Lucid Group, Inc. Q3 FY2025 earnings call

Key Points

• Acknowledged employees, customers, and partners. Q3 marked the seventh consecutive quarter of record deliveries despite headwinds.
• Strategic evolution includes partnerships: $300M investment from Uber for robotaxis, collaboration with NVIDIA for Level 4 autonomy. Successfully delivered first batch of robotaxi engineering vehicles to Nuro, with San Francisco Bay Area planned for 2026 deployment.
• Organizational changes: Emad Dlala appointed SVP of Engineering and Digital, Erwin Raphael elevated to SVP of Revenue, and Marnie Levergood named SVP of Quality.
• Brand building: New brand campaign 'Driven' launched with Timothée Chalamet, brand awareness up among EV intenders. Lucid Air Sapphire awarded German Performance Car of the Year. Launched 'We Ride for New York' campaign.
• Midsize platform: SOP of first variant scheduled for end-2026, progress on sourcing and cost structure. Atlas drive unit family on track with class-leading efficiency, rare-earth free variant included.

In Q3, Lucid's revenue was $337 million, up 68% year-on-year and roughly 30% sequentially, driven by deliveries growth and Gravity mix. Deliveries reached 4,078 vehicles, a 47% increase year-over-year. Production was 3,891 vehicles, and the company built over 1,000 additional vehicles for final assembly in Saudi Arabia. Gross margin improved about 6 points sequentially as mix improved and productivity and cost reduction actions took hold, though margins were still below long-term goals.

Forward-Looking

• Expect significant delivery growth in Q4 with Gravity making up the majority of production. Total production at year-end expected to be around 18,000 units.
• 2025 CapEx planned at $1 billion to $1.2 billion, focusing on scaling production, midsize development, automation, and cost reduction.
• Anticipate margin improvement and liquidity strength, with the increased delayed draw term loan facility extending runway into first half of 2027.

Risks

• Supply chain challenges: Contended with 3 consecutive industry-wide supply chain crises (magnets, aluminum, chips) which impacted production and delivery numbers.
• Macro environment volatility: Continued uncertainty in the automotive industry and geopolitical factors that could affect production and demand.

Q: Please share Lucid's plan to increase the market cap and shareholder value within the next 12 months?

A: What will drive market cap and shareholder value is profitability and cash generation. Short term, it's about executing against our plan to reduce cash usage and improve profitability. This relies on ramping the Gravity and launching and ramping the Midsize with the right focus on capital allocation and spend. Midterm, we want to further accelerate our cash generation. Technology and software will be key as they will allow us to maximize return in a repeatable model and with a low capital intensity. There are many exciting developments in the pipeline. I strongly believe that if we continue to make progress against the strategy we laid out, the results of these efforts will be reflected in the share price and the shareholders' return.

Q: Any updates on the robotaxi partnership with Uber?

A: Yes, there's a lot of progress. Successfully delivered the first batch of engineering vehicles to Nuro during the quarter for testing. Announced San Francisco is the first city for launch in 2026 (subject to regulatory approvals) and closed the $300 million equity investment from Uber during the quarter.

Q: When will the company become profitable?

A: We have an internal road map and stage gates against which we are executing. We haven't yet publicly communicated the timing for breakeven. But as a management team, we are continuously working towards this goal through a disciplined focus on executing our short-term plans and midterm strategy. We have a pathway mapped out, and we continue to make significant progress on both short and midterm plans. We are confident that in the short term, the combination of Gravity and Midsize will allow us to achieve the scale needed to become profitable. Midterm, we have strategies and plans to further consolidate the cash generation capabilities of the company. We are planning to organize an Investor Day early next year to explain our short-term plans and strategy as well as our road map towards cash generation.

Q: What is the timeline of an affordable entry-level vehicle for Lucid?

A: The first variant of our Midsize platform remains scheduled for the end of 2026.

Q: Just where you are with choosing suppliers for the Midsize vehicle? And then if you could talk about any kind of overlap that can be leveraged from the Air Gravity suppliers?

A: We are well underway with all of our sourcing for the Midsize. We're very pleased with the BOM costs and many of the suppliers we are already working with for the Air and the Gravity are now also giving us relief on our pricing for the Air and the Gravity because of being awarded the programs for Midsize.

Q: Could you just talk about how you guys are prioritizing capital between what the work you're doing in autonomy and then also pushing forward with your technology manufacturing, just how you prioritize or if you don't look at it that way, then I'd love to hear that, too?

A: That goes very much in line with our partnerships that we have announced. They're CapEx efficient. We don't have to spend a lot of CapEx. That's exactly why we're doing it. We want to be able to provide really leading edge capability and features to our customers without having a very big CapEx outlay right now. That's why we did the Uber-Nuro partnership for our B2B market, but also now the NVIDIA partnership when it comes to the autonomy for consumer vehicles. So yes, that's exactly what we are planning to do. And while we are doing that, we are monitoring also where it makes sense for us to, in the future, invest capital. But at this point right now, given the costs a lot of money and very big numbers of investments in order to do this completely in-house, and that's why we chose that path.

Q: Maybe just to start, a couple of questions on the L4 announcement with NVIDIA. Can you maybe roughly share how you're thinking about the timeline for achieving Level 4 on consumer-owned vehicles? And then for the Midsize, do you expect that the L4 hardware will be standard on the vehicle? And if so, does that have any impact on the projected price of the vehicle?

A: On the L4 side, we don't have a specific date yet, but we want to roll out an L2+/L2++ version for Gravity and the launch of Midsize by the end of next year. From there, we will then roll out via OTAs additional updates. We will also already have all the hardware changes being made, but we will then roll out additional updates in order to get to L4 eventually. As for the Midsize, we expect the L4 hardware to be part of the vehicle, but we haven't determined the impact on price yet.

Q: Congrats on the quarter. Marc, I was hoping to maybe get a sense of how the contract with the government of Saudi Arabia, the one up for 50,000 plus, another option for 50,000. If you can maybe give us an update on kind of where that stands. I think in the past, we've said most deliveries to that agreement will be the Gravity and then the upcoming Midsize. So I know you're not guiding anything for '26, but should we expect some deliveries to that region next year? Or will that likely come after the completion of the IM2 facility?

A: As of now already, we are developing -- delivering vehicles to Saudi Arabia as part of that arrangement. And it was always planned to be on a certain level, lower level when we only have the Air, then we're adding to the deliveries when the Gravity becomes available. I would say that the big increase versus this agreement, the 50,000 that we have already, will come with the Midsize. So -- but you will -- we will have higher deliveries to the government in -- now in 2026 with the ramp-up of the Gravity, absolutely.

Q: You've extended your capital runway looks like into first half of 2027 now. I'm curious if you can maybe refresh us on near-term capital needs. Does that -- extension now in the draw facility, does that account for the maturity in September of '26? Or how should we think about that?

A: No, that's 2 separate things. So the maturity, I guess you're referring here to the convert. So the convert will need to be refinanced, and we have a plan for that. So it's not directly related to the DDTL.

Q: First, I just wanted to follow up on the NVIDIA partnership. Obviously, you guys set a pretty ambitious goal of being the first company to roll out consumer Level 4 capability. Virtually every major automaker has some form of kind of advanced ADAS program. And after billions of dollars invested, no one has really been able to move past Level 2+. So can you just provide some color on why you think you'll be able to succeed where everyone else has failed?

A: I guess, Obviously, a lot of things have changed in the -- I would say, in the recent year or so when it comes to approach to autonomy. And that's actually a good point that you're saying because if we would have -- there was a question earlier about capital investments around this topic. If we would have done what others have done earlier, like 5 years ago, we would have probably invested billions and nothing to show for. But the technology with the end-to-end models and the compute power in the meantime has drastically changed. And the way those end-to-end models can be trained, this is now completely different than how it was 2 years ago. And so that makes us confident with everything that we are seeing right now and obviously, in our conversations and our testing with NVIDIA, we see a path now to get there. And why we think we can be among the first, I mean, obviously, we cannot guarantee this. We can only say that we are, together with NVIDIA, do everything to be the first. It has also a little bit to do with our vehicle cycle, where are we in the -- with the development versus others that are further out until they even can do something like that. So yes, but given the drastic change in AI technology and approach to autonomy, that's what makes us confident that it's achievable now.

Q: Can you just provide some color on the new vehicle order trends you've been seeing since the expiration of U.S. EV tax credits in October. Obviously, the Air and the Gravity weren't eligible for the 30D credit, but it looks like roughly 65% of your U.S. sales in the third quarter came from leases where people were able to take advantage of the 45W credit?

A: What I can definitely say is that actually our delivery numbers in October, meaning first month of the fourth quarter actually went up. And so that is a very encouraging trend compared to many of our, let's say, competitors that have EVs and ICE. There are several ones that reported, I think, a drop of about 50%. Our numbers went up and so did our market share. And we credit basically our vehicles, in particular, now the Gravity becoming more and more available with us ramping up the production with that. So we believe we're in a very good spot when it comes to sustaining the demand and then, therefore, the deliveries. And we also believe that this is a passing phase, meaning we think that by beginning of next year, the demand will normalize compared to what we are seeing right now or what others are seeing right now.

Q: First one is for Taoufiq. The gross margin rate when I adjusted for income from emission credit trading depreciation improved by 8 points quarter-over-quarter and was possibly flat on a pre-tariff impact basis. My question is, why wasn't leverage on volumes and the impact of product mix visible?

A: So the thing is that if you look at the production of Q3, the impact from mix was not as big as what we wanted it to be because we're still in a ramp-up phase for the Gravity. The numbers are improving versus Q2, but they are still at a meaningful level where they can significantly impact the volume. But the real reason behind this flat or lack of improvement is mainly related to the increase of inventory and the impairment associated with that. So we have increased the inventories in preparation of the ramp-up in Q4. We are in a loss-making situation, and we needed to impair these inventories, and this is hitting the gross margin.

Q: Marc, what is Lucid's plan regarding the localization of production of the Midsize platform, if at all? I appreciate that the global automotive trade is in flux at the moment, but even an expansion of AMP-1's capabilities would probably have a lead time of at least a year if you started tomorrow?

A: Well, I mean, we have already made preparations for that to build the Midsize in AMP-1. So I actually thought that we've talked about this some time ago, but maybe not. I mean AMP-1 in Arizona is planned to produce the Midsize as well. It's not only our plant in KSA. AMP-1 is also already being prepared. We will have still to make some investments, but it's actually not that much. Much of the investments that are needed in order to produce the vehicle are already there. So that's the plan. I mean we're more talking about, okay, when would we have to expand that. But for that, we want to be very prudent, and we want to see how everything goes before we pull the next phase. But yes, it is definitely planned to be also built here in AMP-1.

Q: The PowerPoint, it shows for the first time, I believe, a detailed render of the Atlas propulsion system. It's very impressive. It seems to show that there's a new inverter, redesigned thermal management system. And I know that the Atlas propulsion system was mentioned in your prepared remarks, Marc. But I wondered if I could ask for even more of an update on the Atlas, please, given its importance?

A: Yes. Well, I mean, what I can say is definitely that it's totally on track. So that's why we are now starting to leak -- or not leak actually, a little bit of information. But I mean, it's coming out actually really great. I mean it's -- from a cost perspective, it's a material change, and we will also share soon probably at the Investors Day that we are planning the details how far below of our current generation the cost is, we have much fewer parts, highly integrated, as you just mentioned, the inverter in everything. So weight is lower, efficiency is even higher from what we have right now. So we are very, very pleased with that. And we also have different versions where we have also versions of the Atlas that doesn't have -- doesn't need any rare earth. So I mean, we're really very -- yes, very convinced that this is a big step forward for us.

Q: Can I ask why not do all of the Atlas without rare earth, given it has caused problems for Lucid and the broader industry in the last 6 months or so?

A: That will be, let's say, the long-term plan, but certain applications, certain power requirements for certain trims require, at this time, still permanent magnets. But that is the goal that we obviously try to figure that out. And again, in the -- maybe in the Investor Day that we are planning, I mean, Emad will definitely be there, and he can probably tell you in a short explanation over about 2 hours what exactly we are doing there. But yes, I mean, happy to provide further insights on that.