Q4 2023 Earnings Summary
- Lucid is significantly expanding its total addressable market by launching the Lucid Air Pure at a starting price of $69,900, increasing their TAM threefold. The upcoming Gravity SUV, scheduled for production late this year, will increase TAM sixfold, and the midsize platform slated for late 2026 will expand TAM twentyfold. This strategic expansion aims to achieve scale, economies of scale, and profitability.
- Lucid has secured a substantial commitment from the Saudi Arabian government to purchase 50,000 vehicles, with an option for an additional 50,000 vehicles over a 10-year period. With infrastructure and processes now in place, Lucid expects to scale deliveries and anticipates good growth in 2024.
- Lucid is actively reducing costs through vertical integration and operational efficiencies by bringing stamping and powertrain manufacturing in-house at their Arizona factory. This initiative is expected to lower logistics costs, improve operational efficiency, and enhance margins.
- Delays in ramping up deliveries to Saudi Arabia due to administrative challenges: Lucid expected to deliver more vehicles to the Saudi Arabian government in the fourth quarter, but the ramp-up is taking longer than expected. Gagan stated, "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." This delay could impact revenue growth and indicates potential execution risks in international markets. , ,
- Reliance on future vehicle launches for profitability and scale: Lucid's path to achieving economies of scale and profitability is heavily dependent on future vehicle launches. The Gravity SUV is scheduled for production in late 2024, and the midsize platform is scheduled for production in late 2026. Peter Rawlinson mentioned, "With midsized, we compete directly with Tesla Model Y and Model 3. That's the best selling car in the world." This suggests that profitability may be several years away, with continued cash burn in the interim. ,
- Uncertainty around cost reduction efforts and lack of immediate impact on margins: While Lucid is pursuing cost optimization initiatives, there's a lack of quantification of the cost savings and when they will positively impact margins. Gagan noted, "We have identified additional opportunities that will look to operationalize in 2024... But again, it is not easy." Additionally, recent improvements in gross margin were primarily due to lower impairment charges related to inventory write-downs rather than sustainable operational efficiencies. , , ,
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Scaling and Importance of Midsize Model
Q: Which is more crucial: Gravity or midsize for long-term success?
A: Peter Rawlinson emphasized that while the Gravity SUV expands Lucid's total addressable market (TAM) by 6x, the midsize model scheduled for late 2026 production will expand TAM by 20x, allowing Lucid to compete directly with Tesla's Model 3 and Model Y, the best-selling cars globally. -
Cost Reduction Initiatives
Q: How will you drive down costs in 2024?
A: Lucid is focusing on vertical integration at its Arizona factory by bringing stamping in-house, reducing operational costs, OpEx, inbound logistics, and scrap. They're also moving powertrain production under the same roof to save logistics costs. Additionally, they've identified initiatives in scaling, technology improvements, and operational efficiency, including improvements in freight and logistics. -
Saudi Arabia Market Growth
Q: What are your expectations for the KSA market this year?
A: Lucid acknowledges a commitment from the Saudi Arabian government to purchase 50,000 vehicles with an option for an additional 50,000. While ramping up took longer due to administrative challenges, they've addressed most issues and expect good growth this year. -
Gross Margin Improvements
Q: Can you quantify how COGS improved in '23 vs. '22?
A: Lucid's gross margin improved in Q4 compared to Q3. This was driven by significant savings in freight, better forecast accuracy of raw materials, and cost optimization efforts. They expect gross margin to improve sequentially in Q1 next year. -
Technology Licensing and Hybrid Applications
Q: What's the opportunity with hybrid technology?
A: Lucid's efficient and compact powertrain technology lends itself to applications in hybrid vehicles. While Lucid remains focused on pure electric vehicles, external inquiries, especially after their arrangement with Aston Martin, have opened new market opportunities for technology licensing and supply. -
Component Sharing Between Air and Gravity
Q: How much do Air and Gravity share components?
A: The battery pack is about 95% the same between Air and Gravity, sharing the same modules and cells made on the same line. The core powertrain also has a high proportion of carryover components, leading to savings in R&D costs. However, deliberate differences enable Gravity to capture a much larger TAM, about 6x that of Air. -
Progress on Gravity Production
Q: Update on Gravity's move from prototyping to production?
A: Lucid is in the midst of beta prototypes, having built over 40 prototypes, many of which are running now. They will finish beta prototypes in the spring, move to release candidates in the summer at their Arizona factory, leading to the scheduled start of production late this year. -
Pricing Strategy for Gravity
Q: Will Gravity's pricing follow Air's strategy?
A: While not fully disclosed, it's reasonable to assume Gravity will compete in a similar set as the Air, targeting the Mercedes segment. The key is that Gravity will help Lucid reach about 6x the TAM, aiding in achieving economies of scale. -
Improving Cost of Goods Sold
Q: What drove the 20% improvement in unit COGS?
A: The improvement was due to significant savings in freight, better raw material forecast accuracy, and efficient utilization of raw material inventory. The $98 million government grant did not play a role in COGS.
Research analysts covering Lucid Group.