Lucid Group, Inc. 10-K

Item 8. Financial Statements and Supplementary Data. Index of Consolidated Financial Statements for the fiscal years ended December 31, 2022, 2021 and 2020. CONTENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248 ) 87 Consolidated Financial Statements of Lucid Group, Inc. and its consolidated subsidiaries: Consolidated Balance Sheets as of December 31, 2022 and 2021 89 Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2022 , 2021 and 2020 90 Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit) for the years ended December 31, 2022 , 2021 and 2020 91 Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020 92 Notes to Consolidated Financial Statements 94 86 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders Lucid Group, Inc. Opinion on the financial statements We have audited the accompanying consolidated balance sheets of Lucid Group, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 28, 2023 expressed an unqualified opinion. Basis for opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical audit matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Valuation of Inventory – Adjustment to Net Realizable Value As described further in Note 4 to the financial statements, the Company’s inventories totaled approximately $834.4 million as of December 31, 2022, and inventory and firm purchase commitment write-downs during the year ended December 31, 2022 were approximately $569.5 million. As discussed in Note 2 to the financial statements, inventory is reviewed to determine whether its carrying value exceeds the net amount realizable upon the ultimate sale of the inventory. This requires an assessment to determine the selling price of the vehicles less the estimated cost to convert the inventory on-hand into a finished product. The principal consideration for our determination that performing procedures relating to adjustment to reduce inventory to net realizable value is a critical audit matter is the significant judgment exercised by management when developing the estimate, which in turn led to a high degree of auditor judgment and effort to perform procedures and evaluate the audit evidence obtained relating to the significant assumptions regarding production forecasts, future manufacturing and conversion costs and selling price. Our audit procedures related to the Valuation of Inventory – Adjustment to Net Realizable Value included the following, among others: – we tested the design and operating effectiveness of the Company’s internal controls over the process to develop the net realizable value adjustment to inventory – we assessed the reasonableness of the significant assumptions, including evaluating the accuracy, completeness and relevance of management’s data used in developing the assumptions /s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2020. San Francisco, California February 28, 2023 87 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders Lucid Group, Inc. Opinion on internal control over financial reporting We have audited the internal control over financial reporting of Lucid Group, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2022, and our report dated February 28, 2023 expressed an unqualified opinion on those financial statements. Basis for opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and limitations of internal control over financial reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ GRANT THORNTON LLP San Francisco, California February 28, 2023 88 LUCID GROUP, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) December 31, 2022 December 31, 2021 ASSETS Current assets: Cash and cash equivalents $ 1,735,765 $ 6,262,905 Short-term investments 2,177,231 — Accounts receivable, net 19,542 3,148 Inventory 834,401 127,250 Prepaid expenses 63,548 70,346 Other current assets 81,541 43,328 Total current assets 4,912,028 6,506,977 Property, plant and equipment, net 2,166,776 1,182,153 Right-of-use assets 215,160 161,974 Long-term investments 529,974 — Other noncurrent assets 55,300 30,609 TOTAL ASSETS $ 7,879,238 $ 7,881,713 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 229,084 $ 41,342 Accrued compensation 63,322 32,364 Finance lease liabilities, current portion 10,586 4,183 Other current liabilities 634,567 318,212 Total current liabilities 937,559 396,101 Finance lease liabilities, net of current portion 81,336 6,083 Common stock warrant liability 140,590 1,394,808 Long-term debt 1,991,840 1,986,791 Other long-term liabilities 378,212 188,575 Total liabilities 3,529,537 3,972,358 Commitments and contingencies (Note 15) STOCKHOLDERS’ EQUITY Preferred stock, par value $ 0.0001 ; 10,000,000 shares authorized as of December 31, 2022 and 2021; no shares issued and outstanding as of December 31, 2022 and 2021 — — Common stock, par value $ 0.0001 ; 15,000,000,000 shares authorized as of December 31, 2022 and 2021; 1,830,172,561 and 1,648,413,415 shares issued and 1,829,314,736 and 1,647,555,590 shares outstanding as of December 31, 2022 and 2021, respectively 183 165 Additional paid-in capital 11,752,138 9,995,778 Treasury stock, at cost, 857,825 shares at December 31, 2022 and 2021 ( 20,716 ) ( 20,716 ) Accumulated other comprehensive loss ( 11,572 ) — Accumulated deficit ( 7,370,332 ) ( 6,065,872 ) Total stockholders’ equity 4,349,701 3,909,355 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 7,879,238 $ 7,881,713 The accompanying notes are an integral part of these consolidated financial statements. 89 LUCID GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (in thousands, except share and per share data) Year Ended December 31, 2022 2021 2020 Revenue $ 608,181 $ 27,111 $ 3,976 Costs and expenses Cost of revenue 1,646,086 154,897 3,070 Research and development 821,512 750,185 511,110 Selling, general and administrative 734,574 652,475 89,023 Total cost and expenses 3,202,172 1,557,557 603,203 Loss from operations ( 2,593,991 ) ( 1,530,446 ) ( 599,227 ) Other income (expense), net Change in fair value of forward contracts — ( 454,546 ) ( 118,382 ) Change in fair value of convertible preferred stock warrant liability — ( 6,976 ) ( 1,205 ) Change in fair value of common stock warrant liability 1,254,218 ( 582,760 ) — Transaction costs expensed — ( 2,717 ) — Interest income 56,756 — — Interest expense ( 30,596 ) ( 1,374 ) ( 64 ) Other income (expense), net 9,532 ( 893 ) ( 690 ) Total other income (expense), net 1,289,910 ( 1,049,266 ) ( 120,341 ) Loss before provision for (benefit from) income taxes ( 1,304,081 ) ( 2,579,712 ) ( 719,568 ) Provision for (benefit from) income taxes 379 49 ( 188 ) Net loss ( 1,304,460 ) ( 2,579,761 ) ( 719,380 ) Deemed contribution related to repurchase of Series B convertible preferred stock — — 1,000 Deemed contribution related to repurchase of Series C convertible preferred stock — — 12,784 Deemed dividend related to the issuance of Series E convertible preferred stock — ( 2,167,332 ) — Net loss attributable to common stockholders, basic ( 1,304,460 ) ( 4,747,093 ) ( 705,596 ) Change in fair value of dilutive warrants ( 1,254,218 ) — — Net loss attributable to common stockholders, diluted $ ( 2,558,678 ) $ ( 4,747,093 ) $ ( 705,596 ) Weighted average shares outstanding used in computing net loss per share attributable to common stockholders, basic 1,678,346,079 740,393,759 24,825,944 Weighted average shares outstanding used in computing net loss per share attributable to common stockholders, diluted 1,693,258,608 740,393,759 24,825,944 Net loss per share attributable to common stockholders, basic $ ( 0.78 ) $ ( 6.41 ) $ ( 28.42 ) Net loss per share attributable to common stockholders, diluted $ ( 1.51 ) $ ( 6.41 ) $ ( 28.42 ) Other comprehensive loss Net unrealized losses on investments, net of tax $ ( 11,572 ) $ — $ — Comprehensive loss ( 1,316,032 ) ( 2,579,761 ) ( 719,380 ) Deemed contribution related to repurchase of Series B convertible preferred stock — — 1,000 Deemed contribution related to repurchase of Series C convertible preferred stock — — 12,784 Deemed dividend related to the issuance of Series E convertible preferred stock — ( 2,167,332 ) — Comprehensive loss attributable to common stockholders $ ( 1,316,032 ) $ ( 4,747,093 ) $ ( 705,596 ) The accompanying notes are an integral part of these consolidated financial statements. 90 LUCID GROUP, INC. CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) (in thousands, except share data) Convertible Preferred Stock Common Stock Additional Paid-In Capital Treasury Stock Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders’ Equity (Deficit) Shares 1 Amount Shares 1 Amount Balance as of January 1, 2020 502,582,534 $ 1,074,010 21,288,741 $ 2 $ 16,431 $ — $ — $ ( 637,513 ) $ ( 621,080 ) Net loss — — — — — — — ( 719,380 ) ( 719,380 ) Extinguishment and reclassification of Series B convertible preferred stock — ( 4,000 ) — — 1,000 — — — 1,000 Repurchase of Series C convertible preferred stock ( 11,507,389 ) ( 24,885 ) — — 12,784 — — — 12,784 Issuance of Series D convertible preferred stock 164,992,213 400,000 — — — — — — — Settlement of Series D contingent forward contract liability — 39,563 — — — — — — — Issuance of Series E convertible preferred stock 301,092,346 898,932 — — — — — — — Settlement of Series E contingent forward contract liability — 110,456 — — — — — — — Issuance of common stock upon exercise of stock options — — 7,502,961 1 3,284 — — — 3,285 Stock-based compensation — — — — 4,614 — — — 4,614 Balance as of December 31, 2020 957,159,704 2,494,076 28,791,702 3 38,113 — — ( 1,356,893 ) ( 1,318,777 ) Net loss — — — — — — — ( 2,579,761 ) ( 2,579,761 ) Repurchase of Series B convertible preferred stock ( 3,525,365 ) — — — — — — — — Issuance of Series D convertible preferred stock upon exercise of warrants 1,546,799 12,936 — — — — — — — Issuance of Series E convertible preferred stock 200,728,229 3,206,159 — — ( 22,395 ) — — ( 2,129,218 ) ( 2,151,613 ) Stock-based compensation related to Series E convertible preferred stock — 123,614 — — — — — — — Conversion of convertible preferred stock into common stock in connection with the reverse recapitalization ( 1,155,909,367 ) ( 5,836,785 ) 1,155,909,367 116 5,836,669 — — — 5,836,785 Issuance of common stock and common stock warrants upon the reverse recapitalization, net of issuance costs — — 425,395,023 42 3,590,914 — — — 3,590,956 Issuance and sale of common stock for tax withholdings of employee RSUs — — — — ( 22,063 ) — — — ( 22,063 ) Treasury stock repurchase — — ( 857,825 ) — — ( 20,716 ) — — ( 20,716 ) Issuance of common stock upon vesting of employee RSUs — — 601,176 — — — — — — Issuance of common stock upon exercise of common stock warrants — — 26,640,121 3 173,270 — — — 173,273 Redemption of public warrants — — — — ( 4 ) — — — ( 4 ) Issuance of common stock upon exercise of stock options — — 11,076,026 1 8,131 — — — 8,132 Stock-based compensation — — — — 393,143 — — — 393,143 Balance as of December 31, 2021 — — 1,647,555,590 165 9,995,778 ( 20,716 ) — ( 6,065,872 ) 3,909,355 Net loss — — — — — — — ( 1,304,460 ) ( 1,304,460 ) Net unrealized losses on investments, net of tax — — — — — — ( 11,572 ) — ( 11,572 ) Issuance and sale of common stock for tax withholdings of employee RSUs — — — — ( 218,789 ) — — — ( 218,789 ) Issuance of common stock upon vesting of employee RSUs — — 15,217,096 1 ( 1 ) — — — — Issuance of common stock under employee stock purchase plan — — 2,106,158 — 24,562 — — — 24,562 Issuance of common stock upon exercise of stock options — — 22,519,879 2 17,786 — — — 17,788 Issuance of common stock under At-the-Market Offering, net of issuance costs — — 56,203,334 6 594,311 — — — 594,317 Issuance of common stock under Subscription Agreement — — 85,712,679 9 914,991 — — — 915,000 Stock-based compensation — — — — 423,500 — — — 423,500 Balance as of December 31, 2022 — $ — 1,829,314,736 $ 183 $ 11,752,138 $ ( 20,716 ) $ ( 11,572 ) $ ( 7,370,332 ) $ 4,349,701 The accompanying notes are an integral part of these consolidated financial statements. ______________________________________________________________ (1) The number of shares of convertible preferred stock and common stock issued and outstanding prior to the Merger have been retroactively adjusted by the Exchange Ratio (as defined in Note 3 “Reverse Recapitalization”) to give effect to the reverse recapitalization treatment of the Merger. See Note 1 “Description of Business” and Note 3 “Reverse Capitalization” for more information. 91 LUCID GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended December 31, 2022 2021 2020 Cash flows from operating activities Net loss $ ( 1,304,460 ) $ ( 2,579,761 ) $ ( 719,380 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 186,583 62,907 10,217 Amortization of insurance premium 35,620 18,474 — Non-cash operating lease cost 19,711 12,563 — Stock-based compensation 423,500 516,757 4,614 Inventory and firm purchase commitments write-downs 569,479 48,884 — Change in fair value of contingent forward contract liability — 454,546 118,382 Change in fair value of preferred stock warrant liability — 6,976 1,205 Change in fair value of common stock warrant liability ( 1,254,218 ) 582,760 — Other non-cash items ( 10,342 ) 289 139 Changes in operating assets and liabilities: Accounts receivable ( 16,498 ) ( 2,888 ) 148 Inventory ( 1,256,349 ) ( 175,091 ) ( 359 ) Prepaid expenses ( 28,822 ) ( 66,980 ) 7,770 Other current assets ( 43,591 ) ( 14,704 ) 7,360 Other noncurrent assets ( 43,230 ) 5,889 2,866 Accounts payable 180,469 4,354 ( 69,861 ) Accrued compensation 30,958 16,167 13,249 Operating lease liability ( 15,482 ) ( 10,019 ) — Other current liabilities 269,386 65,456 53,454 Other long-term liabilities 31,028 ( 4,712 ) — Net cash used in operating activities ( 2,226,258 ) ( 1,058,133 ) ( 570,196 ) Cash flows from investing activities: Purchases of property, plant and equipment ( 1,074,852 ) ( 421,220 ) ( 459,582 ) Proceeds from sale of property, plant and equipment — 22 — Proceeds from government grant 97,267 — — Purchases of investments ( 3,854,129 ) — — Proceeds from maturities of investments 1,149,714 — — Proceeds from sale of short term investments — 505 — Proceeds from insurance claims 323 — — Net cash used in investing activities ( 3,681,677 ) ( 420,693 ) ( 459,582 ) Cash flows from financing activities: Proceed from issuance of convertible notes, net of issuance costs — 2,002,437 — Payment of transaction costs for the issuance of convertible notes — ( 15,883 ) — Proceeds from issuance of common stock under At-the-Market Offering, net of issuance costs 594,317 — — Proceeds from issuance of common stock under Subscription Agreement 915,000 — — Proceeds from short-term insurance financing note — 41,935 — Payment for short-term insurance financing note ( 15,330 ) ( 27,887 ) — Payment for capital lease liabilities — — ( 364 ) Payment for finance lease liabilities ( 4,977 ) ( 3,088 ) — Proceeds from borrowings 29,818 — — Repayments for borrowings ( 20,223 ) — — Proceeds from failed sale-leaseback transaction 31,700 — — Repurchase of Series B convertible preferred stock — ( 3,000 ) — Repurchase of Series C convertible preferred stock — — ( 12,101 ) Proceeds from issuance of Series D convertible preferred stock — 3,000 400,000 Proceeds from issuance of Series E convertible preferred stock — 600,000 899,725 Proceeds from exercise of stock options 17,788 8,132 3,285 Proceeds from the exercise of public warrants — 173,273 — Proceeds from the reverse capitalization — 4,439,153 — Payment of transaction costs related to the reverse recapitalization — ( 38,865 ) — Proceeds from employee stock purchase plan 24,562 — — Treasury stock repurchase — ( 20,716 ) — Stock repurchases from employees for tax withholdings ( 218,789 ) ( 22,063 ) — Payment for credit facility issuance costs ( 6,631 ) — — Net cash provided by financing activities 1,347,235 7,136,428 1,290,545 Net (decrease) increase in cash, cash equivalents, and restricted cash ( 4,560,700 ) 5,657,602 260,767 Beginning cash, cash equivalents, and restricted cash 6,298,020 640,418 379,651 Ending cash, cash equivalents, and restricted cash $ 1,737,320 $ 6,298,020 $ 640,418 The accompanying notes are an integral part of these consolidated financial statements. 92 LUCID GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS - continued (in thousands) Year Ended December 31, 2022 2021 2020 Supplemental disclosure of cash flow information: Cash paid for interest, net of amounts capitalized $ 23,199 $ 627 $ 51 Cash paid for taxes 480 — — Supplemental disclosure of non-cash investing and financing activity: Increases in purchases of property, plant and equipment included in Accounts payable and accrued expenses 42,728 101,057 117,946 Property, plant and equipment and Right-of-use assets obtained through leases 157,894 93,771 3,289 Extinguishment of Series B convertible preferred stock included in Additional paid-in capital — — 1,000 Extinguishment of Series B convertible preferred stock included in accrued liabilities — — 3,000 Issuance of Series D convertible preferred stock upon settlement of contingent forward contracts — — 39,563 Issuance of Series D convertible preferred stock upon exercise of preferred stock warrants — 9,936 — Issuance of Series E convertible preferred stock contingent forward contracts — 2,167,332 793 Settlement of Series E convertible preferred stock contingent forward contract — — 110,456 Capital contribution upon forfeit of Series E awards — 15,719 — Issuance of Series E convertible preferred stock upon settlement of contingent forward contracts — 2,621,877 — Issuance of common stock upon conversion of preferred stock in connection with the reverse recapitalization — 5,836,785 — The accompanying notes are an integral part of these consolidated financial statements. 93 LUCID GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 NOTE 1 – DESCRIPTION OF BUSINESS Overview Lucid Group, Inc. (“Lucid”) is a technology and automotive company focused on designing, developing, manufacturing, and selling the next generation of electric vehicles (“EV”), EV powertrains and battery systems. Lucid was originally incorporated in Delaware on April 30, 2020 under the name Churchill Capital Corp IV (formerly known as Annetta Acquisition Corp) (“Churchill”) as a special purpose acquisition company with the purpose of effecting a merger with one or more operating businesses. On February 22, 2021, Churchill entered into a definitive merger agreement (the “Merger Agreement”) with Atieva, Inc. (“Legacy Lucid”) in which Legacy Lucid would become a wholly owned subsidiary of Churchill (the “Merger”). Upon the closing of the Merger on July 23, 2021 (the “Closing”), Churchill was immediately renamed to “Lucid Group, Inc.” The Merger between Churchill and Legacy Lucid was accounted for as a reverse recapitalization. See Note 3 “Reverse Recapitalization” for more information. Throughout the notes to the consolidated financial statements, unless otherwise noted, the “Company,” “we,” “us” or “our” and similar terms refer to Legacy Lucid and its subsidiaries prior to the consummation of the Merger, and Lucid and its subsidiaries after the consummation of the Merger. Liquidity The Company devotes its efforts to business planning, research and development, recruiting of management and technical staff, acquiring operating assets, and raising capital. From inception through December 31, 2022, the Company has incurred operating losses and negative cash flows from operating activities. For the years ended December 31, 2022, 2021 and 2020, the Company has incurred net losses of $ 1.3 billion, $ 2.6 billion and $ 719.4 million, respectively. The Company has an accumulated deficit of $ 7.4 billion as of December 31, 2022. During the quarter ended June 30, 2021, the Company completed the first phase of the construction of its Advanced Manufacturing Plant 1 in Casa Grande, Arizona (“AMP-1”). The Company began commercial production of its first vehicle, Lucid Air, in September 2021 and delivered its first vehicles in late October 2021. The Company continues to expand AMP-1, construct its planned Advanced Manufacturing Plant 2 in Saudi Arabia (“AMP-2”), and build a network of retail sales and service locations. The Company has plans for continued development of additional vehicle model types for future release. The aforementioned activities will require considerable capital, above and beyond the expected cash inflows from the initial sales of Lucid Air. As such, the future operating plan involves considerable risk if secure funding sources are not identified and confirmed. The Company’s existing sources of liquidity include cash, cash equivalents, investments, credit facilities and equity offering. Historically, the Company funded operations primarily with issuances of convertible preferred stock and convertible notes. Upon the completion of the Merger, the Company received $ 4,400.3 million in cash proceeds, net of transaction costs. In December 2021, the Company issued an aggregate of $ 2,012.5 million principal amount of 1.25 % convertible senior notes due in December 2026. During the year ended December 31, 2022, the Company entered into a loan agreement with the Saudi Industrial Development Fund (“SIDF”) with an aggregate principal amount of up to approximately $ 1.4 billion, revolving credit facilities with Gulf International Bank (“GIB”) in an aggregate principal amount of approximately $ 266.1 million and a new five-year senior secured asset-based revolving credit facility (“ABL Credit Facility”) with an initial aggregate principal commitment amount of up to $ 1.0 billion. See Note 6 “Debt” for more information. On November 8, 2022, the Company entered into an equity distribution agreement (the “Equity Distribution Agreement”) with BofA Securities, Inc., Barclays Capital Inc. and Citigroup Global Markets Inc., under which the Company could offer and sell shares of its common stock having an aggregate offering price up to $ 600.0 million (the “At-the-Market Offering”). On November 8, 2022, the Company also entered into a subscription agreement (the “Subscription Agreement”) with Ayar Third Investment Company, the controlling stockholder of the Company (“Ayar”), pursuant to which Ayar agreed to purchase from the Company, up to $ 915.0 million of shares of its common stock in one or more private placements through March 31, 2023. In December 2022, the Company completed its At-the-Market Offering program pursuant to the Equity Distribution Agreement for net proceeds of $ 594.3 million after deducting commissions and other issuance costs and also consummated a private placement of shares to Ayar pursuant to the Subscription Agreement for $ 915.0 million. No shares remain available for sale under the Equity Distribution Agreement. See Note 11 “Stockholders’ Equity” for more information. 94 Certain Significant Risks and Uncertainties The Company’s current business activities consist of (i) generating sales from the deliveries and service of vehicles, (ii) research and development efforts to design, engineer and develop high-performance fully electric vehicles and advanced electric vehicle powertrain components, including battery pack systems, (iii) expanding production and manufacturing at existing manufacturing facilities in Casa Grande, Arizona, (iv) phase 2 of construction at AMP-1 in Casa Grande, Arizona, (v) the construction of AMP-2 in Saudi Arabia, and (vi) expansion of its retail studios and service centers capabilities throughout North America and across the globe. The Company is subject to the risks associated with such activities, including the need to further develop its technology, its marketing, and distribution channels; further develop its supply chain and manufacturing; and hire additional management and other key personnel. Successful completion of the Company’s development program and, ultimately, the attainment of profitable operations are dependent upon future events, including our ability to access potential markets, and secure long-term financing. The Company participates in a dynamic high-technology industry. Changes in any of the following areas could have a material adverse impact on the Company’s future financial position, results of operations, and/or cash flows: changes in the overall demand for its products and services; advances and trends in new technologies; competitive pressures; acceptance of the Company’s products and services; litigation or claims against the Company based on intellectual property (including patents), regulatory, or other factors; and the Company’s ability to attract and retain employees necessary to support its growth. A global economic recession or other downturn, whether due to inflation, ongoing conflict in Ukraine or other geopolitical events, COVID-19 or other public health crises, interest rate increases or other policy actions by major central banks, or other factors, may have an adverse impact on the Company’s business, prospects, financial condition and results of operations. Adverse economic conditions as well as uncertainty about the current and future global economic conditions may cause the Company’s customers to defer purchases or cancel their reservations and orders in response to higher interest rates, availability of consumer credit, decreased cash availability, fluctuations in foreign currency exchange rates, and weakened consumer confidence. Reduced demand for the Company’s products may result in significant decreases in product sales, which in turn would have a material adverse impact on the Company’s business, prospects, financial condition and results of operations. Because of the Company’s premium brand positioning and pricing, an economic downturn is likely to have a heightened adverse effect on the Company compared to many of its electric vehicle and traditional automotive industry competitors, to the extent that consumer demand for luxury goods is reduced in favor of lower-priced alternatives. In addition, any economic recession or other downturn could also cause logistical challenges and other operational risks if any of the Company’s suppliers, sub-suppliers or partners become insolvent or are otherwise unable to continue their operations, fulfill their obligations to the Company, or meet the Company’s future demand. In addition, the deterioration of conditions in global credit markets may limit the Company’s ability to obtain external financing to fund its operations and capital expenditures on terms favorable to the Company, if at all. See “Risk Factors” in Item 1A of Part I of this Annual Report on Form 10-K (the “Annual Report”) for more information regarding risks associated with a global economic recession, including under the caption “ A global economic recession or other downturn may have a material adverse impact on our business, prospects, results of operations and financial condition . ” The COVID-19 pandemic has impacted the global economy and caused significant macroeconomic uncertainty. Infection rates vary across the jurisdictions in which the Company operates. The Company has taken proactive action and expects to continue to implement appropriate measures to protect the health and safety of its employees, customers, partners and suppliers, consistent with the latest and evolving governmental guidelines. The Company continues to monitor the 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 the Company otherwise sees fit to protect the health and safety of its employees, customers, partners and suppliers. While certain of the Company and its suppliers’ operations have from time-to-time been temporarily affected by government-mandated restrictions, the Company was able to commence and continue deliveries of Lucid Air to customers and to proceed with the construction of AMP-1 and AMP-2. Broader impacts of the pandemic have included inflationary pressure as well as ongoing, industry-wide challenges in logistics and supply chains, such as increased supplier lead times and ongoing constraints of semiconductor supply. Because the Company relies on third party suppliers for the development, manufacture, and/or provision and development of many of the key components and materials used in its vehicles, as well as provisioning and servicing equipment in its manufacturing facilities, the Company has been affected by inflation and such industry-wide challenges in logistics and supply chains. While the Company continues to focus on mitigating risks to its operations and supply chain in the current industry environment, the Company expects that these industry-wide trends will continue to impact its cost structure as well as its ability and the ability of its suppliers to obtain parts, components and manufacturing equipment on a timely basis for the foreseeable future. In the current circumstances, any impact on the Company’s 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. See “Risk Factors” in Item 1A of Part I of this Annual Report for additional information regarding risks associated with the COVID-19 pandemic, including under the caption “ The COVID-19 pandemic has adversely affected, and we cannot predict its ultimate impact on, our business, prospects, results of operations and financial condition. ” 95 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Principles of Consolidation The accompanying consolidated financial statements included herein have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Certain prior-period amounts have been reclassified in the accompanying consolidated financial statements and notes thereto in order to conform to the current period presentation. Segment Reporting Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The Company’s CODM is its Chief Executive Officer. The Company has determined that it operates in one operating and reporting segment and one reportable segment, as the CODM reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Significant estimates, assumptions and judgments made by management include, among others, inventory valuation, warranty reserve, the useful lives of property, plant and equipment, fair value of common stock warrants, fair value of contingent forward contracts liability, estimates of residual value guarantee (“RVG”) liability and deferred revenue related to over-the-air (“OTA”) software updates, fair value of common stock prior to the Merger and other assumptions used to measure stock-based compensation expense, and estimated incremental borrowing rates for assessing operating and financing leases. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. The Company adjusts such estimates and assumptions when facts and circumstances dictate. Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods. Cash, Cash Equivalents and Restricted Cash The Company considers all highly liquid investments with an original maturity at the date of purchase of three months or less to be cash equivalents. Restricted cash in Other current assets and Other noncurrent assets is primarily related to letters of credit issued to the landlords for certain of the Company’s leased facilities. The following table provides a reconciliation of cash, cash equivalents, and restricted cash to amounts shown in the statements of cash flows (in thousands): December 31, 2022 2021 2020 Cash and cash equivalents $ 1,735,765 $ 6,262,905 $ 614,412 Restricted cash included in Other current assets 1,555 10,740 11,278 Restricted cash included in Other noncurrent assets — 24,375 14,728 Total cash, cash equivalents, and restricted cash $ 1,737,320 $ 6,298,020 $ 640,418 Investments The Company’s investments in marketable debt securities have been classified and accounted for as available-for-sale and they are stated at fair value. The Company classifies its investments as either short-term or long-term based on each instrument’s underlying contractual maturity date. Unrealized gains and losses on our investments of available-for-sale securities are recorded in Accumulated other comprehensive loss which is included within stockholders’ equity. Interest, as well as amortization and accretion of purchase premiums and discounts on our investments of available-for-sale securities are included in Interest income. The cost of securities sold is determined using the specific identification method. Realized gains and losses on the sale of available-for-sale securities are recorded in Other income (expense), net. 96 Accounts Receivable, Net Accounts receivable consist of receivables from our customers and from financial institutions offering financing products to our customers for the sale of vehicles, sales of powertrain kits and services. The Company provides an allowance against accounts receivable for any potential uncollectible amounts. The Company recorded an immaterial allowance for uncollectible amounts as of December 31, 2022. No allowance was recorded at December 31, 2021. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentration of credit risk consist of cash, cash equivalents, and investments. The Company places its cash primarily with domestic financial institutions that are federally insured within statutory limits, but at times its deposits may exceed federally insured limits. Concentration of Supply Risk The Company is dependent on its suppliers, the majority of which are single-source suppliers, and the inability of these suppliers to deliver necessary components of its products according to the schedule and at prices, quality levels and volumes acceptable to the Company, or its inability to efficiently manage these components, could have a material adverse effect on the Company’s results of operations and financial condition. Inventory Inventories are stated at the lower of cost or net realizable value. Cost is computed using standard cost for vehicles, which approximates actual cost on a first-in, first-out basis. The Company records inventory write-downs for excess or obsolete inventories based upon assumptions about current and future demand forecasts. If inventory on-hand is in excess of future demand forecast, the excess amounts are written-off. Inventory is also reviewed to determine whether its carrying value exceeds the net amount realizable upon the ultimate sale of the inventory. This requires an assessment to determine the selling price of the vehicles less the estimated cost to convert the inventory on-hand into a finished product. Once inventory is written down, a new, lower cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis. In the event there are changes in our estimates of future selling prices or production costs, the Company may be required to record additional and potentially material write-downs. Property, Plant, and Equipment, Net Property, plant, and equipment are stated at cost, less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the related assets. We capitalize qualified costs incurred during the application development stage of internal use software. Costs incurred during the preliminary project stage and post-implementation stage are expensed. The Company generally uses the following estimated useful lives for each asset category: Asset Category Life (years) Machinery, Tooling & Vehicles 3 - 7 Computer equipment and software 3 Furniture and fixtures 5 Finance leases Shorter of the lease term or the estimated useful lives of the assets Building and Improvements 40 Leasehold improvements Shorter of the lease term or the estimated useful lives of the assets Expenditures for repair and maintenance costs are expensed as incurred, and expenditures for major renewals and improvements that increase functionality of the asset are capitalized and depreciated ratably over the identified useful life. Upon disposition or retirement of property and equipment, the related cost and accumulated depreciation and amortization are removed, and any gain or loss is reflected in operations. The disposition loss on fixed assets recorded for the years ended December 31, 2022, 2021 and 2020 was immaterial. 97 Impairment of Long-Lived Assets Long-lived assets, including property, plant and equipment and right-of-use (“ROU”) assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for potential impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent the carrying amount of the underlying asset exceeds its fair value. Impairment loss recognized was immaterial for the year ended December 31, 2022 , and no impairment loss was recognized for the years ended December 31, 2021 and 2020 . Foreign Currency The Company determines the functional currency of our foreign subsidiaries based on the primary currency in which they operate. The Company translates all assets and liabilities of foreign subsidiaries to U.S. dollars at the current exchange rate as of each balance sheet date. Revenue and expenses are translated at the average exchange rate prevailing during the period. Any resulting translation adjustments are included in Accumulated other comprehensive loss. The assets and liabilities of foreign subsidiaries whose local currency is not their functional currency are remeasured from their local currency to their functional currency and then translated to U.S. Dollars. Foreign currency transaction gains and losses are a result of the effect of exchange rate changes on transactions denominated in currencies other than the functional currency. Gains and losses arising from foreign currency transactions and the effects of remeasurements are recorded within Other income (expense), net within the Company’s Consolidated Statements of Operations and Comprehensive Loss. Foreign currency transaction gains and losses were not material for the years ended December 31, 2022, 2021 and 2020. Revenue from Contracts with Customers The Company follows a five-step process in which the Company identifies the contract, identifies the related performance obligations, determines the transaction price, allocates the transaction price to the identified performance obligations, and recognizes revenue when (or as) the performance obligations are satisfied. Vehicle Sales Vehicle Sales without Residual Value Guarantee Vehicle sales revenue is generated from the sale of electric vehicles to customers. There are two performance obligations identified in vehicle sale arrangements. These are the vehicle including an onboard advanced driver assistance system (“ADAS”), and the right to unspecified OTA software updates to be provided as and when available over the term of the basic vehicle warranty, which is generally 4 years. Shipping and handling provided by Company is considered a fulfillment activity. Payment is typically received at or prior to the transfer of control of the vehicle to the customer. Generally, control transfers to the customer at the time of delivery when the customer takes physical possession of the vehicle, which may be at a Lucid studio or other destination chosen by the customer. The Company’s vehicle contracts do not contain a significant financing component. The Company has elected to exclude sales taxes from the measurement of the transaction price. The Company estimates the standalone selling price of all performance obligations by considering costs used to develop and deliver the good or service, third-party pricing of similar goods or services and other information that may be available. The transaction price is allocated among the performance obligations in proportion to the standalone selling price of the Company’s performance obligations. The Company recognizes revenue related to the vehicle when the customer obtains control of the vehicle which occurs at a point in time either upon completion of delivery to the agreed upon delivery location or upon pick up of the vehicle by the customer. As the unspecified OTA software updates are provided when-and-if they become available, revenue related to OTA software updates is recognized ratably over the basic vehicle warranty term, commencing when control of the vehicle is transferred to the customer. At the time of revenue recognition, we reduce the transaction price and record a sales return reserve against revenue for estimated variable consideration related to future product returns. Such return rate estimates are based on historical experience and were immaterial for the years ended December 31, 2022 and 2021. The Company provides a manufacturer’s warranty on all vehicles sold. The warranty covers the rectification of reported defects via repair, replacement, or adjustment of faulty parts or components. The warranty does not cover any item where failure is due to normal wear and tear. This assurance-type warranty does not create a performance obligation separate from the vehicle. The estimated cost of the assurance-type warranty is accrued at the time of vehicle sale. 98 Vehicle Sales with Residual Value Guarantee The Company provides an RVG to its commercial banking partner in connection with its vehicle leasing program. Under the vehicle leasing program, the Company generally receives full payment for the vehicle sales price at the time of delivery or shortly after delivery, does not bear casualty and credit risks during the lease term, and is contractually obligated (or entitled) to share a portion of the shortfall (or excess) between the resale value realized by the commercial banking partner and a predetermined resale value. During the year ended December 31, 2022, vehicle sales with RVG totaled $ 31.1 million. At the lease inception, the Company is required to deposit cash collateral equal to a contractual percentage of the residual value of the leased vehicles with the commercial banking partner. The cash collateral is held in a restricted bank account owned by the commercial banking partner until it is used, as applicable, in settlement of the RVG at the end of the lease term. Cash collateral is recorded in Other noncurrent assets, subject to asset impairment review at each reporting period. The Company accounts for the vehicle leasing program in accordance with ASC 842, Leases, ASC 460, Guarantees and ASC 606, Revenue from Contracts with Customers . The Company is the lessor at inception of a lease and immediately transfers the lease as well as the underlying vehicle to its commercial banking partner, with the transaction being accounted for as a sale under ASC 606. The Company recognizes revenue when control transfers upon delivery when the consumer-lessee takes physical possession of the vehicle, and bifurcates the RVG at fair value and accounts for it as a guarantee liability. The remaining amount of the transaction price is allocated among the performance obligations, including the vehicle, the right to unspecified OTA software updates and remarketing activities, in proportion to the standalone selling price of the Company’s performance obligations. The guarantee liability represents the estimated amount the Company expects to pay at the end of the lease term. The Company is released from residual risk upon either expiration or settlement of the RVG. The Company evaluates variables such as third-party residual value publications, risk of future price deterioration due to changes in market conditions and reconditioning costs to determine the estimated residual value guarantee liability. As of December 31, 2022, the RVG liability was not material. As we accumulate more data related to the resale value of our vehicles or as market conditions change, there could be material changes to the estimated guarantee liabilities. Deferred revenue related to OTA and remarketing activities for vehicle sales were $ 15.4 million as of December 31, 2022 and was immaterial as of December 31, 2021. Other Other consists of revenue from non-warranty after-sales vehicle services, sales of battery pack system, powertrain kits and retail merchandise. Battery pack system and powertrain kits revenue consists of the sales of battery pack systems or powertrain kits, supplies and related services for vehicles. The sale of battery pack systems or powertrain kits along with related supplies is a single performance obligation recognized at the point in time when control is transferred to the customer. Shipping and handling provided by the Company is considered a fulfillment activity. While customers generally have the right to return defective or non-conforming products, past experience has demonstrated that product returns have been immaterial. Customer remedies may include either a cash refund or an exchange of the returned product. As a result, the right of return and related refund liability for non-conforming or defective goods is estimated and recorded as a reduction in revenue, if necessary. Payment for the products sold are made upon invoice or in accordance with payment terms customary to the business. The Company’s battery pack system or powertrain kits contracts do not contain a significant financing component. The Company has elected to exclude sales taxes from the measurement of the transaction price. Control transfers to the customer when the product is delivered to the customer as the customer can then direct the product’s use and obtain substantially all of the remaining benefits from the asset at that point in time. Cost of Revenue Vehicle Sales Cost of vehicle sales includes 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, charges to reduce inventories to their net realizable value, charges for any excess or obsolete inventories, and losses from firm purchase commitments. Other Cost of other revenue includes direct parts, material and labor costs, manufacturing overhead, including amortized tooling costs, shipping and logistic costs. Cost of other revenue also includes costs associated with providing non-warranty after-sales services and costs for retail merchandise. 99 Warranties The Company provides a manufacturer’s warranty on all vehicles it sells and accrues a warranty reserve for warranty coverage, as applicable. These estimates are based on actual claims incurred to date and an estimate of the nature, frequency, and costs of future claims. The Company accrues a warranty reserve for all products sold which includes the Company’s best estimates of the projected costs to repair or replace items under warranties and recalls when identified. Changes to the Company’s historical or projected warranty experience may cause material changes to the warranty reserve in the future. The portion of the warranty reserve for costs expected to be incurred within the next 12 months is included within Other current liabilities, while the remaining balance is included within Other long-term liabilities in the consolidated balance sheets. The warranty expense is recorded as a component of Cost of revenue in the consolidated statements of operations and comprehensive loss. Income Taxes The Company utilizes the liability method to account for income taxes, under which deferred tax assets and liabilities arise from the temporary differences between the tax basis of an asset or liability and its reported amount in the consolidated financial statements, as well as from net operating loss and tax credit carryforwards. Deferred tax amounts are determined by using the tax rates expected to be in effect when the taxes will actually be paid, or refunds received, as provided for under currently enacted tax law. The Company recognizes deferred tax assets to the extent that these assets are more likely than not to be realized. In making such a determination, all available positive and negative evidence are considered, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If it is determined that deferred tax assets would be realized in the future in excess of their net recorded amount, an adjustment would be made to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. The Company records uncertain tax positions on the basis of a two-step process which includes (1) determining whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position , and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company’s policy is to recognize interest related to unrecognized tax benefits in Other income (expense), net and to recognize penalties in general and administrative expenses in the consolidated statements of operations and comprehensive loss. Accrued interest and penalties are included within Other current liabilities in the consolidated balance sheets. Stock-Based Compensation The Company issues stock-based compensation awards to employees, officers, directors, and non-employees in the form of stock options, restricted stock units (“RSUs”) and employee stock purchase plan (the “ESPP”). The Company measures and recognizes compensation expense for stock-based awards based on the awards’ fair value on the date of grant. The Company accounts for forfeitures of stock-based awards when they occur. The fair value of RSUs granted prior to the Closing of the Merger that vest based on service and performance conditions and RSUs granted after Closing of the Merger that vest only based on service conditions, is measured using the fair value of the Company’s common stock on the date of the grant. The fair value of RSUs that vest based on service and market conditions is measured using a Monte Carlo simulation model on the date of grant. The fair value of stock options that vest based on service condition is measured using the Black-Scholes option pricing model on the date of grant. The Monte Carlo simulation model and the Black-Scholes option pricing model requires the input of highly subjective assumptions, including the fair value of the Company’s common stock, the expected term of the award, the expected volatility of the Company’s common stock, risk-free interest rates, and the expected dividend yield of the Company’s common stock. The assumptions used to determine the fair value of the awards represent management’s best estimates. These estimates involve inherent uncertainties and the application of management’s judgment. The fair value of awards that vest based on only continuous service are recognized on a straight-line basis over the requisite service period. The fair value of awards that vest based on performance or market conditions is recognized over the requisite service period using the accelerated attribution method. Stock-based compensation expense is only recognized for awards with performance conditions once the performance condition becomes probable of being achieved. The performance-based vesting condition was satisfied upon the Closing of the Merger . The market-based RSUs will vest only if the Company achieves certain market capitalization targets. Comprehensive Loss Comprehensive loss is composed of two components: net loss and other comprehensive income (loss). Other comprehensive income (loss) refers to net unrealized gains or losses on investments that are recorded as an element of stockholders’ equity and are excluded from the determination of net loss. 100 Research and Development Research and development expenses consist primarily of materials, supplies, personnel-related expenses, contractor fees, engineering design and testing expenses, and allocated facilities cost. Substantially all of the Company’s research and development expenses are related to developing new products, related technologies, and services and improving existing products and services. Research and development expenses have been expensed as incurred and included in the consolidated statements of operations and comprehensive loss. Selling, General, and Administrative Selling, general and administrative expense consist 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. Advertising Advertising is expensed as incurred and is included in sales and marketing expenses in the consolidated statements of operations and comprehensive loss. These costs were not material for the years ended December 31, 2022, 2021 and 2020, respectively. Leases As of January 1, 2021, the Company adopted ASU 2016-02, Leases, and all related guidance (“ASC 842”) and recorded a ROU asset and a corresponding lease liability in our consolidated balance sheets for all eligible leases with terms longer than 12 months or less if the lease contains a purchase option or renewal term that the Company is reasonably certain to exercise. The Company has lease agreements with lease and non-lease components and has elected not to utilize the practical expedient to account for lease and non-lease components together, rather the Company is accounting for the lease and non-lease components separately on the consolidated financial statements. Operating lease assets are included within operating lease ROU assets. Finance lease assets are included within Property, plant and equipment, net. The corresponding operating lease liabilities are included within Other current liabilities and Other long-term liabilities; the finance lease liabilities are included within Finance lease liabilities, current portion and Finance lease liabilities, net of current portion on the Company’s consolidated balance sheets as of December 31, 2022 and 2021. All other lease assets and lease liabilities are recognized based on the present value of lease payments over the lease term at the later of ASC 842 adoption date or lease commencement date. The Company estimates the Company’s incremental borrowing rate based on the information available at adoption date or lease commencement date in determining the present value of lease payments. Commitments and Contingencies Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount within a range of loss can be reasonably estimated. When no amount within the range is a better estimate than any other amount, the Company accrues for the minimum amount within the range. Legal costs incurred in connection with loss contingencies are expensed as incurred. Net Loss Per Share Basic and diluted net loss per share attributable to common stockholders is computed in conformity with the two-class method required for participating securities. The Company considers all series of its convertible preferred stock to be participating securities as the holders of such shares have the right to receive nonforfeitable dividends on a pari passu basis in the event that a dividend is paid on common stock. Under the two-class method, the net loss attributable to common stockholders is not allocated to the convertible preferred stock as the preferred stockholders do not have a contractual obligation to share in the Company’s losses. Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by giving effect to all potentially dilutive common share equivalents to the extent they are dilutive. Potentially dilutive shares of Private Placement Warrants under treasury stock method are included in the computation of diluted net loss per share when their effect is dilutive. For purposes of this calculation, convertible preferred stock, convertible preferred stock warrants, Private Placement Warrants, stock options outstanding, RSUs outstanding, shares issued under ESPP and if-converted common shares from convertible note are considered to be common stock equivalents. 101 Common Stock Warrants The Company accounts for warrants for shares of the Company’s common stock that are not indexed to its own stock as liabilities at fair value on the balance sheet. Liability-classified common stock warrants are subject to remeasurement to fair value as of any respective exercise date and as of each subsequent balance sheet date with changes in fair value recorded in the Company’s statement of operations and comprehensive loss. For issued or modified common stock warrants outstanding that meet all of the criteria for equity classification, the common stock warrants are recorded as a component of Additional paid-in capital and are not remeasured to fair value in subsequent reporting periods. The Company’s publicly traded common stock warrants (the “Public Warrants”) are equity-classified instruments because they are deemed indexed to the Company’s own common stock and do not contain any provision that could require net cash settlement unless the holders of the underlying shares would also receive the same form of consideration as the holders of Public Warrants. The Company’s privately placed common stock warrants (the “Private Placement Warrants”) are liability-classified instruments because they are not deemed indexed to the Company’s own common stock. Government Grants Government grants are recognized when the grants are received, and all the conditions specified in the grant have been met. Grants related to fixed assets are recorded as a deduction in calculating the carrying amount of the related assets and are recognized in profit or loss over the life of a depreciable asset through reduced depreciation expense. Grants received in advance of the acquisition or construction of assets are recorded initially in deferred liability and then as a deduction in calculating the carrying amount of the related fixed assets upon acquisition or construction of the assets. Grant receipts are classified as investing cash inflows on a gross basis on the consolidated statements of cash flows. Recently Adopted Accounting Pronouncements In November 2021, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, which requires annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. The disclosure requirements include information about the nature of the transactions and the related accounting policy, the line items on the balance sheet and income statement that are affected by the transactions, the amount applicable to each financial statement line and significant terms and conditions of the transactions. The guidance is effective for annual periods beginning after December 15, 2021 and can be applied either prospectively or retrospectively. The Company adopted ASU 2021-10 prospectively on January 1, 2022. The adoption of this guidance did not have a material impact to the consolidated financial statements and related disclosures. Recently Issued Accounting Pronouncements Not Yet Adopted In November 2021, FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination on the acquisition date in accordance with Topic 606, as if the acquirer had originated the contracts. This guidance is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years, and should be applied prospectively. The Company does not expect this guidance to have a material impact to the consolidated financial statements. The Company has considered all other recently issued accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact on its financial statements or notes thereto. NOTE 3 – REVERSE RECAPITALIZATION On July 23, 2021, upon the consummation of the Merger, all holders of 451,295,965 issued and outstanding Legacy Lucid common stock received shares of Lucid common stock at a deemed value of $ 10.00 per share after giving effect to the exchange ratio of 2.644 (the “Exchange Ratio”) resulting in 1,193,226,511 shares of Lucid common stock issued and outstanding as of the Closing and all holders of 42,182,931 issued and outstanding Legacy Lucid equity awards received Lucid equity awards covering 111,531,080 shares of Lucid common stock at a deemed value of $ 10.00 per share after giving effect to the Exchange Ratio, based on the following events contemplated by the Merger Agreement: • the cancellation and conversion of all 437,182,072 issued and outstanding shares of Legacy Lucid preferred stock into 437,182,072 shares of Legacy Lucid common stock at the conversion rate as calculated pursuant to Legacy Lucid’s memorandum and articles of association at the date and time that the Merger became effective; • the surrender and exchange of all 451,295,965 issued and outstanding shares of Legacy Lucid common stock (including Legacy Lucid common stock resulting from the conversion of the Legacy Lucid preferred stock) into 1,193,226,511 shares of Lucid common stock as adjusted by the Exchange Ratio; 102 • the cancellation and exchange of all 25,764,610 granted and outstanding vested and unvested Legacy Lucid Options, which became 68,121,210 Lucid Options exercisable for shares of Lucid common stock with the same terms and vesting conditions except for the number of shares exercisable and the exercise price, each of which was adjusted by the Exchange Ratio; and • the cancellation and exchange of all 16,418,321 granted and outstanding vested and unvested Legacy Lucid RSUs, which became 43,409,870 Lucid RSUs for shares of Lucid common stock with the same terms and vesting conditions except for the number of shares, which was adjusted by the Exchange Ratio. The other related events that occurred in connection with the Closing are summarized below: • Churchill entered into separate private placement subscription agreements (the “PIPE Investment”) contemporaneously with the execution of the Merger Agreement pursuant to which Churchill agreed to sell and issue an aggregate of 166,666,667 shares of common stock at a purchase price of $ 15.00 per share for an aggregate purchase price of $ 2,500.0 million. The PIPE Investment closed simultaneously with the Closing of the Merger; • Churchill Sponsor IV LLC (the “Churchill Sponsor”) exercised its right to convert the outstanding and unpaid amount of $ 1.5 million under the working capital loan provided by the Churchill Sponsor to Churchill into an additional 1,500,000 Private Placement Warrants at a price of $ 1.00 per warrant in satisfaction of such loan; • Churchill and the Churchill Sponsor entered into a letter agreement (the “Sponsor Agreement”), pursuant to which the Churchill Sponsor agreed that 17,250,000 shares of Churchill’s issued and outstanding common stock beneficially held by the Churchill Sponsor (the “Sponsor Earnback Shares”) and 14,783,333 Private Placement Warrants beneficially held by the Churchill Sponsor (the “Sponsor Earnback Warrants”) to purchase shares of the Churchill’s common stock shall become subject to transfer restrictions and contingent forfeiture provisions upon the Closing of the Merger until Lucid’s stock price exceeded certain predetermined levels in the post-Merger period. Any such shares and warrants not released from these transfer restrictions during the earnback period, which expires on the fifth anniversary of the Closing, will be forfeited back to Lucid for no consideration. See Note 12 “Earnback Shares and Warrants” for more information; and • Churchill redeemed 21,644 public shares of Churchill’s Class A common stock at approximately $ 10.00 per share for an aggregate payment of $ 0.2 million. After giving effect to the Merger and the redemption of Churchill shares as described above, the number of shares of common stock issued and outstanding immediately following the consummation of the Merger was as follows: Shares Churchill public shares, prior to redemptions 207,000,000 Less redemption of Churchill shares ( 21,644 ) Churchill public shares, net of redemptions 206,978,356 Churchill Sponsor shares (1) 51,750,000 PIPE shares (2) 166,666,667 Total shares of Churchill common stock outstanding immediately prior to the Merger 425,395,023 Legacy Lucid shares 1,193,226,511 Total shares of Lucid common stock outstanding immediately after the Merger (3)(4) 1,618,621,534 (1) The 51,750,000 shares beneficially owned by the Churchill Sponsor as of the Closing of the Merger includes the 17,250,000 Sponsor Earnback Shares. (2) Reflects the sale and issuance of 166,666,667 shares of common stock to the PIPE Investors at $ 15.00 per share. (3) Excludes 111,531,080 shares of common stock as of the Closing of the Merger to be reserved for potential future issuance upon the exercise of Lucid Options or settlement of Lucid RSUs. (4) Excludes the 85,750,000 warrants issued and outstanding as of the Closing of the Merger, which includes the 41,400,000 Public Warrants and the 44,350,000 Private Placement Warrants. The 44,350,000 Private Placement Warrants beneficially owned by the Churchill Sponsor as of the consummation of the Merger includes the 14,783,333 Sponsor Earnback Warrants. The Merger has been accounted for as a reverse recapitalization under U.S. GAAP. Under this method of accounting, Churchill has been treated as the acquired company for financial reporting purposes. The reverse recapitalization accounting treatment was primarily determined based on the stockholders of Legacy Lucid having a relative majority of the voting power of Lucid and having the ability to nominate the majority of the members of the Lucid board of directors, senior management of Legacy Lucid comprise the senior management of Lucid, and the strategy and operations of Legacy Lucid prior to the Merger comprise the only ongoing strategy and operations of Lucid. Accordingly, for accounting purposes, the financial statements of Lucid represent a continuation of the financial statements of Legacy Lucid with the Merger being treated as the equivalent of Legacy Lucid issuing shares for the net assets of Churchill, accompanied by a recapitalization. The net assets of Churchill were recognized as of the Closing at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Merger are presented as those of Legacy Lucid and the accumulated deficit of Legacy Lucid has been carried forward after Closing. 103 All periods prior to the Merger have been retrospectively adjusted using the Exchange Ratio for the equivalent number of shares outstanding immediately after the Closing to effect the reverse recapitalization. In connection with the Closing of the Merger, the Company raised $ 4,439.2 million of gross proceeds, including the contribution of $ 2,070.1 million of cash held in Churchill’s trust account from its initial public offering along with $ 2,500.0 million of cash raised by Churchill in connection with the PIPE Investment and $ 0.4 million of cash held in the Churchill operating cash account. The gross proceeds were net of $ 0.2 million paid to redeem 21,644 shares of Churchill Class A common stock held by public stockholders and $ 131.4 million in costs incurred by Churchill prior to the Closing. The Company additionally incurred $ 38.9 million of transaction costs, consisting of banking, legal, and other professional fees, of which $ 36.2 million was recorded as a reduction to additional paid-in capital of proceeds and the remaining $ 2.7 million was expensed in July 2021. The total net cash proceeds to the Company were $ 4,400.3 million. NOTE 4 – BALANCE SHEETS COMPONENTS Inventory Inventory as of December 31, 2022 and 2021 was as follows (in thousands): December 31, 2022 December 31, 2021 Raw materials $ 464,731 $ 87,646 Work in progress 34,311 30,641 Finished goods 335,359 8,963 Total Inventory $ 834,401 $ 127,250 Inventory as of December 31, 2022 and 2021 was comprised of raw materials, work in progress related to the production of vehicles for sale and finished goods inventory including new vehicles available for sale and vehicles in transit to fulfill customer orders. During the years ended December 31, 2022 and 2021, we recorded write-downs of $ 569.5 million and $ 48.9 million, respectively, to reduce our inventories to their net realizable values, for any excess or obsolete inventories, and losses from firm purchase commitments. No write-down was recorded for the year ended December 31, 2020. Property, plant and equipment, net Property, plant and equipment, net as of December 31, 2022 and 2021 were as follows (in thousands): December 31, 2022 December 31, 2021 Land and land improvements $ 64,677 $ 1,050 Building and improvements 197,406 195,952 Machinery, Tooling and Vehicles 743,006 601,791 Computer equipment and software 48,899 27,968 Leasehold improvements 182,904 135,533 Furniture and fixtures 27,803 15,352 Finance leases 97,992 13,601 Construction in progress 1,077,179 276,919 Total Property, plant and equipment 2,439,866 1,268,166 Less accumulated depreciation and amortization ( 273,090 ) ( 86,013 ) Property, plant and equipment, net $ 2,166,776 $ 1,182,153 104 Construction in progress represents the costs incurred in connection with the construction of buildings or new additions to the Company’s plant facilities including tooling, which is with outside vendors. Costs classified as construction in progress include all costs of obtaining the asset and bringing it to the location in the condition necessary for its intended use. No depreciation is provided for construction in progress until such time as the assets are completed and are ready for its intended use. Construction in progress consisted of the following (in thousands): December 31, 2022 December 31, 2021 Machinery and tooling $ 515,662 $ 132,943 Construction of AMP-1 and AMP-2 (1) 526,720 112,970 Leasehold improvements 34,797 31,006 Total construction in progress $ 1,077,179 $ 276,919 (1) As of December 31, 2022, $ 33.3 million of capital expenditure support received from Ministry of Investment of Saudi Arabia (“MISA”) was recorded as a deduction to the AMP-2 construction in progress balance. See Note 2 “Summary of Significant Accounting Policies” and Note 19 “Related Party Transactions” for more information. Depreciation and amortization expense was $ 186.6 million, $ 62.9 million and $ 10.2 million for the years ended December 31, 2022, 2021 and 2020, respectively. The amount of interest capitalized on construction in progress related to significant capital asset construction was $ 2.7 million for the year ended December 31, 2022. No interest was capitalized for the years ended December 31, 2021 and 2020. Other current liabilities Other current liabilities as of December 31, 2022 and 2021 were as follows (in thousands): December 31, 2022 December 31, 2021 Engineering, design, and testing accrual $ 28,686 $ 33,950 Construction in progress 167,462 92,590 Accrued purchases (1) 157,162 12,225 Retail leasehold improvements accrual 9,099 15,796 Other professional services accrual 34,951 13,944 Tooling liability 21,714 23,966 Short-term borrowings 9,595 — Operating lease liabilities, current portion 11,269 11,056 Other current liabilities 194,629 114,685 Total Other current liabilities $ 634,567 $ 318,212 (1) Accrued purchases primarily represent inventory purchases and related transportation charges that had not been invoiced. Other long-term liabilities Other long-term liabilities as of December 31, 2022 and 2021 were as follows (in thousands): December 31, 2022 December 31, 2021 Operating lease liabilities, net of current portion $ 243,843 $ 185,323 Other long-term liabilities (1) 134,369 3,252 Total Other long-term liabilities $ 378,212 $ 188,575 (1) As of December 31, 2022, $ 64.0 million of capital expenditure support received from MISA was recorded as deferred liability within other long-term liabilities. See Note 2 “Summary of Significant Accounting Policies” and Note 19 “Related Party Transactions” for more information. 105 Accrued warranty Accrued warranty activities consisted of the following (in thousands): Year Ended December 31, 2022 Accrued warranty - beginning of period $ 1,282 Warranty costs incurred ( 11,557 ) Provision for warranty (1) 33,224 Accrued warranty - end of period (2) $ 22,949 (1) Accrued warranty balance as of December 31, 2022 included estimated costs related to the recalls identified. (2) Accrued warranty balance of $ 10.4 million and $ 12.5 million were recorded within Other current liabilities and Other long-term liabilities, respectively, on our consolidated balance sheet.as of December 31, 2022 . NOTE 5 - FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS The accounting standard for fair value measurements provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. Fair value is defined as the price that would be received for an asset or the “exit price” that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between independent market participants on the measurement date. The Company measures financial assets and liabilities at fair value at each reporting period using a fair value hierarchy, which requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. This hierarchy prioritizes the inputs into three broad levels as follows: • Level 1 —Quoted prices (unadjusted) in active markets for identical assets or liabilities. • Level 2 —Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. • Level 3 —Inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. Factors used to develop the estimated fair value are unobservable inputs that are not supported by market activity. The sensitivity of the fair value measurement to changes in unobservable inputs may result in a significantly higher or lower measurement. Cash, cash equivalents and investments are reported at their respective fair values on the Company's consolidated balance sheets. The Company's Short-term and Long-term investments are classified as available-for-sale securities. 106 The following table sets forth the Company’s financial assets subject to fair value measurements on a recurring basis by level within the fair value hierarchy as of December 31, 2022 and 2021 (in thousands): December 31, 2022 Reported As: Amortized cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Cash and cash equivalents Short-Term Investments Long-Term Investments Cash and cash equivalents $ 321,667 $ — $ — $ 321,667 $ 321,667 $ — $ — Level 1: Money market funds 1,377,540 — — 1,377,540 1,377,540 — — U.S. Treasury securities 1,861,449 151 ( 9,431 ) 1,852,169 — 1,570,591 281,578 Subtotal 3,238,989 151 ( 9,431 ) 3,229,709 1,377,540 1,570,591 281,578 Level 2: U.S. government agency securities 43,477 46 ( 18 ) 43,505 — 43,505 — Certificates of deposit 174,037 67 ( 132 ) 173,972 — 173,972 — Commercial paper 238,224 63 ( 122 ) 238,165 19,761 218,404 — Corporate debt securities 438,148 208 ( 2,404 ) 435,952 16,797 170,759 248,396 Subtotal 893,886 384 ( 2,676 ) 891,594 36,558 606,640 248,396 Total assets measured at fair value $ 4,454,542 $ 535 $ ( 12,107 ) $ 4,442,970 $ 1,735,765 $ 2,177,231 $ 529,974 December 31, 2021 Reported As: Cash and cash equivalents Cash $ 160,888 Level 1: Money market funds 6,102,017 Total assets measured at fair value $ 6,262,905 During the year ended December 31, 2022, there were immaterial realized gains or losses on the sale of available-for-sale securities. Accrued interest receivable excluded from both the fair value and amortized cost basis of the available-for-sale securities was $ 7.5 million as of December 31, 2022, and is recorded in Other current assets on our consolidated balance sheets. As of December 31, 2022, no allowance for credit losses was recorded related to an impairment of available-for-sale securities. 107 The following table summarizes our available-for-sale securities by contractual maturity: December 31, 2022 Amortized cost Estimated Fair Value Within one year $ 2,181,532 $ 2,177,231 After one year through three years 537,243 529,974 Total $ 2,718,775 $ 2,707,205 Level 3 liabilities consist of convertible preferred stock warrant liability, contingent forward contract liability and common stock warrant liability, of which the fair value was measured upon issuance and is remeasured at each reporting date. Level 3 liabilities also consist of residual value guarantee liabilities, of which the fair value measurement is nonrecurring and measured upon delivery of vehicles. The valuation methodology and underlying assumptions are discussed further in Note 2 “Summary of Significant Accounting Policies”, Note 7 “Contingent Forward Contracts,” Note 8 “Convertible Preferred Stock Warrant Liability” and Note 9 “Common Stock Warrant Liability”. Significant increases (decreases) in the unobservable inputs used in determining the fair value would result in a significantly higher (lower) fair value measurement. The following table presents a reconciliation of the contingent forward contract liability, convertible preferred stock warrant liability and common stock warrant liability measured and recorded at fair value on a recurring basis (in thousands): Year Ended December 31, 2022 2021 Common Stock Warrant Liability Contingent Forward Contract Liability Convertible Preferred Stock Warrant Liability Common Stock Warrant Liability Fair value-beginning of period $ 1,394,808 $ — $ 2,960 $ — Issuance — 2,167,332 — 812,048 Change in fair value ( 1,254,218 ) 454,546 6,976 582,760 Settlement — ( 2,621,878 ) ( 9,936 ) — Fair value-end of period $ 140,590 $ — $ — $ 1,394,808 NOTE 6 – DEBT 2026 Notes In December 2021, the Company issued an aggregate of $ 2,012.5 million principal amount of 1.25 % convertible senior notes due in December 2026 (the “2026 Notes”) in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended, at an issuance price equal to 99.5 % of the principal amount of 2026 Notes. The 2026 Notes have been designated as green bonds, whose proceeds will be allocated in accordance with the Company’s green bond framework. The 2026 Notes were issued pursuant to and are governed by an indenture dated December 14, 2021, between the Company and U.S. Bank National Association as the trustee. The proceeds from the issuance of the 2026 Notes were $ 1,986.6 million, net of the issuance discount and debt issuance costs. The 2026 Notes are unsecured obligations which bear regular interest at 1.25 % per annum and will be payable semiannually 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 repurchased, redeemed, or converted in accordance with their terms prior to such date. The 2026 Notes are convertible into cash, shares of our Class A common stock, or a combination of cash and shares of our Class A common stock, at the Company’s election, at an initial conversion rate of 18.2548 shares of Class A common stock per $1,000 principal amount of 2026 Notes, which is equivalent to an initial conversion price of approximately $ 54.78 per share of our Class A common stock. The conversion rate is subject to customary adjustments for certain dilutive events. The Company may redeem for cash all or any portion of the 2026 Notes, at the Company’s option, on or after December 20, 2024 if the last reported sale price of our Class A common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days at a redemption price equal to 100 % of the principal amount of the 2026 Notes to be redeemed, plus accrued and unpaid interest up to the day before the redemption date. The holders may require the Company to repurchase the 2026 Notes upon the occurrence of certain fundamental change transactions at a redemption price equal to 100 % of the principal amount of the 2026 Notes redeemed, plus accrued and unpaid interest up to the day before the redemption date. Holders of the 2026 Notes may convert all or a portion of their 2026 Notes at their option prior to September 15, 2026, in multiples of $1,000 principal amounts, only under the following circumstances: • during any calendar quarter commencing after the quarter ending on March 31, 2022 (and only during such calendar quarter), if the Company’s common stock price exceeds 130 % of the conversion price for at least 20 trading days during the 30 consecutive trading days at the end of the prior calendar quarter; 108 • during the five consecutive business days immediately after any 10 consecutive trading day period in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price per share of our common stock on such trading day and the conversion rate on such trading day; • upon the occurrence of specified corporate events; or • if the Company calls any or all 2026 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date, but only with respect to the notes called for redemption. On or after September 15, 2026, the 2026 Notes are convertible at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. Holders of the 2026 Notes who convert the 2026 Notes in connection with a make-whole fundamental change, as defined in the indenture governing the 2026 Notes, or in connection with a redemption may be entitled to an increase in the conversion rate. The Company accounted for the issuance of the 2026 Notes as a single liability measured at its amortized cost, as no other embedded features require bifurcation and recognition as derivatives. The following is a summary of the 2026 Notes as of December 31, 2022 and 2021 (in millions): December 31, 2022 December 31, 2021 Principal Amount $ 2,012.5 $ 2,012.5 Unamortized Debt Discounts and Issuance Costs 20.7 25.7 Net Carrying Amount $ 1,991.8 $ 1,986.8 Fair Value (Level 2) $ 1,041.5 $ 1,984.6 The effective interest rate for the convertible note is 1.5 %. The components of interest expense related to the 2026 Notes were as follows (in millions): Year Ended December 31, 2022 2021 Contractual interest $ 25.2 $ 1.2 Amortization of debt discounts and debt issuance costs 5.0 0.2 Interest expense $ 30.2 $ 1.4 The 2026 Notes were not eligible for conversion as of December 31, 2022 and 2021. No sinking fund is provided for the 2026 Notes, which means that the Company is not required to redeem or retire them periodically. As of December 31, 2022, the Company was in compliance with applicable covenants under the indenture governing the 2026 Notes. SIDF Loan Agreement On February 27, 2022, Lucid, LLC, a limited liability company established in Saudi Arabia and a subsidiary of the Company (“Lucid LLC”) entered into a loan agreement (as subsequently amended, the “SIDF Loan Agreement”) with SIDF, a related party of Public Investment Fund (“PIF”), which is an affiliate of Ayar. 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 $ 93.1 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 AMP-2. 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 $ 110.4 million) to SAR 1.77 billion (approximately $ 471.0 million), over the term of the SIDF Loans. SIDF Loans will be secured by security interests in the equipment, machines and assets funded thereby. 109 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 the King Abdullah Economic City (“KAEC”), and drawdowns under the SIDF Loan Agreement are subject to certain conditions precedent. As of December 31, 2022 , no amount was outstanding under the SIDF Loan Agreement. 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 a related party of PIF, which is an affiliate of Ayar. The GIB Facility Agreement provides for two committed revolving credit facilities in an aggregate principal amount of SAR 1 billion (approximately $ 266.1 million). SAR 650 million (approximately $ 173.0 million) under the GIB Facility Agreement is available as bridge financing (the “Bridge Facility”) of Lucid LLC’s capital expenditures in connection with AMP-2. The remaining SAR 350 million (approximately $ 93.1 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 1~3-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 December 31, 2022 , the Company had outstanding borrowings of SAR 36 million (approximately $ 9.6 million) with interest rate of 6.40 % from the Working Capital Facility, which was recorded within Other current liabilities on the consolidated balance sheets. As of December 31, 2022, available borrowings are SAR 650 million (approximately $ 173.0 million) and SAR 314 million (approximately $ 83.5 million) under the Bridge Facility and Working Capital Facility, respectively. As of December 31, 2022, the Company was 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 December 31, 2022, the Company was in compliance with applicable covenants under the ABL Credit Facility. As of December 31, 2022, the Company had no outstanding borrowings and $ 37.4 million outstanding letters of credit under the ABL Credit Facility. Availability under the ABL Credit Facility was $ 441.4 million (including $ 37.3 million cash and cash equivalents) as of December 31, 2022, after giving effect to the borrowing base and the outstanding letters of credit. The Company incurred issuance costs of $ 6.3 million to obtain the ABL Credit Facility, which was capitalized within Other noncurrent assets on consolidated balance sheets and amortized over the facility term using the straight-line method. During the year ended December 31, 2022, amortization of the deferred issuance costs and commitment fee were $ 2.1 million. 110 NOTE 7 - CONTINGENT FORWARD CONTRACTS In September 2018, the Company granted PIF the right to purchase the Company’s Series D convertible preferred stock in future periods. The Company determined PIF’s right to participate in future Series D convertible preferred stock financing to be freestanding similar to a derivative liability in the form of contingent forward contracts. In March 2020, the Company received $ 200.0 million in exchange for 82,496,092 shares of Series D convertible preferred shares as partial settlement of the Series D contingent forward contract liability and revalued the contingent forward contract liability to the then fair value of $ 36.4 million and reclassified $ 18.2 million of the contingent forward contract liability into Series D convertible preferred stock. In June 2020, the Company received the remaining $ 200.0 million in exchange for 82,496,121 shares of Series D convertible preferred stock as final settlement of the Series D contingent forward contract liability and revalued the contingent forward contracts liability to the then fair value of $ 39.6 million and reclassified the liability into Series D convertible preferred stock. The Series D contingent forward contract liability incurred a total fair value loss of $ 8.7 million during the year ended December 31, 2020. Since the Series D contingent forward contract liability was fully settled in June 2020, there was no related outstanding contingent forward contract liability as of December 31, 2020. In September 2020, the Company granted Ayar the right to purchase the Company’s Series E convertible preferred stock upon the Company’s satisfaction of certain milestones in November 2020. The Company determined Ayar’s right to participate in future Series E convertible preferred stock financing to be freestanding similar to a derivative liability in the form of contingent forward contracts and recorded the initial valuation of $ 0.8 million into contingent forward contract liabilities. In December 2020, Ayar waived the Company’s remaining outstanding obligations, and the Company received $ 400.0 million for the issuance of Series E convertible preferred stock. Upon settlement, the Company revalued the Series E contingent forward contracts to the then fair value of $ 110.5 million and reclassified the contingent forward contract liability into Series E convertible preferred stock. The Company recorded a loss of $ 109.7 million related to fair value remeasurements of the Series E contingent forward contracts during the year ended December 31, 2020. In February 2021, the Company and Ayar entered into Amendment No. 1 to the original Series E Preferred Stock Purchase Agreement (“Amendment No. 1”). Under the Amendment No. 1, Ayar and the Company agreed to enter into the third closing of additional 133,818,821 Series E convertible preferred stock at $ 2.99 per share, aggregating to $ 400.0 million. Upon the signing of the Amendment No. 1, the Company received the issuance proceeds of $ 400.0 million from Ayar in February 2021. Amendment No. 1 also allowed the Company to provide an opportunity to all current convertible preferred stockholders other than Ayar (“Eligible Holders”) to enter into the fourth closing to purchase up to 23,737,221 shares of Series E convertible preferred stock on a pro rata basis at $ 2.99 per share, aggregating to $ 71.0 million. In addition, the amendment allowed the Company to offer for purchase at the fourth closing at $ 2.99 per share, a number of Series E Preferred Stock to senior management employees, directors, consultants, advisors and/or contractors of the Company (“Additional Purchasers”) and Ayar. Refer to Note 10 “Convertible Preferred Stock”. In April 2021, the Company issued 66,909,408 Series E convertible preferred stock from the fourth closing at $ 2.99 per share for cash consideration of $ 200.0 million. The Company received $ 107.1 million of the total issuance proceeds in March 2021 and the remaining $ 92.9 million in April 2021. See Note 10 “Convertible Preferred Stock” for more information. The Company determined the right to participate in future Series E convertible preferred share financing to be a freestanding financial instrument similar to a derivative liability in the form of contingent forward contracts and recorded the initial valuation of $ 1,444.9 million and $ 722.4 million for the third closing and fourth closing, respectively, as contingent forward contract liabilities. Since the contingent forward contract liability related to the third closing was fully settled in the same month following the execution of the amendment, the Company recorded no related fair value remeasurements in the consolidated statements of operations and comprehensive loss. The Company issued Offer Notices to certain of the Company’s management and members of the Board of Directors in March 2021 and April 2021. The Series E convertible preferred stock issued from the fourth closing included 3,034,194 shares to the Company’s management and 1,658,705 shares to members of the Board of Directors. The total issuance to the Company’s management included 535,275 shares offered to the CEO in April 2021. The offer to employees in the fourth closing to participate in future Series E convertible preferred stock financing represents a fully vested, equity classified award. The Company recorded the award’s full fair value on each recipient’s grant date as stock-based compensation, and derecognized the related contingent forward contract liability. The Company revalued the contingent forward contract liability for the remaining participants and recorded $ 454.5 million fair value remeasurement loss related to the contingent forward contract liability for the year ended December 31, 2021, with the final fair value of the contingent forward contract liability of $ 1.2 billion reclassified into Series E convertible preferred stock upon the fourth closing in April 2021. There was no related outstanding contingent forward contract liability as of December 31, 2021. 111 The fair value of the Series E convertible preferred stock contingent forward contract liability for the third closing was determined using a forward payoff. The Company’s inputs used in determining the fair value on the issuance date and settlement date, were as follows: Stock Price $ 13.79 Volatility 100.00 % Expected term (in years) 0.01 Risk-free rate 0.03 % The fair value of the Series E convertible preferred stock contingent forward contract liability for the fourth closing was determined using a forward and an option payoff. The Company’s inputs used in determining the fair value on the issuance date were as follows: Fair value of Series E convertible preferred share $ 13.79 Volatility 100.00 % Expected term (in years) 0.11 Risk-free rate 0.03 % The fair value of the Series E convertible preferred stock contingent forward contract liability for the fourth closing was determined as the difference between the Series E convertible preferred stock fair value and the purchase price. The Company estimated the fair value of each of the Series E convertible preferred stock on the settlement date by taking the closing price of Churchill’s Class A common stock on April 1, 2021 of $ 23.78 multiplied by the expected exchange ratio at the time, and discounted for lack of marketability. NOTE 8 - CONVERTIBLE PREFERRED STOCK WARRANT LIABILITY The Company’s issued and outstanding convertible preferred stock warrants to purchase a total of 1,546,799 shares of Series D convertible preferred stock, with an exercise price of $ 1.94 per share were recorded at fair value using a Monte-Carlo simulation at issuance and have been subsequently remeasured to fair value each reporting period with the changes recorded in the consolidated statements of operations and comprehensive loss. In February 2021, all the outstanding convertible preferred stock warrants were settled in its entirety at an exercise price of $ 1.94 per share for an aggregate purchase price of $ 3.0 million. Upon final settlement, the Company converted the warrant into $ 12.9 million Series D convertible preferred stock, and recorded $ 7.0 million losses related to fair value remeasurements of the warrants in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2021. NOTE 9 - COMMON STOCK WARRANT LIABILITY On July 23, 2021, in connection with the reverse recapitalization treatment of the Merger, the Company effectively issued 44,350,000 Private Placement Warrants to purchase shares of Lucid’s common stock at an exercise price of $ 11.50 . The Private Placement Warrants were initially recognized as a liability with a fair value of $ 812.0 million and was remeasured to fair value of $ 1,394.8 million as of December 31, 2021. The Private Placement Warrants remained unexercised and were remeasured to fair value of $ 140.6 million as of December 31, 2022. The Company recognized a gain of $ 1,254.2 million and a loss of $ 582.8 million for the years ended December 31, 2022 and 2021, respectively, in the consolidated statements of operations and comprehensive loss. The 44,350,000 Private Placement Warrants included the 14,783,333 Sponsor Earnback Warrants subject to the contingent forfeiture provisions. The earnback triggering events were satisfied during the year ended December 31, 2021 such that the 14,783,333 Sponsor Earnback Warrants vested and are no longer subject to the transfer restrictions and contingent forfeiture provisions. See Note 12 “Earnback Shares and Warrants” for more information. 112 The Company initially estimated the fair value of the Private Placement Warrants that were subject to the contingent forfeiture provisions using a Monte-Carlo simulation which estimates a distribution of potential outcomes over the earnback period related to the achievement of the volume-weighted average trading sale price (the “VWAP”) thresholds. The present value of the payoff in each simulation is calculated, and the fair value of the liability is determined by taking the average of all present values. The fair value of the Private Placement Warrants that were subject to the contingent forfeiture provisions were as follows: July 23, 2021 Fair value of Tranche 1 with $ 20.00 VWAP threshold per share $ 18.16 Fair value of Tranche 2 with $ 25.00 VWAP threshold per share $ 18.07 Fair value of Tranche 3 with $ 30.00 VWAP threshold per share $ 17.92 The fair value of the Private Placement Warrants that are not subject to the contingent forfeiture provisions was estimated using a Black-Scholes option pricing model, and were as follows: December 31, 2022 December 31, 2021 Fair value of Private Placement Warrants per share $ 3.17 $ 31.45 Assumptions used in the Monte-Carlo simulation models and Black-Scholes option pricing model take into account the contract terms as well as the quoted price of the Company’s common stock in an active market. The volatility is based on the actual market activity of the Company’s peer group as well as the Company's historical volatility. The expected life is based on the remaining contractual term of the warrants, and the risk free interest rate is based on the implied yield available on U.S. Treasury securities with a maturity equivalent to the warrants’ expected life. The level 3 fair value inputs used in the Monte-Carlo simulation models and Black-Scholes option pricing models were as follows: December 31, 2022 December 31, 2021 Volatility 80.00 % 85.00 % Expected term (in years) 3.6 4.6 Risk-free rate 4.11 % 1.20 % Dividend yield — % — % NOTE 10 – CONVERTIBLE PREFERRED STOCK Convertible Preferred Stock Upon the Closing of the Merger, the Company cancelled and converted all 1,155,909,367 shares of issued and outstanding convertible preferred stock into 1,155,909,367 shares of Lucid common stock based upon the conversion rate as calculated pursuant to Legacy Lucid’s memorandum and articles of association at the date and time that the Merger became effective. As of December 31, 2022 and 2021, there were no issued and outstanding shares of convertible preferred stock. In 2014 through April 2021, the Company had issued Series A, Series B, Series C, and Series D and Series E convertible preferred stock (“Series A,” “Series B,” “Series C,” “Series D,” “Series E,” respectively) (collectively, the “Convertible Preferred Stock”). Convertible Preferred Stock was carried at its issuance price, net of issuance costs. Third Company Repurchase (Series C - August 2020) In August 2020, the Company repurchased 9,656,589 shares of Series C convertible preferred stock at a price of $ 1.02 per share for total of $ 9.9 million. The Company recognized $ 10.5 million in Additional paid-in capital in the consolidated balance sheet as of December 31, 2020 related to the difference in fair value and the $ 20.4 million aggregate carrying value of the Series C stock repurchased. Fourth Company Repurchase (Series C - December 2020) In December 2020, the Company repurchased 1,850,800 Series C convertible preferred stock at a price of $ 1.21 per share, aggregating to $ 2.2 million. The Company recognized $ 2.2 million as additional paid-in capital in the consolidated balance sheet as of December 31, 2020, related to the difference in fair value and the $ 4.5 million aggregate carrying value of the Series C shares repurchased. 113 Fifth Company Repurchase (Series B - December 2020) On December 22, 2020, the Company repurchased 3,525,332 Series B convertible preferred stock for a total of $ 3.0 million. The Company recognized $ 1.0 million in Additional paid-in capital in the consolidated balance sheet as of December 31, 2020, related to the difference in fair value of the consideration payable and the $ 4.0 million aggregate carrying value of the Series B shares repurchased. As of the date of extinguishment and as of December 31, 2020, the Series B convertible preferred stock subject to repurchase had been mandatorily redeemable within 45 days of the agreement and accordingly had been reclassified to other accrued liabilities on the consolidated balance sheet. Series D Preferred Stock Issuance In March 2020, the Company received $ 200.0 million in proceeds from PIF and issued 82,496,092 shares of Series D in exchange. In June 2020, the Company successfully satisfied certain of the second set of milestones related to further development and enhancement in marketing, product, and administrative activities, and received a waiver from PIF for the remaining milestones. The Company received the remaining $ 200.0 million proceeds in exchange for the issuance of 82,496,121 shares of Series D convertible preferred stock. See activities related to the PIF Convertible Notes and Series D convertible preferred stock funding as below (in thousands): Conversion of Convertible Notes $ 271,985 Series D received in April 2019 200,000 Series D received in October 2019 400,000 Series D received in March 2020 200,000 Contingent forward contract liability reclassified to Series D in March 2020 18,180 Series D received in June 2020 200,000 Contingent forward contract liability reclassified to Series D in June 2020 21,384 Conversion of preferred stock warrant to Series D in February 2021 3,000 Reclassification of preferred stock warrant liability to Series D in February 2021 9,936 Total proceeds of Series D $ 1,324,485 Series E Convertible Preferred Stock Issuance In September 2020, the Company entered into an arrangement with Ayar to issue and sell Series E convertible preferred stock pursuant to a securities purchase agreement (the “SPAE”). Along with the execution of the SPAE, the Company granted Ayar the right to purchase additional Series E convertible preferred stock upon the Company’s satisfaction of certain milestones in November 2020. The Company determined Ayar’s right to participate in future Series E convertible preferred stock financing to be freestanding, similar to a derivative liability in the form of contingent forward contracts, and recorded the initial valuation of $ 0.8 million as a contingent forward contract liability. The contingent forward contract terms were included within the SPAE, which dictated a price of $ 2.99 per share of Series E convertible preferred stock. The Company needed to satisfy two sets of milestone conditions relating to further development and enhancement in marketing, product, and administrative activities for Ayar to provide funding under the SPAE. Immediately upon closing of the SPAE, the Company received the full first tranche of $ 500.0 million in funding in exchange for 167,273,525 Series E convertible preferred stock as the requirement for the first milestones were met prior to execution of the purchase agreement. Subsequently, the Company successfully satisfied certain of the second set of milestones and received a waiver from PIF for the remaining milestones; and on December 24, 2020, the investor provided $ 400.0 million of funding in exchange for 133,818,821 shares as the final issuance of Series E convertible preferred stock related to the second milestones. Upon final settlement, the Company re-valued the liability associated with the contingent forward contract to the then fair value of $ 110.5 million from a contingent liability of $ 0.8 million and derecognized the liability as the contract was settled in its entirety. The Company recognized the increase in fair value of $ 109.7 million in the consolidated statements of operations and reclassified the liability into convertible preferred stock on the Company’s consolidated balance sheets as of December 31, 2020. In February 2021, the Company and Ayar entered into Amendment No. 1 to the original Series E Preferred Stock Purchase Agreement (“Amendment No. 1”). Under the Amendment No. 1, Ayar and the Company agreed to enter into the third closing of additional 133,818,821 shares of Series E convertible preferred stock at $ 2.99 per share, aggregating to $ 400.0 million. Upon the signing of the Amendment No. 1, the Company received the issuance proceeds of $ 400.0 million from Ayar in February 2021. 114 Amendment No. 1 also allowed the Company to provide an opportunity to all current convertible preferred stockholders other than Ayar (“Eligible Holders”) to enter into the fourth closing to purchase up to 23,737,221 shares of Series E convertible preferred stock on a pro rata basis at $ 2.99 per share, aggregating to $ 71.0 million. In addition, the amendment allowed the Company to offer for purchase at the fourth closing at $ 2.99 per share, a number of Series E Preferred Stock to senior management employees, directors, consultants, advisors and/or contractors of the Company (“Additional Purchasers”). The aggregate number of Series E Preferred Stock sold at the third closing and fourth closing would not exceed 200.7 million shares (“Extension Amount”). Ayar committed to purchase the entire Extension Amount to the extent not subscribed by Eligible Holders or Additional Purchasers. In April 2021, the Company issued 66,909,408 Series E convertible preferred stock from the fourth closing at $ 2.99 per share for cash consideration of $ 200.0 million. The Company received $ 107.1 million of the entire cash consideration in March 2021, and the remaining $ 92.9 million in April 2021. The Company issued Offer Notices to certain of the Company’s management and members of the Board of Directors in March 2021 and April 2021. The Series E convertible preferred stock issued from the fourth closing included 3,034,194 shares to the Company’s management and 1,658,705 shares to members of the Board of Directors. The total issuance to the Company’s management includes 535,275 shares offered to the CEO in April 2021. The offer to employees to participate in a future Series E convertible preferred stock financing represented a fully vested, equity classified award. The excess of the award’s fair value over the purchase price of $ 123.6 million on each recipient’s grant date during the year ended December 31, 2021 was recorded as stock-based compensation. Along with the execution of Amendment No. 1, the Company also increased the authorized number of common shares and convertible preferred stock to 1,316,758,889 and 1,155,909,398 stock, respectively. NOTE 11 – STOCKHOLDERS’ EQUITY Preferred Stock The Company has authorized the issuance of 10,000,000 shares of undesignated preferred stock with a par value of $ 0.0001 per share with rights and preferences, including voting rights, designated from time to time by the Board of Directors. As of December 31, 2022 and 2021, there were no issued and outstanding shares of preferred stock. Common Stock On July 23, 2021, in connection with the reverse recapitalization treatment of the Merger, the Company effectively issued 425,395,023 new shares of common stock upon the Closing. The Company also converted all 1,155,909,367 shares of its issued and outstanding convertible preferred stock into 1,155,909,367 new shares of common stock as of the Closing of the Merger based upon the conversion rate as calculated pursuant to Legacy Lucid’s memorandum and articles of association. Immediately following the Merger, there were 1,618,621,534 shares of common stock outstanding with a par value of $ 0.0001 . The holder of each share of common stock is entitled to one vote. On November 8, 2022, the Company entered into the Equity Distribution Agreement with BofA Securities, Inc., Barclays Capital Inc. and Citigroup Global Markets Inc., under which the Company could offer and sell shares of its common stock having an aggregate offering price up to $ 600.0 million. During the year ended December 31, 2022, the Company issued 56,203,334 shares at a weighted average price per share of $ 10.68 and received net proceeds of $ 594.3 million after deducting commissions and other issuance costs of approximately $ 5.7 million. No shares remain available for sale under the Equity Distribution Agreement. On November 8, 2022, the Company also entered into the Subscription Agreement, pursuant to which Ayar agreed to purchase from the Company, up to $ 915.0 million of shares of its common stock in one or more private placements through March 31, 2023. In December 2022, the Company issued 85,712,679 shares to Ayar pursuant to the Subscription Agreement at a weighted average price per share of $ 10.68 , and received aggregate proceeds of $ 915.0 million. Common Stock Warrants On July 23, 2021, in connection with the reverse recapitalization treatment of the Merger, the Company effectively issued 41,400,000 publicly-traded warrants to purchase shares of its common stock. Each whole warrant entitled the holder to purchase one share of the Company’s common stock at a price of $ 11.50 per share. The Public Warrants were exercisable as of August 22, 2021 and expire on July 23, 2026, if not yet exercised by the holder or redeemed by the Company. During the year ended December 31, 2021, an aggregate of 41,034,197 Public Warrants were exercised, of which 25,966,976 were exercised on a cashless basis. The aggregate cash proceeds received from the exercise of these Public Warrants were $ 173.3 million. The Company redeemed the remaining 365,803 Public Warrants that were not exercised by the holders at a redemption price of $ 0.01 per warrant. 115 A summary of activity of the Company’s issued and outstanding Public Warrants was as follows: December 31, 2021 Public Warrants issued in connection with Merger on July 23, 2021 41,400,000 Number of Public Warrants exercised ( 41,034,197 ) Public Warrants redeemed ( 365,803 ) Issued and outstanding Public Warrants as of December 31, 2021 — Treasury Stock During the year ended December 31, 2021, the Company repurchased an aggregate of 857,825 shares of its common stock, including 712,742 shares from certain employees and 145,083 shares from Board of Directors of the Company’s predecessor, Atieva, Inc. at $ 24.15 per share. No common stock was repurchased during the year ended December 31, 2022. Common Stock Reserved for Issuance The Company’s common stock reserved for future issuances as of December 31, 2022 was as follows: December 31, 2022 Private Placement Warrants to purchase common stock 44,350,000 Stock options outstanding 39,011,116 Restricted stock units outstanding 40,660,438 Shares available for future grants under equity plans 26,826,282 If-converted common shares from convertible note 36,737,785 Total shares of common stock reserved 187,585,621 NOTE 12 – EARNBACK SHARES AND WARRANTS During the period between the Closing and the five-year anniversary of the Closing, the Churchill Sponsor has subjected the 17,250,000 Sponsor Earnback Shares of issued and outstanding common stock and 14,783,333 Sponsor Earnback Warrants of issued and outstanding Private Placement Warrants to potential forfeiture to Lucid for no consideration until the occurrence of each tranche’s respective earnback triggering event. The earnback triggering events related to achieving a volume-weighted average trading sale price greater than or equal to $ 20.00 , $ 25.00 , and $ 30.00 , respectively, for any 40 trading days within any 60 consecutive trading day period were satisfied during the year ended December 31, 2021. As a result, the 17,250,000 Sponsor Earnback Shares of issued and outstanding common stock and 14,783,333 Sponsor Earnback Warrants of issued and outstanding Private Placement Warrants were vested and no longer subject to the transfer restrictions and contingent forfeiture provisions. NOTE 13 – STOCK-BASED AWARDS Legacy Lucid 2021 Stock Incentive Plan In January 2021, the Company’s Board of Directors adopted and the stockholders approved the 2021 Stock Incentive Plan (the “2021 Plan”). The 2021 Plan replaced the Company’s 2014 Plan, adopted by the Board of Directors in May 2014 (the “2014 Plan”). The 10,526,235 shares reserved for future issuance under the 2014 Plan were removed and added to the share reserve under the 2021 Plan. The 2021 Plan provided for the grant of incentive stock options, non-statutory stock options, restricted shares, restricted stock units (“RSU”), share appreciation rights, performance-based awards and cash-based awards to the Company’s employees, directors, and consultants. Lucid 2021 Stock Incentive Plan and ESPP In July 2021, the Company’s Board of Directors adopted and the stockholders approved the 2021 Incentive Plan (the “2021 Incentive Plan”), which includes an ESPP as an addendum. The 2021 Incentive Plan replaced the 2021 Plan. The 2021 Incentive Plan provides for the grant of restricted shares, non-qualified stock options, incentive stock options, unrestricted shares, stock appreciation rights, restricted stock units and cash awards. Shares of common stock underlying awards that are forfeited or cancelled generally are returned to the pool of shares available for issuance under the 2021 Incentive Plan. 116 The number of shares of common stock that remain available for issuance under the 2021 Incentive Plan, including the ESPP, was 26,826,282 as of December 31, 2022. Stock Options The Company’s outstanding stock options generally expire 10 years from the date of grant and are exercisable when the options vest. Incentive stock options and non-statutory options generally vest over four years , the majority of which vest at a rate of 25 % on the first anniversary of the grant date, with the remainder vesting ratably each month over the next three years . A summary of stock option activity for the year ended December 31, 2022 was as follows: Outstanding Options Number of Options Weighted Average Exercise Price Weighted-Average Remaining Contractual Term Intrinsic Value (in thousands) Balance as of December 31, 2021 64,119,902 $ 1.08 6.60 $ 2,370,666 Options exercised ( 22,519,879 ) 0.79 Options canceled ( 2,588,907 ) 1.93 Balance as of December 31, 2022 39,011,116 $ 1.19 6.52 $ 224,721 Options vested and exercisable as of December 31, 2022 29,534,568 $ 1.03 6.14 $ 173,872 Aggregate intrinsic value represents the difference between the exercise price of the options and the fair value of common shares. The aggregate intrinsic value of options exercised was approximately $ 475.5 million, $ 206.7 million and $ 8.3 million for the years ended December 31, 2022, 2021 and 2020, respectively. The total fair value of stock options granted during the years ended December 31, 2021 and 2020, was approximately $ 24.0 million and $ 14.8 million, respectively, which is recognized over the respective vesting periods. No stock options were granted during the year ended December 31, 2022. The total fair value of stock options vested during the years ended December 31, 2022, 2021 and 2020, was approximately $ 5.5 million, $ 6.2 million and $ 3.9 million, respectively. The Company estimates the fair value of the options utilizing the Black-Scholes option pricing model, which is dependent upon several variables, including expected option term, expected volatility of the Company’s share price over the expected term, expected risk-free interest rate over the expected option term, and expected dividend yield rate over the expected option term, and actual forfeiture rates. A summary of the assumptions the Company utilized to record compensation expense for stock options granted during the year ended December 31, 2021 and 2020, was as follows: Year ended December 31, 2021 2020 Weighted average volatility 48.4 % 59.0 % Expected term (in years) 6.6 5.9 Risk-free interest rate 1.45 % 0.75 % Expected dividends $ — $ — As of December 31, 2022, unrecognized stock-based compensation cost related to outstanding unvested stock options that are expected to vest w as $ 5.9 million, which is expected to be recognized over a weighted-average period of 1.7 years. RSUs A summary of RSUs activity for the year ended December 31, 2022 was as follows: Restricted Stock Units Time-Based Shares Performance-Based Shares Total Shares Weighted-Average Grant-Date Fair Value Balance as of December 31, 2021 32,210,200 16,024,411 48,234,611 $ 20.45 Granted 21,332,603 — 21,332,603 17.04 Vested ( 11,656,996 ) ( 13,934,271 ) ( 25,591,267 ) 19.56 Cancelled/Forfeited ( 3,315,509 ) — ( 3,315,509 ) 18.52 Balance as of December 31, 2022 38,570,298 2,090,140 40,660,438 $ 19.38 117 Time-based RSUs granted prior to the Closing of Merger are subject to both performance-based and service-based vesting conditions. The performance condition was satisfied upon the Closing of the Merger, and the service condition will be met generally over 4.0 years. The Company granted 13,834,748 shares of the time-based RSUs to the CEO that will vest in sixteen equal quarterly installments, beginning on December 5, 2021, and are subject to continuous employment. The service condition for 25 % of the Company’s non-CEO RSUs granted prior to the Closing of Merger was satisfied 375 days after the Closing. The remaining RSUs will be satisfied in equal quarterly installments thereafter, subject to continuous employment. The Company recognizes compensation expense for these time-based RSUs on a graded vesting schedule over the requisite vesting period. Fair value of these time-based RSUs was measured using the fair value of the Company’s common stock on the date of the grant, as based on the market price of Churchill’s stock adjusted for the expected exchange ratio at the time, and discounted for lack of marketability. Time-based RSUs granted subsequent to the Closing of Merger are only subject to service-based vesting conditions and the compensation expense is recognized on a straight-line basis over the requisite service period. The fair value of these time-based RSUs granted after the Closing of the Merger was measured using the fair value of the Company’s common stock on the date of the grant. As of December 31, 2022, unrecognized stock-based compensation cost related to outstanding unvested time-based RSUs that are expected to vest was $ 524.5 million, which is expected to be recognized over a weighted-average period of 3.0 years. The total fair value of time-based RSUs vested during the years ended December 31, 2022 and 2021 was $ 190.9 million and $ 50.5 million, respectively. There was no time-based RSU vested for the year ended December 31, 2020. All performance-based RSUs granted to the CEO are subject to performance and market conditions. The performance condition was satisfied upon the closing of the Merger. The market conditions will be satisfied and vest in five tranches based on the achievement of market capitalization goals applicable to each tranche over a six-month period subject to the CEO’s continuous employment through the applicable vesting date. Any CEO performance-based RSUs that have not vested within five years after the Closing will be forfeited. The fair value of these performance-based RSUs was measured on the grant date, March 27, 2021, using a Monte Carlo simulation model, with the following assumptions: Weighted average volatility 60.0 % Expected term (in years) 5.0 Risk-free interest rate 0.9 % Expected dividends — The Company recognizes compensation expense using a graded vesting attribution method over the derived service period for the CEO performance-based awards. Stock-based compensation expense is recognized when the relevant performance condition is considered probable of achievement for the performance-based award. During the year ended December 31, 2022, the market condition was met for the CEO performance-based awards for four of the five tranches and certified by the Board of Directors, representing an aggregate of 13,934,271 performance RSUs. We recorded stock-based compensation expense of $ 85.4 million for the four tranches during the year ended December 31, 2022, and no such expense was recognized during the year ended December 31, 2021. As of December 31, 2022, the unamortized expense for the fifth tranche, representing 2,090,140 RSUs, was $ 8.2 million which will be recognized over a period of 0.7 years. The total fair value of performance-based RSUs vested during the year ended December 31, 2022 was $ 315.3 million. There are no performance-based RSUs vested for the years ended December 31, 2021 and 2020. For the year ended December 31, 2022, the Company withheld approximately 9.4 million shares of common stock by net settlement to meet the related tax withholding requirements related to the CEO time-based and performance-based RSUs, and nil for the years ended December 31, 2021 and 2020. ESPP The ESPP authorizes the issuance of shares of common stock pursuant to purchase rights granted to employees. The plan provides for 24 -month offering periods beginning in December and June of each year, and each offering period will consist of four six-month purchase periods. The purchase price for each share purchased during an offering period will be the lesser of 85 % of the fair market value of the share on the purchase date or 85 % of the fair market value of the share on the offering date. If the market value of our common stock on the purchase date is lower than the market value at the beginning of the offering period, the ongoing offering terminates immediately following the purchase of ESPP shares on the purchase date and participants in the terminated offering are automatically enrolled in the new offering resulting in a reset of the offering price and a modification charge to be recognized over the new offering period. During the year ended December 31, 2022, there were two ESPP resets that resulted in modification charges of $ 19.9 million, which are being recognized until the new offering period ending in November 2024. The Company issued 2,106,158 shares at a weighted-average price of $ 11.66 for the year ended December 31, 2022. No shares were issued during the year ended December 31, 2021. As of December 31, 2022, unrecognized stock-based compensation cost related to the ESPP was $ 41.5 million, which is expected to be recognized over a weighted-average period of 1.9 years. 118 Stock-Based Compensation Expense Total employee and nonemployee stock-based compensation expense for the years ended December 31, 2022, 2021 and 2020, was classified in the consolidated statements of operations and comprehensive loss as follows (in thousands): Year Ended December 31, 2022 2021 2020 Cost of revenue $ 41,753 $ 8,737 $ 213 Research and development 151,549 137,303 3,724 Selling, general and administrative 230,198 370,717 677 Total $ 423,500 $ 516,757 $ 4,614 Total stock-based compensation expense for the year ended December 31, 2021 included $ 383.2 million stock-based compensation expense related to the RSUs and $ 123.6 million stock-based compensation expense related to the Series E convertible preferred stock issuance in March 2021 and April 2021. Refer to Note 7 “Contingent Forward Contracts” and Note 10 “Convertible Preferred Stock” for more information. NOTE 14 – LEASES The Company has entered into various non-cancellable operating and finance lease agreements for certain of the Company’s offices, manufacturing and warehouse facilities, retail and service locations, equipment and vehicles, worldwide. The Company has determined if an arrangement is a lease, or contains a lease, including embedded leases, at inception and records the leases in the Company’s financial statements upon later of ASC 842 adoption date of January 1, 2021, or lease commencement, which is the date when the underlying asset is made available for use by the lessor. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. Our assessed lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Certain operating leases provide for annual increases to lease payments based on an index or rate. The Company estimates the annual increase in lease payments based on the index or rate at the lease commencement date, for both the Company’s historical leases and for new leases commencing after January 1, 2021. Differences between the estimated lease payment and actual payment are expensed as incurred. Lease expense for finance lease payments is recognized as amortization expense of the finance lease ROU asset and interest expense on the finance lease liability over the lease term. In August 2022, the Company entered into a four-year agreement (“Lease Agreement”) to lease land in Casa Grande, Arizona adjacent to our manufacturing facility. The Company classified this lease as a finance lease because the Lease Agreement contains a purchase option which the Company is reasonably certain to exercise. As of December 31, 2022, assets and liabilities associated with the finance lease were $ 79.3 million and $ 81.1 million, respectively. Contemporaneously with the execution of the Lease Agreement, the Company entered into a sale agreement, pursuant to which the Company sold certain parcels of land for $ 31.7 million to the lessor and leased back these parcels of land under the Lease Agreement. The sale of the land and subsequent lease did not result in change in the transfer of control of the land; therefore, the sale-leaseback transaction is accounted for as a failed sale and leaseback financing obligation. The Company recorded the sales proceeds received as a financial liability within Other long-term liabilities on our consolidated balance sheets as of December 31, 2022. 119 The balances for the operating and finance leases where the Company is the lessee are presented as follows within the Company’s consolidated balance sheets (in thousands): December 31, 2022 December 31, 2021 Operating leases: Operating lease right-of-use assets $ 215,160 $ 161,974 Other current liabilities $ 11,269 $ 11,056 Other long-term liabilities 243,843 185,323 Total operating lease liabilities $ 255,112 $ 196,379 Finance leases: Property, plant and equipment, net $ 90,386 $ 10,567 Total finance lease assets $ 90,386 $ 10,567 Finance lease liabilities, current portion $ 10,586 $ 4,183 Finance lease liabilities, net of current portion 81,336 6,083 Total finance lease liabilities $ 91,922 $ 10,266 The components of lease expense are as follows within the Company’s consolidated statements of operations and comprehensive loss (in thousands): Year Ended December 31, 2022 2021 Operating lease expense: Operating lease expense (1) $ 44,617 $ 31,097 Variable lease expense 1,712 2,406 Finance lease expense: Amortization of leased assets $ 4,812 $ 3,020 Interest on lease liabilities 2,453 460 Total finance lease expense $ 7,265 $ 3,480 Total lease expense $ 53,594 $ 36,983 (1) Excluded short-term leases, which were immaterial. Other information related to leases where the Company is the lessee was as follows: December 31, 2022 December 31, 2021 Weighted-average remaining lease term (in years): Operating leases 7.6 7.8 Finance leases 3.5 2.5 Weighted-average discount rate: Operating leases 10.52 % 10.98 % Finance leases 5.57 % 5.58 % 120 Supplemental cash flow information related to leases where the Company is the lessee is as follows (in thousands): Year Ended December 31, 2022 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 15,482 $ 10,019 Operating cash flows from finance leases (interest payments) 509 460 Financing cash flows from finance leases 4,977 3,088 Leased assets obtained in exchange for new operating lease liabilities 73,502 84,078 Leased assets obtained in exchange for new finance lease liabilities 84,392 9,693 As of December 31, 2022, the maturities of the Company’s operating and finance lease liabilities (excluding short-term leases) were as follows (in thousands): Operating Leases Finance Leases 2023 $ 38,064 $ 10,937 2024 54,504 8,340 2025 53,838 6,619 2026 50,434 82,488 2027 44,039 117 Thereafter 146,784 37 Total minimum lease payments 387,663 108,538 Less: Interest ( 132,551 ) ( 16,616 ) Present value of lease obligations 255,112 91,922 Less: Current portion ( 11,269 ) ( 10,586 ) Long-term portion of lease obligations $ 243,843 $ 81,336 As of December 31, 2022, the Company entered into additional leases for facilities and equipment that have not yet commenced with undiscounted future lease payments of $ 26.8 million. The leases are expected to commence over the next twelve months. NOTE 15 - COMMITMENTS AND CONTINGENCIES Contractual Obligations As of December 31, 2022 and 2021, the Company had $ 593.9 million and $ 286.0 million, respectively, in commitments related to AMP-1 and AMP-2 plant and equipment. These commitments represent future expected payments on open purchase orders entered into as of December 31, 2022 and 2021. T he Company’s non-cancellable long-term commitments primarily related to certain inventory component purchases. The estimated future payments having a remaining term in excess of one year as of December 31, 2022 were as follows (in thousands): Years ended December 31, Minimum Purchase Commitment (1) 2023 $ 310,399 2024 327,680 2025 430,036 2026 703,715 2027 703,205 Thereafter 2,709,173 Total $ 5,184,208 (1) Included minimum purchase commitment of approximately $ 5.0 billion of battery cells from Panasonic Energy Co., Ltd. and certain of its affiliates. 121 Legal Matters From time to time, the Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of business. Some of these claims, lawsuits and other proceedings may involve highly complex issues that are subject to substantial uncertainties, and could result in damages, fines, penalties, non-monetary sanctions or relief. Beginning on April 18, 2021, two individual actions and two putative class actions were filed in federal courts in Alabama, California, New Jersey and Indiana, asserting claims under the federal securities laws against the Company (f/k/a Churchill Capital Corp IV), its wholly owned subsidiary, Atieva, Inc. (“Lucid Motors”), and certain current and former officers and directors of the Company, generally relating to the Merger. On September 16, 2021, the plaintiff in the New Jersey action voluntarily dismissed that lawsuit. The remaining actions were ultimately transferred to the Northern District of California and consolidated under the caption, In re CCIV / Lucid Motors Securities Litigation, Case No. 4:21-cv-09323-YGR (the “Consolidated Class Action”). On December 30, 2021, lead plaintiffs in the Consolidated Class Action filed a revised amended consolidated complaint (the “Complaint”), which asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 on behalf of a putative class of shareholders who purchased stock in CCIV between February 5, 2021 and February 22, 2021. The Complaint names as defendants Lucid Motors and the Company’s chief executive officer, and generally alleges that, prior to the public announcement of the Merger, defendants purportedly made false or misleading statements regarding the expected start of production for Lucid Air and related matters. The Complaint seeks certification of the action as a class action as well as compensatory damages, interest thereon, and attorneys’ fees and expenses. The Company moved to dismiss the Complaint on February 14, 2022 and that motion was granted on January 11, 2023, with Plaintiffs being provided the ability to seek leave to amend. On January 30, 2023, Plaintiffs filed a Motion for Leave to Amend which is currently set for a hearing on March 7, 2023. The Company believes that the plaintiffs’ claims are without merit and intends to defend itself vigorously, but the Company cannot ensure that defendants’ efforts to dismiss the Complaint will be successful or that it will avoid liability in these matters. On December 3, 2021, the Company received a subpoena from the SEC requesting the production of certain documents related to an investigation by the SEC. Although there is no assurance as to the scope or outcome of this matter, the investigation appears to concern the Merger. The Company is cooperating fully with the SEC in its review. In addition, two separate purported shareholders of the Company filed shareholder derivative actions, purportedly on behalf of the Company, against certain of the Company’s officers and directors in California federal court, captioned Sahr Lebbie v. Peter Rawlinson, et al., Case No. 4:22-cv-00531-YGR (N.D. Cal.) (filed on January 26, 2022) and Zsata Williams-Spinks v. Peter Rawlinson, et al. , Case No. 4:22-cv-01115-YGR (N.D. Cal.) (filed on February 23, 2022). The complaint also names the Company as a nominal defendant. Based on allegations that are similar to those in the Consolidated Class Action, the Lebbie complaint asserts claims for unjust enrichment, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, abuse of control, gross mismanagement and waste of corporate assets and a claim for contribution under Sections 10(b) and 21D of the Exchange Act in connection with the Consolidated Class Action and the Williams-Spinks complaint asserts claims for breach of fiduciary duty, gross mismanagement, abuse of control, unjust enrichment, contribution under Sections 10(b) and 21D of the Exchange Act, and aiding and abetting breach of fiduciary duty in connection with the Consolidated Class Action. The complaints seek compensatory damages, interest thereon, certain corporate governance reforms, and attorneys’ fees and expenses. The Company is advancing defendants’ fees and expenses incurred in their defense of the actions. On April 1, 2022 and May 31, 2022, two alleged shareholders filed putative class actions under the federal securities laws against Lucid Group, Inc. and certain officers of the Company relating to alleged statements, updated projections and guidance provided in the late 2021 to early 2022 timeframe. The complaints, which were filed in the Northern District of California, are captioned Victor W. Mangino v. Lucid Group, Inc., et al. , Case No. 3:22-cv-02094-JD, and Anant Goel v. Lucid Group, Inc., et al. , Case No. 3:22-cv-03176-JD. The two matters were consolidated into one action, entitled In re Lucid Group, Inc. Securities Litigation , Case No. 22-cv-02094-JD. The complaints name as defendants Lucid Group, Inc. and the Company’s chief executive officer and chief financial officer, and generally allege that defendants purportedly made false or misleading statements regarding delivery and revenue projections and related matters. The complaints in these actions seek certification of the actions as class actions, as well as compensatory damages, interest thereon, and attorneys’ fees and expenses. The Company believes that the plaintiffs’ claims are without merit and intends to defend itself vigorously, but the Company cannot ensure that defendants’ efforts to dismiss the complaint will be successful or that it will avoid liability in these matters. In addition, on July 11, 2022, a purported shareholder of the Company filed a shareholder derivative action, purportedly on behalf of the Company, against certain of the Company’s officers and directors in California state court, captioned Floyd Taylor v. Glenn August, et al. , Superior Court, Alameda County, Case No. 22CV014130. The complaint also names the Company as a nominal defendant. Based on allegations that are similar to those in the In re Lucid Group, Inc. Securities Litigation action, the Taylor complaint asserts claims for breach of fiduciary duty, unjust enrichment, waste of corporate assets and aiding and abetting breach of fiduciary duty. The complaint seeks compensatory damages, punitive damages, interest, and attorneys’ fees and expenses. The Company is advancing defendants’ fees and expenses incurred in their defense of the actions. 122 At this time, the Company does not consider any such claims, lawsuits or proceedings that are currently pending, individually or in the aggregate, including the matters referenced above, to be material to the Company’s business or likely to result in a material adverse effect on its future operating results, financial condition or cash flows should such proceedings be resolved unfavorably. Indemnification In the ordinary course of business, the Company may provide indemnification of varying scope and terms to customers, vendors, investors, directors, and officers with respect to certain matters, including, but not limited to, losses arising out of our breach of such agreements, services to be provided by the Company, or from intellectual property infringement claims made by third parties. These indemnification provisions may survive termination of the underlying agreement and the maximum potential amount of future payments the Company could be required to make under these indemnification provisions may not be subject to maximum loss clauses. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is indeterminable. The Company has never paid a material claim, nor has it been sued in connection with these indemnification arrangements. The Company has indemnification obligations with respect to letters of credit and surety bond primarily used as security against facility leases and utilities infrastructure in the amount of $ 52.5 million and $ 30.4 million as of December 31, 2022 and 2021, respectively, for which no liabilities are recorded on the consolidated balance sheets. NOTE 16 - INCOME TAXES The components of loss before provision for (benefit from) income taxes for the years ended December 31, 2022, 2021 and 2020, are as follows (in thousands): 2022 2021 2020 Loss subject to domestic income taxes $ ( 1,306,245 ) $ ( 2,580,324 ) $ ( 719,636 ) Income subject to foreign income taxes 2,164 612 68 $ ( 1,304,081 ) $ ( 2,579,712 ) $ ( 719,568 ) The Company recorded $ 0.4 million and immaterial amount of provision for income taxes for the years ended December 31, 2022 and 2021, respectively, and $( 0.2 ) million of benefit from income taxes for the year ended December 31, 2020. The Company recorded provision for (benefit from) income taxes in connection with its domestic, state, and foreign subsidiaries for the years ended December 31, 2022, 2021 and 2020, respectively, as follows (in thousands): 2022 2021 2020 Current Federal $ — $ 18 $ — State 14 4 5 Foreign 365 27 ( 193 ) Total current tax expense (benefit) $ 379 $ 49 $ ( 188 ) Deferred Federal $ — $ — $ — State — — — Foreign — — — Total deferred tax expense (benefit) $ — $ — $ — Total Provision for (benefit from) income taxes $ 379 $ 49 $ ( 188 ) 123 The reconciliation of taxes at the federal statutory rate to our provision for (benefit from) income taxes for the years ended December 31, 2022, 2021 and 2020 was as follows: Year Ended December 31, 2022 2021 2020 Statutory federal income tax rate 21.0 % 21.0 % 21.0 % Stock-based compensation ( 0.6 ) ( 2.9 ) ( 0.2 ) Change in fair value of warrant liability 20.2 ( 8.5 ) ( 3.4 ) Tax-exempt interest 0.4 — — Nondeductible expenses 0.4 ( 0.3 ) ( 0.1 ) Tax credits 1.4 0.7 2.8 Change in valuation allowance ( 42.8 ) ( 10.0 ) ( 20.1 ) Provision for (benefit from) income taxes — % — % — % The effective tax rate was 0.0 % for the years ended December 31, 2022, 2021 and 2020. The amount of provision for (benefit from) income taxes differs from the expected benefit due to the impact of the U.S. valuation allowance. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred taxes as of December 31, 2022 and 2021, are as follows (in thousands): 2022 2021 Deferred tax assets: Net operating loss carryforwards $ 974,097 $ 519,410 Tax credit carryforwards 104,678 71,783 Stock-based compensation expense 26,438 22,559 Capitalization of research and development costs 174,564 — Accruals and reserves 100,622 59,894 Lease Liability 84,635 52,592 Other 19,037 8,547 Total deferred tax assets 1,484,071 734,785 Valuation allowance ( 1,374,265 ) ( 672,898 ) Total deferred tax assets, net of valuation allowance 109,806 61,887 Deferred tax liabilities: Depreciation ( 39,618 ) ( 20,180 ) Right-of-use assets ( 70,188 ) ( 41,707 ) Total deferred tax liabilities ( 109,806 ) ( 61,887 ) Deferred tax assets (liabilities), net of valuation allowance $ — $ — The Company does not provide deferred tax liabilities when it intends to reinvest earnings of its foreign subsidiaries indefinitely. As of December 31, 2022 and 2021, the Company has no undistributed earnings from its foreign subsidiaries. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized in a particular tax jurisdiction. All available evidence, both positive and negative, is considered to determine whether, based on the weight of that evidence, a valuation allowance is needed for some portion or all of a deferred tax asset. Judgment must be used in considering the relative impact of negative and positive evidence. Based on the weight of the available evidence, which includes the Company’s historical operating losses, lack of taxable income, and the accumulated deficit, as of December 31, 2022 and 2021, the Company provided a full valuation allowance against its U.S. and state deferred tax assets. The valuation allowance for deferred tax assets was $ 1,374.3 million and $ 672.9 million, as of December 31, 2022 and 2021, respectively. The valuation allowance on our net deferred taxes increased by $ 701.4 million and $ 312.3 million during the years ended December 31, 2022 and 2021, respectively. 124 The Company had federal, state, and foreign net operating loss carryforwards of approximately $ 3,696.1 million, $ 2,492.0 million, and $ 2.0 million, respectively, as of December 31, 2022, which will begin to expire at various dates beginning in 2023. The Company also had federal and state tax research and development tax credit carryforwards of approximately $ 117.9 million and $ 91.4 million, respectively. The federal research and development tax credit carryforwards will expire at various dates beginning in 2036, if not utilized. The state research and development tax credit carryforwards do not expire. The Internal Revenue Code of 1986, as amended, imposes restrictions on the utilization of net operating losses and certain credits in the event of an “ownership change” of a corporation. Accordingly, a company’s ability to use net operating losses and certain credits may be limited as prescribed under. Internal Revenue Code Section 382, which provide for limitations on net operating losses carryforwards and certain built in losses following ownership changes, and Section 383, which provides for special limitations on certain excess credits, etc. (collectively, “IRC Section 382”). Utilization of the carryforwards may be subject to substantial annual limitation due to the ownership change limitations provided by the IRC Section 382 and similar state provisions, resulting in a reduction in the gross deferral tax assets before considering the valuation allowance. We have completed a formal Section 382 study of our equity transactions through December 31, 2020. The study determined that we experienced an “ownership change” in 2016, and we will not be able to utilize approximately $ 12.0 million of our gross U.S. federal NOL and $ 15.0 million of gross U.S. federal research and development tax credit (or $ 3.0 million in net credit) carryforwards. The Company files U.S., state, and foreign income tax returns with varying statutes of limitations. The federal, state, and foreign returns statute of limitations remains open for tax years from 2008 and thereafter. There are currently no income tax audits underway by U.S., state, or foreign tax authorities. Uncertain Tax Positions As of December 31, 2022, 2021 and 2020, the total amount of unrecognized tax benefits was approximately $ 105.2 million, $ 72.3 million, and $ 42.9 million, respectively, of which $ 0.6 million, $ 0.5 million and $ 2.6 million, if recognized for respective periods, would favorably impact the Company's effective tax rate. The Company does not anticipate a significant change in the total amount of unrecognized tax benefits within the next 12 months. The following table summarizes the activity related to unrecognized tax benefits for the years ended December 31, 2022, 2021 and 2020 (in thousands): December 31, 2022 2021 2020 Unrecognized benefit—beginning of period $ 72,330 $ 42,894 $ 20,635 Gross increases—prior-period tax positions — — 21 Gross decreases—prior-period tax positions — — ( 2 ) Gross increases—current-period tax positions 32,916 31,336 22,382 Gross decrease—current-period tax positions — — — Statute lapse ( 12 ) ( 1,900 ) ( 142 ) Unrecognized benefit—end of period $ 105,234 $ 72,330 $ 42,894 Related to the unrecognized tax benefits above, the Company recognized immaterial interest expense and penalty expense as part of provision for (benefit from) income taxes in the consolidated statements of operations and comprehensive loss. As of December 31, 2022, the Company has recognized a liability for immaterial interest expense and penalties, which was included within Other long-term liabilities in the consolidated balance sheets. NOTE 17 - NET LOSS PER SHARE The weighted-average number of shares of common stock outstanding prior to the Merger have been retroactively adjusted by the Exchange Ratio to give effect to the reverse recapitalization treatment of the Merger. Shares of common stock issued as a result of the conversion of Legacy Lucid convertible preferred stock in connection with the Closing have been included in the basic net loss per share calculation on a prospective basis. 125 Basic and diluted net loss per share attributable to common stockholders are calculated as follows (in thousands, except share and per share amounts): Year Ended December 31, 2022 2021 2020 Net loss $ ( 1,304,460 ) $ ( 2,579,761 ) $ ( 719,380 ) Deemed contribution related to repurchase of Series B convertible preferred stock — — 1,000 Deemed contribution related to repurchase of Series C convertible preferred stock — — 12,784 Deemed dividend related to the issuance of Series E convertible preferred stock — ( 2,167,332 ) — Net loss attributable to common stockholders, basic ( 1,304,460 ) ( 4,747,093 ) ( 705,596 ) Change in fair value of dilutive warrants ( 1,254,218 ) — — Net loss attributable to common stockholders, diluted $ ( 2,558,678 ) $ ( 4,747,093 ) $ ( 705,596 ) Weighted-average shares outstanding, basic 1,678,346,079 740,393,759 24,825,944 Private Placement Warrants using the treasury stock method 14,912,529 — — Weighted-average shares outstanding, diluted 1,693,258,608 740,393,759 24,825,944 Net loss per share: Basic $ ( 0.78 ) $ ( 6.41 ) $ ( 28.42 ) Diluted $ ( 1.51 ) $ ( 6.41 ) $ ( 28.42 ) The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share attributable to common stockholders because including them would have had an anti-dilutive effect: Year Ended December 31, Excluded Securities 2022 2021 2020 Convertible preferred stock (on an as-converted basis) — — 957,159,704 Convertible preferred stock warrants (on an as-converted basis) — — 1,546,799 Private Placement Warrants to purchase common stock — 44,350,000 — Options outstanding to purchase common stock 39,011,116 64,119,902 70,675,318 RSUs outstanding 38,570,298 32,210,200 — Employee stock purchase plan 11,826,419 — — If-converted common shares from convertible note 36,737,785 36,737,785 — Total 126,145,618 177,417,887 1,029,381,821 The 2,090,140 and 16,024,411 shares of common stock equivalents subject to RSUs are excluded from the anti-dilutive table above as the underlying shares remain contingently issuable since the market conditions have not been satisfied as of December 31, 2022 and 2021, respectively. NOTE 18 - EMPLOYEE BENEFIT PLAN The Company has a 401(k) savings plan (the “401(k) Plan”) that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the 401(k) Plan, participating employees may elect to contribute up to 100 % of their eligible compensation, subject to certain limitations. The 401(k) Plan provides for a discretionary employer-matching contribution. The Company made no matching contribution to the 401(k) Plan for the years ended December 31, 2022, 2021 and 2020. NOTE 19 - RELATED PARTY TRANSACTIONS Public Investment Fund Internship Agreement In July 2021, we entered into an agreement with PIF, which is an affiliate of Ayar, to implement a recruitment and talent development program pursuant to which we agreed to evaluate, employ and train participants nominated by PIF during six-month internships, and PIF agreed to reimburse us for expenses related to participant wages, visa fees, medical insurance, airfare and housing incurred by us. The program ended during the year ended December 31, 2022. The expenses incurred under the agreement were $ 1.0 million for the year ended December 31, 2022 and the amount due from PIF was $ 1.0 million as of December 31, 2022. No expenses were incurred during the year ended December 31, 2021. 126 Professional Services Contract In December 2021, we entered into an agreement with The Klein Group, LLC (“Klein”), an affiliate of Churchill Sponsor IV LLC who owns more than 5 % of our common stock. Pursuant to the agreement, Klein will provide strategic advice and assistance in connection with capital markets and other strategic matters. The costs incurred under the agreement were $ 1.3 million and $ 2.3 million for the years ended December 31, 2022 and 2021, respectively. Lease In February 2022, we entered into a lease agreement with KAEC, a related party of PIF, which is an affiliate of Ayar, for our first international manufacturing plant in Saudi Arabia. The lease has an initial term of 25 years expiring in Year 2047. As of December 31, 2022, the right-of-use assets and lease liabilities related to this lease were $ 4.8 million and $ 5.4 million, respectively. The lease expense recorded for the year ended December 31, 2022 was immaterial. SIDF Loan Agreement In February 2022, Lucid LLC entered into the SIDF Loan Agreement with the SIDF, a related party of PIF, which is an affiliate of Ayar. Under the SIDF Loan Agreement, SIDF has committed to provide 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. See Note 6 “Debt” for more information. Ministry of Investment of Saudi Arabia ( “ MISA”) Agreements In February 2022, Lucid LLC entered into agreements with MISA, a related party of PIF, which is an affiliate of Ayar, pursuant to which MISA has agreed to provide economic support for certain capital expenditures in connection with Lucid LLC’s on-going design and construction of AMP-2. The support by MISA is subject to Lucid LLC’s completion of certain milestones related to the construction and operation of AMP-2. Following the commencement of construction, if operations at the plant do not commence within 30 months, or if the agreed scope of operations is not attained within 55 months, MISA may suspend availability of subsequent support. Pursuant to the agreements, MISA has the right to require Lucid LLC to transfer the ownership of AMP-2 to MISA, at the fair market value thereof, minus an amortized value of the support provided in the event of customary events of default including abandonment or material and chronically low utilization of AMP-2. Alternatively, Lucid LLC is entitled to avoid the transfer of the ownership of AMP-2 by electing to pay such amortized value. The agreements will terminate on the fifteenth anniversary of the commencement of completely-built-up (“CBU”) operations at AMP-2 at the latest. During the year ended December 31, 2022, the Company received support of SAR 366 million (approximately $ 97.3 million) in cash, of which $ 64.0 million was recorded as deferred liability within Other long-term liabilities and $ 33.3 million was recorded as a deduction in calculating the carrying amount of the related assets on the consolidated balance sheet. There are no unfulfilled conditions and contingencies attached to the payments received. Payment receipts are classified as investing cash inflows on the consolidated statements of cash flows. GIB Facility Agreement In April 2022, Lucid LLC entered into the GIB Facility Agreement with GIB. GIB is a related party of PIF, which is an affiliate of Ayar. The GIB Facility Agreement provides for two committed revolving credit facilities in an aggregate principal amount of SAR 1 billion (approximately $ 266.1 million). See Note 6 “Debt” for more information. Construction Service Contract Lucid LLC entered into agreements with Al Bawani Company Limited (“Al Bawani”), an affiliate of PIF, which is an affiliate of Ayar, for certain design and construction services in connection with the development of AMP-2. The capital expenditures incurred under these agreements were SAR 109.5 million (approximately $ 29.1 million) for the year ended December 31, 2022. Amounts due to Al Bawani under these agreements were SAR 42.1 million (approximately $ 11.2 million) as of December 31, 2022. Subscription Agreement On November 8, 2022, the Company entered into the Subscription Agreement with Ayar, pursuant to which Ayar agreed to purchase from the Company, up to $ 915.0 million shares of its common stock in one or more private placements through March 31, 2023. In December 2022, the Company issued 85,712,679 shares at a weighted average price per share of $ 10.68 , and received aggregate proceeds of $ 915.0 million. See Note 11 “Stockholders’ Equity” for more information. 127 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable.