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LUCID GROUP, INC.

(LCID)
  Report
Delayed Nasdaq  -  04:00 2022-09-26 pm EDT
14.06 USD   +0.21%
09/15Citigroup Reinstates Lucid Group at Buy With $28 Price Target
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LUCID GROUP, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

08/03/2022 | 04:17pm EDT

Management's Discussion and Analysis of Financial Condition and Results of

                                   Operations

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our condensed consolidated
financial statements and related notes included elsewhere in this Quarterly
Report on Form 10-Q and our Annual Report on Form 10-K for the year ended
December 31, 2021, filed with the SEC on February 28, 2022. This discussion may
contain forward-looking statements based upon Lucid's current expectation,
estimates and projections that involve risks and uncertainties. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including those set forth under "Risk
Factors", in Part II, Item 1A of this Quarterly Report.

Overview


We are a technology and automotive company with a mission to inspire the
adoption of sustainable energy by creating advanced technologies and the most
captivating luxury electric vehicles, centered around the human experience. Our
focus on in-house technological innovation, vertical integration, and a "clean
sheet" approach to engineering and design have led to the development of our
groundbreaking electric vehicle, the Lucid Air.

We sell vehicles directly to consumers through our retail sales network and
through direct online sales. We believe that owning our sales network provides
an opportunity to closely manage the customer experience, gather direct customer
feedback, and ensure that customer interactions are on-brand and tailored to our
customers' need. We also operate an in-house vehicle service network, with
brick-and-mortar service centers in various geographies and a mobile service
fleet. In addition to our in-house service capabilities, we established and
continue to grow an approved list of specially trained collision repair shops
which also serve as a repair hub for our mobile service offerings in some cases.

We began delivering the Lucid Air to customers in October 2021. We expect to
launch additional vehicles over the coming decade. We have already commenced
design and engineering work for Project Gravity, a luxury SUV that is expected
to leverage many of the technological advancements and learnings from the Lucid
Air. We expect to begin production of Project Gravity in the first half of 2024.
After the Lucid Air and Project Gravity, we plan to leverage our technological
and manufacturing advancements to develop and manufacture progressively more
affordable vehicles in higher volumes. We further believe that our battery
systems expertise positions us to produce compelling stationary energy storage
system ("ESS") products. ESS is a technologically adjacent opportunity which can
leverage the modular design of our battery packs and our extensive experience
with battery pack and battery management systems.

Impact of the COVID-19 Pandemic on our Business


The COVID-19 pandemic continues to impact the global economy and cause
significant macroeconomic uncertainty. Infection rates vary across the
jurisdictions in which we operate. Governmental authorities have continued to
implement numerous and constantly evolving measures to attempt to contain the
virus, such as travel bans and restrictions, masking recommendations and
mandates, vaccine recommendations and mandates, limits on gatherings,
quarantines, shelter-in-place orders and business shutdowns. We have taken
proactive action to protect the health and safety of our employees, customers,
partners and suppliers, consistent with the latest and evolving governmental
guidelines. We expect to continue to implement appropriate measures until the
adequate containment of the COVID-19 pandemic. We continue to monitor the
rapidly evolving situation and guidance from international and domestic
authorities, including federal, state and local public health authorities, and
may take additional actions based on their recommendations and requirements or
as we otherwise see fit to protect the health and safety of our employees,
customers, partners and suppliers.

While certain of our and our suppliers' operations have from time-to-time been
temporarily affected by government-mandated restrictions, we were able to
commence deliveries of the Lucid Air to customers and to proceed with the
construction of the Arizona plant. Broader impacts of the pandemic have included
inflationary pressure as well as ongoing, industry-wide challenges in logistics
and supply chains, such as increased port congestion, intermittent supplier
delays and a shortfall of semiconductor supply. Because we rely on third party
suppliers for the development, manufacture, and/or provision and development of
many of the key components and materials used in our vehicles, as well as
provisioning and servicing equipment in our manufacturing facilities, we have
been affected by inflation and such industry-wide challenges in logistics and
supply chains. While we continue to focus on mitigating risks to our operations
and supply chain in the current industry environment, we expect that these
industry-wide trends will continue to impact our cost structure as well as our
ability and the ability of our suppliers to obtain parts, components and
manufacturing equipment on a timely basis for the foreseeable future.
                                       36
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In the current circumstances, given the dynamic nature of the situation, any
impact on our financial condition, results of operations or cash flows in the
future continues to be difficult to estimate and predict, as it depends on
future events that are highly uncertain and cannot be predicted with accuracy,
including, but not limited to, the duration and continued spread of the
outbreak, its severity, potential additional waves of infection, the emergence
of more virulent or more dangerous strains of the virus, the actions taken to
mitigate the virus or its impact, the development, distribution, efficacy and
acceptance of vaccines worldwide, how quickly and to what extent normal economic
and operating conditions can resume, the broader impact that the pandemic is
having on the economy and our industry and specific implications the pandemic
may have on our suppliers and on global logistics. See "Risk Factors" in Part
II, Item 1A of this Quarterly Report for additional information regarding risks
associated with the COVID-19 pandemic, including under the caption "The ongoing
COVID-19 pandemic has adversely affected, and we cannot predict its ultimate
impact on, our business, results of operations and financial condition."

Key Factors Affecting Our Performance


We believe that our future success and financial performance depend on a number
of factors that present significant opportunities for our business, but also
pose risks and challenges, including those discussed below and in the section
entitled "Risk Factors" in Part II, Item 1A of this Quarterly Report.

Design and Technology Leadership


We believe that we are positioned to be a leader in the electric vehicle market
by unlocking the potential for advanced, high-performance, and long-range
electric vehicles to co-exist. The Lucid Air is designed with race-proven
battery pack technologies and robust performance together with a sleek exterior
design and expansive interior space given our miniaturized key drivetrain
components. We anticipate consumer demand for the Lucid Air based on its
luxurious design, high-performance technology and sustainability leadership, and
the growing acceptance of and demand for electric vehicles as a substitute for
gasoline-fueled vehicles. We have received significant interest in the Lucid Air
from potential customers. As of the date of this filing, we had refundable
reservations and non-refundable orders of cars yet to be delivered that reflect
potential sales of approximately $3.5 billion.

Direct-to-Consumer Model


We operate a direct-to-consumer sales and service model, which we believe will
allow us to offer a personalized experience for our customers based on their
purchase and ownership preferences. We expect to continue to incur significant
expenses in our sales and marketing operations for sale of the Lucid Air,
including to open Studios, hire a sales force, invest in marketing and brand
awareness, and stand up a service center operation. As of June 30, 2022, we have
opened twenty-nine Studios and service centers, one in Germany, two in Canada,
twenty-six in the United States (one in each of Colorado, Massachusetts,
Michigan, New Jersey, Texas, and Virginia, and two in each of Arizona, Illinois,
New York, and Washington, three in Florida, as well as nine in California). We
also intend to hire additional sales, customer service, and service center
personnel. We believe that investing in our direct-to-consumer sales and service
model will be critical to deliver and service the Lucid electric vehicles we
plan to manufacture and sell.

Establishing Manufacturing Capacity


Achieving commercialization and growth for each generation of electric vehicles
requires us to make significant capital expenditures to scale our production
capacity and improve our supply chain processes in the United States and
internationally. We expect our capital expenditures to increase as we continue
our phased construction of our AMP-1 facilities and international expansion. The
amount and timing of our future manufacturing capacity requirements, and
resulting capital expenditures, will depend on many factors, including the pace
and results of our research and development efforts to meet technological
development milestones, our ability to develop and launch new electric vehicles,
our ability to achieve sales and experience customer demand for our vehicles at
the levels we anticipate, our ability to utilize planned capacity in our
existing facilities and our ability to enter new markets.

Technology Innovation


We develop in-house battery and powertrain technology, which requires us to
invest a significant amount of capital in research and development. The electric
vehicle market is highly competitive and includes both established automotive
manufacturers and new entrants. To establish market share and attract customers
from competitors, we plan to continue to make substantial investments in
research and development for the commercialization and continued enhancements of
the Lucid Air, the development of Project Gravity, and future generations of our
electric vehicles and other products.

                                       37
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Inflationary Pressure


The U.S. economy has experienced increased inflation recently, including as a
result of the COVID-19 pandemic. Our cost to manufacture a vehicle is heavily
influenced by the cost of the key components and materials used in the vehicle,
cost of labor, as well as cost of equipment used in our manufacturing
facilities. As we continue our phased construction of our AMP-1 facility,
increases in steel prices and cost of construction labor have led to higher
capital expenditures. We expect that the inflationary pressure will persist for
the foreseeable future.


Results of Operations

Revenue

The following table presents our revenue for the periods presented (in
thousands):

                                        Three Months Ended                                                          Six Months Ended
                                             June 30,                                                                   June 30,
                                       2022                 2021          $ Change          % Change              2022               2021           $ Change          % Change
Revenue                         $     97,336              $ 174          $ 97,162                  *nm       $    155,011          $ 487          $ 154,524                  *nm


*nm - not meaningful

We began generating sales from the deliveries of vehicles in the fourth quarter
of 2021. We recognize vehicle sales when the customer obtains control of the
vehicle which is upon delivery. We also generate revenue from the sale of
powertrain kits, battery pack systems, supplies and related services for
vehicles to a single customer.

Revenue increased by $97.2 million and $154.5 million, respectively, for the
three and six months ended June 30, 2022, as compared to the same periods in the
prior year, primarily driven by customer deliveries of Lucid Air vehicles.

Cost of Revenue


The following table presents our cost of revenue for the periods presented (in
thousands):

                                                Three Months Ended                                                          Six Months Ended
                                                     June 30,                                                                   June 30,
                                                2022               2021           $ Change          % Change              2022               2021           $ Change          % Change
Cost of revenue                           $      292,342          $ 19          $ 292,323                  *nm       $    538,312          $ 104          $ 538,208                  *nm


*nm - not meaningful

Cost of revenue related to vehicle sales primarily include direct parts, materials, shipping and handling costs, allocable overhead costs such as depreciation of manufacturing related equipment and facilities, information technology costs, personnel costs including wages and stock-based compensation, estimated warranty costs and charges to reduce inventories to their net realizable value or charges for inventory obsolescence.


Cost of revenue related to powertrain kits, battery pack systems, supplies and
related services for electric vehicles primarily consists of direct parts and
materials, shipping and handling costs, personnel costs including wages and
stock-based compensation, and estimated warranty costs related to battery pack
systems. Cost of battery pack systems also includes allocated overhead costs
such as depreciation of manufacturing related equipment and facilities, and
information technology costs.
Cost of revenue increased by $292.3 million and $538.2 million, respectively,
for the three and six months ended June 30, 2022 as compared to the same periods
in the prior year, primarily due to the manufacture and sale of Lucid Air
vehicles in 2022. We incurred significant personnel and overhead costs to
operate our large-scale manufacturing facilities while ramping up production,
with production activity for a limited quantity of vehicles in the three and six
months ended June 30, 2022. In the near term, we expect our production volume of
vehicles to continue to be significantly less than our manufacturing capacity.
Additionally, we recorded write downs of $81.7 million and $178.1 million,
respectively, in the three and six months ended June 30, 2022 to reduce our
inventories to their net realizable values and for any excess or obsolete
inventories. We expect inventory write downs could negatively affect our costs
of vehicle sales in upcoming periods in the near term as we ramp production
volumes up toward our manufacturing capacity.
                                       38
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Operating Expenses


The following table presents our operating expenses for the periods presented
(in thousands):

                                         Three Months Ended                                                            Six Months Ended
                                              June 30,                                                                     June 30,
                                       2022               2021             $ Change           % Change              2022               2021             $ Change           % Change
Research and development           $ 200,381          $ 176,802          $  23,579                  13  %       $ 386,457          $ 344,171          $  42,286                  12  %
Selling, general and
administrative                       163,812             72,272             91,540                 127  %         386,971            203,924            183,047                  90  %
Total operating expenses           $ 364,193          $ 249,074          $ 115,119                  46  %       $ 773,428          $ 548,095          $ 225,333                  41  %


Research and Development

Our research and development efforts have primarily focused on the development
of our battery and powertrain technology, the Lucid Air, Project Gravity, and
future generations of our electric vehicles. Research and development expenses
consist primarily of materials, supplies and personnel-related expenses for
employees involved in the engineering, designing, and testing of electric
vehicles. Personnel-related expenses primarily include salaries, benefits and
stock-based compensation. Research and development expenses also include
prototype material, engineering, design and testing services, and allocated
facilities costs, such as office and rent expense and depreciation expense, and
other engineering, designing, and testing expenses.

Research and development expense increased by $23.6 million, or 13%, for the
three months ended June 30, 2022 as compared to the same period in the prior
year. The increase was primarily attributable to higher personnel-related
expenses of $27.4 million due to higher stock-based compensation expense of
$25.7 million, and an increase of $24.6 million for prototype material,
engineering, design and testing services, partially offset by decreases of $23.0
million from lower utilization of contractor and professional fees and $9.5
million in allocated facilities costs.

Research and development expense increased by $42.3 million, or 12%, for the six
months ended June 30, 2022 as compared to the same period in the prior year. The
increase was primarily attributable to higher personnel-related expenses of
$72.7 million due to higher stock-based compensation expense of $62.3 million,
partially offset by decreases of $16.4 million from lower utilization of
contractor and professional fees and $15.2 million in allocated facilities
costs.

Selling, General, and Administrative


Selling, general, and administrative expenses consist primarily of
personnel-related expenses for employees involved in general corporate, selling
and marketing functions, including executive management and administration,
legal, human resources, facilities and real estate, accounting, finance, tax,
and information technology. Personnel-related expenses primarily include
salaries, benefits and stock-based compensation. Selling, general, and
administrative expenses also include allocated facilities costs, such as office,
rent and depreciation expenses, professional services fees and other general
corporate expenses. As we continue to grow as a company, build out our sales
force, and commercialize the Lucid Air and planned future generations of our
electric vehicles, we expect that our selling, general and administrative costs
will increase.

We also expect to incur additional expenses as a result of operating as a public
company, including expenses necessary to comply with the rules and regulations
applicable to companies listed on a national securities exchange and related to
compliance and reporting obligations pursuant to the rules and regulations of
the SEC, as well as higher expenses for general and director and officer
insurance, investor relations, and professional services.

Selling, general, and administrative expense increased by $91.5 million, or
127%, for the three months ended June 30, 2022 as compared to the same period in
the prior year. The increase was primarily attributable to higher
personnel-related expenses of $64.5 million due to growth in headcount (which
included stock-based compensation expense of $33.8 million), increases in
general corporate expenses of $10.6 million and higher utilization of
contractors and professional fees of $7.1 million.

Selling, general, and administrative expense increased by $183.0 million, or
90%, for the six months ended June 30, 2022 as compared to the same period in
the prior year. The increase was primarily attributable to higher
personnel-related expenses of $126.1 million due to growth in headcount (which
included stock-based compensation expense of $58.4 million), increases in
general corporate expenses of $18.6 million and higher utilization of
contractors and professional fees of $18.1 million.
                                       39
--------------------------------------------------------------------------------

Other Income (Expense), net


The following table presents our other income and expense, net for the periods
presented (in thousands):

                                        Three Months Ended                                                              Six Months Ended
                                             June 30,                                                                       June 30,
                                      2022               2021             $ Change            % Change              2022               2021               $ Change             % Change
Other income (expense), net:
Change in fair value of forward
contracts                         $       -          $ (12,382)         $  12,382                 (100) %       $       -          $ (454,546)         $   454,546                 (100) %
Change in fair value of
convertible preferred stock
warrant liability                         -                  -                  -                     *nm               -              (6,976)               6,976                 (100) %
Change in fair value of common
stock warrant liability             334,843                  -            334,843                     *nm         858,173                   -              858,173                     *nm
Interest expense                     (7,189)               (30)            (7,159)                    *nm         (14,908)                (35)             (14,873)                    *nm
Other income (expense), net          11,188               (390)            11,578                     *nm          12,144                (400)              12,544                     *nm
Total other income (expense), net $ 338,842          $ (12,802)         $ 351,644                     *nm       $ 855,409          $ (461,957)         $ 1,317,366                     *nm


*nm - not meaningful

Change in Fair Value of Contingent Forward Contracts


Our contingent forward contracts provided the holder the right to purchase
Legacy Lucid Series D preferred stock and Legacy Lucid Series E preferred stock
in future periods and were subject to remeasurement to fair value at each
balance sheet date. Changes in the fair value of our contingent forward
contracts were recognized in the condensed consolidated statements of operations
and comprehensive loss.

Change in contingent forward contracts liability decreased by $12.4 million and
$454.5 million, respectively, for the three and six months ended June 30, 2022,
as compared to the same periods in the prior year. The Legacy Lucid Series E
contingent forward contracts were settled during six months ended June 30, 2021,
and there are no future earnings adjustments pertaining to the contingent
forward contracts.

Change in Fair Value of Convertible Preferred Stock Warrant Liability


Our convertible preferred stock warrant liability related to the warrants to
purchase shares of Legacy Lucid Series D preferred stock was subject to
remeasurement to fair value at each balance sheet date. Changes in the fair
value of our convertible preferred stock warrant liability were recognized in
the condensed consolidated statements of operations and comprehensive loss. All
issued and outstanding shares of Legacy Lucid Series D preferred stock were
settled in February 2021 and there will no longer be future earnings adjustments
pertaining to the convertible preferred share warrant liability related to
Legacy Lucid Series D preferred stock.

We recorded a loss of $7.0 million for the six months ended June 30, 2021 due to
the changes in fair value of the convertible preferred stock warrant liability
related to Legacy Lucid Series D preferred stock upon the exercise and
settlement of all outstanding warrants to purchase Legacy Lucid Series D
preferred stock.

Change in Fair Value of Common Stock Warrant Liability


Our common stock warrant liability relates to the Private Placement Warrants to
purchase shares of Lucid Group common stock that were effectively issued upon
the Closing in connection with the reverse recapitalization treatment of the
Merger. Our common stock warrant liability is subject to remeasurement to fair
value at each balance sheet date. Changes in the fair value of our common stock
warrant liability were recognized in the condensed consolidated statements of
operations and comprehensive loss.

The Private Placement Warrants remained unexercised as of June 30, 2022. The
liability was remeasured to fair value, resulting in gains of $334.8 million and
$858.2 million, respectively, for the three and six months ended June 30, 2022,
and was classified within change in fair value of common stock warrant liability
in the condensed consolidated statements of operations and comprehensive loss.
See Note 9 "Common Stock Warrant Liability" to our condensed consolidated
financial statements included elsewhere in this Quarterly Report for more
information.

Interest Expense


Interest expense consists primarily of contractual interest and amortization of
debt discounts and debt issuance costs incurred related to the 2026 Notes issued
in December 2021, interest and commitment fee as well as amortization of
issuance costs incurred associated with ABL Credit Facility and GIB Credit
Agreement, and interest on our finance leases.

Interest expense increased by $7.2 million and $14.9 million, respectively, for
the three and six months ended June 30, 2022 as compared to the same periods in
the prior year, primarily related to the 2026 Notes issued in December 2021.
                                       40
--------------------------------------------------------------------------------

Other Income (Expense), net


Other income (expense), net consists primarily of income on money market funds
and investments, and foreign currency gains and losses. Our foreign currency
exchange gains and losses relate to transactions and asset and liability
balances denominated in currencies other than the U.S. dollar. We expect our
foreign currency gains and losses to continue to fluctuate in the future due to
changes in foreign currency exchange rates.

Other income (expense), net increased by $11.6 million and $12.5 million,
respectively, during the three and six months ended June 30, 2022 as compared to
the same periods in the prior year, primarily due to higher income from money
market funds and investments, as well as foreign currency gains.

Provision for Income Taxes

                                                 Three Months Ended                                                      Six Months Ended
                                                      June 30,                                                               June 30,
(in thousands)                                2022               2021           $ Change          % Change            2022               2021          $ Change          % Change
Provision for income taxes                     68                  5               63                    *nm          391                  9             382                    *nm


*nm - not meaningful

Our provision for income taxes consist primarily of U.S. state and foreign
income taxes in jurisdictions in which we operate. We maintain a valuation
allowance against the full value of our U.S. and state net deferred tax assets
because we believe it is more likely than not that the recoverability of these
deferred tax assets will not be realized.

The provision for income taxes increased by $0.1 million and $0.4 million,
respectively, for the three and six months ended June 30, 2022 as compared to
the same periods in the prior year, primarily due to changes in taxable income
of our foreign operations.

Liquidity and Capital Resources

Sources of Liquidity


As of June 30, 2022, Lucid had $4.6 billion of cash, cash equivalents and
investments. Our sources of cash are predominantly from proceeds from Lucid's
de-SPAC transaction with Churchill (plus PIPE), and the issuance of convertible
debt.

We expect that our current sources of liquidity together with our projection of
cash flows from operating activities will provide us with adequate liquidity
over at least the next 12 months, including investment in funding (i) ongoing
operations, (ii) research and development projects for new products/
technologies, (iii) production and manufacturing ramps at existing manufacturing
facilities in Casa Grande, Arizona, (iv) Phase 2 of construction at AMP-1 in
Casa Grande, Arizona, (v) the start of construction of a manufacturing facility
in the Kingdom of Saudi Arabia, (vi) retail Studios and service centers, and
(vii) other initiatives related to the sale of vehicles and/ or technology.

We anticipate our cumulative spending on capital expenditures to be
approximately $2.0 billion for the fiscal year 2022 to support our continued
commercialization and growth objectives as we strategically invest in
manufacturing capacity and capabilities, our retail Studios and service center
capabilities throughout North America and across the globe, development of
different products and technologies, and other areas supporting the growth of
Lucid's business. We expect our operating expenses to increase in the 2022
calendar year to grow and support the operations of a global automotive company
targeting volumes in line with Lucid's aspirations.

As of June 30, 2022, our total minimum lease payments are $371.7 million, of
which $15.3 million is due in the current fiscal year. We also have a
non-cancellable long-term commitment of $124.2 million to purchase certain
inventory components. For details regarding these obligations, refer to Note 14
"Leases" and Note 15 "Commitments and Contingencies".
                                       41
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2026 Notes


In December 2021, Lucid entered into a purchase agreement pursuant to which we
issued $2,012.5 million of the 2026 Notes. The 2026 Notes accrue interest at a
rate of 1.25% per annum, payable semi-annually in arrears on June 15 and
December 15 of each year, beginning on June 15, 2022. The 2026 Notes will mature
on December 15, 2026, unless earlier repurchased, redeemed or converted. Before
the close of business on the business day immediately before September 15, 2026,
noteholders will have the right to convert their Notes only upon the occurrence
of certain events. From and after September 15, 2026, noteholders may convert
their Notes at any time at their election until the close of business on the
second scheduled trading day immediately before the maturity date. The Company
will settle conversions by paying or delivering, as applicable, cash, shares of
its common stock or a combination of cash and shares of its common stock, at the
Company's election. The initial conversion rate is 18.2548 shares of common
stock per $1,000 principal amount of Notes, which represents an initial
conversion price of approximately $54.78 per share of common stock. The
conversion rate and conversion price will be subject to customary adjustments
upon the occurrence of certain events. In addition, if certain corporate events
that constitute a "Make-Whole Fundamental Change" (as defined in the indenture)
occur, then the conversion rate will, in certain circumstances, be increased for
a specified period of time. As of June 30, 2022, we were in compliance with
applicable covenants under the indenture governing the 2026 Notes.

International Manufacturing Expansion


On February 27, 2022, the Company announced that it has selected King Abdullah
Economic City ("KAEC") in the Kingdom of Saudi Arabia as the location of its
first international manufacturing plant and signed related agreements with the
Ministry of Investment of Saudi Arabia, the Saudi Industrial Development Fund,
and the Economic City at KAEC. The agreements are estimated to provide financing
and incentives of up to $3.4 billion in aggregate over the next 15 years to
build and operate a manufacturing facility in the Kingdom. The operations at the
new plant would initially consist of re-assembly of Lucid Air vehicle "kits"
pre-manufactured in the U.S. and, over time, production of complete vehicles.

Saudi Industrial Development Fund ("SIDF") Loan Agreement


On February 27, 2022, Lucid, LLC, a limited liability company established in the
Kingdom of Saudi Arabia and a subsidiary of the Company ("Lucid LLC") entered
into a loan agreement (as subsequently amended, the "SIDF Loan Agreement") with
the SIDF, an affiliate of Public Investment Fund ("PIF"), which is an affiliate
of Ayar, the controlling stockholder of the Company. Under the SIDF Loan
Agreement, SIDF has committed to provide loans (the "SIDF Loans") to Lucid LLC
in an aggregate principal amount of up to SAR 5.19 billion (approximately $1.4
billion); provided that SIDF may reduce the availability of SIDF Loans under the
facility in certain circumstances. SIDF Loans will be subject to repayment in
semi-annual installments in amounts ranging from SAR 25 million (approximately
$6.7 million) to SAR 350 million (approximately $93.3 million), commencing on
April 3, 2026 and ending on November 12, 2038. SIDF Loans are financing and will
be used to finance certain costs in connection with the development and
construction of the Company's planned manufacturing facility in the Kingdom of
Saudi Arabia ("the KSA Facility"). Lucid LLC may repay SIDF Loans earlier than
the maturity date without penalty. Obligations under the SIDF Loan Agreement do
not extend to the Company or any of its other subsidiaries.

SIDF Loans will not bear interest. Instead, Lucid LLC will be required to pay
SIDF service fees, consisting of follow-up and technical evaluation fees,
ranging, in aggregate, from SAR 415 million (approximately $110.6 million) to
SAR 1.77 billion (approximately $471.7 million), over the term of the SIDF
Loans. SIDF Loans will be secured by security interests in the equipment,
machines and assets funded thereby.

The SIDF Loan Agreement contains certain restrictive financial covenants and
imposes annual caps on Lucid LLC's payment of dividends, distributions of
paid-in capital or certain capital expenditures. The SIDF Loan Agreement also
defines customary events of default, including abandonment of or failure to
commence operations at the plant in KAEC, and drawdowns under the SIDF Loan
Agreement are subject to certain conditions precedent. As of June 30, 2022, no
amounts were outstanding under the SIDF Loan Agreement.

Ministry of Investment of Saudi Arabia ("MISA") Agreements


In February 2022, Lucid LLC entered into certain agreements with MISA, an
affiliate of PIF, under which the Company will receive economic incentives over
time, subject to certain conditions and milestones, in connection with Lucid
LLC's on-going design and construction of the Company's KSA Facility. In the
three and six months ended June 30, 2022, no payments or incentives were
received under these agreements.
                                       42
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Gulf International Bank ("GIB") Facility Agreement


On April 29, 2022, Lucid LLC entered into a revolving credit facility agreement
(the "GIB Facility Agreement") with GIB, maturing on February 28, 2025. GIB is
an affiliate of PIF, which is an affiliate of Ayar, the controlling stockholder
of the Company. The GIB Facility Agreement provides for two committed revolving
credit facilities in an aggregate principal amount of SAR 1 billion
(approximately $266.5 million). SAR $650 million (approximately $173.2 million)
under the GIB Facility Agreement is available as bridge financing (the "Bridge
Facility") of Lucid LLC's capital expenditures in connection with the KSA
Facility. The remaining SAR 350 million (approximately $93.3 million) may be
used for general corporate purposes (the "Working Capital Facility"). Loans
under the Bridge Facility and the Working Capital Facility will have a maturity
of no more than 12 months. The Bridge Facility will bear interest at a rate of
1.25% per annum over 3-month SAIBOR and the Working Capital Facility will bear
interest at a rate of 1.70% per annum over 3-month SAIBOR and associated fees.
The Company is required to pay a quarterly commitment fee of 0.15% per annum
based on the unutilized portion of the GIB Credit Facility. Commitments under
the GIB Facility Agreement will terminate, and all amounts then outstanding
thereunder will become payable, on the maturity date of the GIB Facility
Agreement. The GIB Facility Agreement contains certain conditions precedent to
drawdowns, representations and warranties and covenants of Lucid LLC and events
of default. As of June 30, 2022, the Company had outstanding borrowings of SAR
25 million (approximately $6.7 million) from the Working Capital Facility, which
was recorded within other current liabilities on condensed consolidated balance
sheets. As of June 30, 2022, available borrowings are SAR 650 million
(approximately $173.2 million) and SAR 325 million (approximately $86.6 million)
under the Bridge Facility and Working Capital Facility, respectively. As of
June 30, 2022, we were in compliance with applicable covenants under the GIB
Facility Agreement.

ABL Credit Facility

In June 2022, the Company entered into a new five-year senior secured
asset-based revolving credit facility ("ABL Credit Facility") with a syndicate
of banks that may be used for working capital and general corporate purposes.
The ABL Credit Facility provides for an initial aggregate principal commitment
amount of up to $1.0 billion (including a $350.0 million letter of credit
subfacility and a $100.0 million swingline loan subfacility) and has a stated
maturity date of June 9, 2027. Borrowings under the ABL Credit Facility bear
interest at the applicable interest rates specified in the credit agreement
governing the ABL Credit Facility. Availability under the ABL Credit Facility is
subject to the value of eligible assets in the borrowing base and is reduced by
outstanding loan borrowings and issuances of letters of credit which bear
customary letter of credit fees. Subject to certain terms and conditions, the
Company may request one or more increases in the amount of credit commitments
under the ABL Credit Facility in an aggregate amount up to the sum of $500.0
million plus certain other amounts. The Company is required to pay a quarterly
commitment fee of 0.25% per annum based on the unutilized portion of the ABL
Credit Facility.

The ABL Credit Facility contains customary covenants that limit the ability of
the Company and its restricted subsidiaries to, among other activities, pay
dividends, incur debt, create liens and encumbrances, redeem or repurchase
stock, dispose of certain assets, consummate acquisitions or other investments,
prepay certain debt, engage in transactions with affiliates, engage in sale and
leaseback transactions or consummate mergers and other fundamental changes. The
ABL Credit Facility also includes a minimum liquidity covenant which, at the
Company's option following satisfaction of certain pre-conditions, may be
replaced with a springing, minimum fixed charge coverage ratio ("FCCR")
financial covenant, in each case on terms set forth in the credit agreement
governing the ABL Credit Facility. As of June 30, 2022, we were in compliance
with applicable covenants under the ABL Credit Facility.

As of June 30, 2022, the Company had no outstanding borrowings under the ABL
Credit Facility. Availability under the ABL Credit Facility was $252.9 million
as of June 30, 2022, after giving effect to the borrowing base.

We have generated significant losses from our operations as reflected in our
accumulated deficit of $6.4 billion and $6.1 billion as of June 30, 2022 and
December 31, 2021, respectively. Additionally, we have generated significant
negative cash flows from operations and investing activities as we continue to
support the growth of our business.

The expenditures associated with the development and commercial launch of our
vehicles, the anticipated increase in manufacturing capacity, and the
international expansion of our business operations are subject to significant
risks and uncertainties, many of which are beyond our control, which may affect
the timing and magnitude of these anticipated expenditures. These risk and
uncertainties are described in more detail in the section entitled "Risk
Factors" in Part II, Item 1A.
                                       43
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Cash Flows


The following table summarizes our cash flows for the periods presented (in
thousands):

                                                                            Six Months Ended
                                                                                June 30,
                                                                        2022                 2021
Cash used in operating activities                                  $ (1,008,277)         $ (453,804)
Cash used in investing activities                                    (1,914,123)           (206,514)
Cash (used in) provided by financing activities                        (183,209)            612,105

Net decrease in cash, cash equivalents, and restricted cash $ (3,105,609) $ (48,213)

Cash Used in Operating Activities

Our cash flows used in operating activities to date have been primarily comprised of cash outlays to support overall growth of the business, especially the costs related to inventory and sale of our vehicles, costs related to research and development, payroll and other general and administrative activities. As we continue to ramp up hiring after starting commercial operations, we expect our cash used in operating activities to increase significantly before it starts to generate any material cash flows from our business.


Net cash used in operating activities increased by $554.5 million to $1,008.3
million during the six months ended June 30, 2022, compared to the same period
in the prior year. The increase was primarily due to the increase in net loss
excluding non-cash expenses and gains of $215.1 million and an overall increase
in net operating assets and liabilities of $339.4 million. The change in net
operating assets and liabilities was mainly attributable to an increase in
inventory driven by higher production plan, and other current liabilities
related to operating activities.

Cash Used in Investing Activities


We continue to experience negative cash flows from investing activities as we
expand our business and continue to build our infrastructure. Cash flows from
investing activities primarily relate to purchases of investments and capital
expenditures to support our growth.
Net cash used in investing activities increased by $1,707.6 million to $1,914.1
million during the six months ended June 30, 2022, compared to the same period
in the prior year, primarily attributable to purchases of investments of
$1,419.2 million during the six months ended June 30, 2022 and an increase in
capital expenditures of $288.4 million.

Cash Provided by Financing Activities


Since inception, we have financed our operations primarily from the issuances of
equity securities, including convertible preferred stock, the proceeds of the
Merger, and the 2026 Notes.

Net cash used in financing activities were $183.2 million during the six months
ended June 30, 2022, compared to $612.1 million of net cash provided by
financing activities for the same period in the prior year. The change was
primarily attributable to proceeds from the issuance of Legacy Lucid Series E
preferred stock of $600.0 million during the six months ended June 30, 2021, and
remittance for tax withholding obligations in connection with vesting of the CEO
time-based and performance-based RSUs through net settlement of $189.3 million
during the six months ended June 30, 2022.

Critical Accounting Policies and Estimates


The condensed consolidated financial statements and the related notes thereto
included elsewhere in this Quarterly Report are prepared in accordance with
generally accepted accounting principles in the United States ("U.S. GAAP"). The
preparation of our condensed consolidated financial statements requires us to
make estimates and assumptions that affect the reported amounts and related
disclosures in our financial statements and accompanying notes. We base our
estimates on historical experience and on various other factors that we believe
to be reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying value of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions due to the inherent
uncertainty involved in making those estimates and any such differences may be
material.

For a description of our critical accounting policies and estimates, refer to
Part II, Item 7, Critical Accounting Policies and Estimates in our Annual Report
on Form 10-K for the year ended December 31, 2021 and Note 2 "Summary of
Significant Accounting Policies" to our condensed consolidated financial
statements in Item 1 of Part I of this Quarterly Report. There have been no
material changes to our critical accounting policies and estimates since our
Annual Report on Form 10-K for the year ended December 31, 2021.
                                       44
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Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet activities or have any arrangements or relationships with unconsolidated entities, such as variable interest, special purpose, and structured finance entities.

© Edgar Online, source Glimpses

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