Hello and thank you for standing by. Welcome to Lucid's Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker, Maynard Um. Sir, you may begin.

Thank you, and welcome to Lucid Group's fourth quarter 2022 earnings call. Joining me today are Peter Rawlinson, our CEO and CTO; and Sherry House, our CFO. 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 fillings with SEC and the forward-looking statements on Page 2 of 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 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 for our fourth quarter earnings call. I'd like to start by extending a heartfelt thank you to the entire Lucid team. I'm proud of their perseverance, resourcefulness and teamwork. This allowed us to drive meaningful improvements in the back half of 2022 and close out the year with production above our previously stated annual guidance. We went from making 279 vehicles in 2021 to 7,180 in our first full year of production. And we went from delivering 125 vehicles to customers in 2021 to 4,369 deliveries in 2022. Now I'd also like to thank our suppliers and partners who work diligently with us to navigate through an exigent year. And of course, I would particularly like to call out the PIF, who have not only been a committed investor but really an incredible strategic partner. We are most grateful for their partnership. And of course, I'd like to thank our customers one of the things I'm joined most is getting to meet you and see your delight when you take delivery of your rooted air. You are a big part of what drives us to deliver the quality and experience to so deserve. But let's not forget that 2022 was also a seminal year for the Company, a year when we finally realized our issue of producing an EV embodying our view of the most advanced technology possible and getting that into customers' hands in significant numbers. That was not without its challenges, but as ever, the team work tirelessly to resolve as I will cover later. Now during that period, I've also observed a growing realization and acknowledgment of our view that our core EV technology is not just the best, but the best by a tangible margin. We…

Thank you, Peter, and thank you to those who are taking the time to join us today. In 2022, we scaled virtually every part of our business while keeping a sharp focus on execution. We made tremendous strides in our production ramp began delivering grand touring, air touring and in the U.S. and initiated deliveries into Canada, Europe and the Middle East. We also launched Lucid Financial Services to provide loan and lease products to our customer base and had our most significant over-the-air software upgrade in US 2.0, just to name a few of our many achievements. We were able to accomplish this despite supplier, supply chain, logistics and quality issues throughout parts of the year, and we finished the year on a strong production note coming in above our previous annual production guidance. All of this was achieved through the perseverance and collaboration of the entire Lucid team. I'd like to extend my sincere gratitude to them and to our customers, our partners and our suppliers without whom this would not have been possible. Now turning to our fourth quarter and 2022 financial results. For 2022, we recorded revenue of just over $608 million, up from just over $27 million in 2021 and achieved an adjusted EBITDA loss of $1.97 billion versus a loss of $952 million in 2021 in 2021. In 2022, we made important investments in our future and did so while ensuring a healthy balance sheet throughout the year with an average liquidity balance of over $4.8 billion. Now moving to the fourth quarter results. We produced 3,493 vehicles, delivered 1,932 and generated revenue of $257.7 million. Cost of revenue was $615.3 million for the fourth quarter. As we produce vehicles at low volumes on production lines designed for higher volumes, we have and we…

Thanks, Sherry. We'll now start the Q&A portion of the call. Before we take questions from those on the phone, I do want to take questions from our retail investors sent them through Say Technologies platform. And the first question is, is the Saudi PIF taking Lucid private?

It's a policy. Lucid does not comment on market rumors, and so we don't have anything to say specific to this question. What we said in our prepared remarks is that PIF has shown a commitment to Lucid having provided $3.6 billion since 2018 and including $915 million through its participation from the subscription agreement just in Q4 2022. PIF has not only been a committed investor but also a strong strategic partner and we're very grateful for the partnership.

Peter here. The partnership and support has been phenomenal.

I think we'll move to the questions from the phone lines, please.

Thank you. [Operator Instructions] Our first question comes from the line of John Murphy with Bank of America. Your line is open.

I just wanted to dig into sort of the decline in the reservations and sort of this new line, the demand may be a little bit weaker than expected. I mean -- and Peter, when you look at this, the implied price on the old backlog was $94,000. And then on the current backlog, it's $96,000. So it kind of indicates that the mix improved. So it seems like these folks might be a bit stickier, but you're indicating that the demand relative to your production is weakening, but it's still far in excess of what you're talking about producing this year of 10,000 to 14,000 units. So I'm just trying to understand why production is not an issue, why you wouldn't produce more to drive revenue and profits this year if that backlog is real?

Yes. Peter here, John. That's a very cogent point. First of all, we do have over 28,000 reservations. But remember that a reservation doesn't guarantee itself is transmitting -- translating into delivery. These are nonbinding reservations. So you can't bank on a reservation automatically into delivery. I'd also like to point out that the 28,000 does not include the 100,000 that are potentially being ordered by the government of Saudi Arabia. So we're sitting in a very good position in that respect. I think what we've got to focus on is providing cars building configurations from a factory that precisely match the configuration of the customer order. For example, we've got stealth trend coming. We've got a little delay in stealth trend because of a supplier issue. And there's a lot of orders for stealth. And then there's pure in volume, although we've delivered some pure and many of those reservations are waiting for the availability of the pure solution of pure the real-world drive. So, I think a lot of this is our focus on providing new variants, our focus on building cars with the utmost attention to quality and cost in terms of optimizing our processes and matching the cars that we do build to the precise reservation -- the precise specification of the customer whilst in meaningful that a reservation in itself is non-binding and not guaranteed to transition to the consummation of an order.

Additionally, we're in the process of expanding internationally, and it takes time. We'll also be putting some vehicles on boats and starting to really curing more volume to the Middle East and Europe especially as we're exiting Q1 and into Q2. So you're going to start to see that pick up throughout the year in volume.

And also, John, our advice, our guidance for the year is a reflection of the range due to the uncertainty of the current macroeconomic conditions. And the effect on consumer behavior is challenging in such circumstances.

Okay. Then if I could just ask one quick follow-up. You're emphasizing your technology and the advantages you have which is pretty impressive. What kind of opportunities in the near term as far as licensing and potential product sales on the powertrain side do you think could effectively be executed? Or is this the kind of opportunity that might be two to five years out as opposed to something that will be one to two years out?

Well, John, I'd love to do this. I think we've got a technology which is which has observed a sea change in the last year. There's a widespread recognition that the technology that I believe is the best is being recognized as so very widely. And yes, we'd like to make our technology available to other automakers and customers and not just automakers. There are a range of applications. Our focus has been, as an executive team, focused on ramping up production. My focus right now is just amplifying the message to a broader audience so that we can ramp up our sales. It's not been -- my focus has not been going out to lobby for licensing agreements with our technology to other automakers. We've been very passive in that respect. And I think that's the right focus for us. Let's focus on our own product, first and foremost and then good things will come.

And then in addition, I think that any test that we continue to apply in those cases it is accretive to our business. Can it leverage where we are today as a business? And is it going to not distract from our core focus as a company. So when it meets those, then it becomes a higher likelihood of success.

Please standby for our next question. Our next question comes from the line of James Picariello with BNP Paribas. Your line is open.

Just to ask John's question, first question, just another way or more bluntly. The 10,000 to 14,000 production guide, that's a deeper reflection of underlying demand as opposed to any limitations on your ability to ramp production, right, because production is no longer the bottleneck. If you were to annualize your fourth quarter production, right, that would get you to 14,000 units for the full year. So yes, can you just kind of unpack that one more time in terms of what informs this range? Is it demand, or is it -- yes?

Certainly, and your math is irrefusable. Look, we've sold production that is not the gating issue here now. My focus is on sales. And here's the thing. We've got what I only believe to be the very best product in the world. And we've just too few people are aware of not just the car but even the Company, and so we need to amply focus now away from production to amplifying customer awareness that we've got this amazing car with unprecedented range technology efficiency, incredible driving machine, a great driver's car, just unbridled joy of ownership that we are getting feedback from owners who have experienced this. We need to amplify that message and broaden the awareness, which in turn will drive sales. And that is the focus right now. It's not that we're production-constrained.

Yes. And then in addition, reservation holders some of them are waiting for us to offer their very specific configurations in volume. We talked about that already, whether it be pure, whether it be Stealth, whether it be some of the Middle East and European configurations as well.

Yes, there's quite a lot of interest in Stealth. And unfortunately, we've got a little bit of a delay due to supply chain challenges, which we're working seriously to resolve.

Okay. Understood. And on gross profit for this year, and it does sound as though the LC NRV formula is quite complicated. But that totaled almost $570 million negative noncash impact for 2022. Is there any way to think about what that impact will look like for this year? And any clarity on if this year goes to plan, your plan as stated here, when gross profit breakeven, the time horizon as to when that could be achieved, I think would be -- obviously would be really helpful?

Sure. So as I said on the prepared remarks, we're really proud of the actions that we were to take last year in terms of cost reduction, cost down inbound freight reductions that led to a 2.3x improvement when you went from the first half of last year to the second half of last year when removing the effects of the LC NRV. As we look forward to next year, the way that we're thinking about it is we have identified areas for bill of material cost reductions. We have identified areas for inbound freight reductions we do see emission credits starting to come more into play. We do expect to start getting the benefits of IRA impacts. We do also see some lessening of our need to be buying ahead significantly in the spot market. Last year, this time, we were buying ahead a lot of semiconductors. We're not doing that nearly as much as we were last year this time. All of those are potential tailwinds and benefits to gross margin. On the other side, some of the things that you'll see is as the trim mix changes and it moves to more pure, those are lower margins. So that's kind of working against you from a gross margin profitability perspective, also just looking ahead as we start to activate some of the additional equipment in the factory that's going to see a little bit more of a burden in terms of depreciation, which is also going to act in the opposite direction. So what I wanted to do now is to just at least help contextualize a little bit of where the puts and the takes are, we're not here going to share exactly when we think we're going to be gross margin positive but I think that those are important factors to take into consideration as you're thinking about your model.

Thank you. Please standby for our next question. Our next question comes from the line of Andres Sheppard with Cantor Fitzgerald. Your line is open.

I just wanted to touch on the guidance once more. So that 10,000 to 14,000 number, which is roughly in line with the preliminary guidance for last year, can you talk about some of the kind of the assumptions that are embedded in that guidance and just maybe a little more granularity? I presume that, that's -- you said before that you will begin shipments to Europe and Middle East later this year. So I presume that part of that production is being included in there. I'm just wondering, if you could maybe add a little more context there?

It is, absolutely. We're including the -- in the guidance, a number of cars to Europe and the Middle East. We've already supplied small numbers to those markets, but we're really ramping up now in earnest in the very near quarter. We've also -- it includes the ramp-up in customer demand for Pure for metal roof, touring for real-world drive Pure and a number of factors. As an executive team, we've taken a very careful look at the landscape. And we've been very cognizant in our thinking, our guidance, a prudent guidance with a bandwidth, which reflects the uncertainty of the market in these challenging macroeconomic times.

Got it. And maybe one quick follow-up, I wanted to touch on licensing. Again, I think some perception out there is that over the long term, this licensing component could potentially be the largest contributor to revenue in the future. And maybe I'm not thinking about this correctly, but I presume that, that would certainly improve gross margins. I understand the emphasis being almost entirely on ramping up production in car sales. But why not introduce this licensing revenue segment, perhaps prior than initially anticipated?

Indeed, I actually share your optimism. I think that it's a really big dining opportunity here. But I have to have laser focus. I've described the three steps, the three steps forward. Can we link these cars? Can we sell them? And can we make a module on them? Last year, my focus was on manufacturing, and we make them, my focus now is on amplifying the message, attracting a broader audience and ramping up our sales. But you're absolutely right. I mean this is a technology race, and this is very little understood. There's a reason we've got outstanding range with the reason we've got so much more range than the competition. It's not born due to an oversized battery pack. It's more upon exclude efficiency, which we've created through in-house technology. That means we can go further with a smaller battery pack. That means our car can be lighter and more agile and more cost-effective to make. And this is where we have a leadership. And this is so relevant to many other companies that haven't really invested in this new era of electric technology, but it's also good applications outside of automotive in heavy industry, aerospace and agriculture.

And as you have heard me say in prior earnings calls as well, this just doesn't have an application just for like the passenger cars like Peter is saying, but also opportunities for fleet operators. They more than anybody, appreciate the efficiency, the performance, the range that we have uptime is important to them. Range is important to them. So, those are factors that we think also makes us a very attractive option for fleets as well.

I do also think, though, that there is a natural time scale to this. I think that many traditional automakers have only just come to terms with the fact that battery electric is indeed the future. And I think that amongst those, many are yet to recognize the value of high-technology solutions not commoditizing EV technology and the true value of efficiency. Not my words, efficiency is not some esoteric thing that appeals just to engineers and scientists. It has a tangible value to the commercial viability of the Company because the battery pack is the biggest single big-ticket item in the bill of materials of the car. And if you can meaningfully reduce the size of the battery for a given range through efficiency that means that you can make a more profitable product. And I think that many people are actually really weakening up to this and this realization.

Thank you. Please standby for our next question. Our next question comes from the line of Ron Jewsikow with Guggenheim Partners. Your line is open.

First on reservations. Are you seeing higher cancellation rates on maybe your higher trim vehicles? Or what drove the recent decision to add an incentive on select trim levels?

Well, remember that when we have a reservation, it is a nonbinding reservation. So there's no guarantee that someone who's made a reservation will actually follow through with that. What we are seeing is a very strong demand particularly or a product sort of forthcoming pure, redrive Pure touring. I think that we've had a very strong uptake of green addition and grand touring, but I think there is a latent demand for other products in the range and particularly stealth. I think there's a strong demand for stealth, and that's why I frustrated that we have some supply chain issues now, which are delaying that a little bit, but it's coming very soon.

Okay. So that's helpful. And then presentation calls out strong demand for Air Pure. And I think that makes perfect sense, especially when we look at the implied potential sales in the reservation backlog. But is that the single biggest gating factor in for 2023 production, or maybe are we under appreciating some of the stealth and international batching being pretty large issues. I guess the way we think about it ramping pretty meaningfully.

Yes, it's an overlay of another -- it's more none than that. I mean it's just the different specification of cars, interior color, exterior between the range of touring, Grand Touring and Pure and then you've got the real combinations and then you overlay that with the stealth. There's quite a number of combinations here, and it's matching the discrete requirements, the very discerning requirements, a very discerning high-end customer base. With our ability to build specifically those specs of cars and get those to the customers. That is one factor. And then we have the overlay of the international deliveries and the fact then that you've got relatively long journeys to faraway places between the factory and actually the customer. So all these factors conspire to, and we give a very analytical approach. Sherry has led a very thorough analysis from the executive team looking at a whole range of factors to lead to these conclusions.

Capable of cross-functional look at that across every single area from supply chain to manufacturing to all of those, and as we said that the manufacturing is very well prepared to be able to take on additional volumes as they come for.

Production is no longer a bottleneck here. But I would say that one of the biggest factors we face, and I'll be very transparent here is, I believe, for what from my perspective, we've got the very best car in the world and not enough people know about it. And actually, that is an entirely solvable problem, I believe.

Please standby for our next question. Our next question comes from the line of Chris McNally with Evercore.

Two quick ones, one on Pure and then one just qualitatively on gross margin. So Peter, on Pure, you mentioned that more units and more volume will be available in early 2024. And just to combine the sort of demand, wait time and reservations comments you already answered to some of the other questions. Why couldn't you produce more Pure this year that would pull in higher conversion from the reservations and just do it this year as opposed to '24? That was the part that wasn't clear.

We don't have to wait till 2024. What we've said is that Gravity will start production in '24. We're absolutely indeed doing that, Chris. We're ramping up Pure, and we will drive Pure throughout this year. It's what we need to do is ramp up the suppliers' ability to supply the parts for those particular models.

Okay. So while production is not a bottleneck, there is maybe component supply issues that have a natural ramp curve for Pure. So you are somewhat limited on the amount that you can produce Pure this year, even though it's not a "bottleneck."

That's right. And we're further ahead with four-wheel-drive Pure than two-wheel-drive Pure. And actually, two-wheel drive is a great car as well because it's a classic. We will drive car, they are driver's machine.

Okay. Peter, would you -- I mean just because there's always a question that all a result of this chicken in egg of demand versus production. Would you be willing to venture on a go-forward basis do you think Pure will be sort of greater than 50% of sort of the demand for Air if we put Gravity?

I would think that's a reasonable function, yes. I think that we're looking for just its price point will determine that that figure with that presumption would be a reasonable I can't dive precisely on the product mix. But I would think you not far off.

I would think that over time that that's what you would see. You're going to have some different impacts here in the near term because some of the regions like the Middle East and Europe haven't had the opportunity to enjoy some of the higher products yet. So, there's going to be maybe a little bit more focus on those earlier and then they would get Pure a little bit later.

And that's what we're going to be building Green and Grand Touring is now very soon for Europe and the Middle East will be a skew towards higher end products, but I think that will be transient in those markets.

Okay. Great. And then, Sherry, just one more for you, I know you don't want to give gross margin targets or guidance. But is it fair to assume you talked about the cost improvements from sort of the 58% sort of "normalize" in second half, you'll make some improvements over the course of 2023. But you really won't get the unit scale under absorption, just given the numbers versus where sort of second half and Q4 are? Is it fair to assume that, that is probably, by far, the absolute largest bucket to get you to gross margin positive? And that when I think about a high utilization number, you probably have to get production into the 30-plus units to sort of have high utilization on just Phase 1, again, no numbers, but conceptually.

Yes. I think conceptually, you're thinking about the right way. I think that we're seeing really good reductions in bill and material costs. And as I said, in some of the other areas where I think we have some control, including inbound freight, but that, remember, it's going to take through the year to start to see. So it's going to be gradual over time. And then when you look at volumes probably increase over that period, we guided that Q1 will be low and the fact that you've got some depreciation that's going to start activating as we bring on some of those additional shops towards the end of the year, that's going to increase the depreciation and the volume is not going to catch up entirely to that, right? So you've got some competing forces there, but I think you've got a pretty good understanding of it as you just described it.

Thank you. Ladies and gentlemen, this concludes our Q&A session. I would now like to turn the call back to Maynard for closing remarks.

Thanks, everyone. This concludes Lucid's fourth quarter 2022 earnings conference call. Thank you all for joining us today and you may now disconnect.