Lucid Group, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q (the “Quarterly Report”) and our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 28, 2023. This discussion may contain forward-looking statements based upon Lucid’s current expectation, estimates and projections that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors”, in Part II, Item 1A of this Quarterly Report. Overview We are a technology and automotive company with a mission to inspire the adoption of sustainable energy by creating advanced technologies and the most captivating luxury electric vehicles, centered around the human experience. Our focus on in-house technology innovation, vertical integration, and a “clean sheet” approach to engineering and design have led to the development of the award-winning Lucid Air. We sell vehicles directly to consumers through our retail sales network and through direct online sales including through Lucid Financial Services. We believe that owning our sales network provides an opportunity to closely manage the customer experience, gather direct customer feedback, and ensure that customer interactions are on-brand and tailored to our customers’ needs. We own and operate a vehicle service network comprised of service centers in major metropolitan areas and a fleet of mobile service vehicles. In addition to our in-house service capabilities, we established and continue to grow an approved list of specially trained collision repair shops which also serve as repair hubs for our mobile service offerings in some cases. We began delivering the Lucid Air to customers in October 2021. We expect to launch additional vehicles over the coming decade. We have already commenced design and engineering work for the Lucid Gravity, a luxury sports utility vehicle (“SUV”) that is expected to leverage and expand the technological advancements from the Lucid Air. We expect to begin production of the Lucid Gravity SUV in 2024. After the Lucid Air and the Lucid Gravity SUV, we plan to leverage and expand our technological and manufacturing advancements to develop and manufacture progressively higher-volume vehicle segments. Potential Impact of an Economic Downturn on our Business 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, government closures of banks and liquidity concerns at other financial institutions, or other factors, may have an adverse impact on our 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 our 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 our products may result in significant decreases in our product sales, which in turn would have a material adverse impact on our business, prospects, financial condition and results of operations. Because of our premium brand positioning and pricing, an economic downturn is likely to have a heightened adverse effect on us compared to many of our 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 our suppliers, sub-suppliers or partners become insolvent or are otherwise unable to continue their operations, fulfill their obligations to us, or meet our future demand. In addition, the deterioration of conditions in global credit markets may limit our ability to obtain external financing to fund our operations and capital expenditures on terms favorable to us, if at all. See “Risk Factors” in Part II, Item 1A of this Quarterly Report for more information regarding risks associated with a global economic recession, including under the caption “A global economic recession, government closures of banks and liquidity concerns at other financial institutions, or other downturn may have a material adverse impact on our business, prospects, results of operations and financial condition.” 31 Impact of the COVID-19 Pandemic on our Business The COVID-19 pandemic has impacted the global economy and caused significant macroeconomic uncertainty. Infection rates vary across the jurisdictions in which we operate. Broader impacts of the pandemic have included inflationary pressure as well as ongoing, industry-wide challenges in logistics and supply chains, such as increased port congestion, intermittent supplier delays and a shortfall of semiconductor supply. Because we rely on third party suppliers for the development, manufacture, and/or provision and development of many of the key components and materials used in our vehicles, as well as provisioning and servicing equipment in our manufacturing facilities, we have been affected by inflation and such industry-wide challenges in logistics and supply chains. While we continue to focus on mitigating risks to our operations and supply chain in the current industry environment, we expect that these industry-wide trends will continue to impact our cost structure as well as our ability and the ability of our suppliers to obtain parts, components and manufacturing equipment on a timely basis for the foreseeable future. In the current circumstances, any impact on our financial condition, results of operations or cash flows in the future continues to be difficult to estimate and predict, as it depends on future events that are highly uncertain and cannot be predicted with accuracy. See “Risk Factors” in Part II, Item 1A of this Quarterly Report for more 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. ” Key Factors Affecting Our Performance We believe that our future success and financial performance depend on a number of factors that present significant opportunities for our business, but also pose risks and challenges, including those discussed below and in the section entitled “Risk Factors” in Part II, Item 1A of this Quarterly Report. Design and Technology Leadership We believe that we are positioned to be a leader in the electric vehicle market by unlocking the potential for advanced, high-performance, and long-range electric vehicles to co-exist. The Lucid Air is designed with race-proven battery and powertrain technologies and robust performance together with a sleek exterior design and expansive interior space given our miniaturized key drivetrain components. We anticipate consumer demand for the Lucid Air based on its luxurious design, high-performance technology and sustainability leadership, and the growing acceptance of and demand for electric vehicles as a substitute for gasoline-fueled vehicles. We have received significant interest in the Lucid Air from potential customers. Direct-to-Consumer Model We operate a direct-to-consumer sales and service model, which we believe will allow us to offer a personalized experience for our customers based on their purchase and ownership preferences. We expect to continue to incur significant expenses in our sales and marketing operations for sale of the Lucid Air, including to open studios, hire a sales force, invest in marketing and brand awareness, and stand up a service center operation. As of March 31, 2023, we have opened forty studios and service centers that are customer-facing, thirty-one in the United States (ten in California, three in each of Florida and New York, two in each of Arizona, Illinois, Massachusetts, Texas, Virginia and Washington, and one in each of Colorado, Michigan and New Jersey), four in Canada, one in Germany, one in Netherlands, one in Norway, one in Switzerland, and one in Saudi Arabia. We also expect to hire additional sales, customer service, and service center personnel. We believe that investing in our direct-to-consumer sales and service model will be critical to deliver and service the Lucid electric vehicles we plan to manufacture and sell. Establishing Manufacturing Capacity Achieving commercialization and growth for each generation of electric vehicles requires us to make significant capital expenditures to scale our production capacity and improve our supply chain processes in the United States and internationally. We expect our capital expenditures to increase as we continue our expansion of AMP-1 and construction of planned Advanced Manufacturing Plant 2 in Saudi Arabia (“AMP-2”). The amount and timing of our future manufacturing capacity requirements, and resulting capital expenditures, will depend on many factors, including the pace and results of our research and development efforts to meet technological development milestones, our ability to develop and launch new electric vehicles, our ability to achieve sales and experience customer demand for our vehicles at the levels we anticipate, our ability to utilize planned capacity in our existing facilities and our ability to enter new markets. Technology Innovation We develop in-house battery and powertrain technology, which requires us to invest a significant amount of capital in research and development. The electric vehicle market is highly competitive and includes both established automotive manufacturers and new entrants. To establish market share and attract customers from competitors, we plan to continue to make substantial investments in research and development for the commercialization and continued enhancements of the Lucid Air, the development of the Lucid Gravity SUV, and future generations of our electric vehicles and other products. 32 Inflationary Pressure The U.S. economy has experienced increased inflation recently, including as a result of the COVID-19 pandemic. Our cost to manufacture a vehicle is heavily influenced by the cost of the key components and materials used in the vehicle, cost of labor, as well as cost of equipment used in our manufacturing facilities. As we continue our phased construction of our AMP-1 facility, increases in material and infrastructure equipment prices and cost of construction labor have led to higher capital expenditures. Results of Operations Revenue The following table presents our revenue for the periods presented (in thousands): Three Months Ended March 31, 2023 2022 $ Change % Change Revenue $ 149,432 $ 57,675 $ 91,757 159 % We recognize vehicle sales when the customer obtains control of the vehicle, which is upon delivery. We also generate revenue from non-warranty after-sales vehicle services and parts, sales of battery pack system, powertrain kits and retail merchandise. Revenue increased by $91.8 million for the three months ended March 31, 2023, as compared to the same period in the prior year, primarily driven by an increase in deliveries of the Lucid Air vehicles. Cost of Revenue The following table presents our cost of revenue for the periods presented (in thousands): Three Months Ended March 31, 2023 2022 $ Change % Change Cost of revenue $ 500,524 $ 245,970 $ 254,554 103 % 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. 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. Cost of revenue increased by $254.6 million for the three months ended March 31, 2023, as compared to the same period in the prior year, primarily due to the increase in the manufacture and sale of the Lucid Air vehicles in 2023. We incurred significant personnel and overhead costs to operate our large-scale manufacturing facilities while ramping up production. In the near term, we expect our production volume of vehicles to continue to be significantly less than our manufacturing capacity. Additionally, we recorded write-downs of $227.0 million and $96.4 million in the three months ended March 31, 2023 and 2022, respectively, to reduce our inventories to their net realizable values, for any excess or obsolete inventories, and losses from firm purchase commitments. We expect inventory write-downs could negatively affect our costs of vehicle sales in upcoming periods in the near term as we ramp production volumes up toward our manufacturing capacity. 33 Operating Expenses The following table presents our operating expenses for the periods presented (in thousands): Three Months Ended March 31, 2023 2022 $ Change % Change Research and development $ 229,803 $ 186,076 $ 43,727 23 % Selling, general and administrative 168,770 223,159 (54,389) (24) % Restructuring charges 22,496 — 22,496 *nm Total operating expenses $ 421,069 $ 409,235 $ 11,834 3 % *nm - not meaningful Research and Development Our research and development efforts have primarily focused on the development of our battery and powertrain technology, the Lucid Air, the Lucid Gravity SUV, and future generations of our electric vehicles. Research and development expenses consist primarily of materials, supplies and personnel-related expenses for employees involved in the engineering, designing, and testing of electric vehicles. Personnel-related expenses primarily include salaries, benefits and stock-based compensation. Research and development expenses also include prototype material, engineering, design and testing services, and allocated facilities costs, such as office and rent expense and depreciation expense, and other engineering, designing, and testing expenses. Research and development expense increased by $43.7 million, or 23% for the three months ended March 31, 2023, as compared to the same period in the prior year. The increase was primarily attributable to an increase of $43.6 million for prototype material, engineering, design and testing services, partially offset by lower personnel-related expenses of $3.6 million ($20.8 million lower stock-based compensation expenses, offset by $17.2 million increase due to our growth in headcount). Selling, General, and Administrative Selling, general, and administrative expenses consist primarily of personnel-related expenses for employees involved in general corporate, selling and marketing functions, including executive management and administration, legal, human resources, facilities and real estate, accounting, finance, tax, and information technology. Personnel-related expenses primarily include salaries, benefits and stock-based compensation. Selling, general, and administrative expenses also include allocated facilities costs, such as office, rent and depreciation expenses, professional services fees and other general corporate expenses. As we continue to grow as a company, build out our sales force, and commercialize the Lucid Air and planned future generations of our electric vehicles, we expect that our selling, general and administrative costs will increase. We are incurring additional expenses as a result of operating as a public company, including expenses necessary to comply with the rules and regulations applicable to companies listed on a national securities exchange and related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, as well as higher expenses for general and director and officer insurance, investor relations, and professional services. Selling, general, and administrative expense decreased by $54.4 million, or 24% for the three months ended March 31, 2023, as compared to the same period in the prior year. The decrease was primarily attributable to lower personnel related expenses of $74.7 million ($89.5 million lower stock-based compensation expense mainly driven by the vesting of the four tranches of CEO performance-based awards during the three months ended March 31, 2022, offset by $14.8 million increase due to our growth in headcount), partially offset by increases in allocated facilities costs of $10.9 million, other general corporate expenses of $4.5 million, and higher utilization of contractors and professional fees of $4.4 million. Restructuring Charges On March 28, 2023, we announced a restructuring plan (the “Restructuring Plan”) intended to reduce operating expenses in response to evolving business needs and productivity improvement through a reduction in workforce. We expect to substantially complete the Restructuring Plan by the end of the second quarter of 2023, subject to local law and consultation requirements. As a result of the Restructuring Plan, we expect to record total restructuring charges of approximately $24 million, primarily related to severance payments, employee benefits, employee transition and stock-based compensation. Restructuring charges of $22.5 million for the three months ended March 31, 2023 primarily related to severance payments, employee benefits and stock-based compensation, net of a reversal of previously recognized stock-based compensation expense. 34 Other Income (Expense), net The following table presents our other income (expense), net for the periods presented (in thousands): Three Months Ended March 31, 2023 2022 $ Change % Change Other income (expense), net: Change in fair value of common stock warrant liability $ (40,802) $ 523,330 $ (564,132) (108) % Interest income 40,005 — 40,005 *nm Interest expense (7,108) (7,719) 611 (8) % Other income, net 667 956 (289) (30) % Total other income (expense), net $ (7,238) $ 516,567 $ (523,805) (101) % *nm - not meaningful Change in Fair Value of Common Stock Warrant Liability Our common stock warrant liability relates to the privately placed common stock warrants (the “Private Placement Warrants”) to purchase shares of Lucid Group common stock that were effectively issued upon the Closing in connection with the reverse recapitalization treatment of the Merger. Our common stock warrant liability is subject to remeasurement to fair value at each balance sheet date. Changes in the fair value of our common stock warrant liability were recognized in the condensed consolidated statements of operations and comprehensive loss. The Private Placement Warrants remained unexercised as of March 31, 2023. The liability was remeasured to fair value, resulting in a loss of $40.8 million and a gain of $523.3 million for the three months ended March 31, 2023 and 2022, respectively, and was classified within change in fair value of common stock warrant liability in the condensed consolidated statements of operations and comprehensive loss . See Note 7 “Common Stock Warrant Liability” to our condensed consolidated financial statements included elsewhere in this Quarterly Report for more information. Interest Income Interest income of $40.0 million for the three months ended March 31, 2023 primarily consisted of interest, as well as amortization and accretion of purchase premiums and discounts on our investments of available-for-sale securities. Interest Expense Interest expense consists primarily of contractual interest and amortization of debt discounts and debt issuance costs incurred related to the 2026 Notes issued in December 2021, interest and commitment fee as well as amortization of issuance costs incurred associated with ABL Credit Facility and GIB Credit Agreement, and interest on our finance leases. Interest expense decreased by $0.6 million for the three months ended March 31, 2023, as compared to the same period in the prior year, primarily due to an increase in interest capitalized on construction in progress related to significant capital asset construction, partially offset by an increase in commitment fees from the five-year senior secured asset-based revolving credit facility (“ABL Credit Facility”). Other Income (Expense), net Other income (expense), net primarily consists of foreign currency gains and losses and dividend income from our investments. Our foreign currency exchange gains and losses relate to transactions and asset and liability balances denominated in currencies other than the U.S. dollar. We expect our foreign currency gains and losses to continue to fluctuate in the future due to changes in foreign currency exchange rates. Other income (expense), net did not significantly fluctuate during the three months ended March 31, 2023 as compared to the same period in the prior year. Provision for Income Taxes Three Months Ended March 31, (in thousands) 2023 2022 $ Change % Change Provision for income taxes $ 129 $ 323 $ (194) (60) % 35 Our provision for income taxes consists primarily of U.S. state and foreign income taxes in jurisdictions in which we operate. We maintain a valuation allowance against the full value of our U.S. and state net deferred tax assets because we believe it is more likely than not that the recoverability of these deferred tax assets will not be realized. The provision for income taxes decreased by $0.2 million for the three months ended March 31, 2023, as compared to the same period in the prior year, primarily due to changes in the mix of jurisdictional earnings. Liquidity and Capital Resources Sources of Liquidity As of March 31, 2023, Lucid had approximately $3.4 billion of cash, cash equivalents and investments. Our sources of cash are predominantly from proceeds received upon the completion of the Merger, the issuance of convertible debt and proceeds from equity offerings. We expect that our current sources of liquidity together with our projection of cash flows from operating activities will provide us with adequate liquidity for at least the next 12 months, including investment in funding (i) ongoing operations, (ii) research and development projects for new products/ technologies, (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) construction of AMP-2, (vi) expansion of retail studios and service centers, and (vii) other initiatives related to the sale of vehicles and/ or technology. We anticipate our cumulative spending on capital expenditures to be in the range of $1.4 billion to $1.6 billion for the fiscal year 2023 to support our continued commercialization and growth objectives as we strategically invest in manufacturing capacity and capabilities, our retail studios and service center capabilities throughout North America and across the globe, development of different products and technologies, and other areas supporting the growth of Lucid’s business. Our future capital expenditures may vary and will depend on many factors including the timing and extent of spending and other growth initiatives. In addition, we expect our operating expenses to increase in order to grow and support the operations of a global automotive company targeting volumes in line with Lucid’s aspirations. As of March 31, 2023, our total minimum lease payments are $486.5 million, of which $35.1 million is due in 2023. We also have non-cancellable long-term commitments of $5.1 billion, primarily relating to certain inventory component purchases. For details regarding these obligations, refer to Note 10 “Leases” and Note 11 “Commitments and Contingencies” to the condensed consolidated financial statements included elsewhere in this Quarterly Report for more information. 2026 Notes In December 2021, Lucid issued $2,012.5 million of the 2026 Notes. The 2026 Notes accrue interest at a rate of 1.25% per annum, payable semi-annually in arrears on June 15 and December 15 of each year, beginning on June 15, 2022. The 2026 Notes will mature on December 15, 2026, unless earlier repurchased, redeemed or converted. Before the close of business on the business day immediately before September 15, 2026, noteholders will have the right to convert their Notes only upon the occurrence of certain events. From and after September 15, 2026, noteholders may convert their Notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date. We will settle conversions by paying or delivering, as applicable, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. The initial conversion rate is 18.2548 shares of common stock per $1,000 principal amount of Notes, which represents an initial conversion price of approximately $54.78 per share of common stock. The conversion rate and conversion price will be subject to customary adjustments upon the occurrence of certain events. In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” (as defined in the indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time. As of March 31, 2023 and December 31, 2022, we were in compliance with applicable covenants under the indenture governing the 2026 Notes. International Manufacturing Expansion On February 27, 2022, we announced that we had selected King Abdullah Economic City (“KAEC”) in Saudi Arabia as the location of our first international manufacturing plant and signed related agreements with the Ministry of Investment of Saudi Arabia, the Saudi Industrial Development Fund, and the Economic City at KAEC. The operations at the new plant would initially consist of re-assembly of the Lucid Air vehicle “kits” pre-manufactured in the U.S. and, over time, production of complete vehicles. 36 Saudi Industrial Development Fund (“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 $93.2 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 $110.6 million) to SAR 1.77 billion (approximately $471.5 million), over the term of the SIDF Loans. SIDF Loans will be secured by security interests in the equipment, machines and assets funded thereby. The SIDF Loan Agreement contains certain restrictive financial covenants and imposes annual caps on Lucid LLC’s payment of dividends, distributions of paid-in capital or certain capital expenditures. The SIDF Loan Agreement also defines customary events of default, including abandonment of or failure to commence operations at the plant in KAEC, and drawdowns under the SIDF Loan Agreement are subject to certain conditions precedent. As of March 31, 2023 and December 31, 2022, no amount was outstanding under the SIDF Loan Agreement. 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. In 2022, we received support of SAR 366 million (approximately $97.3 million) in cash. We recorded $46.5 million and $64.0 million as deferred liability within other long-term liabilities on the condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022, respectively. We also recorded $50.8 million and $33.3 million as a deduction in calculating the carrying amount of the related assets on the condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022, respectively. There were no unfulfilled conditions and contingencies attached to the payments received. Gulf International Bank (“GIB”) Facility Agreement On April 29, 2022, Lucid LLC entered into a revolving credit facility agreement (the “GIB Facility Agreement”) with GIB, maturing on February 28, 2025. GIB is a related party of PIF, which is an affiliate of Ayar. The GIB Facility Agreement provided 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 was 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) might be used for general corporate purposes (the “Working Capital Facility”). Loans under the Bridge Facility and the Working Capital Facility had a maturity of no more than 12 months. The Bridge Facility beared interest at a rate of 1.25% per annum over 3-month SAIBOR and the Working Capital Facility beared interest at a rate of 1.70% per annum over 1~3-month SAIBOR and associated fees. 37 On March 12, 2023, Lucid LLC entered into an amendment of the GIB Facility Agreement (together with the GIB Facility Agreement, the “Amended GIB Facility Agreement”) to combine the Bridge Facility and the Working Capital Facility into a committed SAR 1 billion (approximately $266.4 million) revolving credit facility (the “GIB Credit Facility”) which may be used for general corporate purposes. Loans under the Amended GIB Credit Facility Agreement have a maturity of no more than 12 months and bear interest at a rate of 1.40% per annum over SAIBOR (based on the term of borrowing) and associated fees. We are 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 Amended GIB Facility Agreement will terminate, and all amounts then outstanding thereunder would become payable, on the maturity date of the Amended GIB Facility Agreement. The Amended GIB Facility Agreement contains certain conditions precedent to drawdowns, representations and warranties and covenants of Lucid LLC and events of default. As of March 31, 2023, we had outstanding borrowings of SAR 36 million (approximately $9.6 million) with interest rate of 7.20%. As of March 31, 2023, availability under the GIB Credit Facility was SAR 963 million (approximately $256.7 million), after giving effect to the outstanding letters of credit. As of December 31, 2022, we had outstanding borrowings of SAR 36 million (approximately $9.6 million) with interest rate of 6.40% from the Working Capital Facility. As of December 31, 2022, available borrowings were SAR 650 million (approximately $173.0 million) and SAR 314 million (approximately $83.5 million) under the Bridge Facility and Working Capital Facility, respectively. The outstanding borrowings were recorded within other current liabilities on the condensed consolidated balance sheets. As of March 31, 2023 and December 31, 2022, we were in compliance with applicable covenants under the Amended GIB Facility Agreement. ABL Credit Facility In June 2022, we entered into the 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, we 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. We are 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 our 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 March 31, 2023 and December 31, 2022, we were in compliance with applicable covenants under the ABL Credit Facility. As of March 31, 2023 and December 31, 2022, we had no outstanding borrowings under the ABL Credit Facility. Outstanding letters of credit under the ABL Credit Facility were $37.9 million and $37.4 million as of March 31, 2023 and December 31, 2022, respectively. Availability under the ABL Credit Facility was $483.8 million (including $39.7 million cash and cash equivalents) and $441.4 million (including $37.3 million cash and cash equivalents) as of March 31, 2023 and December 31, 2022, respectively, after giving effect to the borrowing base and the outstanding letters of credit. At-the-Market Offering and Subscription Agreement In December 2022, we completed our at-the-market offering program (the “At-the-Market Offering”) 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 (“the Subscription Agreement”) pursuant to the Subscription Agreement for $915.0 million. See Note 8 “Stockholders’ Equity” to the condensed consolidated financial statements included elsewhere in this Quarterly Report, for more information. We have generated significant losses from our operations as reflected in our accumulated deficit of $8.1 billion and $7.4 billion as of March 31, 2023 and December 31, 2022, respectively. Additionally, we have generated significant negative cash flows from operations and investing activities as we continue to support the growth of our business. The expenditures associated with the development and commercial launch of our vehicles, the anticipated increase in manufacturing capacity, and the international expansion of our business operations are subject to significant risks and uncertainties, many of which are beyond our control, which may affect the timing and magnitude of these anticipated expenditures. These risk and uncertainties are described in more detail in the section entitled “Risk Factors” in Part II, Item 1A of this Quarterly Report. 38 Cash Flows The following table summarizes our cash flows for the periods presented (in thousands): Three Months Ended March 31, 2023 2022 Cash used in operating activities $ (801,264) $ (494,649) Cash used in investing activities (28,716) (185,082) Cash used in financing activities (5,745) (187,301) Net decrease in cash, cash equivalents, and restricted cash $ (835,725) $ (867,032) Cash Used in Operating Activities Our cash flows used in operating activities to date have been primarily comprised of cash outlays to support overall growth of the business, especially the costs related to inventory and sale of our vehicles, costs related to research and development, payroll and other general and administrative activities. As we continue to ramp up hiring after starting commercial operations, we expect our cash used in operating activities to increase significantly before it starts to generate any material cash flows from our business. Net cash used in operating activities increased by $306.6 million to $801.3 million during the three months ended March 31, 2023 compared to the same period in the prior year. The increase was primarily due to the increase in net loss excluding non-cash expenses and gains of $128.4 million and an overall increase in net operating assets and liabilities of $178.2 million. The change in net operating assets and liabilities was mainly attributable to decreases in other current liabilities and accounts payable due to timing of payments, partially offset by an increase in other current assets. Cash Used in Investing Activities Cash flows from investing activities primarily relate to purchases of investments and capital expenditures to support our growth. We continue to experience negative cash flows from investing activities as we expand our business and continue to build our infrastructure. Net cash used in investing activities decreased by $156.4 million to $28.7 million during the three months ended March 31, 2023 compared to the same period in the prior year. The decrease was primarily attributable to proceeds from maturities of investments of $1,041.2 million, partially offset by purchases of investments of $842.5 million, and an increase in capital expenditures of $56.7 million during the three months ended March 31, 2023 compared to the same period in the prior year. Cash Used in Financing Activities Since inception, we have financed our operations primarily from the issuances of equity securities, including the At-the-Market Offering, the private placement to Ayar, convertible preferred stock, the proceeds of the Merger, and the 2026 Notes. Net cash used in financing activities decreased by $181.6 million to $5.7 million during the three months ended March 31, 2023 compared to the same period in the prior year. The decrease was primarily attributable to $180.6 million of remittance for tax withholding obligations in connection with vesting of the CEO time-based and performance-based RSUs through net settlement during the three months ended March 31, 2022, and a decrease in proceeds from the exercises of stock options of $6.9 million during the three months ended March 31, 2023 compared to the same period in the prior year. Critical Accounting Policies and Estimates The condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report are prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). The preparation of our condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts and related disclosures in our financial statements and accompanying notes. We base our estimates on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions due to the inherent uncertainty involved in making those estimates and any such differences may be material. For a description of our critical accounting policies and estimates, refer to Part II, Item 7, Critical Accounting Policies and Estimates in our Annual Report on Form 10-K for the year ended December 31, 2022 and Note 2 “Summary of Significant Accounting Policies” to our condensed consolidated financial statements in Item 1 of Part I of this Quarterly Report. There have been no material changes to our critical accounting policies and estimates since our Annual Report on Form 10-K for the year ended December 31, 2022. 39 Item 3. Qualitative and Quantitative Disclosures about Market Risk. We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in interest rates and inflationary pressure. Interest Rate Risk We are exposed to market risk for changes in interest rates applicable to our Cash and cash equivalents, restricted cash, and investments. We had cash, cash equivalents, restricted cash, and investments totaling approximately $3.4 billion as of March 31, 2023. Our investment policy is focused on the preservation of capital and supporting our liquidity needs. Under the policy, we invest in highly rated securities, primarily issued by the U.S. government or liquid money market funds. We do not invest in financial instruments for trading or speculative purposes. We utilize external investment managers who adhere to the guidelines of our investment policy. Based on investment positions as of March 31, 2023, a hypothetical 100 basis point increase in interest rates would result in approximately $12.3 million incremental decline in the fair market value of our portfolio. Inflationary Pressure The U.S. economy has experienced increased inflation recently, including as a result of the COVID-19 pandemic. Our cost to manufacture a vehicle is heavily influenced by the cost of the key components and materials used in the vehicle, cost of labor, as well as cost of equipment used in our manufacturing facilities. As we continue our phased construction of our AMP-1 facility, increases in steel prices and cost of construction labor have led to higher capital expenditures. We expect that the inflationary pressure will persist for the foreseeable future. Supply Risk We are 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 us, or its inability to efficiently manage these components, could have a material adverse effect on our results of operations and financial condition.