Lucid Group, Inc. (LCID) Q3 2024 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Lucid Group Third Quarter 2024 Earnings Conference Call. Please be advised that today's conference is being recorded. Later we will conduct a question-and-answer session. [Operator Instructions]. I would now like to turn the conference over to your speaker for today, Maynard Um, Senior Director of Investor Relations. Please go ahead.

Thank you, and welcome to Lucid Group's third quarter 2024 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 our 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 vs non-GAAP results is available in our earnings press release issued earlier this afternoon as well as in the 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 on our third quarter 2024 earnings call. Now, before I get to the third quarter results, I'd like to start by thanking all our employees, suppliers and partners for their support and hard work. I'd like also to thank our investors and the PIF for their continuous support and partnership. Our last month we raised approximately $1.75 billion through a public offering of common stock of approximately $719 million and a corresponding pro rata investment by an affiliate of the Public Investment fund of approximately $1.026 billion. This additional capital gives us sufficient financial runway into the ramp of Lucid gravity and indeed well into 2026. Now, the raise is consistent with our strategy. We have said that we've continued to be opportunistic based upon the market and we delivered this with strong support from the PIF as well as other institutional investors. So, turning to third quarter results, we had another quarter of record deliveries with the momentum in the first half of the year. Continuing into the third quarter, we delivered 2,781 vehicles, up approximately 91% year-over-year and up 16% sequentially outperforming what is typically a seasonally softer period for the industry. In September, in the U.S. market, the Lucid Air not only outsold many of the largest and most storied brands in the industry within our competitive set of electric vehicles, but we also outsold many of the competitive set in the gas market as well. So, I think our momentum is quite notable and I believe a part of this is due to Lucid's growing brand awareness, which is reaching an all-time high in the third quarter since we started tracking this metric. Whilst I believe we still have much more opportunity to grow our brand awareness, we're still making very good progress and I think you can see this in our delivery numbers. The number of vehicles on the road continues to grow and I'd like to thank our loyal customers who are our biggest advocates. You are a key part of our success and I'd like to extend my sincere gratitude. Turning to production, we produced 1,805 vehicles in the third quarter and are on track to produce approximately 9,000 vehicles for the full year 2024. I'm delighted with the progress we've made with vehicle inventory and will continue to manage this judiciously. As that said, I would expect an increase in production in the fourth quarter. I'm also delighted by the progress in our planned cost optimization programs at the Arizona factory. In the third quarter, we transitioned our battery enclosure manufacturing and various subassemblies on site, and we're transitioning powertrain manufacturing to be fully on-site. We expect this will not only have a number of cost benefits, including logistics, but should also help the efficiency of the factory when fully integrated. We held our technology and manufacturing day at the Arizona factory on September the 10th. To demonstrate our technology leadership, it's cost-effectiveness, and to show off our lucid gravity SUV. The day was purposefully structured to not only highlight our technology advantage, but just as critically a cost competitiveness, referencing data from a widely respected and objective third-party company that specializes in this type of analysis. We also demonstrated how our advanced technology translates into vehicle comfort and performance with closed course test rides of lucid gravity beta, and pre-production vehicles, as well as the Lucid Air Sapphire zero to 60 launches. Now, I think those that have had the opportunity to test ride the Lucid Gravity would agree that the drivability is more akin to a sports sedan than a traditional SUV. The Lucid Air is the best car I've ever driven, but the Lucid Gravity may well be the first SUV I'm genuinely looking forward to as my daily driver. We've also opened Arizona factory to show Phase 2 to analysts for the first time, highlighting the high levels of automation and significant areas of cost savings that we have and will be able to realize. Turning to software on our last quarter's earnings call, I promised we would release over the air software updates, substantively enhancing our advanced driver resistance system or ADAS, and we delivered with a number of over the air updates in the third quarter, including Lucid UX 2.4 package, which introduced many enhanced features such as Lane Change assist, active curve speed control, and extended stop and go. A UX 2.4 also introduced our new Lucid assistant, our new in cabin invoice assistant, as well as user interface upgrades. And last week we started deploying via an over the air software update, lucid UX 2.5, which adds an innovative curb brush assist feature warning the driver of the Lucid Air before all wheels scrapes the curb. We also upgraded the performance of our audio systems for improved response and performance. Now these are further examples of how we continue to bring tremendous value to the vehicle long after a customer's purchase. The software team is invigorated and we have much more in store. In the very near future, we are targeting the release of an over the air software update that will enable hands-free Highway Assist. Watch this space, I believe the roadmap is robust and I think customers are really going to love it. I'm also delighted to announce that Lucid Air earned the highest possible overall safety rating of five stars from the National Highway Traffic Safety Administration's New Car Assessment Program. This is the government's premier customer information program for evaluating vehicle safety. The Lucid Air Pure, Touring, grand Touring, and Sapphire received the maximum five-star scores for overall safety in frontal crash, side crash and rollover testing. This follows the highest possible European rating of five stars for the Lucid Air in the rigorous Euro N-cap crash testing process. We worked assiduously on making the most advanced electric vehicle enabled by a clean-sheet design and engineering with the goal of securing the highest possible safety ratings. First, safety has been a top priority from the outset at Lucid and achieving five-stars in NITSA's new car assessment program should give owners even more confidence in the Lucid Air. So, we have much to celebrate this quarter and thus far throughout the year. I think our progress through the first three quarters of the year is a testament to our tremendous progress. Turning to the Lucid Gravity. I'm delighted to announce that we opened orders and pricing today. Our configurator is now live. Customers are telling us they are keen to get behind the wheel of Lucid Gravity and we know there's an incredible amount of interest. For example, we have Lucid Gravity Roadshow events in our studios across the country. And in those studios, we saw foot traffic increase more than 70% versus the prior 30 days. I think certainly the Lucid Gravity is having a positive effect on the Lucid brand and is also helping to raise awareness of the lucid Air. The scheduled start of production is just a number of weeks away and I think very soon, we'll be in a position to announce when we might be able to make the very first deliveries. On the technology licensing front, we remain actively engaged in discussions. You can see that the industry has become more active. So however, to my knowledge, many of the announcements we've seen in the industry don't appear to be binding. And my philosophy is that announcement should be of greater binding substance because you can lose a significant amount of leverage if you were to announce something well before the details are set. So, all I can say is to watch this space. In closing, I'm very encouraged by the progress and momentum that we're having with the Lucid Air. I believe that the Lucid Gravity is coming at an opportune time as the momentum and brand awareness has been building. And all the elements that makes the Lucid Air a success is coming to the Lucid Gravity. I believe this innovation has the potential to reshape the market for SUVs with meaningful opportunity to scale in a significantly larger addressable market. And in technology licensing, I believe our technology is even more relevant today than it has ever been. But our Atlas Drive unit technology for mid-size addresses a significantly larger market. We're also realizing the benefits from our cost optimization programs, and we've identified further opportunities. Perhaps, cost transformation is a more appropriate nomenclature, as we're instilling this into our very D&A of the company, and we will tactically reprioritize some benefits into areas of strategic growth like Lucid Gravity and the Atlas Drive unit, and the mid-size platform. So lastly, I'd like to thank all of our employees, our suppliers, our customers, our strategic partners, and our investors for your hard work and your support. And I look forward to updating you of our progress in the future. And so, with that, I'd like to send it over to Gagan Dhingra to provide an update on our financials. Gagan?

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 for the hard work. The significant achievements and progress we have made is a direct result of your efforts. Turning to our 2024 third quarter financial results. During the third quarter, we produced 1,805 vehicles and we reaffirm our guidance to produce approximately 9,000 vehicles this year. More importantly, deliveries of 2,781 vehicles were yet again ahead of expectations in the third quarter up approximately 91% year-over-year and more than 16% sequentially. As Peter mentioned, we are pleased with the demand we have been experiencing thus far. Deliveries outpaced production in the quarter, as we further managed to work down weekly inventory. We reported revenue of approximately $200 million in the third quarter up 45.2% year-over-year, and flat sequentially. Every selling price was down sequentially, primarily due to product mix. For those who are calculating every selling price by taking revenue and dividing it by total deliveries. Please note that 8% of deliveries were subject to operating lease accounting and the revenue recognized for those vehicles was immaterial in the third quarter. Cost of revenue in the third quarter was $412.5 million the LCNRV impairment was $154.9 million. GAAP gross margin improved by 28 percentage points sequentially and better than directional guidance we provided of being down sequential. Also, last quarter we caught out a special provision related to a warranty campaign that impacted the second quarter gross margin. Excluding that campaign, our third quarter gross margin still would've improved by approximately 11 percentage points. The primary reason for the improved gross margin was a result of continued cost reduction initiatives. As we look into the fourth quarter, we expect gross margin to be largely flat. As we highlighted at our technology and manufacturing day in Arizona, we believe our technology and increased scale will be key enablers of our gross margin and the forthcoming inclusive gravity ramp will be a key driver. Now moving to operating expenses. R&D expense in Q3 total $324.4 million up 13% sequentially, the increase was primarily due to higher stock-based compensation expense, which we called out on our last quarter's earnings call, as well as the cost related to the lucid gravity and the run up to start of production. SG&A expense in Q3 was $233.6 million up 11% from Q2. The sequential increase was primarily due to higher stock waste compensation expense, again, as we called out on our last quarter's earnings call. As we guided previously, we expect our full year 2024, operating expense to decrease as a percentage of revenue compared with 2023. We ended the third quarter with 55 studio and service centers, excluding our temporary and satellite service locations, up from 53 in Q2. On the service side, we ended Q3 with 72 mobile wins in the fleet and 118 approved body shops worldwide. We plan to continue to strategically expand our studio and service center footprint as well as satellite service centers, which will cost-effectively provide additional locations as well as ensure high customer satisfaction as we continue to grow. Our stock-based compensation expense in the quarter was $88.1 million compared to $58.5 million in Q2. In Q3, we recorded a loss of $221.5 million in other expense, which mainly included a non-cash loss of approximately $240 million, driven by an increase in the fair-value of derivative liabilities associated with our redeemable convertible preferred stock. This was mainly due to the increase in our share price at the end-of-the third quarter compared to the prior quarter. The adjusted EBITDA loss was $613.1 million compared with $647.6 million in Q2. The improvement was largely driven by improvements in gross margin. GAAP net loss per share in Q3 was $0.41 and non-GAAP net loss per share was $0.28. The difference was primarily related to the change in fair value of derivative liabilities associated with our renewable convertible preferred stock. Moving to the balance sheet. We ended the quarter with approximately $4.03 billion in cash, cash equivalents and investments and total liquidity of approximately $5.16 billion. As Peter mentioned, in October, we raised a total of approximately $1.75 billion through a public offering of common stock and a corresponding pro rata investment by an affiliate of the public investment fund. I would also like to thank the PIF for their incredible partnership and support. We remain committed to maintaining a healthy balance sheet to execute on our strategic vision and will we continue to be opportunistic in exploring financing. Turning to inventory. Total inventory was essentially flat sequentially as finished goods inventory was offset by the buildup of raw materials we spoke about last quarter. CapEx in Q3 was $159.7 million, moving to the outlook for 2024. We reiterate our 2024 production guidance of approximately 9,000 vehicles and we expect total liquidity inclusive of the recent $1.75 billion capital raise will give us sufficient runway well into 2026. Moving to CapEx. We are updating our 2024 CapEx guidance to approximately $1 billion from our prior guidance of $1.3 billion. This mainly reflects decals in our capital outlay into 2025 and certain savings as part of our cost-reduction initiatives. From a product perspective, the Lucid Gravity start of production is scheduled for late 2024 and start of production of our high-volume midsized platform is scheduled for late 2026. In closing, I think our performance this quarter demonstrates the significant progress we have made with our cost transformation initiatives and our go-to-market and brand awareness. We will continue to maintain a disciplined approach to managing cost while strategically investing to fill growth. Looking ahead, I want to emphasize our excitement about the upcoming launch of the Lucid Gravity, thank you to our investors and stakeholders for your continued trust and support Together, we hope to make this next effort one of our most successful yet. With that, let me turn it back to Maynard to get your questions.

Thanks, Gagan. We'll now start the Q&A portion of the call. Before we take questions from those on the phone. I want to pose some questions that our retail investors sent in through the say technology platform. The first question comes from Paul C., with the share price, still hovering their all-time lows. What do you have to say to early investors that believed in the company and path? What do you plan to do to improve the share price as more funding is needed, can you protect shareholder value? And there's another question somewhat related to this from Ryan P. That asks, what does the future of the company look like that is similar that we'll put together.

Yes, indeed. Well look to start with, thank you so much for your support and your belief in the company. And we deeply appreciate your commitment. I want to assure you that we're taking significant steps to deliver long-term shareholder value. That's what it's all about. Now, that said, market conditions have been challenging and a number of factors, some of which were out of our control, have undoubtedly impacted our share price. However, we remain confident in our strategic direction and the long-term potential of our business. This is a long-term play, and we're indeed, we're actively working on several initiatives both to drive growth and to improve our financial performance. And I think you can see that in our record deliveries and in the progress and improvement in our gross margins. You're seeing that already. Now, the Lucid Air is widely recognized as the best car in the world. And that recognition has been as growing in XUV over the last few years. We've also created what is now widely recognized as the SDV technology in the world. And we've shown, how this technology becomes a cost-down driver in the long term. We're growing scale and our profitability depends largely upon that scale. And we are growing scale that will by introducing products which we believe will realize that scale are starting with gravity. Now, even with Lucid Air, we're already outselling many of the storied brands in both EVs and gas cars. This is something which is not sufficiently recognized. Now, today we opened orders for Lucid Gravity and we've entered a market that's about 6 times larger than our addressable market last year with Lucid Air. Gravity is a revolutionary new class of SUV has been conceived from the ground up without compromise. And remember, we'll follow this with a high-volume mid-size platform scheduled for startup production late ‘26. I really think that's really going to be a huge, huge product for us. And we, I mean, we also focus on our technology access and licensing business and the Atlas Powertrain, which suits mid-sized vehicles. That's the new powertrain that I recently announced. The work for that is well underway already, and I see a huge licensing potential in a significantly higher volume market with Atlas. And collectively, these efforts are really designed to enhance our competitive position and to deliver long-term value to our shareholders. I mean, Gagan, have you got anything to add here?

Yes, thanks, Peter. So, regarding funding, I think we have been transparent with the market that we would be opportunistic when it comes to capital raising. We are committed to maintaining a strong financial position and ensuring that our actions aligned with the best interest of our shareholders. We remain dedicated to enhancing shareholder value through improved operational efficiency, increased profitability and sustainable growth. We believe that our strategic initiatives will position us for success and drive long-term value for our shareholders.

Indeed, maybe I don't a bit of flavor here. And as a major shareholder myself personally, believe me, nobody is more incentivized than me for success. And what's less known, I relate to you all because I put so many of my own savings into this company to make it happen. I might also add that many of you may not be aware of my funding role in the company as we know it today. I joined this company over 10 years ago and with the goal of making the best electric vehicle and to drive a revolution towards sustainable transportation. My mission and my dedication is steadfast. I've not sold a single damn share of this stock except what was necessary for tax purposes. And so, I am directly tied to the company's performance as a shareholder more than virtually anyone else. So, my promise is to continue to tirelessly day and night to drive that long-term shareholder value. And this is a long-term play and it is a tech play.

Thank you. So, we'll go to the second question from Skylar Results, do you plan to offer a more affordable vehicle? If so, what's the timeline?

Oh, man, yes. Well, maybe it's clear enough because this has been on the - our vision, our mission, our schedule for many years now. We're not here to be just a niche player. This is - this is so misunderstood. Lucid exists to have a meaningful impact upon the planet. And to do that, we need scale. And to get that scale, we need to bring our price down. So, our midsized vehicle is scheduled to start production late '26. The work is well underway. And in our technology and manufacturing day presentation, we showed in September. We already actually gave a sneak brief peak of one version of this midsized vehicle. And we address the total -- we estimate the total addressable market to be about 30 times than our market last year. This is our product, which we're targeting about $48,000 to $50,000. And the vision is I'd love to sell $1 million of these a year. And the opportunity is fast.

Great. Our next say question is from Malik H. What are the chances of the Saudis buying out Lucid completely? Will Lucid go-private and what does this mean to the investor -- for the investors?

Well, thank you, Malik, for the question. But of course, I mean, it would be another place for me to speak on behalf of the PIF. I will say this though, look, what will really differentiates us as a company are two things, our world-leading technology and the long-term partnership with the PIF. And they continue to be fantastic partners. I'm hugely grateful for their support. They stood shoulder-to-shoulder with us and might enable this to happen. And now we are driven by our mission and our ambition to drive long-term shareholder value through our strategic growth and our cost transformation initiatives. Let's not forget that.

Okay. And our last say question that we'll take is from Paul C. Can you reach positive margin individually on-air and gravity? What sales volume would be needed to achieve what would be needed to achieve this for each.

Yes, we see a pathway to positive margin individually on air and gravity. And I think you can see that we are making good progress and improvements in gross margin. With all projects and pipeline, I feel very comfortable where we are and will be in the contribution margin. We have a lot of fixed cost in our cost of goods sold related to our factory. And in addition to lowering the cost to build a vehicle, we need a level of scale to get above our fixed cost. We have been heading in the right direction with air, and we expect gravity to drive even further scale. From a cost perspective, there's very high reuse of the powertrain technology in gravity that we use in air.

But I mean, maybe I can add a bit of color here. That's completely right, Gag. And on the powertrain side, people need to realize that we've got about 95% reuse across from air to gravity. The battery modules are virtually the same. The pack layout is very slightly different, and we use the same motor technology, inverter technology, slightly different gear ratio to get the tractability for a true SUV. But we have gone for a different platform architecture from Gravity, from air, and we've done that just in three years. I don't think anyone's really been able to do that. And there's a good reason for this. By using a different platform, we are not constrained by the boundaries of a platform designed for sedan, and that means that we're able to get incredible distinct product differentiation across from air to gravity. And that's never been achievable of before in an SUV because of our technology. So Lucid Gravity provides the interior space and practicality of full-size SUV within the exterior footprint of just a mid-size SUV. And also, then on a cost perspective, we take all the learnings from air and apply them across the Gravity platform. So, this may sound a little bit into counterintuitive, but we're able to design a vehicle a greater cost lens than if we would just to simply try to reuse the entire air platform. And by creating that product differentiation, we really can expand our total addressable market.

Now, we'd like to take questions from the phone lines. Liz, can we go to the first question, please?

Your first question comes from the line of John Murphy. Please go ahead.

Peter just a first question as you are working through sort of the greater proportion of mix being pure and, and taking some price action on the air. What lessons are you learning as to sort of price elasticity of demand? And it's really kind of interesting that you might be taking a slightly more conservative view or favorably from the consumer side on the grant touring on the gravity. Because it's about $15,000 less than the grant touring on the air. So, it just seems like you're learning some lessons and coming a little bit further down in the price point to unlock some demand. So just kind of what lessons you're learning there and what could that mean for the Gravity ramp as opposed to what happened with the air?

Yes, John. I think the pricing structure of Gravity -- Lucid Gravity, it's, I think it's a absolutely super affordable, a super value proposition actually. Because if you look at the fully loaded Gravity Grand Touring on our website now, on the configurator, it actually fully loaded comes in at lower than the entry price of a big electric SUV being launched now by one of our competitors in the big three. And so, I just shows what a cracking value for money proposition that is. And we're able to achieve this because we've got so much carryover content from our powertrain technology. We've got all the learnings from Lucid Air. But there's another special factor at work here and this is what I addressed in our manufacturing and technology day. Because we've got the most advanced technology in the world, we're able to achieve over 44 miles and 40 miles range with virtually half the battery size of that competitor. That can give us a bill of materials advantage of $14,000, $15,000 potentially. And that's how we can carry past that value proposition to our customers. And not only that, it'll cost less to run because we use less electricity, there'll be less draw on the grid. But choose lighter and more agile and more fun to drive it occupy the battery pack by being smaller, occupies less interior space. So, we have a roomier, more comfortable car. We genuinely have seven seating space for seven adults. It's not your normal five plus two type SUV. We just get the kids in the back. All this it is because this is a technology play and our technology is now starting to become a cost down enabler.

And then maybe I could ask a second question and I apologize for skipping over the gravity to some degree and trying to get to the midsize. But when you think about the commonality between the air, the gravity, then whatever the name will be on the mid-size, what are the reuse potential there? And as you think about sort of in general in the organization, how much of your resources from a human capital perspective and actual capital dollar capital perspective is now being focused on that midsize.

So, I think if you look at some of our core technology, all our expertise in battery management, system control, logic, traction control, stability control, motor control, all of that is directly transferable. If you look at our infotainment technology suite, ADAS, a lot of that is directly transferable. A lot of our core software expertise. Absolutely. But in terms of motor technology, we're taking the very best learning from a Zeus program and transferring that into Atlas. Atlas is well on its way. Actually, Atlas is all about an absolute ultra-affordable version of Zeus. And Zeus was affordable because it enabled cost down in batteries. So, we're going to take next generation battery tech and a completely new architectural, very advanced architectural look at midsize. And that is going to be really aimed at reducing the bill of materials cost for high volume. So, we will use different high-volume processes and very much focus upon the factory as the center of the cost down driver. This is a very different animal. We have proven we have got the best vehicle. The technological tour de force in air and gravity midsize is going to be really different approach. It's going to be cost conscious. Its focus is the machine that builds the machine.

The next question comes from the line of Andres Sheppard with Cantor Fitzgerald. Please go ahead.

Good evening. Congratulations on the quarter and thanks so much for taking our questions. Peter, I'm wondering if I know it might be a bit early, but curious to see if you have a sense or an idea, what kind of unit mix are you anticipating for next year with the gravity ramping up in terms of the air and the gravity? Just curious what is the better way to think about that for next year? Thank you.

So, what we've done, we've started with a high-end product first, the Gravity Lucid Gravity Grand Touring. We think there is a huge latent demand for that. We've announced that later in 2025, we at an appropriate moment in time, we'll bring out the Lucid Gravity Touring, which starts at the 79,900. The Grand Touring is starting at 94,900, which I think is a cracking price point for the product, over 440 miles of range, true 7-seater, high performance, 828 horsepower machines. It really is a flying machine. So, I think there's huge latent demand for the Grand Touring. I've stated before that we're not manufacturing-constrained with our build-for-air. We've been market-constrained. I anticipate that we're going to be manufacturing-constrained next year in the buildup of gravity. We need to get the quality right and take a judicious and very prudent approach to meeting customer expectations with the quality as we ramp up. I anticipate we will be manufacturing ramp-up quality mindset constrained in that ramp-up, not constrained by market demand. And then we'll transition to the touring at some stage late next year when we deem appropriate.

I appreciate that color. And maybe just as a quick follow-up, I want to touch on the customer agreements with the government of Saudi Arabia for the up to 100,000 vehicles. I believe in the past you had alluded to the fact that the vast majority of the deliveries for this contract will actually be the Gravity and the midsized platform. So, I guess, A, wanted to confirm that and B, wondering if in light of you now ramping up the gravity next year, do you foresee a significant ramp up in deliveries to Saudi Arabia? Thank you.

Well, thanks for -- Andres, I mean, what we've said is, look, we anticipate that there will be a natural distribution of that of those deliveries based upon a price point, although that's not actually being determined. So, we actually think that Gravity is going to be the perfect car for the Middle East or Saudi Arabia. It is the tractability that an all-wheel drive SUV gives you from electric power, new yacht, traction control operating literally at 1,000 times a second with extreme precision in low grip and sandy conditions. This is what I believe the Middle East as a broader market really has been waiting for. So, I think it's going to be a Hooten and part of the some of the early build is going to be heading straight for KSA early next year.

Wonderful. Thank you so much again. Congrats on the quarter. I'll pass it on.

Thank you, Andres. Thank you.

Your next question comes from the line of Stephen Gengaro with Stifel. Please go ahead

Good evening. Thanks for taking the questions. So, I think two from me. One is sort of following-up on the prior question. But when we think about the gravity and the production ramping at the gravity in 2025 or over the next several quarters. How should we think about the gross margin impact? I mean, I imagine at the beginning, it would be - it would be a headwind, but then you start to get volume and how do we think about just the progression of gross margin as the gravity ramps.

Yes, absolutely. As Peter mentioned earlier, that we are already applying our learnings from air-to -- air to Gravity. So, we are in a better shape where we look at. We are heading in the right direction for the Air, but we expect gravity to drive even further scale. And it's - we feel very confident with our cost-reduction and technology efforts that gravity is giving us that scale. So today, we are not guiding production or delivery numbers for 2025, which we'll do in Q4, but we are in the right trajectory from a cost perspective for Gravity.

Okay, great. Thank you. And the other question, just kind of a high-level, when you think about your capital needs and timing of capital like you did the recent - the recent capital raise and I was just curious on kind of how you chose kind of when to do it versus need because it felt like you had a longer runway. I know it creates confidence to have the - to have the capital. Sort of thinking about how you balance that out.

Thank you, Stephen I actually glad you glad you asked me that, Stephen, actually. So, to recap, we recently raised nearly $1.75 billion and that secures the future of the company and it secures our financial runway well into 2026. And that takes us way past the - not just the start of production of gravity, but well through its ramp-up phase. And that means that this year in 2024, we've raised well over $4 billion in what's been a brutal market where Wall Street has really fallen out of love with the EVs. And I just show just how we can buck the trend because there's been a cognizance of the value of our tech both commercially and as a key product differentiator. Now, this should have come as no surprise whatsoever, because before we had a financial runway into Q4 2025, you never want to be - have a runway less than a year. So, it makes perfect sense. And I've always said I would want to be opportunistic and raise capital when the moment is right and not just run things right to the last-minute. Why would I run things for the right last-minute I - what we did, I think was a very prudent move. We took the opportunity. And you know, why would I want to run it into the holiday period? I don't want to be running a less than a year's financial runway. So, I think this has been misinterpreted. I think it's super positive news for the company. We've raised capital when others have not been able to. It's had a huge step forward in our securing our future. And there's another lines here, which again, should be recognized. The PIF went prorata on that $1.75 billion. So, you've got two factors. You've got independent third-party validation of our value. So, it's so we're not just dependent upon the -- but the PIF go and show shoulders as sole commitment to Lucid and their support of us again because we are absolutely in this together long term. But a long-term partnership which transcends a near financial arrangement because we are cornerstone of the Saudi Arabia's bold vision for 2030 to transition to a sustainable economy. And it's loss technology, which is going to enable that.

Great. No, that's good color.

Your next question comes from the line of Steven Fox with Fox Advisors.

Hi, good afternoon. I had two questions as well. I guess, first of all, just to follow through on all the conversation about cost and the similarities from a technical standpoint with the gravity. What are the working capital implications for next year as you ramp gravity if there are any? And then secondly, as you think about success for next year and into '26 towards a midsized vehicle. I'm just trying to understand what has to happen in order for that ramp to go ahead given where the financial position of the company is right now.

Yes. So, if you look at it from a working capital perspective, as we said earlier, the funding today will take us well into financial railway well into 2026. And now with our continued cost reduction and technology initiatives, all things are coming together, where we are expecting, and we are very proud of that one. In terms of -- what's the second question, sorry, I didn't follow up completely on that one.

Yes. Well, before we go into that, I'm just trying to understand the dollars of working capital that might go out the door next year versus this year as you ran.

So, for dollars perspective, we'll provide more color during our Q4 guidance for the full year 2025. And typically, there, we cover, okay, color on the gross margin as well as OpEx and the CapEx. So that will cover in the next quarter earnings.

Okay. And then I'm just trying to understand like what are the thresholds that have to be crossed with two models out there, two different types of vehicles out there in order to have confidence in ramping a third type of vehicle? Or is it just you'll do it as long as the funding is there for the third vehicle.

We've already started. It's not like we've got to get confidence in order to start a midsize. A very large proportion of the engineering team is already working on midsize a very large proportion of the Powertrain team is creating and developing the Atlas powertrain technology to power midsize. The factory to build midsize in Saudi Arabia, the foundations are late, the steel is going up, even I think some walls are even on the factory. And we're thinking that in readiness for a start of production late '26 so we are all in on midsize, and this is about scale. And there are four steps to scale. We're selling more air each quarter as brand awareness grows and more people get to realize car is far superior to these lane EV offerings out there. And then we're going for 6x the total addressable market with gravity. That's the car all America has been waiting for. And then the next step will be midsize. That's the big one. That is our really big world platform. And then the icing on the cake is technology licensing. Those are the four steps to get this really serious scale.

Great. That's helpful, Peter. I appreciate that.

Your final question comes from the line of Tobias Beith with Redburn Atlantic. Please go ahead.

Peter, Gagan Maynard. Thanks for taking my questions. I have two, please, which I'll ask separately. Firstly. Gagan, the charge to write down inventory was, call it, flat sequentially and more unfinished inventory was purchased in the period. That chain of logic suggests that the new -- or the value of new stock purchase was impaired less, i.e., underlying vehicle profitability was better. I was wondering if, firstly, you can confirm if this is correct? And secondly, can you expand on the cost efficiency comments in your prepared remarks?

Absolutely. So, your yes, what you said is absolutely correct. As we are getting better on our cost, our impairment on new inventory is getting better. Absolutely correct. Now coming to the cost efforts. If you look at our gross margin itself and sequentially, comparing Q3 with Q2, although GAAP basis, we improved by 28 percentage points. But please note that last quarter, we had some warranty campaign even if we would have excluded, we still improved by 11 percentage points apple-to-apple. And that is across the board, whether it's a Bobcat, is a logistics core operational efficiency because sometimes we take actions, but the result come a few months later. So, this we are now seeing the trend. And that's why, as I said in my opening remarks, we are very comfortable where we are and where we expect to be in the forcing period. Very pleased with that.

Okay. And I guess, just a small follow-up to that. The theme of kind of reaping cost savings from logistics bill of materials cost damage. It's been said for quite a number of quarters now, in fact, and non-your predecessor, Sherry was talking about it. And I just wondered whether you could perhaps place me on a time line. How far are we away from all of the cost savings being realized for things like freight and cost savings and where you need to take, I guess, some more difficult actions to actually remove cost from the air. And then I have one for Peter, if that's okay.

That's a great question. Our journey is recurring. We are taking consistent efforts. In fact, we have identified our targets where we want to be end of this year, where we want to be end of next year, where we want to be middle of next year and even beyond that, so we are going to make significant efforts on cost reductions in parallel, what we're doing is technology is helping us bring the cost down, like the battery cost, the drive unit. But what you see in terms of targets and when we come to scale, is significantly going to turn around it because what we are right now doing with targets, bringing the variable cost significantly down. And with gravity coming it is going to take us to the next level for scale where all our fixed cost per vehicle will significantly come down. So, you'll see where we are on the gross margin, negative 106%. It was negative 44% last year so if you look at that improvement, and we will be next year, when we provide some directional color in the Q4 earnings about 25%, we are on the right track in that journey.

I think I'm following Peter, I wondered if you could explain what you mean when you say that the gravity uses a different platform to air. If I'm correct, both vehicles have nearly identical wheel bases, and LEAP is a modular platform, which would allow for differentiation [indiscernible] design. So, I just want to kind of understand a little bit what got mean by gravity's the different platform.

It's a more -- is a modular platform where you could do a CUV, you could have done a minivan, you could have done a Cooper, you can done lots of things like that where you're fairly compromised as a product. If you look at an example of that is Tesla Model X versus Model S. X is not really as proper SUV, it's more CUV-like because it's based upon S platform. We took the decision to get much more product differentiation to avoid a cannibalization of air with gravity. We wanted to really catch the 6 time of a true SUV market. And that means more off-road capability that means more wheel travel, larger wheel diameters, more suspension movements, you need longer links more durable suspension. So, you're going to have a heavier suspension arms and brakes and rated for off-road durability. So, the thing endures a long life on rugged trails and also, we combined that with air suspension, so we could adjust the right height of the vehicle. The other thing is that with air, we sculpted the battery pack around the occupants in order to create the most advanced package and the space concept, which achieved the 500 miles range sculpted around the people. And that's great for a sedan EUV. But for a 30 SUV, what you need is a really flat floor so we could achieve that with the same battery technology with the same modules, but we just moved two of them around from under the reset to under the front seat. And that makes a different shape back for you, but we got 95% carryover content. But I tell you it's transformative in regards to the product. You've got a true SUV and you've got a true sports dam and they're very, very different and very optimized. And we realized we couldn't really do that with a carryover. Carryover platform would tell us for product differentiation. And let me tell you, we've done that now. Just -- I mean it's only a smidgen over 3 years from when we launched into the market. From a relatively young company, no one's ever done a second platform in 3 years. There is no precedent for the rate that my engineering team is operating at. And we really through this year, tap gravity on crack admirably to hit startup production late this year is an incredible achievement for the team, and I really applaud them all for doing it.

Okay. How do you think this has impacted the cost? So, I guess when I hear things like that they're not actually just a different top happen it has me a little bit. I know, but this is the problem that there is a disproportionate value placed upon true platform sharing because you very rarely share the full platform. What happens is it's talked about the same platform, but it gets modified. Now all the superstructure of TV is going to be different anyway. All seats are going to be different. The driver controls are going to be different. The wheels are going to be different. The suspension is going to be different. The breaks are going to be different in any way. The weight is going to be different. So, a [indiscernible] and collapse mechanisms and the way you engineer those have to be different. Where the real value proposition and economy of scale goes in is in the software and the powertrain architecture and componentry. We've got inherently the same motor, state-of-the-art motors there's a lot of value, the same inverter, the same motor control system on the box all the battery modules, 95% of all value in all the software is carryover. You're not going to be able to carry over the doors, the glass, the suspension, the seats and the tailgate anyway. So, it's just a tiny bit of it, a relatively small part of it is different to get all that product differentiation. If we didn't do that, you'd be saying, wow, I don't think there's another new 6.6 times you'd be saying, well, this is a cannibalization situation. It's not differentiated enough. Maybe you got 2 times the term, not 6 times the ton. This is a value proposition, a bit more engineering, a bit more cost, huge market opportunity.

Thank you. And I will now turn the call back over to Maynard Um for closing remarks.

Thanks, everyone, for joining us today. This now concludes Lucid's Third Quarter 2024 Earnings Conference Call. Thank you.

Thank you, everyone, for joining. You may now disconnect.