this afternoon as well as in the appendix of our investor deck and available in the Investor Relations section of our website at ir.lucenmotors.com. And now I'd like to turn the call over to Lucid's CEO and CTO, Peter Rawlinson. Peter, please go ahead.

Thank you, Lauren. We're excited to update you on Lucid's tremendous progress in the fourth quarter and for the full year of 2021. During the fourth quarter, we reached a significant milestone for Lucid. We commenced customer deliveries of the world's most advanced EV sedan. As of year-end 2021, this included 125 cars in customers' hands, while we produced over 400 vehicles in total as of today. And on these, over 300 have now been delivered to customers. We accomplished deep deliveries against the backdrop of an extraordinary supply chain and supply quality challenges. Indeed, we could have chosen to build faster, but we elected not to sacrifice quality, given our unwavering commitment to the highest standards. These first deliveries of Lucid Air validate our mission to inspire the adoption of sustainable energy by designing and building captivating electric vehicles centered around the human experience. While the delivery of our first cohort of cars to consumers is important in its own right, it also represents the first real-world stress testing of the critical part of the customer journey. From reservation to order, to production, delivery and after-sales support, including the over-the-air update to the Lucid Air onboard software. When you step back and think about it, we put both a full EV powertrain and vehicles into production across two separate and distinct factories, which I believe to be the very first time that that's ever been done. So we were able to run two parallel tracks simultaneously in our manufacturing, producing our proprietary powertrain and battery packs at one site and then fully assembling the car a little way down the road at our AMP factory, an extraordinary achievement. And having worked through all of this, we are more confident than ever that we're building a quality foundation on which…

Thank you, Peter. Today, I'll share our Q4 and full year results, which demonstrate the progress in our business model and conviction in our future opportunities. As Peter mentioned, 2021 was a critical year in establishing the foundation of our business operationally, which is reflected in our financial results. We are very excited to have started deliveries in the fourth quarter. Our Q4 revenue was $26.4 million, including $21.3 million from the initial 125 deliveries at the Lucid Air Dream Edition, which began in October. We also recorded $4.9 million in revenues from battery pack sales from the Formula E racing series. Our results in the fourth quarter reflect the inflection point we are at, beginning to scale production and delivering vehicles while investing substantially in the future promise of the company. Cost of revenues were $151.5 million, which includes direct parts, materials, shipping and handling, overhead and estimated warranty costs. Launch costs were a meaningful part of this number in Q4. We brought in additional manufacturing and quality personnel to ramp up production. These steps represent our commitment to the highest possible quality standards. We also experienced increased logistic costs and expedited freight due to supply chain disruptions. As a result of these increased costs, we recorded an impairment charge of $48.9 million in the fourth quarter to reduce inventories to their net realizable value, less the cost to sell. In 2022, as we continue to ramp production, we expect increased freight and overhead will result in impairment charges that could negatively impact cost of sales, though this impact should lessen over time. As an item further down in the P&L, we also incurred on December 31, the $583 million noncash expense related to the mark-to-market gain on private warrants. Our R&D costs in 2021 totaled $750 million, which…

Thank you, Sherry. I hope it's clear why we're so energized by what we've accomplished in the past few months. And by how much opportunity is still ahead of us. We are looking forward to continuing our dialogue with all of you in the months ahead as we build momentum in the business. And with that, let me turn it back to Lauren to get your questions.

Thank you, Peter. It is now time for our Q&A session. We will start by taking a few questions we received from investors who submitted questions on the Say technology platform. We have implemented this platform to enable shareholders to post questions directly to our management team, and we have chosen questions which address topics that we felt were not discussed in our prepared remarks. We will also take questions from our research analysts. And the first question we received from our retail investors is related to Lucid's current and forward-looking competitive strategy. Do you have any strategies in mind to compete with Tesla?

Well, that's a fascinating point actually. Well, in fact, we really don't see ourselves competing directly with any particular car companies. Our goal and my goal is straight out to make the very best cars. We want to make the very best electric cars in the world. Our mission is to inspire the adoption of sustainable energy. I actually believe that Lucid Air is the best product in the world already. I believe we're at the forefront of that technology and the proof points are that we have the most efficient TV with the highest range certified by the EPA. We have a high voltage, the fastest charging. And these are also proven and validated outside by real-world third parties and customers. But what excites me the most is we're advancing state-of-the-art. I'm really confident that we can do that because I know the product road map. For me, it's product, product, product.

Thank you, Peter. And our next question is supply chain related. How is Lucid approaching the chip shortage?

Yes. As Peter mentioned in his prepared remarks, to date, we've not experienced a gating issue with semiconductors. And this is really for several reasons. First, Lucid has significant electrical and hardware engineering talent, and we designed many not all of our printed circuit boards in-house. Hence, when certain of these shortages have surfaced, we've been able to adjust our designs and revalidate and resource promptly, largely using our existing direct relationships. I mean second, we stay in close contact with our supply base to understand any critical shortages, and we do periodically leverage the spot market to secure chips that are at risk. And we purchased a head where it makes good business sense. In fact, just recently, I approved a purchase record ship that required a 72-week lead time. This is not a trial process to actively manage the chip shortage situation, and it does continue to evolve. But listed is really well positioned to deal with these sort of challenges because of our deep subject matter expertise and the direct relationships that we enjoy with many of the semiconductor leaders.

Thank you, Sherry. And our next question. Any update on the Apple Car discussion?

Well, I've been asked this question a number of times in the past. Unfortunately, we have nothing to provide related to discussions with Apple or any other potential partner at this point. But I would say, that said, we do recognize the attractiveness of our product and technology for such companies and we're always open to discussions. I mean, I think our efficiency, our connectivity, the sensor suite are significant points of attraction for such partnerships in the autonomous vehicle space or as it relates to other in-cabin monetization opportunities. I think we really recognize that we are in the process of creating a Lucid Air computer on wheels. And that software development is a huge part of that. We've been focused upon developing software as much as hardware in the past year, we brought in significant leadership from Apple and other disruptive technology companies to take our digital engineering leadership. We remain very open-minded on this front, and we're excited about potential for partnerships.

Thank you. We remain open-minded on this front and are excited about potential for partnership. I will now take a question from John Murphy with Bank of America. Your line is open.

I just have two quick ones. First, Peter, as you think about the causal factors for the reduction in your planned production this year, I mean, you're citing supply chain. It appears that maybe some of the capacity expansion and reorganization has put forth or been prioritized over ramping volume in the near-term for the benefit in the long-term, and there might be some other micro issues that we can't see. I'm just wondering if you could kind of bucket those or maybe rank those in order of sort of impact. And then also as we think about this, does this change your outlook for 2023 volumes? Or is this sort of short-term pain for long-term gain?

Those are interesting points. I mean, first of all, I would say that we have been primarily constrained. We've got about 250 suppliers worldwide, notionally about 3,000 parts. And this has been really a phenomenon of just a small handful of our 250 suppliers. Paradoxically, we've been mainly impacted in a commodity supply parts. For example, finished parts, trim parts for the exterior, even glass and carpet. So it's not the core technologies of the vehicle that have been largely impacting us here. And we have -- you're right, we've chosen quality over volume. We don't want to get sucked in some myopic view of short-term numbers. We're building a brand with a 10-year plan. And our customers have been really grateful and appreciative of the quality that we've built into our car, the build quality. So we prioritize quality over numbers.

For 2023, just to provide a little bit of context there, the supply chain situation is quite dynamic, and we will share guidance as we experience more of the following quarters, and we'll be doing that in Q4 for sure. What we can say though is that the tooling is coming on nicely within the factory for phase 2, and that is enabling us to be able to produce up to 53,000 Lucid Airs as we are -- by the end of 2023. So we do have the ability to -- we are bringing on this tooling that's going to enable continued availability of production.

Exactly. And by way of risk mitigation, John, we're supplying particular support to some suppliers to up their processes and bring them in line with our quality expectations. Some we're actually allocating the supply to new suppliers. And in some instances, we're actually bringing processes and manufacturing in-house so that we can have a vertically integrated control of quality and volume.

Okay. That's very helpful. And then just a second question around the Saudi facility. Do you expect the financing to come from internal funds that you have? Or do you think the public investment fund will be a key component funding that capacity addition, I should say, even expansion, but the incremental addition of that facility in Saudi Arabia? It just sounds like there would be a lot of interest in the diversification from their standpoint, so they might be able to or willing to put more capital in. I'm just curious what your expectations are there.

Well, first of all, we ended the year with $6.26 billion of cash in the balance sheet. So that in and of itself funds us really well into 2023. So as we look to launch these efforts here in 2022, we already have the cash available to us to be able to use. I mean as we move forward with our forward business plan, we plan to leverage many sources of capital. It could come from governments that could come from the capital markets, whether it be debt or equity. And right now, we see just a tremendous number of opportunities for funds. So we're going to look at what's going to be in the best interest of the shareholders. and be really opportunistic looking for cash that is efficient.

Thank you. Our next question comes from the line of Itay Michaeli with Citi. Your line is open.

A couple of questions. Just first, going back to the supply chain pressures. I was hoping you can maybe articulate it sounds like you expect most of the recovery to happen in the second half of the year. Maybe talk about how much visibility you have over the next few months with some of the suppliers you mentioned and just the degree of confidence of how to think about the cadence of improvement in production throughout the year?

Yes. Well, we have an earning focus on addressing some of the supply chain challenges. We see them to continue for the next few months. But we see an uptake in the second half of the year. So we're really optimistic that we're going to be able to resolve these. And again, this is a small handful of suppliers. We're not talking about fundamental technologies here. We're talking largely paradoxically commodity suppliers, finishes, carpet glass and things like that. And unfortunately, you can't sell a single quality car unless those -- particularly those visible parts are absolutely perfect. So we're very optimistic that we will resolve, but it's going to take a few months, and the second half of the year, we'll see a significant uptake. And our guidance is based upon that premise.

That's very helpful. Thanks for that color, Peter. And just a quick follow-up on the 25,000-plus reservations. Hoping you can give a bit more context around the regional breakdown, kind of where you're seeing the most incremental demand coming from. I don't know if you can give detail on which other vehicles or segments, some of these reservation holders are kind of coming from. Any additional comment will be helpful.

So we announced we've got over 25,000 reservations. Last time we announced, we had over 17,000 mid-November. So that's well over 40% uptake. I think what's really important to recognize here is that, that is just for Lucid Air this is we haven't opened reservations for Gravity. And this is our reservations that only opened in North America, Europe and the Middle East. The lion's share of those reservations are our home market here in the U.S. And also, we have a fantastic mix here. Of course, the Dream edition is sold out. We've actually started making Grand Tourings, and Touring is coming later this year and reaching to something that really excites me the Pure before the end of this year and we've got a really healthy mix of orders between those models. Moreover, I should say, because the Dream edition was so resoundingly sold out, we are looking at how we can address that actual latent demand out there for our higher end products.

Thank you. Our next question comes from the line of Charles Coldicott with Redburn.

So my first question for Sherry. So CapEx, thanks for the guidance of $2 billion this year. I have in mind that at one stage last year, you were intending to spend $900 million in '22. And then I think in July, you announced a plan to accelerate some spending. But nevertheless, the $2 billion, it feels like a further raise on that acceleration. So can you talk to us a little bit about where that additional spending is going and the benefits that should come from it? Yes. Maybe I'll start with that.

Yes, of course. Actually, we were planning to spend closer to $900 million in 2021, and that was before we did that June update. In 2021, we ended up spending $421 million in CapEx. And it wasn't that anything is delayed. It's just payment of some of the CapEx ended up being shifted out by about a quarter. So a lot of that $500 million essentially is now moving into 2022. So that is increasing the base amount that you're seeing originally in 2022. And actually, our amount in 2022, the prior guidance was higher than that. It was, I believe, closer to $1.3 billion originally. And so now we're bringing in that 500 million. And then as you might recall in that June press release, we had talked about taking some of the spend, $350 million of the spend, from 2025 and '26 and moving it into the earlier years with an overall increase in CapEx with 6% to 7%. So really, you're not seeing anything different from that guidance that we provided before, you're seeing this kind of shift that's happening.

Okay. Wonderful. And my second question, you mentioned some input cost inflation, maybe around logistics. Obviously, we've seen it more broadly from raw materials. I'm wondering what sort of impact we should expect from that this year? And are you intending to offset any or maybe all of it with price rises?

Yes. Like many of the OEMs right now, we are definitely studying price and making sure that the value that we're providing to the customers makes sense in the context of the price that we're charging. And there may be opportunity there, and that's something we're going to continue to study over the future quarters, potentially to offset some of these increases but also it just may make good business then. So more to come on that. We're analyzing it. On the cost side, we do see this continuing logistics cost increases both in Air as well as Land and C. And so part of what we're trying to do as we're starting to stabilize and moving out of some of the early launches to move more of our parts from Air to C, which will bring down some of our costs. But despite our actions there, the costs are high regardless. So we are planning to still see these high cost throughout 2022, and we do expect that, that is going to result negative gross margin for us through 2022 due to these impacts supply chain and logistic issues, and it's just going to end up attaching itself to the inventory costs, which is going to cause -- we anticipate further impairment charges within the cost of goods sold. But we do see that lessening as the year goes by, and we're taking lots of mitigating actions. As I mentioned, things like that oversee components, moving them from air to sea. And we're looking at getting early analysis on some of the shipping channels that we have, looking at how we can aggregate shipments. So lots of actions are in the works there.

Our next question comes from the line of Ali Faghri with Guggenheim Partners.

Great. First, just a quick clarification on the Air production ramp. When do you expect to finish the Dream Edition deliveries and start delivering the grand touring trend?

Well, we've actually started delivering the Grand Touring already. And as soon as we're able to secure sufficient parts of sufficient quality, we will complete delivery to our customers of green addition. And that can't happen soon enough for me.

Great. And then on the Gravity SUV production launch now being expected in 2024 versus 2023 prior, could you provide us a bit more color on why you're pushing out the launch at this point? I think is there anything specific you'd highlight that makes you feel like it's going to take longer to get the SUV out of the door since it does seem like most of the supply chain issues impacting production now should be transporting.

Yes, exactly. So I just want to make it a better product. I'm really excited with the way it's developing. It's just going to be awesome. It's taken a few twists and turns in its development to make it even better than we had anticipated. So I'm super pumped and I think it needs -- deserves just a little bit longer. We also want to integrate a lot of the learnings of productionalization from Lucid Air into that program, have that healthy feedback loop of integrating those learnings. We're going to have a transformative SUV, which is going to embody the core Lucid DNA, product DNA, the space concept. And what compact on the outside, more space, more practicality, more luxury on the inside. And we're going to have an ultra-high efficiency SUV, which nobody has ever done before.

And we will next take our investor question through the Say Technologies platform. What's the future plan in terms of expanding sales and charging stations?

Thanks, Lauren. Yes, we are actively and thoughtfully investing in our retail studio and service center footprint. -- support our customers throughout their customer journey. And that's everything from discovery and initial interactions with our product and technology all the way through over-the-air updates and post sales and service. As we disclosed, we have increased our studio and service center footprint to 20 locations by the end of 2021. All of those were in North America, and we brought our first Canadian operation online in Q4. And we're excited to be entering the European and Middle East markets in 2022 and we have started working our Munich location, and we expect to open it this spring. And then we also have several other domestic and international announcements planned throughout this year. I should also mention that we have mobile vans deployed in over a dozen major metropolitan areas already, and we're going to be expanding that throughout the year as well. On the charging front, first off, we're fortunate to have the longest range and the fastest charging vehicles. So our charging frequency and duration is shortened. That said, we are continuing to enjoy the partnership that we've established with Electrify America, and we're actively studying whether it makes sense to deploy specific high-speed charging infrastructure on a case-by-case basis. We're also watching the deployment plans for charging infrastructure that's funded by the U.S. government, and we're excited to hear that with the joint office that's being developed between transportation and energy, that they're looking to get some of these first charging infrastructure in place and online as soon as the end of this year. And so that's also going to benefit all of us in the EV sector. So we're excited about that as well.

Great. Thank you, Sherry. And the last question we will take from the Say technology platform. What are the next plans for the company? And where do you see Lucid in 10 years?

Well, as we discussed in our previous remarks, right now, we’re focused on ramping up production and achieving delivery targets. And we’ve got a laser focus on the team, the company is just laser-focused on that. As we seek to fulfil what is now 25,000 reservations, over 25,000 that have been placed by customers for just the listed air. So now we’ve got grand touring in production and then the next product is already taking place. Then we’ve got Touring coming later this year. But the one that I’m really excited about is Pure. Pure is on schedule for late this year, the Pure version of Lucid Air in its purest most affordable form. And we’re expanding our manufacturing footprint as well, and both now through expansion at our AMP 1 on factory in Arizona, and that’s through phase 2. That will add 2.85 million square feet to our production footprint and will increase our annual production capacity in Arizona up to 90,000 vehicles per annum. And in addition, we’ll be building out our AMT 2, our second factory, in the Kingdom of Saudi Arabia, our first assembly site overseas. And that, alone will add another 150,000-vehicle production per annum As discussed, we continue to look on Lucid Gravity. That’s on track for the first half of ‘24. I’m super excited about how disruptive an SUV this is going to be. And overall, we have the industry’s leading EV sedan, and we started customer deliveries. It’s a significant achievement for our company. Next step is really about scaling. Scaling, scaling, scaling. And capturing the tremendous opportunities ahead just as our consumer interest in EVs is reaching this inflection point. And of course, I’m a product guy, it’s going to be scale, scale, scale. Product, product. This is a technology race. But to wrap up, I’d like to just say a few words, how grateful we are to all our stakeholders, to the employees, to investors, to our suppliers, our partners for helping us in the progress and for helping realizing this all-important mission.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.