Hello, and thank you for standing by. Welcome to Lucid's Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Maynard Um, Senior Director of Investor Relations. You may begin.

Thank you, and welcome to Lucid Group's Fourth Quarter 2023 Earnings Call. Joining me today are Peter Rawlinson, our CEO and CTO; and Gagan Dhingra, our Interim CFO and Principal Accounting Officer. Before handing the call over to Peter, let me remind you that some of the statements on this call include forward-looking statements under federal securities laws. These include, without limitation, statements regarding the future financial performance of the company, production and delivery volumes, financial and operating outlook and guidance, macroeconomic and industry trends, company initiatives and other future events. These statements are based on predictions and expectations as of today and actual events or results may differ due to a number of risks and uncertainties. We refer you to the cautionary language and the risk factors in our most recent filings with the SEC and the forward-looking statements on Page 2 of our investor deck available on the Investor Relations section of our website at ir.lucidmotors.com. 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 reconciliation of our GAAP versus non-GAAP results is available in our earnings press release issued earlier this afternoon as well as in our investor deck. With that, I'd like to turn the call over to Lucid's CEO and CTO, Peter Rawlinson. Peter, please go ahead.

Thank you, Maynard, and thank you, everyone, for joining us for our fourth quarter earnings call. During the first 3 years of production of Lucid Air, we've garnered significant industry accolades, including Car and Driver 10 Best List for 2024, The 2023 World Luxury Car of the Year and the 2022 Motor Trend Car of the Year. I can't think of any other company that has gotten this far this fast. Our superior technology, design and performance has repeatedly been recognized. We've proved our technology prowess with Lucid Air. And not only did we pioneer the concept of efficient range through our technology, we also grew our lead with 4.74 miles of range per kilowatt hour for the Air Pure real wheel drive. The technology gap between Lucid and others is growing, not shrinking. We also launched the Lucid Air Sapphire, the first supersport EV Sudan as a halo product to showcase the potency of our technology. Not just the most powerful production Sudan ever, it has also been recognized as a great all-around driving car with exceptional handling and driving dynamics. Its exceptional 427 miles of EPA estimated range and fast charging truly completes the package. And now we're embarking upon our next and most transformational phase of our development with the expansion of our vehicle lineup. The expansion of Lucid's total addressable market starts right now with the Air Pure rear wheel drive grows with Gravity and broadens with the forthcoming midsized platform. We unveiled the Lucid Gravity at the LA Auto Show in November to tremendous early reviews. I am confident that the Lucid Gravity will redefine the electric SUV segment with incredible range, superior efficiency, fast charging speed and interior space that you have to see to believe. It will be unlike anything in its class,…

Thank you, Peter, and thank you to those who are taking the time to join us today. Before I get to my prepared remarks, I would also like to start by thanking the entire Lucid team. Over the past few months, I have spent even more time working closely with all the different parts of the organization. I am incredibly impressed by your perseverance, resourcefulness and teamwork. The successes we have been able to achieve is in no small part due to all of you. Turning to the business. In 2023, we made headway with our cost optimization programs, the key strategic priority for the company. We found success in areas, including freight, logistics, overhead and bill of materials. For example, we activated logistics as a part of the Phase II build-out of our Arizona factory, AMP 1, allowing us to bring the vast majority of vehicle components under the same roof as general assembly. This enabled us to realize savings from the reduction in overhead, transportation and complexity as well as better efficiency. From an inventory perspective, we drew down raw material inventory levels by high teens percent from the start of Q4 through material planning and inventory management improvements. Improvements in focus accuracy, in particular, allowed us to reduce inventory resulted in savings related to logistics and material handling labor, equipment rentals and storage cost. We also experienced a significant reduction in freight from more efficient transportation and storage planning. For vehicle direct costs, we implemented a number of initiatives that resulted in certain bill of materials cost savings, some of which is directly related to our commitment to reduce our carbon footprint. We have identified additional opportunities in cost of goods sold as well as operating expenses that we will look to operationalize over the course of…

Thanks, Gagan. We'll now start the Q&A portion of the call. As we typically do, we'll start with the saved retail questions. The first question is from Ed. Where are you at on production and delivery of Saudi orders?

Well, last year, we made history in Saudi Arabia with the opening of the country's first ever manufacturing facility. In its first phase, the factory has a capacity to assemble just 5,000 Lucid vehicles a year, and operations have been well underway. Last month, actually, we broke ground on the factory for completely built up or CBU cars and these are critical investments into our future. And we're grateful for all the support from the government and from our partners.

With regard to deliveries, we started deliveries to the Ministry of Finance last year. Under the terms of the agreement, the government has committed to purchase 50,000 vehicles with an option to purchase additional 50,000 over a 10-year time frame. This includes the Lucid Air as well as future models such as the Gravity and midsized platform. As I said in the opening remarks, the ramp was taking longer. We now have the infrastructure built out and have the right processes, we are scaling and expect good growth in 2024.

Our next question is from Paul. Do you plan to reduce time to market for new products? Gravity has delayed 1 year. Third model is now mooted as mid- to late decade to the 2025. And as shareholders were losing value due to failures and delays, what happened to the all-star team and proven track record?

Yes. That's a good point actually. I mean what we saw unprecedented external forces that impacted us with COVID and the global supply chain disruption. And that impacted many in the industry, not just Lucid. But I would say this. Tesla is the benchmark for engineering speed. If you look at the time taken between the start of production of Tesla Model S and X, it was just a bit over 3 years. If you look at where -- I mean we're scheduled for production for Gravity late this year, that's going to be a very similar time period between production of Air and Gravity. And that's despite it not being a derivative product there, a whole new platform. So I think that is a world-leading pace of engineering. And for a small team to get Gravity, a landmark product, a completely differentiated product in just over 3 years. Now midsize what we've done is define a schedule for it, we're scheduling for late '26. Very similar in time scale. It's right there. I think this is world-class execution, frankly.

Thanks, Peter. We'll go to question 3. Are there any updates regarding future partnerships with Apple?

Well, as a general corporate policy, we don't talk about any particular companies, particularly as it relates to the future. But as I said in my prepared remarks, we have what I believe is the best tech history. We've seen increased interest from others, and we're very open to it because we think it's critically important for the planet. As I said before, it's super hard to do a good EV. It's relatively easy to make a bad EV and this growing realization just how hard it is to do a world-class EV.

Next question is from Landon. When will Gravity reservations open? Is there a target date for first deliveries? We know what -- the target date for first deliveries.

Oh, yes, I'm hoping we'll deliver some Gravity vehicles later this year. But naturally, you should expect the bigger volume to be around 2025. But we know the excitement around gravity is palpable.

Okay. And we'll take our last saved question from Daniel. Do you plan to take a salary cut to reduce losses or plan to buy back shares to improve stock health?

Well, many may not be aware of my founding role in this company as we know it today. I joined the company around 11 years ago, with a clear goal of making the very best electric vehicle and to drive a revolution towards sustainable transportation, which is going to benefit everyone in the planet. Around that, we would call [indiscernible]. And I guess we had around 19 employees. So in 2021, I received a onetime CEO stock grant, and this was solely determined and approved by the Board of Directors. And a significant portion of that vested due to the company achieving certain market capitalization milestones as we publicly disclosed in 2023. So I think there's a huge misperception that this onetime grant was received as a salary and somehow we replicate it as my salary in the future. In fact, in 2023, at my request, I did not receive a bonus for 2022, nor did I receive any further equity grants in '22 or '23. And I just want to assure you, my mission and my dedication is still unwavering. I have not sold a single share of stock in all this time, over 10 years, except what was absolutely necessary for tax purposes. And the company stock I received from the grant remains in the form of company stock. And so I am also directly tied, personally tied, directly and hugely to the company's performance as a key shareholder. And so I'm incentivized that way. My promise is to continue to work tirelessly, day and night, to drive brand awareness, to deliver more cars, to sign up more technology licensing and access agreements, to drive down costs and to bring the Gravity and midsized platform to market. We have an incredible team. We're driving forward, and I'm incredibly excited about our products and moreover, our future.

Regarding the second part of the question, we are investing in our future, but we are a growth company. We are also a technology company. and I believe our investments into areas such as our research and development is an advantage and give us the opportunity for higher returns than any other automotive company because we are monetizing the intellectual property through agreements such as the one with Aston Martin. When we feel we can't increase value from reinvesting back into the business, we would consider returning the cash to shareholders via a repurchase program. But we don't believe this would happen for quite some time.

Okay, thanks. Towanda, can we turn it over to go to questions on the call, please?

[Operator Instructions]. Our first question comes from the line of John Murphy with Bank of America.

Good morning, everybody -- good afternoon. Sorry, long day here. Peter, as you think about the gravity, it's really kind of showcasing your technology, not just on the powertrain but also in the body and structures of the vehicle, meaning just you have maximum material space for the footprint, is pretty impressive. As we think about the Gravity, it seems like it's going to be a game changer for you in the market. However, it does seem like the midsize platform may be even more important. As we think about the launch of these two programs late this year and then the midsize in 2026, in relative importance, which is more important for Lucid for mid- to long-term success? And how do you kind of gauge that relative size of importance to the company?

Thank you, John. I mean if you asked the question a year or 2 ago, people would question our technology. Today, it's given. The world's most -- we've got the very best technology. What we haven't got is scale and an economy of scale. And that is going to take place in 3 critical steps and the first step happened last week. We launched our Pure Stealth initiative. Lucid Air is now available at 69 -- from $69,900, the best EV on the planet at that price. That puts us into 3x the TAM, the total addressable market because now we go into E class Mercedes territory rather than S class So step one, Pure from $69,900, 3x the total addressable market. And then scheduled for production late this year, we have Gravity, the SUV. We're talking about 6x the TAM with Gravity. And then scheduled production late '26, the third step on this journey, midsize, 20x for TAM. It's all about scale. We've got the tech. The tech is designed for scale. It's about achieving scale and with that, we'll get the economies of scale and the margins and the profitability.

So ultimately, just to interpret that, I mean we're fighting to the position of getting to that even greater scale with the midsize, and that probably is sort of the fulcrum point and where you'll get to escape philosophy on profitability and cash flow. Is that a fair statement?

Today, we're competing with Mercedes and Porsche. With midsized, we compete directly with Tesla Model Y and Model 3. That's the best selling car in the world.

And then just one follow-up. You mentioned the potential for hybrid technology or joining obviously a nice engine to be part of a hybrid powertrain. I mean, one, what kind of discussions are going on there? And two, I mean in layman's terms, there's always these positions in electric motor to be put or placed in the ICE powertrain from P0 all the way back to P4 and various positions in the middle. As you kind of envision what you could bring to the table and the potential positioning or integration with an ICE engine to make a presumably pretty efficient powertrain for hybrid, where would you land in that positioning? And have you even thought of that at this point? So if you just talk about discussions that are going on and then sort of your thought process about how you would integrate into an ICE engine.

Yes. So we always envisaged a key pillar of our business being the technology licensing and supply where in we got the best technology, and that's recognized. Our arrangement with Aston Martin last year has triggered an increase in interest in our technology. we're also growing our own internal team so that we'll be able to not just be receiving passively inquiries but actually become a little bit more proactive in the future. Actually, the application for hybrid has come as an external inquiry. Because if you look at the core capabilities of our powertrain, the unique selling price of it -- proposition of it is its efficiency. Well, that applies equally to say, a hydrogen fuel cell vehicle or a gasoline electric hybrid and also it's compactness its power. And that is very relevant to the hybrid because in a hybrid, you've got to stuff in a gasoline engine and exhaust and all that stuff and that paraphernalia, and electric motors and battery. And it really becomes a packaging puzzle plus. And because we've got the most complex technology, that ideally lends itself to that. Now Lucid, it's not going to do hybrids. We're ready to bat for electric. We believe Pure is the solution. But certainly, the hybrid opportunity opens up a whole new market arena for our technology.

Our next question comes from the line of Doug Dutton with Evercore ISI.

Peter, so you mentioned a few manufacturing advancements coming to further drive down costs in 2024. I was just curious if you can quantify those or give us a couple of examples of initiatives that you have in progress right now to help on that cost side of the business.

Right. So we're really looking at further vertical integration, particularly in our factory in Arizona. We're bringing stamping in-house and that is going to be right alongside the new body shop for our Gravity. So we will reduce the operational cost, we will reduce OpEx. We'll reduce inbound logistics costs, we will actually reduce scrap as well. And there's an internal efficiency as well by having an integrated state-of-the-art hydraulic transfer stamping line with laser blanking facility fully integrated. Then we're actually moving our powertrain, which is already vertically integrated our world-class motors, inverters, drive units, all in-house at the moment. But that's in a separate factor up the road so we will save those logistics costs by actually putting them under the same roof as our main factory in Arizona, so we will save operational and will be efficiencies. The other thing we're integrating into that factory is logistics. And we've been able to draw down some of the cross stocks. I think all our cross stocks now virtually have been drawn down upon. So we've got inbound logistics cost savings. And then the other thing we're doing is we've really revised the organization so that quality reports directly into me. We're really driving down man hours per vehicle. But perhaps, Gagan, you could provide a little bit more color on some of the initiatives you're driving leading to drive down cost.

Yes. Thank you, Peter. So we have identified 3 initiatives, 1 scale. Scale will help us improve our margin. This is technology and volume rate. One, we took some initiatives in 2023, and we are seeing the results. But more importantly, we have identified additional opportunities that will look to operationalize in 2024. On operational efficiency, which is number three. And as Peter mentioned, we are looking multiple areas. One, freight, we made significant improvements in '23 and looking more in 2024. Logistics specifically as we move from our LOC warehouse to implement Phase 2 general assembly. This has really helped us in reducing the cost. This is a consistent exercise. And we are looking at this very carefully. This is my #1 goal, having the cost optimization. But again, it is not easy. We are looking at consistently. And also, we have initiated a team under me specifically looking each area very carefully looking at each dollar and bring the efficiencies. But as we grow, as we scale, it will bring us efficiencies. This is a technology and volume risk.

Yes. Scale is critical because to drive down the COGS, you've got that fixed cost component. And it's the amortization of the fixed cost and overhead depreciation per vehicle. So this is a -- this is the initiative to start at $69,000 is 3-step hitting our total addressable market, the scale will drive down the costs.

Excellent. I appreciate all the detail there. That's really helpful. Just one quick one from me then. On Gravity, starting price of $80,000, obviously, not a ton of deliveries in 2024, but will that be similar to the strategy with the air where you're starting with the higher trims and then moving downstream. Is that the right way to think about pricing and the model pending '24 and going into '25?

Yes. we haven't disclosed that yet. I do think it's reasonable to assume Gravity is going to be in a similar competitive set as Air, it's going to be completing more in the Mercedes arena, we'll have to wait for midsize to come, which is scheduled for production late '26 to have a true Tesla Model Y Model 3 competitor. I mean, the key thing with Gravity is we're going to hit about 6x the TAM that's going to help us hugely with this economy of scale.

Our next question comes from the line of Steven Fox with Fox Advisors, LLC.

I was just wondering if you could talk a little bit more about your expectations for the KSA market this year. You mentioned, first of all, that there was some unexpected nuances in ramping and I guess, production to during '23. So how do we think about how you benefit from that market and the growth during the year.

Yes. Thank you, Steven. We are limited to what we can say in general, and we do not specifically talk about any specific customer. But what we can say, and most of you are already aware that the government of Saudi Arabia has an initial commitment to purchase 50,000 vehicles with an option to purchase additional 50,000 vehicles. And as I said in the opening remarks, the ramp was taking longer than we expected. And we now have the right infrastructure and processes built out. There were significant administrative challenges. We have addressed most of the pain points we are scaling and expect good growth this year. And also note this government with Saudi Arabia also includes Air, Gravity and Midsize.

That's helpful. And then just one clarification. You mentioned a lot of cost initiatives that are underway for '24. In '23, is there a way to quantify how the bill of materials came down or just directionally what it did versus '22?

Yes. We don't specifically guide but what I can say that our gross margin in Q4 improved compared to Q3. And also we don't provide a guidance, but I expect our gross margin will improve sequentially in Q1 next year. Having said that, our purchase of Gravity components ahead of start of production may have some impact on LCNRV as we progress. But as I said, the cost is a critical component. We are looking at it very carefully. We are very proud of what team has accomplished. Specifically related to the engineering team and supply chain team. They have done a tremendous job finding savings even through technology. So we are -- we have identified couple of areas, and we are looking very aggressively. And this is our #1 goal, looking at the cost optimization and [indiscernible].

I think the other thing is that I know I keep bringing on this point that is critical. It's a critical differentiator of us. Because we can go batteries, we can hit the biggest single cost item of ore on an EV, which is the cost of the battery. Some people are looking at these are so-called advance in technology and manufacturing, you might save $100 in a vehicle. You can say $,1000 potentially with having the ability to go further with less batteries. And we're seeing that playing out now with the Air Pure rear wheel drive. We've got more range than anyone else in that sector. And with just a 88-kilowatt hour battery pack, smaller pack, say, 12-kilowatt hours of pack has potentially thousands of bucks on bill of material.

Our next question comes from the line of Tobias Beith with Redburn Electric.

I'd like to -- and maybe we'll start with my questions for Gagan. If I exclude the inventory write-down of the $172 million from COGS in the fourth quarter, it looks like unit COGS improved by about 20 percentage points sequentially. I was wondering what was it that drove the improvement? Was it the receipt of the $98 million government grant? Or is this accounted for elsewhere?

Yes, that's a good question. So first of all, grant doesn't play a role in the course as of today. What -- as I highlighted, we took a couple of initiatives in 2023. Freight like very important, we made significant savings but also, more importantly, our forecast accuracy of raw materials because today, the cost of goods sold is not only related to how many cars we sell. But is also related to what raw material inventory will have and how we utilize that. So the focus, accuracy, the freight opportunities in BAM really helped us out improve our gross margin in Q4.

Sure. Okay. That's helpful. And my second question relates to the Air and the Gravity. If I put aside the differences in the interior and exterior of the vehicles, are you able to share roughly what proportion of parts and components are shared I guess the fact that these vehicles are using different platforms may impact the variable cost down assumptions. It was previously communicated that both vehicles would leverage LEAP.

Okay. Let me cover that. If you look at the battery pack, which is the core, core part of the bill of materials of both vehicles, it is about 95% the same. It's -- they've both got the same number of modules, the same number of cells. They made exactly on the same line. It's just that the two of the top modules are a different location. We move them from underneath the rear seat in Air to underneath the front seat in Gravity. This has a transformative effect upon the nature of the vehicle, which in turn leads to a much bigger TAM. We can only capture that TAM, by having a degree of differentiation. Now if you look at the core powertrain, the drive units and the inverters they're very, very high proportion carryover, slightly different gear ratios because the wheels are bigger, and you need more tractability you have slightly lower gear ratios. Now the rest of the platform is very similar, which has meant that it saved on our R&D costs because we've got a learning and the process knowledge of how we rivet and glue the sheet stampings, the castings and the extrusions together. But there is a degree of difference in that platform, which I think makes a whole bunch of sense because it makes gravity a true SUV, not some sort of -- soft CUV derivative. And that means we go into a whole new TAM 6 times. We would not be able to capture that TAM. And also, you need to double the tools anyway because of the extra volume. So then we look at the upper body shell of the car, they're always going to be different anyway. So we're talking about a very slight increase in tooling costs. But in return for that, we truly enter a massively bigger term, 6x, and this is all about economy of scale. We've got the technology. It's designed for scale. We just haven't achieved that scale yet. And so therefore, it's not showing in our P&L.

Makes sense. All right. And if I could squeeze one last one in. 2 quarters ago, I asked about the steps required to move from beta prototyping of the gravity, which is then just started to series production. I was wondering if you could provide an update on the progress today.

So we're writing the thick of beta prototypes. In fact, both between betas and alphas, we've got more than 40 prototypes built, many of which are running around right now. We'll be finishing our run of beta prototypes over as we move now into the spring. And the next step will be to do our release candidates. That's our preproduction run through the summer in the factory and Arizona, which will lead to our scheduled start of production late this year.

Thank you. Due to the interest of time, I would now like to turn the call back over to Maynard for closing remarks.

Thank you. This concludes Lucid's Fourth Quarter 2023 Earnings Conference Call. Thank you all for joining us today, and you may now disconnect.