What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-27 compared with 2023-02-28 · 141 added, 216 removed, 213 unchanged (63% of the section changed)

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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 I, Item 1A of this Annual Report.

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 are a technology 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 hardware and software innovation, vertical integration, and a “clean sheet” approach to engineering and design 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 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 Lucid Gravity, a luxury sports utility vehicle (“SUV”) that is expected to leverage and expand the technological advancements from Lucid Air.

We expect to begin production of Lucid Gravity in 2024.

After Lucid Air and Lucid Gravity, we plan to leverage and expand our technological and manufacturing advancements to develop and manufacture progressively higher-volume vehicle segments.

Recent Developments

At-the-Market Offering

On November 8, 2022, we entered into an equity distribution agreement (the “Equity Distribution Agreement”) with BofA Securities, Inc., Barclays Capital Inc.

and Citigroup Global Markets Inc., under which we could offer and sell shares of our common stock having an aggregate offering price up to $600.0 million (the “At-the-Market Offering”).

During the year ended December 31, 2022, we 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.

Subscription Agreement

On November 8, 2022, we 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 us, up to $915.0 million of shares of our common stock in one or more private placements through March 31, 2023.

In December 2022, we 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.

We began delivering the Lucid Air to customers in October 2021 and we expect to launch additional vehicles over the coming decade.

We have leveraged and expanded the technological advancements from the Lucid Air to the Lucid Gravity, a luxury sport utility vehicle (“SUV”), which is scheduled for start of production in late 2024.

After the Lucid Air and the Lucid Gravity, start of production of our Midsize platform is scheduled for late 2026.

Recent Development

Implementation Agreement with Aston Martin

In June 2023, we entered into an agreement (the “Implementation Agreement”) with Aston Martin Lagonda Global Holdings plc (together with its subsidiaries, “Aston Martin”), a related party of PIF, which is an affiliate of Ayar, under which we and Aston Martin have established a long-term strategic technology and supply arrangement.

On November 6, 2023, pursuant to the terms of the Implementation Agreement, integration and supply arrangements became effective, under which we will provide Aston Martin access to our powertrain, battery system, and software technologies, work with Aston Martin to integrate our powertrain and battery components with Aston Martin’s battery electric vehicle chassis, and supply powertrain and battery components to Aston Martin (collectively, the “Strategic Technology Arrangement”).

In connection with the commencement of the Strategic Technology Arrangement, we received technology access fees in 28,352,273 ordinary shares of Aston Martin (subject to a lock-up provision of 365 days from its issuance) and the first cash installment of $33 million.

These shares were initially measured at a fair value of $73.2 million and subsequently remeasured to fair value of $81.5 million as of December 31, 2023.

We will receive the remaining cash payments of $99 million phased over a period of three years.

In connection with the Strategic Technology Arrangement, we will also receive an aggregate of $10 million for integration service fees phased over a period of three years, of which we received $1.6 million during the year ended December 31, 2023.

Aston Martin has also committed to an effective minimum spend with us on powertrain components of $225 million.

EV Purchase Agreement

In August 2023, Lucid LLC entered into an EV purchase agreement with the Government of Saudi Arabia, a related party of PIF, which is an affiliate of Ayar, as represented by the Ministry of Finance (the “EV Purchase Agreement”), which supersedes the letter of undertaking that Lucid LLC entered into in April 2022.

Pursuant to the terms of the EV Purchase Agreement, the Government of Saudi Arabia and its entities and corporate subsidiaries and other beneficiaries (collectively, the “Purchaser”) may purchase up to 100,000 vehicles, with a minimum purchase quantity of 50,000 vehicles and an option to purchase up to an additional 50,000 vehicles during a ten-year period.

Under the EV Purchase Agreement, the Purchaser may reduce the minimum vehicle purchase quantity by the number of vehicles set out in any purchase order not accepted by us or by the number of vehicles that Lucid LLC fails to deliver within six months from the date of the applicable purchase order.

The Purchaser also has absolute discretion to decide whether to exercise the option to purchase the additional 50,000 vehicles.

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, or other factors, may have an adverse impact on our business, prospects, financial condition and results of operations.

A global economic recession or other downturn, whether due to inflation, global conflicts 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.

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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, an 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 Item 1A of Part I of this 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.”

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.

We have taken proactive action to protect the health and safety of our employees, customers, partners and suppliers, consistent with the latest and evolving governmental guidelines.

We continue 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 we otherwise see fit to protect the health and safety of our employees, customers, partners and suppliers.

While certain of our and our suppliers’ operations have from time-to-time been temporarily affected by government-mandated restrictions, we were able to commence deliveries of Lucid Air to customers and to proceed with the construction of our Advanced Manufacturing Plant 1 in Casa Grande, Arizona (“AMP-1”).

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 Item 1A of Part I of this Annual 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.

See “Risk Factors” in Item 1A of Part I of this Annual 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.”

Key Factors Affecting Our Performance

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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.

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 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 Lucid Air from potential customers.

As of February 21, 2023, we had refundable reservations and non-refundable orders of cars yet to be delivered that reflect potential sales of over $2.7 billion.

In addition, we have an agreement with the Ministry of Finance of Saudi Arabia, under which the Government of Saudi Arabia and its entities and corporate subsidiaries undertook to purchase up to 100,000 vehicles over a ten-year period, with an initial commitment to purchase 50,000 vehicles and an option to purchase up to an additional 50,000 vehicles over the same period.

With the progression of our business, we believe production and deliveries are a better representation of our progress.

Going forward, we no longer plan to provide an updated quarterly number on refundable reservations and non-refundable orders.

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 anticipated continued 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 continue to receive 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 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 December 31, 2022, we have opened thirty-five studios and service centers, one in Germany, one in Netherlands, one in Saudi Arabia, one in Switzerland, two in Canada, twenty-nine in the United States (one in each of Colorado, Michigan, New Jersey, and Virginia, two in each of Arizona, Illinois, Massachusetts, Texas, and Washington, three in Florida and New York, as well as nine in California).

We operate a direct-to-consumer sales and service model, which we believe allows 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, service and marketing operations for sale of the Lucid Air, including to open studios, hire a sales force, invest in marketing and brand awareness, and establish a robust service center operation.

As of December 31, 2023, we have opened forty-five studios and service centers (excluding temporary and satellite service centers):

thirty-three in the United States (ten in California, four 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), five in Canada, two in Germany, one in Netherlands, one in Norway, one in Switzerland, and two 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.

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 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”).

We expect our capital expenditures to increase as we continue our expansion of AMP-1 and construction of the completely-built-up (“CBU”) portion of 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.

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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 Lucid Air, the development of Lucid Gravity, and future generations of our electric vehicles and other products.

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, and future generations of our electric vehicles and other products.

Inflationary Pressure

economy has experienced increased inflation recently, including as a result of the COVID-19 pandemic.

and Saudi Arabia economies have experienced increased inflation, 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.

As we continue our phased construction of our AMP-1 and AMP-2 facilities, any further increases in material and infrastructure equipment prices and cost of construction labor could lead to higher capital expenditures.

Results of Operations

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2023 2022 $ Change % Change

Revenue $ 608,181 $ 27,111 $ 581,070 *nm

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We began generating sales from the deliveries of vehicles in the fourth quarter of 2021.

Revenue $ 595,271 $ 608,181 $ (12,910) (2) %

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, sales of battery pack system, powertrain kits and retail merchandise.

Revenue increased by $581.1 million for the year ended December 31, 2022, as compared to the year ended December 31, 2021, primarily driven by customer deliveries of Lucid Air vehicles.

We also generate revenue from non-warranty after-sales vehicle services and parts, powertrain kits, retail merchandise, and regulatory credits.

Revenue decreased by $12.9 million, or 2% for the year ended December 31, 2023, as compared to the year ended December 31, 2022.

The decrease was primarily driven by change in product mix, pricing and incentives offered, partially offset by increases in deliveries of the Lucid Air vehicles during the year ended December 31, 2023.

Cost of Revenue

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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 includes direct parts, material and labor costs, manufacturing overhead, including depreciation of 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 $1,491.2 million for the year ended December 31, 2022, as compared to the year ended December 31, 2021, primarily due to the manufacture and sale of Lucid Air vehicles in 2022.

Cost of revenue increased by $290.0 million, or 18% for the year ended December 31, 2023, as compared to the year ended December 31, 2022, primarily due to the increases in the manufacture and sale of the Lucid Air vehicles in 2023 and inventory and firm purchase commitments write-downs.

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 $569.5 million and $48.9 million in the years ended December 31, 2022 and 2021, respectively, to reduce our inventories to their net realizable values, for any excess or obsolete inventories, and losses from firm purchase commitments.

We recorded write-downs of $926.9 million and $569.5 million in the years ended December 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.

On August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”) was enacted with clean energy incentives.

For the year ended December 31, 2023, the impact of the IRA on our results of operations was not material.

We will continue to evaluate the expected future impact of the IRA on our business and financial statements as additional regulatory guidance is issued.

Operating Expenses

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Selling, general and administrative 797,235 734,574 62,661 9 %

Restructuring charges

24,546 — 24,546 *nm

Total operating expenses $ 1,758,793 $ 1,556,086 $ 202,707 13 %

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Research and Development

Our research and development efforts have primarily focused on the development of our battery and powertrain technology, Lucid Air, Lucid Gravity, and future generations of our electric vehicles.

Our research and development efforts have primarily focused on the development of our battery and powertrain technology, the Lucid Air, the Lucid Gravity, and future generations of our electric vehicles.

Research and development expenses consist primarily of materials, supplies and personnel-related expenses for employees involved in the engineering, designing, and testing of electric vehicles.

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Research and development expense increased by $115.5 million, or 14% for the year ended December 31, 2023, as compared to the year ended December 31, 2022.

The increase was primarily attributable to higher personnel-related expenses of $53.0 million due to our growth in headcount (which included higher stock-based compensation expense of $14.2 million), and an increase of $56.0 million for prototype material, engineering, design and testing services, partially offset by decreases of $34.0 million in allocated facilities costs and $15.4 million from lower utilization of contractors and professional fees.

The increase was primarily attributable to an increase of $89.4 million for prototype material, engineering, design and testing services and higher personnel-related expenses of $46.1 million ($59.9 million increase due to our growth in headcount, partially offset by $13.8 million lower stock-based compensation expense), partially offset by a decrease of $23.4 million from lower utilization of contractors and professional fees.

Selling, General, and Administrative

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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 Lucid Air and planned future generations of our electric vehicles, we expect that our selling, general and administrative costs will increase.

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 increased by $62.7 million, or 9% for the year ended December 31, 2023, as compared to the year ended December 31, 2022.

The increase was primarily attributable to higher utilization of contractors and professional fees of $39.6 million, and increases in allocated facilities costs of $26.5 million, other general corporate expenses of $25.5 million, and sales and marketing expenses of $21.9 million.

The increases were partially offset by lower personnel related expenses of $37.0 million ($140.5 million lower stock-based compensation expense, offset by $103.5 million increase due to our growth in headcount).

The stock-based compensation expense for the year ended December 31, 2021 included expenses recognized related to the RSUs upon the closing of the Merger, and the fourth closing of the Legacy Lucid Series E preferred stock issuance.

The increase was primarily attributable to increases in allocated facilities costs of $61.2 million, sales and marketing expenses of $22.7 million and other general corporate expenses of $17.5 million, partially offset by lower personnel-related expenses of $37.3 million ($112.8 million lower stock-based compensation expense mainly driven by the vesting of the four tranches of CEO performance-based awards during the year ended December 31, 2022, partially offset by $75.5 million increase due to our growth in headcount).

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 substantially completed the Restructuring Plan in 2023.

Restructuring charges of $24.5 million for the year ended December 31, 2023 was primarily related to severance payments, employee benefits, employee transition and stock-based compensation, net of a reversal of previously recognized stock-based compensation expense.

Other Income (Expense), net

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

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

Year Ended December 31,

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Other income (expense), net:

Change in fair value of forward contracts $ — $ (454,546) $ 454,546 (100) %

Change in fair value of convertible preferred stock warrant liability — (6,976) 6,976 (100) %

Change in fair value of common stock warrant liability 1,254,218 (582,760) 1,836,978 *nm

Transaction costs expensed — (2,717) 2,717 (100) %

Interest income 56,756 — 56,756 *nm

Interest expense (30,596) (1,374) (29,222) *nm

Other income (expense), net 9,532 (893) 10,425 *nm

Total other income (expense), net $ 1,289,910 $ (1,049,266) $ 2,339,176 *nm

Change in fair value of common stock warrant liability $ 86,926 $ 1,254,218 $ (1,167,292) (93) %

Change in fair value of equity securities

5,999 — 5,999 *nm

Interest income 204,274 56,756 147,518 260 %

Interest expense (24,915) (30,596) 5,681 (19) %

Other income (expense), net (90) 9,532 (9,622) (101) %

Total other income (expense), net $ 272,194 $ 1,289,910 $ (1,017,716) (79) %

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Change in Fair Value of Contingent Forward Contracts

Our contingent forward contracts provided the holder the right to purchase Legacy Lucid Series D preferred stock and Legacy Lucid Series E preferred stock in future periods and were subject to remeasurement to fair value at each balance sheet date.

Changes in the fair value of our contingent forward contracts were recognized in the consolidated statements of operations and comprehensive loss.

Change in contingent forward contracts liability decreased by $454.5 million for the year ended December 31, 2022, as compared to the year ended December 31, 2021.

The Legacy Lucid Series E contingent forward contracts were settled during the year ended December 31, 2021, and there are no future earnings adjustments pertaining to the contingent forward contracts.

Change in Fair Value of Convertible Preferred Stock Warrant Liability

Our convertible preferred stock warrant liability related to the warrants to purchase shares of Legacy Lucid Series D preferred stock was subject to remeasurement to fair value at each balance sheet date.

Changes in the fair value of our convertible preferred stock warrant liability were recognized in the consolidated statements of operations and comprehensive loss.

All issued and outstanding shares of Legacy Lucid Series D preferred stock were settled in February 2021 and there will no longer be future earnings adjustments pertaining to the convertible preferred share warrant liability related to Legacy Lucid Series D preferred stock.

We recorded a loss of $7.0 million for the year ended December 31, 2021 due to the changes in fair value of the convertible preferred stock warrant liability related to Legacy Lucid Series D preferred stock upon the exercise and settlement of all outstanding warrants to purchase Legacy Lucid Series D preferred stock.

Change in Fair Value of Common Stock Warrant Liability

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The Private Placement Warrants remained unexercised as of December 31, 2023.

The liability was remeasured to fair value, resulting in a gain of $1,254.2 million and a loss of $582.8 million for the years ended December 31, 2022 and 2021, respectively, and was classified within change in fair value of common stock warrant liability in the consolidated statements of operations and comprehensive loss .

The liability was remeasured to fair value, resulting in gains of $86.9 million and $1,254.2 million for the years ended December 31, 2023 and 2022, respectively, and was classified within change in fair value of common stock warrant liability in the consolidated statements of operations and comprehensive loss.

See Note 10 “Common Stock Warrant Liability” to our consolidated financial statements included elsewhere in this Annual Report for more information.

Transaction Costs Expensed

In connection with the Merger, we incurred $38.9 million in one-time direct and incremental transaction costs, consisting of banking, legal, and other professional fees.

Transaction costs incurred by Lucid were allocated on a relative fair value basis between equity and liability-classified instruments deemed to be issued for financial reporting purposes at the Closing by Lucid.

The Company’s $36.2 million transaction costs allocable to equity-classified instruments, including the common stock and publicly traded common stock warrants (the “Public Warrants”), were charged as a direct reduction to Lucid’s additional paid-in capital of the gross proceeds remitted to Lucid from Churchill.

The Company’s $2.7 million transaction costs allocable to liability-classified instruments measured at fair value, including the Private Placement Warrants, were charged to the consolidated statements of operations and comprehensive loss upon the Closing for the year ended December 31, 2021.

Change in Fair Value of Equity Securities

In connection with the commencement of the Strategic Technology Arrangement with Aston Martin, the Company received 28,352,273 ordinary shares of Aston Martin (subject to a lock-up provision of 365 days from its issuance).

The ordinary shares of Aston Martin are subject to remeasurement to fair value at each balance sheet date.

Such shares were initially measured at a fair value of $73.2 million and subsequently remeasured to fair value of $81.5 million as of December 31, 2023.

The change in fair value resulted in an unrealized gain of $6.0 million for the year ended December 31, 2023, and was classified within change in fair value of equity securities in the consolidated statements of operations and comprehensive loss.

See Note 6 “Fair Value Measurements and Financial Instruments” and Note 20 “Related Party Transactions” to our consolidated financial statements included elsewhere in this Annual Report for more information.

Interest Income

Interest income of $56.8 million for the year ended December 31, 2022, primarily consisted of interest, as well as amortization and accretion of purchase premiums and discounts on our investments of available-for-sale securities.

Interest income increased by $147.5 million for the year ended December 31, 2023, as compared to the year ended December 31, 2022, primarily due to higher book yield from our investments in available-for-sale securities under the investment program which started in June 2022.

Interest Expense

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

Interest expense increased by $29.2 million for the year ended December 31, 2022, as compared to the year ended December 31, 2021, primarily related to the 2026 Notes issued in December 2021.

Interest expense primarily consists of contractual interest and amortization of debt discounts and debt issuance costs incurred related to the 2026 Notes issued in December 2021, commitment fees and amortization of deferred issuance costs from the five-year senior secured asset-based revolving credit facility (“ABL Credit Facility”), interest from GIB credit facility and on our finance leases, and capitalized interest on construction in progress related to significant capital asset construction.

Interest expense decreased by $5.7 million for the year ended December 31, 2023, as compared to the year ended December 31, 2022, primarily due to an increase of $9.7 million in interest capitalized on construction in progress related to significant capital asset construction, partially offset by increases of $3.6 million in interest expense from the GIB credit facility, and commitment fees and amortization of deferred issuance costs from the 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.

Our foreign currency exchange gains and losses relate to transactions and monetary asset and liability balances denominated in currencies other than the U.S.

We expect our foreign currency gains and losses to continue to fluctuate in the future due to changes in foreign currency exchange rates.

Other income (expense), net increased by $10.4 million for the year ended December 31, 2022, as compared to the year ended December 31, 2021, primarily due to changes in foreign currency exchange rates and dividend income from our investments.

Other income (expense), net decreased by $9.6 million for the year ended December 31, 2023, as compared to the year ended December 31, 2022, primarily due to dividend income earned from our investments in 2022.

Provision for Income Taxes

The following table presents our provision for income taxes for the periods presented (in thousands):

Year Ended December 31,

(in thousands)

2023 2022 $ Change % Change

Provision for income taxes $ 1,026 $ 379 $ 647 171 %

Our provision for income taxes consists primarily of U.S.

state and foreign income taxes in jurisdictions in which we operate.

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 increased by $0.3 million for the year ended December 31, 2022, as compared to the year ended December 31, 2021, primarily due to changes in taxable income of our foreign operations.

Liquidity and Capital Resources

Sources of Liquidity

As of December 31, 2022, Lucid had approximately $4.44 billion of cash, cash equivalents and investments.

Our sources of cash are predominantly from proceeds from Lucid’s de-SPAC transaction with Churchill (plus the PIPE Investment), 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) the 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 $1.5 billion to $1.75 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.

As of December 31, 2023, Lucid had $4.32 billion of cash, cash equivalents and investments.

Since inception, 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) further construction of AMP-1 phase 2 in Casa Grande, Arizona, (iv) construction of AMP-2 CBU portion in Saudi Arabia, (v) expansion of retail studios and service centers, and (vi) other initiatives related to the sale of vehicles and/ or technology.

We anticipate our cumulative spending on capital expenditures to be approximately $1.5 billion for the fiscal year 2024 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 December 31, 2022, our total minimum lease payments are $496.2 million, of which $49.0 million is due in the succeeding 12 months.

As of December 31, 2023, our total minimum lease payments are $495.1 million, of which $65.2 million is due in fiscal year 2024.

We also have non-cancellable long-term commitments of $4.9 billion, primarily relating to certain inventory component purchases.

For details regarding these obligations, refer to Note 15 “Leases” and Note 16 “Commitments and Contingencies” to the consolidated financial statements included elsewhere in this Annual Report for more information.

In December 2021, Lucid issued $2,012.5 million of the 2026 Notes.

In December 2021, we issued $2,012.5 million of the 2026 Notes.

The 2026 Notes accrue interest at a rate of 1.25% per annum, payable semi-annually in arrears on June 15 and December 15 of each year, beginning on June 15, 2022.

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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 December 31, 2022, we were in compliance with applicable covenants under the indenture governing the 2026 Notes.

As of December 31, 2023 and 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 Lucid Air vehicle “kits” pre-manufactured in the U.S.

The operations at the new plant initially consist of re-assembly of the Lucid Air vehicle “kits” pre-manufactured in the U.S.

and, over time, production of complete vehicles.

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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 December 31, 2022, no amount was outstanding under the SIDF Loan Agreement.

As of December 31, 2023 and 2022, no amount was outstanding under the SIDF Loan Agreement.

Ministry of Investment of Saudi Arabia (“ MISA”) Agreements

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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, we 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.

The agreements will terminate on the fifteenth anniversary of the commencement of CBU operations at AMP-2 at the latest.

During the year ended December 31, 2023, we received support of SAR 366 million (approximately $97.5 million) in cash, of which $62.5 million was recorded as deferred liability within other long-term liabilities and $35.0 million was recorded as a deduction in calculating the carrying amount of the related assets in the consolidated balance sheet as of December 31, 2023.

During the year ended December 31, 2022, we 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 in the consolidated balance sheet as of December 31, 2022.

Subsequently, we recorded $64.0 million as a deduction in calculating the carrying amount of the related assets in the consolidated balance sheet as of December 31, 2023.

There were no unfulfilled conditions and contingencies attached to the payments received.

Gulf International Bank (“GIB”) Facility Agreement

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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 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 incurred interest at a rate of 1.25% per annum over 3-month SAIBOR and the Working Capital Facility incurred interest at a rate of 1.70% per annum over 1~3-month SAIBOR and associated fees.

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 $266.7 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 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, we 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, we were in compliance with applicable covenants under the GIB Facility Agreement.

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 December 31, 2023, we had outstanding borrowings of SAR 272 million (approximately $72.5 million) with weighted average interest rate of 7.49%.

As of December 31, 2023, availability under the GIB Credit Facility was SAR 727 million (approximately $193.9 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 in the consolidated balance sheets.

As of December 31, 2023 and 2022, we were in compliance with applicable covenants under the Amended GIB Facility Agreement.

ABL Credit Facility

In June 2022, we 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.

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.

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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 December 31, 2022, we were in compliance with applicable covenants under the ABL Credit Facility.

As of December 31, 2022, we 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.

At-the-Market Offering and Subscription Agreement

In December 2022, we completed our 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.

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 financial covenant, in each case on terms set forth in the credit agreement governing the ABL Credit Facility.

As of December 31, 2023 and 2022, we were in compliance with applicable covenants under the ABL Credit Facility.

As of December 31, 2023 and 2022, we had no outstanding borrowings under the ABL Credit Facility.

Outstanding letters of credit under the ABL Credit Facility were $45.4 million and $37.4 million as of December 31, 2023 and 2022, respectively.

Availability under the ABL Credit Facility was $413.4 million (including $144.0 million cash and cash equivalents) and $441.4 million (including $37.3 million cash and cash equivalents) as of December 31, 2023 and 2022, respectively, after giving effect to the borrowing base and the outstanding letters of credit.

At-the-Market Offering, Subscription Agreements and Underwriting 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.

In June 2023, we completed the public offering pursuant to the Underwriting Agreement for aggregate net proceeds of $1.2 billion and also consummated a private placement of shares to Ayar pursuant to the 2023 Subscription Agreement for aggregate net proceeds of $1.8 billion after deducting issuance costs.

See Note 12 “Stockholders’ Equity” to the consolidated financial statements included elsewhere in this Annual Report, for more information.

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Year Ended December 31,

2022 2021 2020

Cash used in operating activities $ (2,489,753) $ (2,226,258)

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Cash provided by financing activities

Net (decrease) increase in cash, cash equivalents, and restricted cash $ (4,560,700) $ 5,657,602 $ 260,767

3,070,915 1,347,235

Net decrease in cash, cash equivalents, and restricted cash $ (365,813) $ (4,560,700)

Cash Used in Operating Activities

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The increase was primarily due to the increase in net loss excluding non-cash expenses and gains of $195.9 million and an overall increase in net operating assets and liabilities of $67.6 million.

The change in net operating assets and liabilities was mainly attributable to an increase in inventory driven by planned production ramp-up, Accounts payable and Other current liabilities related to operating activities.

The change in net operating assets and liabilities was mainly attributable to advances to suppliers and timing of payments.

Cash Used in Investing Activities

Cash flows from investing activities primarily relate to purchases of investments and capital expenditures to support our growth.

Our cash flows used in 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 increased by $3,261.0 million to $3,681.7 million during the year ended December 31, 2022 as compared to the year ended December 31, 2021.

The increase was primarily attributable to purchases of investments of $3,854.1 million during the year ended December 31, 2022 and an increase in capital expenditures of $653.6 million, partially offset by proceeds from maturities of investments of $1,149.7 million and capital expenditure support received from MISA of $97.3 million during the year ended December 31, 2022.

Net cash used in investing activities decreased by $2,734.7 million to $947.0 million during the year ended December 31, 2023, as compared to the year ended December 31, 2022.

The decrease was primarily attributable to an increase in proceeds from maturities and sales of investments of $2,719.6 million, partially offset by an increase in purchases of investments of $144.2 million during the year ended December 31, 2023 compared to the same period in the prior year.

Cash Provided by 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 provided by financing activities decreased by $5,789.2 million to $1,347.2 million during the year ended December 31, 2022, as compared to the year ended December 31, 2021.

The decrease was primarily attributable to gross proceeds of approximately $4,439.2 million from the Merger, net proceeds from the issuance of the 2026 Notes of $2,002.4 million, proceeds from the issuance of Legacy Lucid Series E preferred stock of $600.0 million during the year ended December 31, 2021, partially offset by net proceeds from the issuance of common stock under the At-the-Market Offering of $594.3 million and proceeds from the issuance of common stock under Subscription Agreement of $915.0 million during the year ended December 31, 2022.

Critical Accounting Policies and Estimates

Since inception, we have financed our operations primarily from the issuances of equity securities, including the At-the-Market Offering, the private placements to Ayar, convertible preferred stock, the proceeds of the Merger, and the 2026 Notes.

Net cash provided by financing activities increased by $1,723.7 million to $3,070.9 million during the year ended December 31, 2023, as compared to the year ended December 31, 2022, primarily attributable to higher net proceeds of $1.5 billion from our equity offerings in 2023.

Critical Accounting Estimates

The consolidated financial statements and the related notes thereto included elsewhere in this Annual Report are prepared in accordance with generally accepted accounting principles in the United States (“U.S.

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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.

Payment is typically received at or prior to the transfer of control of the vehicle to the customer, except for vehicle sales under the EV Purchase Agreement.

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.

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We are the lessor at inception of a lease and immediately transfer the lease as well as the underlying vehicle to our commercial banking partner, with the transaction being accounted for as a sale under ASC 606.

We recognize revenue when control transfer upon delivery when the consumer-lessee takes physical possession of the vehicle, and bifurcate the RVG at fair value and account for it as a guarantee liability.

We recognize revenue when control transfers upon delivery when the consumer-lessee takes physical possession of the vehicle, and bifurcate the RVG at fair value and account 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 our performance obligations.

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We record inventory write-downs for excess or obsolete inventories based upon assumptions about current and future demand forecasts.

If our inventory on-hand is in excess of future demand forecast, the excess amounts are written-off.

If our inventory on-hand is in excess of future demand forecast and market conditions, 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.

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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.

Stock-Based Compensation

We have granted stock-based awards consisting primarily of incentive and non-qualified stock options and restricted stock units (“RSUs”) to employees, members of our board of directors, and non-employees.

Stock Options

Stock options generally vest over four years, and 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.

Stock options generally expire 10 years from the date of grant and are exercisable when the options vest.

Stock-based compensation expense for stock options is generally recognized on a straight-line basis over the requisite service period based on the estimated fair value of the awards on the date of grant.

We estimate the fair value of stock options granted using the Black-Scholes option-pricing model.

The Black-Scholes option-pricing model requires certain subjective inputs and assumptions, including the fair value of our underlying common stock, expected common stock price volatility, expected dividend yield of our common stock, risk-free interest rates, and the expected option term.

The assumptions used in the Black-Scholes option-pricing model are estimated as follows:

Fair value of common stock — The fair value of our common stock was estimated because our common stock had not yet been publicly traded prior to the Merger.

Expected Volatility — The volatility rate was determined by using an average of historical volatilities of selected industry peers deemed to be comparable to our business corresponding to the expected option term as we did not have sufficient history of trading in our common stock prior to the Merger.

Dividend Yield — The expected dividend yield was zero as we had never declared or paid cash dividends and have no current plans to do so in the foreseeable future.

Risk Free Interest Rate — The risk-free interest rate was based on the U.S.

Treasury yield curve in effect at the time of grant for zero-coupon U.S.

Treasury notes with maturities corresponding to the expected option term.

Expected Option Term — The expected option term represented the period that the Lucid Group Options were expected to be outstanding and is based on historical experience of similar awards, giving consideration to the contractual terms, vesting schedules and expectations of future employee behavior.

We continue to use judgment in evaluating the expected volatility over the expected option term and the expected option term utilized in our stock-based compensation expense calculation on a prospective basis.

As we continue to accumulate additional data related to our common stock, we may refine our estimates of the expected volatility over the expected option term, which could materially impact our future stock- based compensation expense.

RSUs granted prior to the Closing of the Merger are subject to both service-based and performance-based vesting conditions, and RSUs granted subsequent to the Closing of the Merger are only subject to service-based vesting conditions.

The service-based vesting condition for these awards is typically satisfied equally over four years with a cliff vesting period of one year and continued vesting in equal quarterly installments thereafter.

The performance-based vesting condition was satisfied upon the Closing of the Merger .

These qualifying liquidity events were not deemed probable until consummated, and therefore, stock-based compensation related to these RSUs remained unrecognized prior to the consummation of the Merger .

We estimate the fair value of RSUs based on the estimated fair value of our underlying common stock as of the date of the grant.

Stock-based compensation for RSUs granted prior to the Closing of the Merger is generally recognized on a graded vesting basis over the requisite service period once the performance condition is satisfied.

Stock-based compensation for RSUs that vest based only on continuous service is recognized on a straight-line basis over the requisite service period.

CEO RSU Award

In March 2021, our board of directors approved the grant of RSUs to Peter Rawlinson as Lucid’s CEO (the “CEO RSU Award”) to encourage Mr.

Rawlinson to focus on the long-term success of Lucid.

The CEO RSU Award is comprised of RSUs that are subject to performance and service conditions (the “CEO Time-Based RSUs”) and RSUs that are subject to performance and market conditions (the “CEO Performance RSUs”), as described further below.

CEO Time-Based RSUs — The performance condition was satisfied upon the Closing of the Merger.

The service conditions will be satisfied in 16 equal quarterly installments on March 5, June 5, September 5, and December 5 beginning on the first quarterly installment date that is at least two months after the Closing, which was December 5, 2021, provided that Mr.

Rawlinson remains in continuous service through each vesting date.

The grant date fair value of the CEO Time-Based RSUs will be recognized using a graded vesting attribution method over the service period for each tranche.

The grant date fair value of the CEO Time-Based RSUs was based on the estimated fair value of Lucid’s underlying common stock as of the date of the grant.

CEO Performance RSUs — The performance condition was satisfied upon the Closing of the Merger.

The market conditions will be satisfied based upon the achievement of certain market capitalization goals of Lucid Group and the continued employment of Mr.

Rawlinson at each vesting date during the five-year period beginning after the Closing of the Merger.

The CEO Performance RSUs will vest only if Lucid Group achieves the Lucid Group market capitalization targets, which if achieved, would allow Lucid Group’s other stockholders to benefit from the increases in our market capitalization.

The Lucid market capitalization targets will be adjusted to reflect any stock splits, stock dividends, combinations, reorganizations, reclassifications, or other similar changes in capitalization or corporate events.

The grant date fair value of the CEO Performance RSUs will be recognized using a graded vesting attribution method over the estimated requisite service periods for the five tranches, regardless of whether the Lucid Group market capitalization targets are achieved.

If the Lucid Group market capitalization targets are met sooner than the requisite service period, the stock-based compensation expense will be adjusted to reflect the cumulative expense associated with the vested 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 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.

Tax Withholding — We expect that we will settle tax withholding obligations in connection with the vesting of the remaining CEO RSU Award through “net settlement,” i.e., by remitting cash to satisfy the tax withholding obligation and withholding a number of the vested shares on the vesting date.

However, we will assess the facts and circumstances at each vesting date to determine the appropriate method of tax settlement, which could include the satisfaction of tax withholding obligations via open market “sell to cover” sales by our CEO to the extent required to cover such obligations.

The amount of the tax withholding will be based on the fair value of the common stock on the vesting and net settlement date.

Depending on the fair value of the common stock and the number of RSUs vesting on the vesting and net settlement date, such net settlement could require us to expend substantial cash funds to satisfy tax withholding.

Common Stock Warrant Liability

We accounted for the Private Placement Warrants to purchase shares of Lucid Group common stock as liabilities at their estimated fair value because these Private Placement Warrants are not deemed indexed to our common stock.

The warrants were recorded at fair value upon issuance and were subject to remeasurement to fair value at each reporting period, with any fair value adjustments recognized as a component within Other income (expense), net in our consolidated statements of operations and comprehensive loss.

A portion of our Private Placement Warrants are subject to certain contingent forfeiture provisions.

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 that takes into account the contract terms as well as the quoted price of our common stock in an active market.

The volatility is based on the actual market activity of our peer group as well as our 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 fair value of the Private Placement Warrants that are subject to the contingent forfeiture provisions was estimated using a Monte-Carlo simulation, which involved random iterations of future stock-price paths over the contractual life of the Private Placement Warrants, including the probability distribution of outcomes, the payoff to the holder was determined based on the achievement of the various market thresholds within each simulated path.

The present value of the payoff in each simulated trial is calculated, and the fair value of the liability is determined by taking the average of all present values.

As of December 31, 2022 and 2021, there were no warrants subject to contingent forfeiture provisions.

See Note 9 “Common Stock Warrant Liability” and Note 12 “Earnback Shares and Warrants” to the consolidated financial statements included elsewhere in this Annual Report for more information.

Contingent Forward Contract

We accounted for the contingent forward contract to purchase Legacy Lucid Series E preferred stock as a derivative liability because the contingent forward contract could require us to issue additional stock at a future date.

The contingent forward contract was recorded at fair value upon issuance and was subject to remeasurement to fair value at each period end, with any fair value adjustments recognized as a component within Other income (expense), net in our consolidated statements of operations and comprehensive loss.

The fair value of the contingent forward contract liability for the Legacy Lucid Series E preferred stock issued in February 2021 and April 2021 was determined based on the forward payoff, which was determined as the difference between the estimated Legacy Lucid Series E preferred stock fair value and the $7.90 per share purchase price.

We settled the contingent forward contract in April 2021.

See Note 7 “Contingent Forward Contracts” to the consolidated financial statements included elsewhere in this Annual Report for more information.

Convertible Preferred Stock Warrant Liability

We accounted for warrants to purchase shares of Legacy Lucid Series D preferred stock as liabilities at their estimated fair value because these warrants obligate us to transfer assets to the holders at a future date under certain circumstances, such as a merger, acquisition, reorganization, sale of all or substantially all of our assets, each a change of control event.

The warrants were recorded at fair value upon issuance and were subject to remeasurement to fair value at each period end, with any fair value adjustments recognized as a component within Other income (expense), net in our consolidated statements of operations and comprehensive loss.

We used a Black-Scholes model to calculate the fair value of the redeemable convertible preferred stock warrant liability.

In February 2021, all outstanding warrants to purchase shares of Legacy Lucid Series D Preferred Shares were exercised.

See Note 10 “Convertible Preferred Stock” to the consolidated financial statements included elsewhere in this Annual Report for more information.

In the event there are changes in our estimates of future selling prices or production costs, we might be required to record additional and potentially material write-downs.

A small change in our estimates may result in a material change in our reported financial results.

Recently Adopted Accounting Pronouncements

See Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements included elsewhere in this Annual Report for more information.

Off-Balance Sheet Arrangements

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

Qualitative and Quantitative Disclosures about Market Risk.

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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.

Our market risk exposure is primarily the result of fluctuations in interest rates, equity price 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 $4.44 billion as of December 31, 2022.

We had cash, cash equivalents, restricted cash, and investments totaling $4.32 billion as of December 31, 2023.

Our investment policy is focused on the preservation of capital and supporting our liquidity needs.

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We utilize external investment managers who adhere to the guidelines of our investment policy.

Based on investment positions as of December 31, 2022, a hypothetical 100 basis point increase in interest rates would result in approximately $13.9 million incremental decline in the fair market value of our portfolio.

Based on investment positions as of December 31, 2023, a hypothetical 100 basis point increase in interest rates would result in $13.4 million incremental decline in the fair market value of our portfolio.

Equity Price Risk

We hold equity securities of Aston Martin Lagonda Global Holdings plc (together with its subsidiaries, “Aston Martin”).

The fair value of these equity securities was $81.5 million as of December 31, 2023.

Changes in fair value of these equity securities are impacted by the volatility of the stock market and changes in general economic conditions, among other factors.

A hypothetical 10% decrease in the stock price of these equity securities would decrease the fair value as of December 31, 2023 by $8.2 million.

Inflationary Pressure

economy has experienced increased inflation recently, including as a result of the COVID-19 pandemic.

and Saudi Arabia economies have experienced increased inflation, including as a result of the COVID-19 pandemic.

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.

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.

We are dependent on our 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.

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What changed 10-K

Item 7. Management’s Discussion and Analysis