Lucid Group Inc

NASDAQ:LCID

Earnings Call Analysis

Lucid Group Reports Record Growth and Strategic Advances

Lucid Group celebrated record deliveries of 2,394 vehicles in Q2 2024, a 70.5% year-over-year increase. Revenue rose by 32.9% to $200.6 million, driven by strong North American demand. The company reaffirmed its 2024 production guidance of approximately 9,000 vehicles. Lucid announced a significant $1.5 billion financing commitment from the Public Investment Fund, supporting their ambitious Vision 2030 goals. Despite cost pressures, gross margins remained steady, with future improvements expected. The anticipated late 2024 launch of Lucid Gravity and strategic cost optimizations underscore Lucid's commitment to long-term growth and innovation.

Financial Performance

Lucid Group's second quarter of 2024 surpassed expectations with revenue hitting approximately $200.6 million, an increase of 32.9% year-over-year and 16.1% sequentially. This uptick was driven primarily by higher deliveries, marking a record of 2,394 vehicles, which was a 21.7% increase sequentially and a massive 70.5% year-over-year jump. Notably, the company also produced 2,110 vehicles in the quarter and reaffirmed its guidance to produce about 9,000 vehicles for the entire year.

Cost Management and Margins

Despite the revenue growth, Lucid reported a cost of revenue of approximately $470.4 million. A significant part of this was driven by a special provision related to a warranty campaign. However, excluding this, the gross margin would have improved by 800 basis points sequentially. Other cost-saving measures included improvements in Bill of Materials (BOM) costs, inbound freight reductions, and labor cost optimizations. Looking forward, the company expects additional LCNRV impairments and incremental depreciation costs due to factory expansions, which will impact gross margins in Q3.

Capital and Liquidity

Lucid ended the quarter with a robust liquidity position of approximately $4.28 billion, thanks to a $1.5 billion financing agreement with an affiliate of the Public Investment Fund (PIF). This is expected to provide the financial runway into the fourth quarter of 2025. This capital infusion underscores the long-term commitment and partnership Lucid has with PIF, aligning with Saudi Arabia's Vision 2030 initiative to diversify its economy and lead in sustainable industry.

Operational Highlights

Lucid has made significant headway in its production and operational efficiency. In Q2, operational expenses were controlled, with R&D expenses up less than 1% sequentially at $287.2 million, while SG&A expenses decreased slightly by 1.4% to $210.2 million. The company continues to expand its footprint, ending the quarter with 53 studio and service centers globally, up from 50 in Q1, and intends to grow this network further.

Future Prospects

Lucid CEO Peter Rawlinson emphasized the strategic importance of upcoming projects, particularly the Lucid Gravity, whose production is slated to start in late 2024. The Gravity is highly anticipated and expected to position Lucid strongly in the electric SUV market. Rawlinson projected that product and technology advancements, including improvements in their software and powertrain, will be key drivers of future growth and efficiency. Despite a cautious outlook for Q3 due to typical seasonal industry slowdowns, the company remains optimistic about ramping up in Q4.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Lucid Group Second Quarter 2024 Earnings Conference Call. Please be advised that today's conference is being recorded. [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, sir.

[Maynard Um, executive]

Thank you, and welcome to Lucid Group's Second 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 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.

[Peter Rawlinson, executive]

Thank you, Maynard. And thank you, everyone, for joining us on our second quarter 2024 earnings call. Now before I get to my prepared remarks, I'd like to extend a heartfelt thank you to all Lucid employees as well as all our suppliers and partners. Our record deliveries in the second quarter were no small part due to your hard work. We generated great momentum and progress in the first half of the year, and we'll look to build upon this through the back half of the year and into the scheduled start of production of Lucid Gravity, which is, of course, highly anticipated. .

I'm also pleased to announce today that we executed financing agreements with an affiliate of the Public Investment Fund for additional commitments of $1.5 billion. Through its strategic investment in Lucid, the PIF is not only advancing the company's commitment to sustainable energy and innovation but also propelling it towards achieving the ambitious goals of Vision 2030. This partnership underscores their dedication to fostering a diversified economy and positioning itself as a global leader in the electric vehicle industry.

I'd like to thank them for their continued support. Now turning to deliveries. We delivered a record 2,394 vehicles in the second quarter, and that was up 21.7% sequentially and up 70.5% year upon year. The increase was driven by strength in North America, where deliveries were up sequentially. Now turning to production. We produced 2,110 vehicles in the second quarter, and we're on track to produce approximately 9,000 vehicles in 2024. As I've noticed previously, production is not our bottleneck, and we are managing production to prudently optimize cash flow and to match deliveries.

Lucid's brand awareness continues to grow, reaching an all-time high in June since we started tracking the metric. Now we still have more work to do, but the combination of our science-based data-driven approach to marketing and increasing number of Lucid Airs on the road and the word of mouth advocacy of our loyal customers is building momentum. I think customers are also increasingly becoming aware of the tremendous value and technology in the Lucid Air. In many ways, we've reached parity or even surpassed gas cars in our class when it comes to range, performance, technology and pricing.

And this is especially true when compared to other electric vehicles. So it may come as no surprise that Lucid Air has once again been named the best luxury electric car by U.S. News & World Report. This is the third year in a row that this award has been bestowed upon the Air and no other car has ever achieved this. But we're moving beyond being known as a luxury car maker. We're a technology company, and people are recognizing that we have the most advanced electric vehicle.

We announced in July that we achieved a landmark 5 miles per kilowatt hour with the Lucid Air Pure, a critical element in achieving this was our software and innovations in our advanced motor control mathematical algorithms. And I am pleased to announce that with an over-the-air software update coming soon, I expect all vehicles in the fleet will see some further efficiency improvement, bringing greater value to the car well after a customer's initial purchase.

2025 Air sedans will also have a Sapphire heat pump and of course, the latest advancements in motor design. Now this collectively is how we were able to obtain a 512 miles of EPA estimated range for the Lucid Air Grand Touring under the more stringent EPA testing and achieved 5 miles per kilowatt hour with a new Air Pure. And we'll continue to provide more features and value. We are planning an over-the-air software update that will significantly enhance our advanced driver assistance system or ADAS. And it's including the introduction of hands-free highway assist, lane change assist, curb rush assist and more.

We also have plans for a comprehensive update to the user experience, new interfaces, new functions and further app enhancements, I think customers are going to be delighted. We're making a really big push on many aspects of our user interface software. So despite the market dynamics, we are making inroads, making constant improvements and gaining market share with Air. Yet again, in Q2, in the U.S. market, the Lucid Air outsold many of the largest and most storied brands in the industry within our competitive set of electric vehicles.

And in some cases, we outsold our competitors by more than double. And with the Lucid Gravity, I suspect we will find greater success in the large and growing SUV market. In late July, the first Lucid Gravity preproduction body shell dropped down from the roof conveyor and into the main production line at our factory in Casa Grande, Arizona. This marked the beginning of the Lucid Gravity preproduction run on our assembly line. And just last week, I had the honor of driving the first preproduction Lucid Gravity off the production line, a key milestone in the journey to the scheduled start of production later this year.

Each unit will help us perfect the process and will be used for final validation testing to ensure top-tier build quality in full scale production. Now we'll be hosting a Technology and Manufacturing Day at our factory on September 10 to showcase our technology and also give you a closer look at the Lucid Gravity and the new advanced factory where the machines build the machines.

We've made significant advances to the factory that will help drive down costs, and I can't wait to show it to you. Now I'd like to emphasize something that may still not be well appreciated by the market. Whilst many may now understand the concept of efficiency and which means how many miles can one go with a given amount of battery, it may not be broadly known as to why this energy efficiency is so damn critical. It's quite interesting.

Some might believe that it's the engineer in me driving the narrative of the importance of efficiency. But actually, it's the businessman in me that's driving the efficiency story. So let me explain. According to the database, A2MAC1, nearly 40% of the bill of materials or the cost of the materials to make an electric vehicle is attributable to the battery pack, almost 40% in cars above $60,000 and in lower-priced car, the battery cost as a percentage of the bill of materials can be even higher than that 40%. And this is why energy efficiency matters so much because the higher the energy efficiency, the smaller the battery needed for a given amount of range.

And this is worth repeating. The higher the energy efficiency, the fewer battery cells we need for a given amount of range. And this is an essential factor to lowering cost when it comes to making an EV and a key element in improving gross margins. It also means less battery raw materials, which is better for the environment. And this is critically important. This is truly our life's mission. And we can start having a greater impact through our technology because not all EVs are born equal.

And our technology licensing and access business enables our partners to accelerate their EV transition and reduce emissions with a goal of achieving the mission of a cleaner environment. I've said this before, making good EV technology is really hard. In fact, using publicly available EPA data, we estimate that if the closest competitor were to continue at its rate of operational efficiency progress, it would take them many years to match where Lucid's core EV technology is today. By this measure, Lucid is many years ahead of the #2 player.

And of course, the traditional car brands are even further behind them. And I think you're seeing this play out. Some are recognizing just how hard it is. And I think it's a matter of time before car brands might look to enhance their own know-how with Lucid's advanced technology. Because remember, product defines brand. I believe many of the products in the market are not yet commensurate to the heritage of their brands, and I believe our technology can be a key enabler.

While it's difficult to identify the exact timing of when we will reach a tipping point, we have been seeing increased interest in our technology. Now there's been more questions at late about our ECU and general architecture. An ECU or I should say, an electronic control unit, is essentially a computer that controls certain specific functions of the car. Now Lucid has been at the forefront of this for quite some time. And I really would like to share my thoughts here because this is an element of our technology licensing and access business. We were very early on in bringing Ethernet ring architectures to electric vehicles when we launched the Lucid Air back in 2021.

We were also early with Air and Gravity programs incorporating aspects of zonal electrical architecture. We have 16 in-house ECUs, all of which are over-the-air updatable. And in midsized platform, we'll introduce our next zonal architecture where we'll further reduce the number of ECUs down to single digits. These are only possible when you take a clean sheet approach to vehicle design. It's interesting to note that others are just now getting to this place where we have taken the lead for quite some time.

Now these are important because the architecture plays a role in helping costs and efficiency. But we've gone much further than that. We've been able to improve efficiency at a pace that's clearly unheard of in the industry through innovations in our core powertrain technology. This isn't just hardware, but it's also the software. Indeed, we could not achieve the level of efficiency that we've been able to hit without advanced software developed in-house. So in closing, I'm very encouraged by the momentum that we're seeing in the market.

The benefits we're realizing from our cost optimization programs, and excitement that's been building into the Lucid Gravity launch. I believe our strategic initiatives and dedicated team position us well for continued growth for momentum and innovation in the coming quarters and years, and we look forward to updating you on our progress in the future.

So with that, I'd like to turn it over to Gagan Dhingra to provide an update on our financials. Gagan?

[Gagan Dhingra, executive]

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 their tireless work in achieving very solid results. Turning to our 2024 second quarter financial results. During the second quarter, we produced 2,110 vehicles, and we reaffirm our guidance to produce approximately 9,000 vehicles this year. More importantly, deliveries of 2,394 vehicles were ahead of our expectations in the second quarter, up 70.5% year-over-year and up 21.7% sequentially.

As Peter mentioned, we are pleased with the demand we have been experiencing thus far. Deliveries outpaced production in the quarter, which was according to plan and we worked down inventory to much more manageable levels while still enabling a hub-and-spoke model to facilitate shorter customer delivery times. We reported revenue of approximately $200.6 million in the second quarter, up 32.9% year-over-year and up 16.1% sequentially, driven primarily by higher deliveries. Cost of revenue in the second quarter was approximately $470.4 million, The LCNRV impairment was approximately $154.2 million. Gross margin was essentially flat from the first quarter, in line with what we guided to on the last earnings call despite the full quarter impact of pricing actions taken in Q1.

We continued to see improvements in our BOM costs, inbound freight and labor cost per vehicle as part of our cost-optimization initiatives, which were offset by a special provision related to a warranty campaign. Excluding this campaign, gross margin would have improved 800 basis points sequentially. Although we don't explicitly provide gross margin guidance, let me provide some direction to help with your modeling.

We expect to build inventory of components for the Lucid Gravity, which will result in an increase in LCNRV impairments from an accounting standpoint. We also expect to incur incremental depreciation in the back half of the year from Phase 2 activations in our Arizona factory. We expect this will impact gross margin in Q3. However, we expect to see the meaningful benefits from vertical integration and lowering our bill of materials as we move forward.

Longer term, I would echo Peter's comments that our technology and increased scale will be key enablers of our gross margin. As with ramp volume, you will see improving gross margins with efficiency the key enabler to driving a lower bill of materials. Now moving to operating expenses. R&D expense in Q2 totaled approximately $287.2 million, up less than 1% sequentially. We expect R&D to increase in back half of the year, which is typical in the run-up to start up production of new vehicle programs.

SG&A expense in Q2 was approximately $210.2 million, down 1.4% from Q1. The sequential decrease was primarily due to lower professional services and other cost optimization initiatives. Although we have identified further cost reduction opportunities to execute this year, we expect SG&A to increase in the second half, primarily due to higher stock-based compensation expenses and continued investments into strategic growth initiatives. We ended the second quarter with 53 studio and service centers, excluding our temporary and satellite service locations, up from 50 in Q1.

On the service side, we ended Q2 with 64 mobile wins in the fleet and 113 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. We recorded restructuring charges of $20.2 million related to the recent reduction in force announcement. Our stock-based compensation expense in the quarter was $58.5 million, we expect this expansion to grow substantially in the second half due to the timing of new grants.

In Q2, we recorded a gain of $103 million in other income from a change in fair value of derivative liability and a corresponding total accretion of $146.9 million associated with our redeemable convertible preferred stock under a line item below net loss. The adjusted EBITDA loss was $647.6 million, GAAP net loss per share in Q2 was $0.34, and non-GAAP net loss per share was $0.29.

Moving to the balance sheet. We ended the quarter with approximately $3.9 billion in cash, cash equivalents and investments and total liquidity of approximately $4.28 billion. We remain committed to maintaining a healthy balance sheet to execute on our strategic vision and will continue to be opportunistic in exploring financing. We also announced after market close today that Lucid executed financing agreements with an affiliate of the public investment fund for an additional capital commitment of $1.5 billion. This is made up of $750 million of convertible preferred stock via private placement and a $750 million unsecured delayed drought term loan facility.

Turning to inventory. total inventory decreased 9.9% sequentially, consistent with the decrease over the last few quarters and driven primarily by higher vehicle deliveries. CapEx in Q2 was $234.3 million, up from $198.2 million in Q1. Moving to outlook for 2024. We reiterate our 2024 production guidance of approximately 9,000 vehicles and we will continue to prudently manage and adjust our production to meet our sales and delivery needs. As Peter mentioned, I would also remind you that Q3 is typically a seasonally down quarter for the industry given summer holidays and then ramps up in Q4.

So something to consider in your modeling. Turning to our liquidity outlook, we expect total liquidity inclusive of the $1.5 billion commitment from an affilate of the PIF to give us sufficient runway at least into the fourth quarter of 2025. Moving to CapEx. We are updating our 2024 CapEx guidance to approximately $1.3 billion from our prior guidance of $1.5 billion. This reflects a meaningful reduction as a part of our cost optimization efforts as well as certain [indiscernible] in our capital outlay into 2025.

From a product perspective, the Lucid Gravity starter production is scheduled for late 2024 and start-up production of our high-volume midsized platform is scheduled for late 2026 I want to close by sharing my experience with the Lucid Gravity and why I'm very excited about the future. I recently had the opportunity to get on the road in elusive gravity beta vehicle, and I have to tell you the right was turning the way the car handles the performance, I don't think there's any other electric SUV like this in the market today.

With new products from the horizon, the strong financial commitment by the PIF and progress on cost optimization, I feel we are well positioned for the future. With that, let me turn it back to Maynard to get to your questions.

[Maynard Um, executive]

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 post some questions from our retail investors sent in through the Say technology platform.

Our first question comes from Paul C. Can you provide more information on what you're doing to cut costs. For example, Rivian recently announced a 35% reduction in cost and expect to have positive gross margin in Q4. Can you share your path to positive margins?

[Peter Rawlinson, executive]

Yes. I mean this is an absolute key activity. And Gagan and his team are absolutely focused on this. We're doing a tremendous amount across the entire company, looking at cost cutting as well as efficiencies, direct vehicle costs, supplier partnerships, manufacturing efficiencies, quality assurance, logistics, transportation, inventory management, development strategies, we're looking at go-to-market models.

We're looking at internal policies, professional services and CapEx. I can't think of anything more. I mean it's well across the board. And we're also, of course, focused on using our technology to reduce cost and efficiency. This is a huge enabler. For example, we're testing service machinery that I think can not only save us millions across our service centers but it could also reduce our real estate footprint. It could increase employee efficiencies, reduce repair times and it could improve customer satisfaction.

And I think we've made great progress but we're really working -- it's a work in progress. And in addition, we take a lot of the learnings from Air and, of course, incorporated them into Lucid Gravity early on. And I think we'll see a significant benefit from that learning transition from the one product to the other. But Gagan, you're right at the heart of this, could you add to this, please?

[Gagan Dhingra, executive]

Yes. Thanks, Peter. Cost optimization has become an essential part of our life at Lucid. First, let me start with company-wide initiatives of cutting costs and part to improving margins, and then I will cover a similar focus around OpEx and CapEx. On cost of revenue, starting with bill of materials, we are able to bring the cost down by double-digit percentage since we launched Air and we have identified more cost action that we plan to implement in the second half of this year.

On logistics, the cost is reduced by more than double-digit percentage year-over-year. On transportation, we have made meaningful improvements in reducing the cost since the beginning of this year. Further, we also reduced labor cost per vehicle this year through efficiency improvements. Looking at our journey over the last few quarters, our gross margin improved from [ negative to 40% ] to negative 134%. And we're also looking into the longer term, although we believe the best rate to reduce battery cost is to reduce the number of batteries by increasing efficiency.

We're also evaluating every opportunity to drive down cell cost. For example, we recently signed a supply agreement with Graphite One. In addition to BOM and logistics cost, I want to remind that a meaningful portion of our cost of goods sold is related to the depreciation of our factories and equipment. We made a very deliberate choice of making our long-term investments, including a leading in-house powertrain and battery technology, software and state-of-art manufacturing facilities. So as we start to ramp volumes, you will not only see improvement in gross margins, but will also have a significant cost advantage to our competition, which we're very proud of.

On other areas on OpEx, we are looking each and every corner, whether it is headcount optimization, professional services or overhead. Each expense is monitored and challenged, which is evident from our results that the SG&A expense went down in the current quarter despite our increased footprint and higher number of deliveries. On CapEx, we updated our guidance today to reduce the annual spend by $200 million and a significant portion is related to savings and cost reduction.

[Maynard Um, executive]

Thanks, Gagan. Thanks, Peter. Question 2 is also from Paul C. There are companies working on axial radial flux motors and claiming highest torque and power density while using less materials, some claim to be production ready within 1 to 2 years. How does this compare to Lucid Motors? And how are you staying ahead of the upcoming tech?

[Peter Rawlinson, executive]

Maynard, I'll get me started here. So there's 2 sort of categories of permanent magnet motors, There's the axial flux motor, which is larger diameter, and it's short, it's more like a pancake shape. And then Lucid Motors are radial flux. They're more like a drum shape. And it's quite fascinating. I mean, really, I think there's a fundamental lack of understanding just how technically advanced Lucid's radio flux motors are. The axial flux motor stack up reasonably well against other people's radial flux. But compared with what the level of technology that we got used for a battery EV and axial modes of Flux Motor really sucks.

Now because they are large diameter, relatively low revs, and quite flat. They've got a great application in a gasoline hybrid, and you see these in super sports cars. And they're great for that because they rev about 8,000 RPM like a fast, internal combustion engine. But really, the problem they've got is there are very high thrust forces, and they effectively, because they launched diameter, they can't spend very fast. And if you want to get the speed up to maybe 10,000 RPM, you really need to resort to carbon wrapping.

And believe me, anyone who has to resort to carbon wrapping doesn't really know what they're doing with electric motors because it's super high cost. It's super difficult to manufacture. You do not want to do carbon wrapping. It is a last resort. And also actual flux motors are super difficult to manufacture. They've got these segmented laminations and they're radial laid so each laminations are different sizes, They are a nightmare to put together. And so here's the thing that you plan for a similar per to weight ratio get more torque out of an axial flux.

But it's about 23% more something like that are really good example compared with where a lucid radio flux is. But the lucid radio flux we'll spin about 20,000 RPM compared with the axial flux of 8,000 RPM. And what I said in one of my tech talks and motors is what really matters is not just not even gravimetric power density. It's this bandwidth between maximum spin speed and bottom-end torque. And we are just so far ahead of an axial flux motor. And as I say, I think there's a fundamental lack of understanding just how far advanced -- we're not going to get to 5 miles per kilowatt hour anywhere close if we went axial flux, I'm sorry. .

[Maynard Um, executive]

Thanks, Peter. And we'll take our last Say question. Can you give an update on the progress for our retail ESS product. Are you still running prototypes? And can you provide information on their performance? .

[Peter Rawlinson, executive]

Okay. Well, yes, we are. I mean, first of all, I'd like to say we're closely engaged in this energy sector. At the end of last year, we launched our range exchange feature, and it's got innovative feature. It gives enabled by the Lucid bidirectional Wunderbox and the software that enables Lucid Air to directly charge other electric vehicles. But that's beside the point in many ways, specifically related to energy storage. .

I've got all my engineering teams absolutely laser-focused on 3 things. We're further enhancing Lucid Air, we're looking for further advancements. We've got the launch of Lucid gravity coming imminently and as a whole advanced team working on the development of our midsized vehicle, we have to have that laser focus on our products have that take priority. Now that said, technology leadership is core to our business, and it's a bigger strength. And I believe our core competency in the future in battery tech will allow us to develop energy storage solutions. But right now, our main focus is the vehicles, not ESS.

[Maynard Um, executive]

Great. Thanks, Peter. Now we'd like to take some questions from the phone lines. Wanda, can we move to the instructions on the first question?

[Operator]

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

[Unknown Analyst]

This is actually John Babcock for John Murphy. Just quickly for the first question. I did want to ask, I mean, are you going to be able to reach free cash flow positive with the small-ish mid-CV. Ultimately, we've been calling it the space, but I'm not sure if it's going to come out with a different product name or that? And/or should we expect that you might get to free cash flow positive before that?

[Peter Rawlinson, executive]

Well, I certainly plan to. I mean that is the vision. Our whole business model is a long-term model of successive growth through successive period and the phasing of product. We move now with Lucid Air off the back of 2 record quarters for deliveries, just 6x the TAM with the Lucid Gravity to potentially 30x the TAM with our midsized platform. And it's that scale that's going to lead us to cash flow positive. Gagan, would you like to add anything?

[Gagan Dhingra, executive]

Yes. I think Peter welfare. We are a high-growth technology company, and we are operating in a capital-intensive space. And at the same time, we have in-house, the way we made our investments, we are like leading in-house powertrain and battery technologies. So that will give us a competitive advantage when our volume increases, and we are very proud of that one.

[Peter Rawlinson, executive]

I'd really like to add something here, John as well. I think the key USP of us as a company, when we get to scale, is this efficiency story because we will not rest. We're advancing the technology. We're significantly ahead of the competition, all competition. We have leadership with 5 miles per kilowatt hour. And this is going to play. That means we can make a car of a given range with a smaller battery pack than other people. That is really going to play to our midsize where we'll be able to make it more cost effectively and that will lead directly to help us to become free cash flow positive.

[Unknown Analyst]

Okay. That's helpful. And then next question, I was wondering if you might be able to talk about price elasticity of demand for the year. And also does it -- whether it makes any sense to reduce prices or go down on trend to drive volume? Or if ultimately, the goal would be to protect the brand for future vehicles?

[Peter Rawlinson, executive]

Well, what we've done is we've introduced the Lucid Air Pure, which is a real drive car at just $69,900. A lot of people think Lucid is much more expensive than that. But we did actually promise that back in 2020, when we launched the product in our 2020 reveal that we would hit 69,900. So think of this really as us introducing successively more accessible versions of the car rather than price cuts. But clearly, there is a degree of price sensitive in the marketplace.

[Operator]

[Operator Instructions] Our next question comes from the line of Stephen Gengaro with Stifel.

[Stephen Gengaro, analyst]

2 questions from me. The first, just quickly, when do you think you'll start opening reservations for the Gravity?

[Peter Rawlinson, executive]

Okay. Well, we haven't disclosed that yet. I would say that we will do so at an appropriate time. What we feel is that some companies have really done their customer base of this service by prematurely opening a reservation list, it becomes very speculative and almost meaningless to a certain degree. What we are thinking of is opening a preorder list and we'll let you know as soon as we're in a position to do so.

[Stephen Gengaro, analyst]

The other picture -- the other question from a bigger picture perspective is as we think about the mid-price vehicle, and I think you said by the end of 2026, yes, how do you -- I'm no sure exactly how to ask this, but how do you calibrate or reconfigure the engine based on your phenomenal technology at a lower price point to sort of help bring the cost of materials down on that vehicle along with the battery. .

[Peter Rawlinson, executive]

Yes. So we're using all our considerable experience now. We're creating the most advanced systems in the world to create a much more cost-effective variance for our midsize. And that work is well underway already. I think what we've done is achieve remarkable efficiency. I think we've achieved remarkable competitiveness. I don't think going further compact is the way. We can use all our expertise to reduce the cost, the cost of the bearings, the cost of the amount of copper that we're using, the cost of the materials, the heat treatment in the gears.

And this is a laser focus for us now. But I want to be clear there is this misunderstanding that our current technology is so esoteric, so expensive that's driving our losses. And the truth is so far from this. Our current technology is imminently manufacturable and cost effective for its level of performance. What I'm trying to do now is take all that knowledge and go for even more cost effectiveness for a lower performance unit, which imminently suits our midsize and would suit licensing for a family car from a traditional OE as well. .

[Operator]

[Operator Instructions] Our next question comes from the line of Itay Michaeli with Citi.

[Itay Michaeli, analyst]

Just 2 financial questions for me. First, on the capital raise announced today, can you just talk about your intentions to actually draw down on the delayed term loan. Do we expect that to happen this year? Just given your cash position should that be maybe more of a next year expectation? And then secondly, hope you could talk a little bit more about the drivers of the CapEx outlook reduction for this year? .

[Gagan Dhingra, executive]

Yes, sure. Thank you. So we ended the quarter with $4.28 billion of liquidity and yes, we announced $1.5 billion today. Coming to specifically when we take out the money from the facility, so we have enough liquidity today. And also with $750 million convertible, this adds to our liquidity as well. So at this stage, we don't have intention to withdraw $750 million from term loan in the near future, we'll do in the due course of time.

[Peter Rawlinson, executive]

Yes. I think there was a misunderstanding, Itay, that I've seen it out there that we had $1.28 billion cash. But of course, we should be looking at the $4.28 billion liquidity because, of course, we're investing prudently some of that. And remember that we're investing heavily in a few areas. We're looking -- we're currently building out. We just put the steel work up in our new factory in Saudi Arabia. I just got the pictures in this morning. And so we're putting a significant chunk of money into that.

Then we're completing a major investment in an additional 3 million square feet, close to 3 million in our factory in Arizona, bringing stamping in-house, bringing our logistics center, in-house under the same roof to reduce OpEx and bringing our state-of-the-art powertrain plant actually under that same roof and expanding its capability massively. So there's a huge chunk of investment there.

Then we've got the gravity or the tooling and R&D costs, the launch costs for gravity. And on top of that, we're building out our sales and service network internationally. And look, we've got to think of this as a long-term play. This is where the money is going in these crucial investments for the long term.

[Gagan Dhingra, executive]

And so to your second question on the CapEx, this $200 million revising the guidance, a significant amount of that is based on the cost reduction efforts, which basically looking at challenging each and every item, the negotiation, how we want to build our -- the factory, how we want to procure our machinery and equipment, the number of units, a very thorough process looking each dollar carefully, and we are able to bring down our CapEx cost, yes, as part of revising guidance. There is also some CapEx deferral, but savings and reductions have played a bigger part.

[Operator]

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

[Steven Fox, analyst]

I had 2 questions. First of all, when I'm looking at Chart 7, it looks like you're back on your efficiency improvement curve with the latest model year. Can you just talk about, say, over the next 2 to 3 years of improvements? How should we think of the mix between coming from software versus electrical versus battery, et cetera? And then I had a follow-up.

[Peter Rawlinson, executive]

Actually, you arethat's right, Steven. It's a fusion software and hardware. I mean we recently announced the most efficient car in production ever with 5 miles per kilowatt hour and 146 PGE. And I think it's just to be good in context because the new way of setting cars by the EPA here in the U.S.A. has become more stringent. And you see actually some -- we saw some today quite a close competitor actually recording worse numbers because it's having to face a more stringent test. So I think that's absolutely key. But this is a technology race. It's yet to play out. And I recently was delighted to commission what we call internally Project Chwech, which is the Welsh word for 6 as we move towards the aspirational 6 miles per kilowatt hour. So Project Chwech is officially go here, and you heard it first. And you might have to look that up in the dictionary, but it's an aspirational how much better than 5.0 can we go? And I've got a brilliant team of scientists and research engineers on that.

[Steven Fox, analyst]

That's helpful. And I just learned some Welsh for the first time in a while. And then just as a follow-up, can you just talk about the importance you're finding initially with customers in terms of your ADAS features that you have in place and a rolling out to...

[Peter Rawlinson, executive]

We're having a big, big push on software. I personally taken a leading role in driving software. I was reviewing ADAS this morning with the team. There is a new vigor in the company. And we're going to introduce a hands-free lane assist before the year is out. We've got a whole range of improvements that I am personally driving and that isn't just ADAS, that's the whole infotainment stack in the car, and I want to roll a lot of that out this year on air in the run-up to gravity. So people will see [indiscernible] Gravity how awesome it's going to be, and there'll be incremental evidence of improvement on Air as we roll towards Gravity.

[Operator]

[Operator Instructions] Our next question comes from the line of Andres Sheppard with Cantor Fitzgerald.

[Andres Sheppard-Slinger, analyst]

Congratulations On the quarter. A lot of our questions have been asked, but maybe to touch on the capital raise again. Peter, what is the best way we should be viewing this announcement. Obviously, in the near term, it extends the cash runway into Q4 of '25, which helps to address any near-term liquidity issues. But should we see this as a final straw from the PIF. Or is this -- is it more accurate to view it as kind of restrengthening that relationship and then being more focused on the medium to long term as well?

[Peter Rawlinson, executive]

Thank you, Andres. I'd describe it as a resounding further endorsement of their long-term commitment of a long-term relationship, and they are the perfect partners. I couldn't ask for any more and we are so aligned, this transcends a mere financial arrangement. We are a cornerstone of the Saudi Arabia's ambitious vision 2030 to transition their company to a sustainable economy. And we are proud to participate in this.

And that's why we're currently putting up steel work in our factory in Saudi Arabia. This isn't the case. It's often portrayed how long is it before Saudi is going to get fed up with [indiscernible] It's not that. We have regular dialogues. I have with my Chairman, and we are absolutely both committed the dialogue is much more of Peter, keep things on track. We want this midsized, we want these products, is Gravity on track? This is the commitment that we have together. This is the sense of enduring partnership that Lucid has with the PIM. And also, it's Nondilutionary. so I think this is an ideal manner of raising capital. And on the significant service to take us through into -- well into Q4 next year.

This means that we go through the critical launch period of gravity through a large part of its production ramp-up. And remember, gravity is just the product that everybody wants. And remember what Gagan said over and over, our economics are driven by scale. And gravity is going to be scale. There's going to be 4 steps to scale sell more Airs, and that's about brand awareness. Get gravity ramps up, get the midsize running and see if we can get technical partnerships with other OEs. Those are the 4 steps and efficiency is going to play absolutely into all of those right now with Pure, getting the 5 miles per kilowatt hour. We're getting 420 miles. We're just 84-kilowatt hours of energy. Nobody is even close. That's why we can make it at $69,000. That's why it makes sense at 69,900. And it's going to make even more sense we're going to have a gravity with the sort of range with half the battery size of some other players out. They're just half the battery size.

No one else is even close; and it really is going to come this whole chess game is going to play out, we get to midsize we'll be able to have a competitive range with a relatively tiny battery pack and much less cost than anyone else. .

[Andres Sheppard-Slinger, analyst]

I appreciate all that color. Maybe just 1 last quick question. Wanted to touch on something we haven't maybe spoken about in a couple of quarters. But just on the licensing agreement with Aspen Marin, I'm curious if you can maybe expand on how that relationship is going and particularly when and how that might -- that you expect that to ramp up in terms of revenue.

[Peter Rawlinson, executive]

Yes. There was an announcement. There's a little delay on their end, which is disappointing because it's disappointing that any EV is delayed. But I completely I emphasized where they are in terms of their customer requirements. I don't think it makes any long-term difference to the relationship. With solid as a rock.

Aston is fully committed, we're all in to ensure that Aston creates the best electric hypercar in the world. And what's great about that is our price range from $69,900. a week up to $249,000 with Sapphire. We're not going to go above that. and as then starts where we finish. So there's no cannibalization there's absolute synergy and a great working relationship. .

[Operator]

[Operator Instructions] Our next question comes from the line of Tobias Beith with Redburn Atlantic.

[Tobias Beith, analyst]

I have 3, please, and I'll ask them individually. Peter, I noticed the stated capacity of the 2025 Lucid Pure is 4-kilowatt hours smaller than its predecessor. And this seems to be too small to reflect the removal of one battery module from the pack, suggesting that the cells themselves could be slightly different and the vehicle weight may have been reduced. Are you able to comment on this logic and perhaps provide more information on other improvements that were made to breach the 5 miles per kilowatt power threshold?

[Peter Rawlinson, executive]

Absolutely. It runs at 16 module pack which is, I think, 672 volts. If you look at Grand Touring and Sapphire have a 22-module pack which runs at 924 volts. And then Touring has a 16-module pack, which runs at 756 volts, and we've reduced that down to a 16-module pack for Pure At 84-kilowatt hours, and that runs at 672 volts. It's 42 volts per module open circuit on page. So we've got the most efficient car ever, 146 miles per gallon and it's the magic 5 miles per kilowatt hour, no one's even close. And let me tell you, if we were to choose less range, we get even more efficiency because there's even less battery weight.

So what you've got to remember is, we're achieving that 5.0 miles per kilowatt hour with 420 miles range, which has got more range, there's no other competitive car out there from any other manufacturer. A little usage, that's close to the 420, and we still got a world record for efficiency. If we drop that down to 360, would be above 5 miles per kilowatt hour. -- lower-range cars it's easy to get to these efficiency levels. well, relatively.

[Tobias Beith, analyst]

Okay. What is the end game for Lucid's theoretical advantage on the bill of material costs for an electric vehicle, assuming that the needs can be maintained plus volume scale. Is it to achieve superior profitability?

[Peter Rawlinson, executive]

Absolutely. The end game is why we exist. There is a misunderstanding and miss interpretation that with some niche luxury car company when and nothing could be further from the truth. We're here to make advance the state of art of the electric car in order to find lot of driving the cost down so that it can be attained by far more people to have a meaningful impact on the planet.

If you look at even the Bloomberg numbers of $128 per kilowatt hour at pack level, I mean if we can say with 15, 16 kilowatt hours less than the competition. This is a multi-thousand dollar cost saving today, and that's going to make all the difference when we look at midsize products. And if we license our tech to another car company that maybe wants to do a $25,000, $30,000 car, this is just like where every dollar counts we can suddenly start saving beyond thousands of dollars.

And in fact, if you look at the agony that some of the other OEs have put with the wrong product trying to do an electric pickup and electricity in electric propulsion, isn't the right solution for a usable affordable pickup, believe you may. But our technology would save those OEs, thousands if that was implied to those pickups because their pickups would require so much smaller battery pack with our high-tech solution. .

[Gagan Dhingra, executive]

And to add to this, we made a choice of our long-term investment of having in-house powertrain technology and battery technology. So as we get to scale, we expect long-term investments to pay dividends many times over. This also translates to significant cost advantage compared to our competition, better margin profile than where traditional OEM are today. It's just a matter of scale, and we're getting there. But we already have narrowed down our losses and with scale, we'll be in a better position than competition.

[Peter Rawlinson, executive]

absolutely, good point, Gagan, because we're going to hold this technology and manufacturing day on September 10. I hope you'll be able to join us there because. I think if seeing is believing, we really got the world-leading state-of-the-art in-house advanced powered EV per train manufacturing plant, like I don't if anyone has got anything to compete with. .

[Operator]

[Operator Instructions] Our next question comes from the line of James Picariello with BNP Paribas.

[James Picariello, analyst]

I have a question on deliveries for this year. You obviously have the production guide of 9,000 units. You saw a nice uptick in North America -- demand in North American deliveries in the second quarter. We could see that in the sequentially lower Saudi revenue in the second quarter. But I think the -- the indication was for lower third quarter deliveries. Just curious what's in play there and what the expectation is for the note for the full year?

[Peter Rawlinson, executive]

Sure, sure. So we haven't guided on deliveries. What we have guided upon is that we plan to make approximately 9,000 cars this year. And we've just reaffirmed that today that we're on track for that. Now of course, regarding deliveries, we're on the back of 2 record quarters. 70% up from Q2 this year over last year. But clearly, what we're trying to do is prudently manage the business, manage the efficiency of our inventory. We need some inventory. We need a buffer, and we need to be able to supply to customers directly out of inventory.

So we don't want no inventory, but we won't managed amount of inventory. We don't want that inventory to grow. So therefore, implicitly, that implies that we want to be delivering a very similar number or more than the number we manufacture, although we haven't guided upon that.

[Gagan Dhingra, executive]

yes, and right now we believe our inventory is manageable. And it also -- a couple of benefits that bring managing our cash flow better, reducing the risk of obsolescence also reducing the storage cost. So we believe we're in a good position from that perspective. .

[Peter Rawlinson, executive]

I think we just, we were cautioning about Q3 because of the summer months. I think we've just been prudent about that.

[James Picariello, analyst]

Okay. Yes, that's just ultimately on the deliveries and the demand side. Just seems it's more cautionary.

[Peter Rawlinson, executive]

Traditionally, you tend to see a bit of a shutdown with people their long summer vacation and then an upturn in Q4, but we will see.

[James Picariello, analyst]

Got it. And then just my quick follow-up. Well, one, is there any discernible difference in ASP between your general deliveries and those to the Saudi government? And then on the quarterly cash burn rate that's implied, we've got the $4.3 billion in liquidity, plus the $1.5 billion that you just raised and announced today, right, and then that gets you into the fourth quarter as you state, right?

So that implied quarterly cash burn rate still is in that $900 million to $1 billion. Just curious what goes into that? Is that just loose math and not necessarily your expectation, which is ultimately of critical importance in terms of the cash burn rate through next year and how that corresponds with your profitability expectation on gross...

[Gagan Dhingra, executive]

So a couple of things here. First of all, from a CapEx perspective, we spent around $243 million. This quarter, nearly $200 million last quarter, we guided $1.3 billion for CapEx. So a significant amount of CapEx is going to come remaining part of the year, plus we are working on Gravity as well as midsize where significant investment is going to be there. Plus, we're building a factory in Saudi Arabia, so our CapEx and the R&D programs where we are going to spend a significant amount of capital for us to be ready for the future to take us to the next journey.

[Peter Rawlinson, executive]

I mean, please come on -- join us please, visit us in the factory on September 10. We're holding the Technology and Manufacturing Day. I think anyone visiting will realize this sheer level of investment we've made, we've got a state-of-the-art facility. This puts us an incredible position for the future. We're continuing this is a long term play. This is where the money is going. The money is going to new factories in Saudi Arabia, the completing our state-of-the-art facility in Arizona on the tooling to get the best SUV in the world in Gravity into production. We're spending money now investing in the design of our midsize and on the service network around the world. So these are long-term strategic investments that's where the money is going. This is a long-term play, and it will come to pass. .

[Maynard Um, executive]

Thanks, everyone. So this concludes Lucid Second Quarter 2024 Earnings Conference call. I appreciate everyone joining us today. Thank you. .

[Peter Rawlinson, executive]

Thanks, everyone.

[Operator]

Ladies and gentlemen, you may now disconnect.